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 | ||||||||
| 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
(Exact name of registrant as specified in its charter)
 | ||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(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 | ||||||
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 | ☐ | ☑ | 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 10,569,637 common units representing limited partner interests of CVR Partners, LP (“common units”) outstanding at April 29, 2022.
TABLE OF CONTENTS
CVR PARTNERS, LP - Quarterly Report on Form 10-Q
March 31, 2022
PART I. Financial Information | PART II. Other Information | |||||||||||||||||||
Condensed Consolidated Balance Sheets - March 31, 2022 and December 31, 2021 (unaudited) | ||||||||||||||||||||
Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2022 and 2021 (unaudited) | ||||||||||||||||||||
Condensed Consolidated Statements of Partners’ Capital - Three Months Ended March 31, 2022 and 2021 (unaudited) | ||||||||||||||||||||
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021 (unaudited) | ||||||||||||||||||||
| ||||||||||||||||||||
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.
March 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, 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 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 business and foreign wheat and coarse grain production, including impacts thereto as a result of farm planting acreage, domestic and global supply and demand, and domestic or international duties tariffs or similar 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;
March 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 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; 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, 2021 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.
March 31, 2022 | 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND PARTNERS’ CAPITAL | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accounts payable to affiliates | |||||||||||
| Deferred revenue | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities: | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Partners’ capital: | |||||||||||
Common unitholders, | |||||||||||
| General partner interest | |||||||||||
| Total partners’ capital | |||||||||||
| Total liabilities and partners’ capital | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 31, 2022 | 5
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in thousands, except per unit data) | 2022 | 2021 | |||||||||
Net sales | $ | $ | |||||||||
Operating costs and expenses: | |||||||||||
Cost of materials and other | |||||||||||
Direct operating expenses (exclusive of depreciation and amortization) | |||||||||||
Depreciation and amortization | |||||||||||
Cost of sales | |||||||||||
Selling, general and administrative expenses | |||||||||||
| Loss on asset disposal | |||||||||||
| Operating income (loss) | ( | ||||||||||
Other (expense) income: | |||||||||||
Interest expense, net | ( | ( | |||||||||
| Other income, net | |||||||||||
| Income (loss) before income tax expense | ( | ||||||||||
| Income tax expense | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Basic and diluted earnings (loss) per unit | $ | $ | ( | ||||||||
Distributions declared per common unit | $ | $ | |||||||||
| Weighted-average common units outstanding: | |||||||||||
Basic and Diluted | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 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, 2021 | $ | $ | $ | ||||||||||||||||||||
| Cash distributions to common unitholders - Affiliates | — | ( | — | ( | |||||||||||||||||||
| Cash distributions to common unitholders - Non-affiliates | — | ( | — | ( | |||||||||||||||||||
| Repurchase of common units | ( | ( | — | ( | |||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ||||||||||||||||||||
| Common Units | General Partner Interest | Total Partners’ Capital | |||||||||||||||||||||
| (in thousands, except unit data) | Issued | Amount | |||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ||||||||||||||||||||
| Repurchase of common units | ( | ( | — | ( | |||||||||||||||||||
| Net loss | — | ( | — | ( | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 31, 2022 | 7
CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Loss on extinguishment of debt | |||||||||||
| Other adjustments | |||||||||||
| Change in assets and liabilities: | |||||||||||
| Current assets and liabilities | |||||||||||
| Non-current assets and liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repurchase of common units | ( | ( | |||||||||
| Principal payments on senior secured notes | ( | ||||||||||
| Cash distributions to common unitholders - Affiliates | ( | ||||||||||
| Cash distributions to common unitholders - Non-affiliates | ( | ||||||||||
| Payment of deferred financing costs | ( | ||||||||||
| Other financing activities | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 31, 2022 | 8
(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 two manufacturing facilities, one located in Coffeyville, Kansas operated by our wholly owned subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”) (the “Coffeyville Facility”) and one located in East Dubuque, Illinois operated by our wholly owned subsidiary, East Dubuque Nitrogen Fertilizers, LLC (“EDNF”) (the “East Dubuque Facility”). Both facilities manufacture ammonia and are able to further upgrade such ammonia to other nitrogen fertilizer products, principally urea ammonium nitrate (“UAN”). Nitrogen fertilizer is used by farmers to improve the yield and quality of their crops, primarily corn and wheat. The Partnership’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 March 31, 2022, public common unitholders held approximately 63 % of the Partnership’s outstanding limited partner interests; CVR Services, LLC (“CVR Services”), a wholly owned subsidiary of CVR Energy, held approximately 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 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, as increased, authorized the Partnership to repurchase up to $20 million of the Partnership’s common units. During the three months ended 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, respectively, exclusive of transaction costs, or an average price of $110.98 and $21.69 per common unit, respectively. As of March 31, 2022, the Partnership, considering all repurchases made since inception of the Unit Repurchase Program, had a no minal amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to repurchase any common units and may be cancelled or terminated by the Board at any time.
Management and Operations
(2) Basis of Presentation
March 31, 2022 | 9
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, 2022 or any other interim or annual period.
(3) Recent Accounting Pronouncements
Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). This ASU was issued because, by the end of 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) | March 31, 2022 | December 31, 2021 | |||||||||
| Finished goods | $ | $ | |||||||||
| Raw materials | |||||||||||
| Parts, supplies and other | |||||||||||
| Total inventories | $ | $ | |||||||||
March 31, 2022 | 10
(5) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Machinery and equipment | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Automotive equipment | |||||||||||
| Land and improvements | |||||||||||
| Construction in progress | |||||||||||
| Other | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Total property, plant and equipment, net | $ | $ | |||||||||
As of March 31, 2022, the Partnership had not identified the existence of an impairment indicator for our long-lived asset groups as outlined under Accounting 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 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 March 31, 2022 and December 31, 2021
The following tables summarize the right-of-use (“ROU”) asset and lease liability balances for the Partnership’s operating and finance leases at March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| (in thousands) | Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||||||||
| ROU asset, net | |||||||||||||||||||||||
| Railcars | $ | $ | $ | $ | |||||||||||||||||||
| Real estate and other | |||||||||||||||||||||||
| Lease liability | |||||||||||||||||||||||
| Railcars | $ | $ | $ | $ | |||||||||||||||||||
| Real estate and other | |||||||||||||||||||||||
March 31, 2022 | 11
Lease Expense Summary for the Three Months Ended March 31, 2022 and 2021
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 months ended March 31, 2022 and 2021, we recognized lease expense comprised of the following components:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Operating lease expense | $ | $ | |||||||||
| Finance lease expense: | |||||||||||
| Amortization of ROU asset | $ | $ | |||||||||
| Interest expense on lease liability | |||||||||||
| Short-term lease expense | $ | $ | |||||||||
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 March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | ||||||||||||||||||||
| Weighted-average remaining lease term | |||||||||||||||||||||||
| Weighted-average discount rate | % | % | % | % | |||||||||||||||||||
Maturities of Lease Liabilities
The following summarizes the remaining minimum operating lease payments through maturity of the Partnership’s ROU assets and liabilities at March 31, 2022. There were no finance lease payments remaining at March 31, 2022.
| (in thousands) | Operating Leases | ||||
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: imputed interest | ( | ||||
| Total lease liability | $ | ||||
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
March 31, 2022 | 12
(7) Other Current Liabilities
Other current liabilities consisted of the following:
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Share-based compensation | $ | $ | |||||||||
| Accrued interest | |||||||||||
| Personnel accruals | |||||||||||
| Sales incentives | |||||||||||
| Accrued taxes other than income taxes | |||||||||||
| Prepaid revenue contracts | |||||||||||
| Other accrued expenses and liabilities | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
(8) Long-Term Debt
Long-term debt consists of the following:
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| $ | $ | ||||||||||
Unamortized discount and debt issuance costs (2) | ( | ( | |||||||||
| Total long-term debt | $ | $ | |||||||||
(1)The $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 $65.1 million as of December 31, 2021. The estimated fair value of the 6.125 % Senior Secured Notes, due June 2028 (the “2028 Notes”) was approximately $549.8 million and $580.3 million as of 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 months ended 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 $1.0 million, respectively.
