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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
Form 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35120
_____________________________________________________________
CVR Partners, LP
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
56-2677689
(I.R.S. Employer
Identification No.)
2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479
(Address of principal executive offices) (Zip Code)
(281) 207-3200
(Registrant’s telephone number, including area code)
_____________________________________________________________
Title of Each Class
Common units representing limited partner interests
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
UAN
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Securities registered pursuant to section 12(g) of the Act: None
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
Smaller reporting company
☐
☐
Accelerated filer
Emerging growth company
☑
☐
Non-accelerated filer
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At June 30, 2021, the aggregate market value of the voting common units held by non-affiliates of the registrant was approximately $418.9 million based upon the closing price of its common
units on the New York Stock Exchange Composite tape. As of February 18, 2022, there were 10,681,332 of the registrant’s common units outstanding.
TABLE OF CONTENTS
CVR Partners, LP
Annual Report on Form 10-K
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART III
Directors, Executive Officers and Corporate
Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Unitholder Matters
Certain Relationships and Related Transactions, and
Director Independence
Principal Accounting Fees and Services
Item 15.
PART IV
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
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109
Item 1.
Business
PART I
Item 1A.
Item 1B.
Risk Factors
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Item 4.
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Market For Registrant’s Common Equity, Related
Unitholder Matters and Issuer Purchases of Equity
Securities
[Reserved]
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About
Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that
Prevent Inspections
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December 31, 2021 | 1
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GLOSSARY OF SELECTED TERMS
The following are definitions of certain terms used in this Annual Report on Form 10-K for the year ended December 31, 2021 (this “Report”).
Ammonia — Ammonia is a direct application fertilizer and is primarily used as a building block for other nitrogen products for industrial applications and
finished fertilizer products.
Capacity — Capacity is defined as the throughput a process unit is capable of sustaining, either on a calendar or operating day basis. The throughput may
be expressed in terms of maximum sustainable, nameplate or economic capacity. The maximum sustainable or nameplate capacities may not be the most
economical. The economic capacity is the throughput that generally provides the greatest economic benefit based on considerations such as feedstock costs,
product values, regulatory compliance costs and downstream unit constraints.
Corn belt — The primary corn producing region of the United States, which includes Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, Ohio and
Wisconsin.
Ethanol — A clear, colorless, flammable oxygenated hydrocarbon. Ethanol is typically produced chemically from ethylene, or biologically from
fermentation of various sugars from carbohydrates found in agricultural crops and cellulosic residues from crops or wood. It is used in the United States as a
gasoline octane enhancer and oxygenate.
MMBtu — One million British thermal units, or Btu: a measure of energy. One Btu of heat is required to raise the temperature of one pound of water one
degree Fahrenheit.
MSCF — One thousand standard cubic feet, a customary gas measurement.
Petroleum coke (pet coke) — A coal-like substance that is produced during the oil refining process.
Product pricing at gate — Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons. Product pricing at gate
is also referred to as netback.
Southern Plains — Primarily includes Oklahoma, Texas and New Mexico.
Spot market — A market in which commodities are bought and sold for cash and delivered immediately.
Turnaround — A periodically performed standard procedure to inspect, refurbish, repair, and maintain the plant assets. This process involves the
shutdown and inspection of major processing units and occurs every two to three years. A turnaround will typically extend the operating life of a facility and
return performance desired operating levels.
UAN — An aqueous solution of urea and ammonium nitrate used as a fertilizer.
Utilization — Measurement of the annual production of UAN and Ammonia expressed as a percentage of the facilities’ nameplate production capacity.
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Important Information Regarding Forward Looking Statements
This Annual Report on Form 10-K contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, those under Item 1. Business, Item 1A.
Risk Factors and Item 7. 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:
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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, 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;
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 businesses, including potential impacts of domestic and global supply and demand; and/or domestic or international duties,
tariffs, or similar costs;
foreign wheat and coarse grain production, including increases thereto and farm planting acreage;
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;
our lack of asset diversification;
our dependence on significant customers and the creditworthiness and performance by counterparties;
our potential loss of transportation cost advantage over our competitors;
risks associated with third party operation of or control over important facilities necessary for operation of our nitrogen fertilizer facilities;
the volatile nature of ammonia, potential liability for accidents involving ammonia including damage or injury to persons, property, the environment or human
health and increased costs related to the transport or production of ammonia;
our potential inability to successfully implement our business strategies, including the completion of significant capital programs or projects;
our reliance on CVR Energy’s senior management team and conflicts of interest they may face operating each of CVR Partners and CVR Energy;
control of our general partner by CVR Energy;
our ability to continue to license the technology used in our operations;
December 31, 2021 | 3
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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 and credit markets;
competition with CVR Energy and its affiliates;
transactions and/or conflicts with CVR Energy’s controlling shareholder;
the value of payouts under our equity and non-equity incentive plans; and
our ability to recover under our insurance policies for damages or losses in full or at all.
All forward looking statements contained in this Report only speak as of the date of this Report. We undertake no obligation to publicly update or revise any forward
looking statements to reflect events or circumstances that occur after the date of this Report, or to reflect the occurrence of unanticipated events, except to the extent
required by law.
Information About Us
Investors should note that we make available, free of charge on our website at cvrpartners.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may
use the Investor Relations section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to
be material information. Documents and information on our website are not incorporated by reference herein.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that
file electronically with the SEC.
December 31, 2021 | 4
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Part I should be read in conjunction with Management’s Discussion and Analysis in Item 7 and our consolidated financial statements and related notes
PART I
thereto in Item 8.
Item 1. Business
Overview
CVR Partners, LP (referred to as “CVR Partners” or the “Partnership”) is a Delaware limited partnership formed in 2011 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, which are located in Coffeyville, Kansas (the “Coffeyville Facility”) and East
Dubuque, Illinois (the “East Dubuque Facility”). Both facilities manufacture ammonia and are able to further upgrade 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. 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.
Organizational Structure and Related Ownership
The following chart illustrates the organizational structure of the Partnership as of December 31, 2021.
December 31, 2021 | 5
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Facilities
Coffeyville Facility - We own and operate a nitrogen fertilizer production facility in Coffeyville, Kansas that includes a gasifier complex having a capacity
of 89 million standard cubic feet per day of hydrogen, a 1,300 ton per day capacity ammonia unit and a 3,000 ton per day capacity UAN unit