Credit Agreements
| (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) | $ | $ | $ | $ | September 30, 2024 | ||||||||||||||||||||||||
(1)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 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.
(2)Amortization expense was $0.1 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.
9.25% Senior Secured Notes due June 2023
On February 22, 2022, the Partnership redeemed all 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 a loss on extinguishment of debt of $0.6 million, which includes the write-off of unamortized deferred financing costs and discount of $0.2 million and $0.4 million, respectively.
March 31, 2022 | 13
Covenant Compliance
The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of March 31, 2022.
(9) Revenue
The following table presents the Partnership’s revenue, disaggregated by major product:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Ammonia | $ | $ | |||||||||
| UAN | |||||||||||
| Urea products | |||||||||||
| Net sales, exclusive of freight and other | |||||||||||
| Freight revenue | |||||||||||
| Other revenue | |||||||||||
| Net sales | $ | $ | |||||||||
Transaction Price Allocated to Remaining Performance Obligations
As of March 31, 2022, the Partnership had approximately $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 $5.8 million of these performance obligations as revenue by the end of 2022, an additional $4.0 million in 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.
A summary of the deferred revenue activity for the three months ended March 31, 2022 is presented below:
| (in thousands) | |||||
| Balance at December 31, 2021 | $ | ||||
| Add: | |||||
New prepay contracts entered into during the period (1) | |||||
| Less: | |||||
| Revenue recognized that was included in the contract liability balance at the beginning of the period | ( | ||||
| Revenue recognized related to contracts entered into during the period | ( | ||||
| Other changes | ( | ||||
| Balance at March 31, 2022 | $ | ||||
(1) Includes $14.2 million where payment associated with prepaid contracts was collected as of March 31, 2022.
March 31, 2022 | 14
(10) Share-Based Compensation
A summary of compensation expense for the three months ended March 31, 2022 and 2021 is presented below:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Phantom Units | $ | $ | |||||||||
Other Awards (1) | |||||||||||
| Total share-based compensation expense | $ | $ | |||||||||
(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 2021 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 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.
(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:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Supplemental disclosures: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | |||||||||||
| Financing cash flows from finance leases | |||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Change in capital expenditures included in accounts payable | $ | ( | $ | ||||||||
March 31, 2022 | 15
(13) Related Party Transactions
Activity associated with the Partnership’s related party arrangements for the three months ended March 31, 2022 and 2021 is summarized below.
Related Party Activity
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
Sales to related parties (1) | $ | $ | |||||||||
Purchases from related parties (2) | |||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
Due to related parties (3) | $ | $ | |||||||||
(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 CRNF (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.
(3)Due to related parties, included in Accounts payable to affiliates, consists primarily of amounts payable for feedstocks and other supplies and services provided by CRRM and CVR Services under the Coffeyville MSA and the Corporate 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”).
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, during 2022 and 2021.
Distributions Paid (in thousands) | ||||||||||||||||||||||||||||||||
| Related Period | Date Paid | Distribution Per Common Unit | Public Unitholders | CVR Energy | Total | |||||||||||||||||||||||||||
2021 - 4th Quarter | March 14, 2022 | $ | $ | $ | $ | |||||||||||||||||||||||||||
Distributions Paid (in thousands) | ||||||||||||||||||||||||||||||||
| Related Period | Date Paid | Distribution Per Common Unit | Public Unitholders | CVR Energy | Total | |||||||||||||||||||||||||||
2021 - 2nd Quarter | August 23, 2021 | $ | $ | $ | $ | |||||||||||||||||||||||||||
2021 - 3rd Quarter | November 23, 2021 | |||||||||||||||||||||||||||||||
| Total distributions | $ | $ | $ | $ | ||||||||||||||||||||||||||||
There were no
For the first quarter of 2022, the Partnership, upon approval by the Board on May 2, 2022, declared a distribution of $2.26 per common unit, or $23.9 million, which is payable May 23, 2022 to unitholders of record as of May 13, 2022. Of this amount, CVR Energy will receive approximately $8.8 million, with the remaining amount payable to public unitholders.
March 31, 2022 | 16
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, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 23, 2022 (the “2021 Form 10-K”). Results of operations for the three months ended March 31, 2022 and cash flows for the three months ended March 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, one located in Coffeyville, Kansas operated by its wholly owned subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”) (the “Coffeyville Facility”) and one located in East Dubuque, Illinois operated by its wholly owned subsidiary, East Dubuque Nitrogen Fertilizers, LLC (“EDNF”) (the “East Dubuque Facility”). Our principal products are 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
March 31, 2022 | 17
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 Values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.
Strategic Objectives
We have outlined the following strategic objectives to drive the accomplishment of our mission:
Environmental, Health & Safety (“EH&S”) - We aim to achieve continuous improvement in all EH&S areas through ensuring our people’s commitment to environmental, health and safety comes first, the 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 three months of 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 | ||||||||||||||||||||
| Achieved reductions in environmental events, process safety management tier 1 incidents and total recordable incident rate of 50%, 100% and 100%, respectively, compared to the first three months of 2021 | ü | ||||||||||||||||||||||
| Operated both facilities safely | ü | ||||||||||||||||||||||
| Achieved record UAN production volumes at the Coffeyville Facility in March 2022 | ü | 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 | |||||||||||||||||||||
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 of approximately $9 million | ü | ||||||||||||||||||||||
Repurchased over 111,000 common units for $12.4 million | ü | ||||||||||||||||||||||
March 31, 2022 | 18
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, weather conditions, the availability of imports, 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 disrupted the worldwide economy, financial markets, and the energy and fertilizer industries. Actions taken by the U.S. government to provide stimulus to individuals and businesses have helped mitigate the impacts of the 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 dynamic and continuously evolving situation with unknown short and long-term economic challenges that could reverse any recent improvements. Further, the spread of variants of COVID-19 could cause 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 time.
Russia-Ukraine Conflict - 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 invasion 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 Russia-Ukraine conflict and any associated market disruptions are difficult to predict and may affect our business in unforeseen ways.
The Partnership believes the general business environment in which it operates will continue to remain volatile in 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. 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.
March 31, 2022 | 19
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 by the chart presented below 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 11 billion pounds of soybean oil is expected to be used in producing cleaner biodiesel in marketing year 2021/2022. Multiple refiners have announced renewable diesel expansion projects for 2022 and beyond, which will only increase the demand for soybeans and potentially for corn and canola.
The preliminary 2022 United States Department of Agriculture (“USDA”) reports on corn and soybean acres planted indicated farmers’ intentions to plant 89.5 million acres of corn, representing a decrease of 4.1% in corn acres planted as compared to 93.4 million corn acres in 2021. Planted soybean acres are estimated to be 91.0 million acres, representing a 4.3% increase in soybean acres planted as compared to 87.2 million soybean acres in 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. Due to higher input costs for corn planting and increased 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 to be supportive of corn prices for 2022 and 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, as evidenced by the charts 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 as of March 31, 2022.
Weather continues to be a critical variable for crop production. Even with high planted acres and trendline yields per acre in the U.S., inventory levels for corn and 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 fertilizers are expected to remain elevated throughout 2022. These conditions are driving strong demand for nitrogen fertilizer, as well as other crop inputs, for the spring 2022 planting 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
March 31, 2022 | 20
Commission (the “ITC”) requesting the initiation of antidumping and countervailing duty investigations on imports of UAN from Russia and Trinidad and Tobago (“Trinidad”). Following 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. market at rates ranging from 9.15% to 127.19% and that Trinidadian UAN imports at a rate of 63.08%. As a result of these 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 next 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) | |||||||
(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 months ended March 31, 2022 and 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.
March 31, 2022 | 21
| Consolidated Ammonia Utilization | ||
On a consolidated basis, utilization remained unchanged at 88% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The depressed utilization for 2022 was primarily a result of unplanned downtime associated with the Messer air separation plant (“Messer”) 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 January 2021 and 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 favorable, driven by higher production at the Coffeyville Facility due to reduced downtime from Messer outages in 2022 as compared to 2021. For the three months ended March 31, 2022, total product sales were favorable, driven by higher overall production and sales in 2022, along with product sales price increases of 252% for ammonia and 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 Hurricane Ida in August and September 2021, increased industry turnaround 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 March 31, 2022 versus March 31, 2021
Sales (thousand tons) | Product Pricing at Gate ($ per ton) | |||||||
March 31, 2022 | 22
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. The table below presents these metrics for the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | |||||||||||
| (in thousands of tons) | 2022 | 2021 | |||||||||
| Ammonia (gross produced) | 187 | 188 | |||||||||
| Ammonia (net available for sale) | 52 | 70 | |||||||||
| 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 months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
Petroleum coke used in production (thousand tons) | 108 | 128 | |||||||||
Petroleum coke (dollars per ton) | $ | 56.46 | $ | 42.91 | |||||||
Natural gas used in production (thousands of MMBtu) (1) | 1,761 | 1,882 | |||||||||
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) | 1,528 | 940 | |||||||||
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 Months Ended March 31, 2022 and 2021
For the three months ended March 31, 2022, the Partnership’s operating income and net income were $103.9 million and $93.7 million, respectively, representing improvements of $117.9 million and $119.1 million, respectively, compared to the three months ended March 31, 2021. These increases were driven by higher product sales prices and sales volumes for UAN and ammonia compared to the three months ended March 31, 2021.
| Net Sales | Operating Income (Loss) | |||||||
March 31, 2022 | 23
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 March 31, 2022, net sales increased by $162.0 million to $222.9 million compared to the three months ended March 31, 2021. This increase was primarily due to favorable UAN and ammonia pricing conditions and sales volumes which contributed $138.5 million and $15.6 million, respectively, in higher revenues, as compared to the three months ended 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 March 31, 2022 as compared to the three months ended March 31, 2021:
| (in thousands) | Price Variance | Volume Variance | |||||||||
| UAN | $ | 108,378 | $ | 13,167 | |||||||
| Ammonia | 30,073 | 2,404 | |||||||||
The $755 and $337 per ton increases in ammonia and UAN sales pricing, respectively, for the three months ended March 31, 2022, as compared to the three months ended 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.
March 31, 2022 | 24
| Cost of Materials and Other | Direct Operating Expenses (1) | |||||||
(1)Exclusive of depreciation and amortization expense.
Cost of Materials and Other - For the three months ended March 31, 2022, cost of materials and other was $30.2 million, compared to $17.8 million for the three months ended March 31, 2021. The $12.4 million increase was comprised primarily of a $4.1 million increase in natural gas pricing and usage at the East 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 hydrogen feedstock costs at the Coffeyville Facility, and a lower build in inventories contributing $2.5 million.
Direct Operating Expenses (exclusive of depreciation and amortization) - For the three months ended March 31, 2022, direct operating expenses (exclusive of depreciation and amortization) were $60.3 million compared to $37.1 million for the three months ended March 31, 2021. The $23.2 million increase was primarily due to higher personnel costs for share-based compensation expenses of $5.7 million as a result of higher market prices for CVR Partners’ common units, a lower build in inventories contributing $5.5 million, higher electricity pricing and usage of $2.7 million, rising natural gas prices of $4.0 million, increased repairs and maintenance expenses due to outages of $3.1 million, increased insurance costs of $1.6 million, and incurring turnaround expenses of $0.6 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.
March 31, 2022 | 25
Selling, General, and Administrative Expenses, and Other - For the three months ended March 31, 2022, selling, general and administrative expenses and other increased approximately $2.9 million compared to the three months ended March 31, 2021. The increase was primarily related to increased personnel costs contributing $2.3 million and increased outside services expenses for consulting, audit services, and legal contributing $0.5 million.
Other Income, Net - For the three months ended March 31, 2022, other income, net was nominal compared to approximately $4.6 million for the three months ended March 31, 2021. The decrease for the three months ended March 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 accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.
The following are non-GAAP measures we present for the period ended 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 summer of 2022. For the three months ended March 31, 2022, we incurred turnaround expense of $0.1 million related to planning for this turnaround.
March 31, 2022 | 26
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 March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Net income (loss) | $ | 93,661 | $ | (25,384) | |||||||
| Interest expense, net | 10,036 | 15,916 | |||||||||
| Income tax expense | 258 | 19 | |||||||||
| Depreciation and amortization | 19,465 | 14,123 | |||||||||
| EBITDA and Adjusted EBITDA | $ | 123,420 | $ | 4,674 | |||||||
Reconciliation of Net Cash Provided By Operating Activities to EBITDA and Adjusted EBITDA
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Net cash provided by operating activities | $ | 166,927 | $ | 25,551 | |||||||
| Non-cash items: | |||||||||||
| Loss on extinguishment of debt | (628) | — | |||||||||
| Share-based compensation | (12,074) | (3,592) | |||||||||
| Other | (613) | (1,259) | |||||||||
| Adjustments: | |||||||||||
| Interest expense, net | 10,036 | 15,916 | |||||||||
| Income tax expense | 258 | 19 | |||||||||
| Change in assets and liabilities | (40,486) | (31,961) | |||||||||
| EBITDA and Adjusted EBITDA | $ | 123,420 | $ | 4,674 | |||||||
March 31, 2022 | 27
Reconciliation of EBITDA to Available Cash for Distribution
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| EBITDA | $ | 123,420 | $ | 4,674 | |||||||
| Current (reserves) adjustments for amounts related to: | |||||||||||
| Net cash interest expense (excluding capitalized interest) | (9,334) | — | |||||||||
| Debt service | (65,000) | (14,996) | |||||||||
| Financing fees | (815) | — | |||||||||
| Maintenance capital expenditures | (5,128) | (2,459) | |||||||||
| Utility pass-through | (675) | — | |||||||||
| Common units repurchased | (12,397) | (529) | |||||||||
| Other (reserves) releases: | |||||||||||
| Future turnaround | (6,875) | (1,500) | |||||||||
| Previously established cash reserves | — | 5,331 | |||||||||
| Reserve for maintenance capital expenditures | 639 | — | |||||||||
Available Cash for distribution (1) (2) | $ | 23,835 | $ | (9,479) | |||||||
| 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 declared 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 2022 to be paid 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.
Fertilizer market conditions improved steadily throughout 2021 and into 2022 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 concerns around availability of 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. In the summer of 2021, 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 been 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 to our business and has 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 countries and states continue to monitor their efforts against COVID-19, and variants thereof, and weigh potential impacts of the ongoing Russia-Ukraine conflict. In executing financial discipline, we successfully implemented the following measures:
•Deferred the planned turnarounds at the Coffeyville and East Dubuque Facilities after taking advantage of downtime in 2021 to complete maintenance activities; and
•Focused maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable operations, or which are considered critical to support future activities.
March 31, 2022 | 28
When considering the market conditions and actions described above, 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 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, but we are under no obligation to do so. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all.
On February 22, 2022, the Partnership redeemed the remaining $65 million in aggregate principal amount of the 2023 Notes. This transaction represents a significant and favorable change in the Partnership’s cash flow and liquidity position, with an annual savings of approximately $6.0 million in future interest 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 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 March 31, 2022, we had cash and cash equivalents of $137.3 million, including $79.8 million of customer advances. Combined with $35.0 million available under our ABL Credit Facility, we had total liquidity of $172.3 million. As of December 31, 2021, we had $112.5 million in cash and cash equivalents, including $34.2 million of customer advances.
| March 31, 2022 | December 31, 2021 | ||||||||||
| (in thousands) | |||||||||||
9.25% Senior Secured Notes, due June 2023 (1) | $ | — | $ | 65,000 | |||||||
6.125% Senior Secured Notes, due June 2028 | 550,000 | 550,000 | |||||||||
| Unamortized discount and debt issuance costs | (3,561) | (4,358) | |||||||||
| Total long-term debt | $ | 546,439 | $ | 610,642 | |||||||
(1)The $65 million outstanding balance of the 2023 Notes was paid in full on February 22, 2022 at par, plus accrued and unpaid interest.
As of March 31, 2022, the Partnership had the 6.125% Senior Secured Notes, due June 2028 (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 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.
March 31, 2022 | 29
Our total capital expenditures for the three months ended March 31, 2022, along with our estimated expenditures for 2022 are as follows:
| Three Months Ended March 31, | Estimated full year | ||||||||||
| (in thousands) | 2022 | 2022 | |||||||||
| Maintenance capital | $ | 5,128 | $36,000 - 39,000 | ||||||||
| Growth capital | 521 | 2,000 - 3,000 | |||||||||
| 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 at the Coffeyville Facility is currently expected to occur in the summer of 2022, with an estimated cost of $12 to $15 million. The turnaround at our East Dubuque Facility is also currently expected to commence in the summer of 2022, with an estimated cost of $14 to $16 million. For the three months ended March 31, 2022, we incurred turnaround expense of $0.1 million and $0.5 million related to planning for the Coffeyville Facility’s and the East Dubuque Facility’s expected 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 tables present distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, during 2022 and 2021.
Distributions Paid (in thousands) | ||||||||||||||||||||||||||||||||
| Related Period | Date Paid | Distribution Per Common Unit | Public Unitholders | CVR Energy | Total | |||||||||||||||||||||||||||
| 2021 - 4th Quarter | March 14, 2022 | $ | 5.24 | $ | 35,576 | $ | 20,394 | $ | 55,970 | |||||||||||||||||||||||
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.
For the first quarter of 2022, the Partnership, upon approval by the Board on May 2, 2022, declared a distribution of $2.26 per common unit, or $23.9 million, which is payable May 23, 2022 to unitholders of record as of May 13, 2022. Of this amount, CVR Energy will receive approximately $8.8 million, with the remaining amount payable to public unitholders.
March 31, 2022 | 30
Capital Structure
On May 6, 2020, the Board, on behalf of the Partnership, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized the Partnership to repurchase up to $20 million of the Partnership’s common units. During the three months ended March 31, 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, respectively, exclusive of transaction costs, or an average price of $110.98 and $21.69 per common unit, respectively. As of March 31, 2022, the Partnership, considering all repurchases made since inception of the Unit Repurchase Program, had a nominal amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to repurchase 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:
| Three Months Ended March 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | Change | ||||||||||||||
Net cash flow provided by (used in): | |||||||||||||||||
Operating activities | $ | 166,927 | $ | 25,551 | $ | 141,376 | |||||||||||
Investing activities | (7,899) | (2,994) | (4,905) | ||||||||||||||
Financing activities | (134,197) | (555) | (133,642) | ||||||||||||||
| 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 three months ended March 31, 2022 as compared to the three months ended March 31, 2021 is primarily due to a $118.7 million increase in EBITDA, a $8.5 million increase in non-cash share-based compensation as a result of higher market prices for CVR Partners’ units, favorable changes in working capital of $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 $0.6 million loss on extinguishment of debt primarily associated with the redemption of the remaining balance of 2023 Notes in February 2022.
Cash Flows Used in Investing Activities
The change in net cash used in investing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, was due to increased capital expenditures during 2022 of $4.9 million resulting from fixed asset additions.
Cash Flows Used in Financing Activities
The change in net cash used in financing activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to the redemption of the remaining balance of the 2023 Notes of $65.0 million in 2022, cash distributions paid of $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 $0.8 million in deferred financing costs during the first quarter of 2022 related to the offering of the 2028 Notes and the ABL Credit Facility.
Critical Accounting Estimates
Our critical accounting estimates are disclosed in the “Critical Accounting Estimates” section of our 2021 Form 10-K. No modifications have been made during the three months ended March 31, 2022 to these estimates.
March 31, 2022 | 31
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 months ended March 31, 2022 as compared to the risks discussed in Part II, Item 7A of our 2021 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Partnership has evaluated, under the direction and with the participation of the Executive Chairman, Chief Executive Officer, and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, the Partnership’s Executive Chairman, Chief Executive Officer, and Chief Financial Officer concluded that disclosure controls and procedures were effective as 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 March 31, 2022 that materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note 11 (“Commitments and Contingencies”) of this Report, which is incorporated by reference into this Part II, Item 1, for a description of certain litigation, legal, and administrative proceedings and environmental matters.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our 2021 Form 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 | ||||||||||||||||||||||
| 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.
March 31, 2022 | 32
Item 5. Other Information
None.
Item 6. Exhibits
| INDEX TO EXHIBITS | ||||||||
| Exhibit Number | Exhibit Description | |||||||
| 10.1** | ||||||||
| 10.2**+ | ||||||||
| 10.3**+ | ||||||||
| 10.4**+ | ||||||||
| 10.5*+ | ||||||||
| 10.6* | ||||||||
| 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 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). | |||||||
* 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.
March 31, 2022 | 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CVR Partners, LP | |||||||||||
| By: | CVR GP, LLC, its general partner | ||||||||||
| May 3, 2022 | By: | /s/ Dane J. Neumann | |||||||||
| Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary | |||||||||||
| (Principal Financial Officer) | |||||||||||
| May 3, 2022 | By: | /s/ Jeffrey D. Conaway | |||||||||
| Vice President, Chief Accounting Officer and Corporate Controller | |||||||||||
| (Principal Accounting Officer) | |||||||||||
March 31, 2022 | 34
Exhibit 10.5
Certain identified information in this Agreement denoted with ***[REDACTED]*** has been excluded from this exhibit because it is not material and would be competitively harmful if publicly disclosed.
CVR Partners, LP 2022
Performance-Based Bonus Plan
Philosophy / Background
CVR Partners, LP (the “Company”) is committed to wages and benefits that are competitive with a market-based, pay-for-performance compensation philosophy, providing such base pay, bonus and long-term incentive awards in line with those of the fertilizer industry. This Performance-Based Bonus Plan (the “Plan”) is intended to reward high performance employees, and to retain these employees in critical roles, through the issuance of bonus awards (each, a “Bonus”).
Administration
The Plan is maintained and administered by, or under the direction of, the Compensation Committee (the "Compensation Committee") of the board of directors (the “Board”) of the general partner of the Company with respect to, and references to “employee” herein relate only to, eligible employees or officers of the Company and its general partner and subsidiaries, excluding any employees of (or individuals solely subject to the bonus plans of) CVR Energy, Inc. (“CVI”), CVR Refining, LP (“CVRR”), their respective general partners and their respective subsidiaries.
The Compensation Committee shall annually approve all salaries, targets and bonus metrics for employees in Grade E14 and above, and shall annually approve a total bonus pool for employees in Grade E13 and below. The Compensation Committee delegates to the Chief Executive the authority to approve payouts from such total bonus pool to employees in Grade E13 and below, in his sole discretion. The Chief Executive shall also be responsible for assigning salaries, bonus targets, and Grade levels to employees in Grade 13 and below.
In the event of a claim or dispute brought forth by any employee with a Grade level of E13 or below, the decision of the Chief Executive as to the facts in the case and the meaning and intent of any provision of the Plan, or its application, shall be final, binding, and conclusive. In the event of a claim or dispute brought forth by any employee with a Grade level of E14 or above, the decision of the Compensation Committee as to the facts in the case and the meaning and intent of any provision of the Plan, or its application, shall be final, binding, and conclusive.
The Plan described herein does not create a contractual obligation on the part of the Company. The Company expressly reserves the right to modify, discontinue, or otherwise change the Plan outlined in this document at the sole and absolute discretion of the Company without advance notice.
Introduction
The purpose of the Plan and any Bonus to be paid hereunder is to enhance the Company’s ability to attract, motivate, reward and retain employees, and to strengthen their commitment to the success of the Company.
Eligibility and Administration
Bonuses are made based on the applicable calendar year during which the employees performed the services and are generally paid (to the extent payable) after the financials have been audited and within 90 days of the end of the calendar year (the “Performance Period” or “Period”).
Generally, only exempt, non-exempt and non-union hourly employees are eligible to receive a Bonus, provided that, to receive a Bonus, an employee must: (i) be actively employed with the Company for at least 180 days during the calendar year; (ii) consistently perform at or above expectations for their role; (iii) be actively employed on the date of payout and not on a performance improvement plan or in corrective or disciplinary action status as a result of poor performance during the Performance Period. Employees hired prior to October 1 during the Performance Period will be eligible to receive a Bonus provided the above requirements (ii) and (iii) are met.
UAN Bonus Plan Approved [February 21, 2022] Page 1
Subject to annual review, Bonuses are computed in accordance with each eligible employee’s Grade (as shown in Appendix A), prorated for time in an eligible position, as well as a performance multiplier of zero to 150 percent, based on performance against the achievement of the allocated Company and individual performance measures described herein. Appendices A-E present the overall compensation structure (Appendix A), example calculations (Appendices B, C), eligibility (Appendix D) and bonus payout measures (Appendix E). The Individual Performance Multiplier component of a Bonus, if any, is entirely discretionary.
In addition, if the Adjusted EBITDA Threshold established for the Company for a given Performance Period is not reached, no Bonus will be paid for the Period, subject to Compensation Committee discretion. The Compensation Committee may, in its sole and absolute discretion, wave the Adjusted EBITDA threshold requirement, increase, decrease, or otherwise adjust performance measures, targets, and payout ranges used hereunder, as a result of extraordinary or non-recurring events, changes in applicable accounting rules or principles, changes in the Company’s methods of accounting, changes in applicable law, changes due to consolidations, growth capital spend programs, acquisitions, or reorganizations affecting the Company and its subsidiaries and affiliates, or other similar changes in the Company’s business.
Company Performance: Environmental Health & Safety (EH&S) Measures – 25%
EH&S measures are as follows (see Appendix F for definitions):
•Personal Safety – Total Recordable Injury Rate (TRIR);
•Process Safety – Process Safety Incident Rate (PSIR); and
•Environmental Events (EE).
Company Performance: Financial Measures – 75%
Financial measures are objectives related to the following (see Appendix F for definitions):
•Reliability;
•Equipment Utilization;
•Operating Expense; and
•Return on Capital Employed.
Spot Bonus
Introduction
Employees making an extraordinary contribution to the furtherance of Company financial performance or advances in Company culture may be nominated by their manager or executive sponsor for a Bonus on a spot basis (a “Spot Bonus”), subject to approval by the Chief Executive. Spot Bonuses will be limited to employees in salary grades E13 and below and a maximum value of five thousand dollars ($5,000).
Terms and Conditions of Spot Bonus
Except as specifically set forth herein, the foregoing provisions of the Plan will likewise apply to a Spot Bonus. For the avoidance of doubt, these provisions relate to, among others, forfeiture and/or recoupment, amendment or termination, tax withholding, data protection and consent and governing law.
General Provisions
See Appendix F for definitions relating to the Plan.
Participation in the Plan is subject to (i) each individual employee’s compliance with the Company’s mission and values, its code of ethics and its policies and procedures, including, without limitation, the Corporate Policies and Procedures and employee handbook (collectively, “Company Policies”), and (ii) the Clawback and Recoupment Policy attached as Appendix G.
Each employee that is eligible and receives a Bonus or Spot Bonus will be liable for any and all federal, state, provincial, local or foreign taxes, pension plan contributions, employment insurance premiums, social insurance contributions, amounts payable to a governmental and/or regulatory body in the employee’s country and other levies of any kind required by applicable laws to be deducted or withheld
UAN Bonus Plan Approved [February 21, 2022] Page 2
with respect to any such award (collectively, the “Withholding Taxes”). The Company will have the right to deduct and withhold all required Withholding Taxes from any payment or other consideration deliverable to an employee pursuant to any such payment. All awards under the Plan are intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and shall be construed and interpreted in accordance with such intent.
Participation in the Plan does not confer upon any employee any right to continue in the employ of the Company or its subsidiaries, nor interfere in any way with the right of the Company and its subsidiaries to terminate any employee’s employment at any time. The Company and its subsidiaries are under no obligation to continue the Plan in future years.
The Compensation Committee may at any time, or from time to time, in its sole and absolute discretion, (a) amend, alter or modify the provisions of this Plan, (b) terminate this Plan, or (c) terminate the participation of an employee or group of employees in this Plan; provided, however, that in the event of the termination of the Plan or a termination of participation, the Compensation Committee, in its sole and absolute discretion, may determine that a prorated award is payable to employees who were participants in this Plan under such terms and conditions as established by the Compensation Committee.
Notwithstanding anything herein to the contrary, whether or not any payment or award is authorized, earned or paid under the Plan will be determined by the Compensation Committee in its sole and absolute discretion, and no such payment or award shall be earned, nor shall any right to any such payment or award exist or accrue, unless, among other factors, such payment or award has been authorized by the Compensation Committee in its sole and absolute discretion, and actually paid to the employee. In addition, whether or not any payment or award is authorized, earned or paid pursuant to the Plan is without regard to whether any of the individual performance metrics, financial performance targets and/or goals, or any other benchmarks, targets, personal goals or criteria set forth in the Plan are met, not met, exceeded or not exceeded.
No employee, beneficiary or other person shall have any right, title or interest in any amount awarded under the Plan prior to the payment of such award to him or her. An employee’s rights to a payment under the Plan are no greater than those of unsecured general creditors of the Company or its subsidiaries.
By participating in the Plan, each employee consents to the holding and processing of personal information provided by such employee to the employer, any affiliate of the employer, trustee or third party service provider, for all purposes relating to the operation of the Plan. Consents include, but are not limited to: (i) administering and maintaining employee records; (ii) providing information to the employer, its affiliates, trustees of any employee benefit trust, registrars, brokers or third party administrators of the Plan; (iii) providing information to future purchasers or merger partners of the employer or any of its affiliates, or the business in which the employee works; and (iv) to the extent not prohibited by applicable law, transferring information about the employee to any country or territory that may not provide the same protection for the information as the employee’s home country.
The Plan is governed by the laws of the State of New York and as such will be construed under and in accordance with the laws of the State of New York without regard to conflicts of law.
UAN Bonus Plan Approved [February 21, 2022] Page 3
Appendix A
Compensation Structure: Base Pay & Incentive Plans
***[TABLE REDACTED]***
Individual Performance Measures
Supervisor’s assessment of employee’s performance will be based on the following categories:
•Interpersonal effectiveness
•Business conduct
•Professional and technical development
•Leadership
•Achievement of goals
•Results orientation
The assessment is discretionary and based on a wide range of considerations which often change over the course of the year.
UAN Bonus Plan Approved [February 21, 2022] Page 4
Appendix B
Bonus Payout and Company Performance Calculations
Bonus Payout Calculation:
**Company Performance Multiplier:
UAN Bonus Plan Approved [February 21, 2022] Page 5
Appendix C
Bonus Payout Examples
UAN Bonus Plan Approved [February 21, 2022] Page 6
Appendix D
CVR Partners, LP
Eligibility
Non-union direct employees of Company, its general partner and their respective subsidiaries, including Fertilizer Executives, Marketing, Logistics, Company Controller, Coffeyville Nitrogen Planning and East Dubuque Nitrogen Fertilizers Planning, and any employee of any affiliated entity deemed by the Chief Executive in their sole discretion to be solely dedicated to the Company or its subsidiaries, but excluding anyone not an eligible employee as described in the Plan.
UAN Bonus Plan Approved [February 21, 2022] Page 7
Appendix E
CVR Partners, LP
Bonus Payout Measures
Environmental Health & Safety (EH&S) Measures (25%)
Three measures evenly weighted (33-1/3% each): Total Recordable Incident Rate (TRIR), Process Safety Tier I Incident Rate (PSIR), and Environmental Events (EE):
| Percentage Change(over the prior year) | Bonus Achievement | |||||||
| Increase in Incident Rate or Incidents | Zero | |||||||
| 0% | 50% of Target Percentage (Threshold) | |||||||
| Decrease > 0% and < 3% | Linear Interpolation between Threshold and Target | |||||||
| Decrease of 3% | Target Percentage | |||||||
| Decrease > 3% and < 10% | Linear Interpolation between Target and Maximum | |||||||
| Decrease of 10% or more, or if TRIR is maintained at or below 1.0, PSIR at or below 0.2 and EE at or below 20 | 150% of Target (Maximum) | |||||||
Financial Measures (75%)
Four measures evenly weighted (25% each):
| Reliability | Bonus Achievement | |||||||
| Greater than 8.0% | Zero | |||||||
| 8.00% | 50% of Target Percentage (Threshold) | |||||||
| 6.01% to 7.99% | Linear Interpolation between Threshold and Target | |||||||
| 6.00% | Target Percentage | |||||||
| 5.0% to 5.99% | Linear Interpolation between Target and Maximum | |||||||
| Less than 5.0% | 150% of Target (Maximum) | |||||||
| Equipment Utilization | Bonus Achievement | |||||||
| Less than 95% | Zero | |||||||
| 95% | 50% of Target Percentage (Threshold) | |||||||
| 95.01% to 99.99% | Linear Interpolation between Threshold and Target | |||||||
| 100% | Target Percentage | |||||||
| 100.01% to 104.99% | Linear Interpolation between Target and Maximum | |||||||
| Greater than 105% | 150% of Target (Maximum) | |||||||
UAN Bonus Plan Approved [February 21, 2022] Page 8
| Operating Expense | Bonus Achievement | |||||||
| Greater than 103.0% | Zero | |||||||
| 103% | 50% of Target Percentage (Threshold) | |||||||
| 100.1% to 102.99% | Linear Interpolation between Threshold and Target | |||||||
| 100% | Target Percentage | |||||||
| 95.0% to 99.99% | Linear Interpolation between Target and Maximum | |||||||
| Less than 95% | 150% of Target (Maximum) | |||||||
| ROCE (Ranking vs. Peer Group*) | Bonus Achievement | |||||||
| First (highest) | 150% of Target (Maximum) | |||||||
| Second | 125% of Target Percentage | |||||||
| Third | 112.5% of Target Percentage | |||||||
| Fourth | Target Percentage (100%) | |||||||
| Fifth | 75% of Target Percentage | |||||||
| Sixth | 50% of Target Percentage (Minimum) | |||||||
| Seventh | Zero | |||||||
Performance measures subject to peer group ranking will be based on LTM data as of September 30 of the Performance Period.
*The Fertilizer Industry peer group will consist of CF Industries, LSB Industries, Nutrien Ltd., The Andersons, Inc., Green Plains Partners and Flotek Industries.
UAN Bonus Plan Approved [February 21, 2022] Page 9
Appendix F
Definitions
“Adjusted EBITDA” for the Company means earnings before interest, taxes, depreciation and amortization, and adjusted for inventory valuation impacts, unrealized gains and losses on derivative transactions, turnaround expenses to the extent they are included in EBITDA, loss on extinguishment of debt, asset impairment charges, and board-directed actions.
“Adjusted EBITDA Threshold” means actual maintenance and sustaining capital expenditures plus reserves for turnaround expenses plus interest on debt for the given Performance Period, and board-directed actions. ***[REDACTED]***
“Chief Executive” means the President and Executive Chairman of the Company’s general partner.
“Eligible Compensation” means (i) for eligible exempt employees, such employee’s base salary at the time the Bonus or Spot Bonus is determined (prorated for time in an eligible position), and (ii) for eligible non-exempt and non-union hourly employees, such employees’ eligible wages for the applicable year as determined by the Company to be required by law.
“Environmental Events” (“EE”) means the total number of reportable quantities and water deviations.
• Reportable quantities are releases of substances during a 24-hour period that exceed a federal, state or local reporting threshold.
◦Reportable quantity is an event or contemporaneous combination of events during at 24-hour period that results in a release that exceeds a reportable quantity or quantities of a EPCRA/CERCLA compound as defined in the EPA List of Lists or a release that exceeds any other federal, state or local reporting threshold. Federally permitted releases and continuous releases defined in 40 CFR §302.6 and §302.8 are not considered reportable quantities under this measure.
◦A reportable quantity is counted by event or contemporaneous combination of events, not by the number of individual reports that are filed or number of compounds which exceed their reportable quantity. Events are considered contemporaneous if they occur within 24-hours or when a common cause results in one or more reportable quantities during contiguous or overlapping 24-hour periods.
•Water deviations are exceedances of a NPDES-based permit limit, wastewater bypasses and sheens to water of the United States.
◦The number of deviations is based on the number of individual permit limits exceeded irrespective of the number of causal events attributed to the deviation. However, a continuance of an ongoing permit limit deviation would not be double-counted if it were contemporaneous with a prior deviation and/or event.
◦Oil sheens and reportable quantities to water are only counted once as a water deviation environmental event.
A single event that results in multiple reportable quantities and/or when a water deviation is also a regulatory reportable quantity is not “double-counted” and will only be considered one Environmental Event.
“Executive Officer” of the Company means an “executive officer” as that term is defined in Rule 3b-7 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or an “officer” of the Company for purposes of Section 16 of the Exchange Act.
“Equipment Utilization” means adjusted equivalent tons of urea ammonium nitrate production divided by the planned equivalent tons of production for the Performance Period, as adjusted at the discretion of the Compensation Committee for events or downtime caused by third parties. Planned production is reflected in the Company’s annual volumetric plan. Monthly targets may be adjusted on a month by month basis to optimize production for which there is an economic incentive to do so during the given period. In such cases, the annual volumetric plan will be adjusted for the purposes of Bonus calculations with the new targets in place of the original targets.
UAN Bonus Plan Approved [February 21, 2022] Page 10
“Operating Expense” means measurement of actual controllable and fixed operating costs divided by budgeted amounts. For purposes of calculating the Bonus, budgeted amounts are subject to revision by the Board in its discretion based on changes in business conditions or configuration of the business (e.g., items such as acquisitions or divestitures, unusual or non-recurring charges and changes in staffing relating to changed strategy approved by the Board will be considered as items for potential adjustment).
“Process Safety Incident Rate” (“PSIR”) means a standardized measure of process safety performance for the number of process safety tier 1 events per 100 full-time equivalent employees, as defined in the recommended practice for process safety performance indicators, ANSI/API RP 754.
A process safety tier 1 event is an unplanned or uncontrolled loss of primary containment of any material, including non-toxic and non-flammable materials, from a process that results in one or more consequences, including:
•an employee, contractor or subcontractor “days away from work” injury and/or fatality;
•a hospital admission and/or fatality or a third-party;
•an officially declared community evacuation or community shelter-in-place;
•a fire or explosion resulting in greater than or equal to $25,000 of direct cost to the company;
•an officially declared community evacuation or community shelter-in-place;
•a pressure relief device (PRD) discharge to atmosphere whether directly or via a downstream destructive device that results in one or more of four defined consequences and a PRD discharge quantity greater than defined threshold quantities in a one-hour period; or,
•a release of material greater than defined threshold quantities described in any one-hour period.
“Reliability” means Lost Profit Opportunity (“LPO”), defined as foregone gross margin that results from operational variance due to factors within the Company’s control, specifically including human and equipment performance, divided by the sum of actual gross margin plus LPO.
“Return on Capital Employed” (“ROCE”) means operating income before depreciation and amortization (excluding asset impairments, non-cash asset write-downs and inventory valuation gains or losses) divided by average Capital Employed during the Period (averages calculated using 5-quarter end balances for the measurement period).
“Capital Employed” means total assets, less current liabilities (adjusted for any asset or inventory valuations imputed on operating income.
“Total Recordable Injury Rate” (“TRIR”) means a standardized measure of safety performance for the number of work-related injuries per 100 full-time equivalent employees, as defined by OSHA.
UAN Bonus Plan Approved [February 21, 2022] Page 11
Appendix G
Clawback and Recoupment Policy
This Clawback and Recoupment Policy applies to each Bonus and Spot Bonus (for purposes of this Plan, an “Award”).
If the Compensation Committee in its sole and absolute discretion, determines that (i) there has been misconduct or a gross dereliction of duty resulting in either a violation of law or Company Policy, that, in either case, causes significant financial or reputational harm to the Company (or any of its affiliates), and that an employee committed the misconduct or gross dereliction of duty, or failed in his or her responsibility to manage or monitor the applicable conduct or risk; (ii) an employee has committed an immoral act which is reasonably likely to impair the reputation of the Company (or any of its affiliates); (iii) an employee committed, or was indicted for, a felony or any crime involving fraud or embezzlement or dishonesty or was convicted of, or entered a plea of nolo contendere to a misdemeanor (other than a traffic violation) punishable by imprisonment under federal, state or local law; (iv) an employee violated any securities or employment laws or regulations; (v) an employee materially breached a Company Policy or any non-compete and/or non-solicitation clause included in an agreement or offer letter with such employee’s employer; (vi) an employee embezzled and/or misappropriated any property of the Company (or any of its affiliates) or committed any act involving fraud with respect to the Company (or any of its affiliates); or (vii) an employee engaged in conduct (including by omission) or an event or condition has occurred, which, in each case, would have given the Company or its subsidiaries the right to terminate the employee’s employment for Cause (as defined herein), then, to the extent not prohibited by applicable law, such Compensation Committee, in its sole and absolute discretion, may cancel, declare forfeited, or rescind such Award, or may seek reimbursement from such employee (and such employee will be obligated to repay) all or any portion of any payments made to such employee in respect of such Award.
If the Compensation Committee determines, in its sole and absolute discretion, that calculations underlying the performance measures and targets, including but not limited to mistakes in the Company’s financial statements, were incorrect, then such Compensation Committee may, in its sole and absolute discretion, seek to recover the amount of any payment made to employees that exceeded the amount that would have been paid based on the corrected calculations.
To the extent not prohibited by applicable law, if an employee is an officer, or, if applicable, has otherwise been designated by the Board of the Company as an Executive Officer, the Board may seek reimbursement of any payment made to such employee in respect of an Award in the event of a restatement of such Company’s (or any of its subsidiaries’) financial results (occurring due to material noncompliance with any financial reporting requirements under applicable securities laws) that reduced a previously granted payment made to such employee in respect of an Award. In that event, the Compensation Committee may, in its sole and absolute discretion, seek to recover the amount of any such payment made to the employee that exceeded the amount that would have been paid based on the restated financial results.
If the Company subsequently determines that it is required by law to apply a “clawback” or alternate recoupment provision to an Award, under the Dodd-Frank Wall Street Reform and Consumer Protection Act or otherwise, then such clawback or recoupment provision also shall apply to such Award, as if it had been included on the effective date of such Award.
To the extent not prohibited under applicable law, the Company (or any of its subsidiaries) (as applicable), in its sole and absolute discretion, will have the right to set off (or cause to be set off) any amounts otherwise due to employee from such Company or a subsidiary in satisfaction of any repayment obligation of such employee hereunder, provided that any such amounts are exempt from, or set off in a manner intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
For the avoidance of doubt, the Company’s and its subsidiaries’ rights under this Plan will apply to employees, without regard to whether any such employee is currently providing, or previously provided, services to the Company or its subsidiary as an employee.
UAN Bonus Plan Approved [February 21, 2022] Page 12
“Cause” for purposes of any Award means such employee’s (i) refusal or neglect to perform substantially his or her employment-related duties or services, (ii) personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) indictment for, conviction of or entering a plea of guilty or nolo contendere to a crime constituting a felony or his or her willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment or services to the Company or its affiliates which in no way adversely affects the Company and its affiliates or their reputation or the ability of the employee to perform his or her employment-related duties or services or to represent the Company or any affiliate of the Company that employs such employee or to which the employee performs services), (iv) failure to reasonably cooperate, following a request to do so by the Company, in any internal or governmental investigation of the Company or any of its affiliates or (v) material breach of any written covenant or agreement with the Company or any of its affiliates not to disclose any information pertaining to the Company or such affiliate or not to compete or interfere with the Company or such affiliate; provided that, in the case of any employee who, as of the date of determination, is party to an effective services, severance or employment agreement with the Company or any affiliate, “Cause” will have the meaning, if any, specified in such agreement.
UAN Bonus Plan Approved [February 21, 2022] Page 13
Exhibit 10.6
Execution Version
AMENDMENT TO CORPORATE MASTER SERVICE AGREEMENT
This Amendment to Corporate Master Services Agreement (this “Amendment”), dated as of April 12, 2022, is by and among CVR Services, LLC, a Delaware limited liability company (“Service Provider”), each of the entities listed on Schedule A attached hereto (each a “Service Recipient” and collectively the “Service Recipients”), and each of the entities listed on Schedule B attached hereto (each a “Joining Party”, and collectively, the “Joining Parties”).
WHEREAS, Service Provider and the Service Recipients entered into that certain Corporate Master Service Agreement, dated as of February 19, 2020, but effective as of January 1, 2020 (as amended, restated, amended and restated, extended, supplemented or otherwise modified from time to time, the “Corporate Master Service Agreement”); and
WHEREAS, Service Provider and the Service Recipients wish to amend to the Corporate Master Service Agreement to add the Joining Parties as Service Recipients thereunder;
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, the Parties hereto hereby agree as follows:
1.DEFINITIONS. Service Provider, the Service Recipients and the Joining Parties are referred to herein collectively as the “Parties” and each, a “Party.” Each capitalized term used herein but not otherwise defined shall have the meaning set forth in the Corporate Master Service Agreement.
2.AGREEMENT TO BE BOUND. Each of the Joining Parties hereby agrees to be bound by all of the terms of the Corporate Master Service Agreement. Each of the Joining Parties hereby acknowledges receipt of a copy of the Corporate Master Service Agreement and agrees to become a party thereto and to be bound thereby as a Service Recipient thereunder, and hereby assumes all of the rights and obligations related thereto as set forth in the Corporate Master Service Agreement.
3.AMENDMENT. Pursuant to and in accordance with Section 16 (Modification and Amendment) of the Corporate Master Service Agreement, the Parties hereby amend and restate Section 16 (Modification and Amendment) of the Corporate Master Service Agreement in its entirety as follows:
“MODIFICATION AND AMENDMENT. Service Provider may amend this Agreement to allow for the provision of Services to any Affiliate. Upon executing and delivering an additional counterpart signature to this Agreement, such Affiliate shall be deemed to be a “Service Recipient” for all purposes hereunder, and shall be entitled to all corresponding benefits and be responsible for all obligations of a Service Recipient as provided for herein. No action or consent by any Party, other than Service Provider, shall be required for an Affiliate to join this Agreement.”
4.GOVERNING LAW AND VENUE. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Texas, without regard to conflict of law principles (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. Each Party hereby submits to the exclusive jurisdiction of the state and federal courts in the State of Texas and to venue in Houston, Texas, and hereby waives any objection thereto.
5.COUNTERPARTS. This Amendment may be executed in one or more counterparts, any one of which may be by facsimile, and all of which taken together shall constitute one and the same instrument. The exchange of copies of this Amendment and of signature pages by electronic transmission, including by electronic mail in portable document format (“.pdf”), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, or by a combination of such means, shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of an original Agreement for all purposes. Signatures of the Parties transmitted by facsimile or other electronic transmission shall be deemed to be original signatures for all purposes.
6.NOTICES. All notices, offers, acceptances, waivers and other communications under this Amendment shall be in writing and shall be deemed to have been given and received (i) upon receipt when delivered by hand, (ii) upon transmission, if sent by electronic mail transmission (in each case with receipt verified by electronic confirmation), or (iii) one business day after being sent by overnight courier or express delivery service; provided, that in each case the notice or other communication is sent to the address, electronic mail address set forth beneath the name of such Party below (or to such other address or electronic mail address as such Party shall have specified in a written notice given to the other Parties hereto):
(a)If to Service Provider:
CVR Services, LLC
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: Chief Accounting Officer
Email: jconaway@CVREnergy.com
With a copy to the Office of the General Counsel at the above address
Email: LegalServices@CVREnergy.com
(b)If to any Service Recipient other than CVR Partners, LP or one of its subsidiaries:
Service Recipient
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: EVP & Chief Financial Officer
Email: djneumann@CVREnergy.com
With a copy to the Office of the General Counsel at the above address
Email: LegalServices@CVREnergy.com
(c)If to any Service Recipient that is CVR Partners, LP or one of its subsidiaries:
Service Recipient
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: President & Chief Executive Officer
Email: mpytosh@CVREnergy.com
With a copy to the Office of the General Counsel at the above address
Email: LegalServices@CVREnergy.com
(d)If to a Joining Party:
Joining Party
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: EVP & Chief Financial Officer
Email: djneumann@CVREnergy.com
With a copy to the Office of the General Counsel at the above address
Email: LegalServices@CVREnergy.com
7.MISCELLANEOUS. The following Sections of the Corporate Master Service Agreement are incorporated herein by reference, mutatis mutandis, as if set forth fully herein: Section 7 (Confidentiality); Section 13 (Assignment); Section 14 (Entire Agreement); and Section 15 (No Third Party Beneficiaries).
2
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first written above.
CVR SERVICES, LLC
By: __/s/ Jeffrey D. Conaway__________________
Name: Jeffrey D. Conaway
Title: Vice President - Chief Accounting Officer and Corporate Controller
Date: April 12, 2022
Name: Jeffrey D. Conaway
Title: Vice President - Chief Accounting Officer and Corporate Controller
Date: April 12, 2022
WYNNEWOOD ENERGY COMPANY, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
WYNNEWOOD REFINING COMPANY, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
COFFEYVILLE RESOURCES REFINING & MARKETING, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
COFFEYVILLE RESOURCES CRUDE TRANSPORTATION, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
COFFEYVILLE RESOURCES TERMINAL, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
COFFEYVILLE RESOURCES PIPELINE, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR REFINING, LP
By: CVR REFINING GP, LLC, its general partner
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR REFINING GP, LLC
By: _/s/ Dane J. Neumann______________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR REFINING, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
COFFEYVILLE RESOURCES
NITROGEN FERTILIZERS, LLC
NITROGEN FERTILIZERS, LLC
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
EAST DUBUQUE NITROGEN
FERTILIZERS, LLC
FERTILIZERS, LLC
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
CVR NITROGEN HOLDINGS, LLC
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
CVR NITROGEN GP, LLC
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
CVR NITROGEN, LP
By: CVR NITROGEN GP, LLC, its general partner
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
CVR NITROGEN FINANCE CORPORATION
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
CVR PARTNERS, LP
By: CVR GP, LLC, its general partner
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
CVR GP, LLC
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: President & Chief Executive Officer
Date: April 12, 2022
CVR ENERGY, INC.
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
WYNNEWOOD INSURANCE CORPORATION
By: /s/ Mark A. Pytosh__________________
Name: Mark A. Pytosh
Title: EVP – Corporate Services & Treasurer
Date: April 12, 2022
Name: Mark A. Pytosh
Title: EVP – Corporate Services & Treasurer
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
CVR AVIATION, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR ENERGY HOLDINGS, INC.
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CHC GP, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
RHC GP, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
FHC GP, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
CVR CHC, LP
By: CHC GP, LLC, as its general partner
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
COMMON ASSETS HOLDCO, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR COMMON ASSETS CVL, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR COMMON ASSETS WYN, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
COMMON SERVICES HOLDCO, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
CVR COMMON SERVICES, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR RHC, LP
By: RHC GP, LLC, as its general partner
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
RENEWABLE ASSETS HOLDCO, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR RENEWABLES CVL, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR RENEWABLES WYN, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
CVR FHC, LP
By: FHC GP, LLC, as its general partner
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR REFINING CVL, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR REFINING WYN, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR RENEWABLES, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
CVR SUPPLY & TRADING, LLC
By: _/s/ Dane J. Neumann_____________________
Name: Dane J. Neumann
Title: Executive Vice President, Chief Financial Officer, Treasurer & Assistant Secretary
Date: April 12, 2022
Signature Page to Amendment to Corporate Master Service Agreement
SCHEDULE A
Service Recipients
1. Wynnewood Energy Company, LLC a Delaware limited liability company
2. Wynnewood Refining Company, LLC, a Delaware limited liability company
3. Coffeyville Resources Refining & Marketing, LLC, a Delaware limited liability company
4. Coffeyville Resources Crude Transportation, LLC, a Delaware limited liability company
5. Coffeyville Resources Terminal, LLC, a Delaware limited liability company
6. Coffeyville Resources Pipeline, LLC, a Delaware limited liability company
7. CVR Refining, LP, a Delaware limited partnership
8. CVR Refining GP, LLC, a Delaware limited liability company
9. CVR Refining, LLC, a Delaware limited liability company
10. Coffeyville Resources Nitrogen Fertilizers, LLC, a Delaware limited liability company
11. East Dubuque Nitrogen Fertilizers, LLC, a Delaware limited liability company
12. CVR Nitrogen Holdings, LLC, a Delaware limited liability company
13. CVR Nitrogen GP, LLC, a Delaware limited liability company
14. CVR Nitrogen, LP, a Delaware limited partnership
15. CVR Nitrogen Finance Corporation, a Delaware corporation
16. CVR Partners, LP, a Delaware limited partnership
17. CVR GP, LLC, a Delaware limited partnership
18. CVR Energy, Inc., a Delaware corporation
19. Wynnewood Insurance Corporation, a Texas corporation
20. CVR Aviation, LLC, a Delaware limited liability company
21. CVR Energy Holdings, Inc., a Delaware corporation
A - 1
SCHEDULE B
Joining Parties
1.CHC GP, LLC, a Delaware limited liability company.
2.RHC GP, LLC, a Delaware limited liability company
3.FHC GP, LLC, a Delaware limited liability company.
4.CVR CHC, LP, a Delaware limited partnership.
5.Common Assets Holdco, LLC, a Delaware limited liability company.
6.CVR Common Assets CVL, LLC, a Delaware limited liability company.
7.CVR Common Assets WYN, LLC, a Delaware limited liability company.
8.Common Services Holdco, LLC, a Delaware limited liability company.
9.CVR Common Services, LLC, a Delaware limited liability company.
10.CVR RHC, LP, a Delaware limited partnership.
11.Renewable Assets Holdco, LLC, a Delaware limited liability company.
12.CVR Renewables CVL, LLC, a Delaware limited liability company.
13.CVR Renewables WYN, LLC, a Delaware limited liability company.
14.CVR FHC, LP, a Delaware limited partnership.
15.CVR Refining CVL, LLC, a Delaware limited liability company.
16.CVR Refining WYN, LLC, a Delaware limited liability company.
17.CVR Renewables, LLC, a Delaware limited liability company.
18.CVR Supply & Trading, LLC, a Delaware limited liability company.
B - 1
Exhibit 31.1
Certification of Executive Chairman Pursuant to
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David L. Lamp, certify that:
1. I have reviewed this report on Form 10-Q of CVR Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ DAVID L. LAMP | ||||
| David L. Lamp | |||||
| Executive Chairman | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Executive Officer) | |||||
Date: May 3, 2022
Exhibit 31.2
Certification of President and Chief Executive Officer Pursuant to
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark A. Pytosh, certify that:
1. I have reviewed this report on Form 10-Q of CVR Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ MARK A. PYTOSH | ||||
| Mark A. Pytosh | |||||
| President and Chief Executive Officer | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Executive Officer) | |||||
Date: May 3, 2022
Exhibit 31.3
Certification of Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary
Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Dane J. Neumann, certify that:
1. I have reviewed this report on Form 10-Q of CVR Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ DANE J. NEUMANN | ||||
| Dane J. Neumann | |||||
| Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Financial Officer) | |||||
Date: May 3, 2022
Exhibit 31.4
Certification of Vice President, Chief Accounting Officer and Corporate Controller
Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934,
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeffrey D. Conaway, certify that:
1. I have reviewed this report on Form 10-Q of CVR Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| By: | /s/ JEFFREY D. CONAWAY | ||||
| Jeffrey D. Conaway | |||||
| Vice President, Chief Accounting Officer and Corporate Controller | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Accounting Officer) | |||||
Date: May 3, 2022
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the filing of the Quarterly Report of CVR Partners, LP, a Delaware limited partnership (the “Partnership”), on Form 10-Q for the fiscal quarter ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of CVR GP, LLC, the general partner of the Partnership, certifies, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of such officer’s knowledge and belief:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership as of the dates and for the periods expressed in the Report.
| By: | /s/ DAVID L. LAMP | ||||
| David L. Lamp | |||||
| Executive Chairman | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Executive Officer) | |||||
| By: | /s/ MARK A. PYTOSH | ||||
| Mark A. Pytosh | |||||
| President and Chief Executive Officer | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Executive Officer) | |||||
| By: | /s/ DANE J. NEUMANN | ||||
| Dane J. Neumann | |||||
| Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Financial Officer) | |||||
| By: | /s/ JEFFREY D. CONAWAY | ||||
| Jeffrey D. Conaway | |||||
| Vice President, Chief Accounting Officer and Corporate Controller | |||||
| CVR GP, LLC | |||||
| the general partner of CVR Partners, LP | |||||
| (Principal Accounting Officer) | |||||
Dated: May 3, 2022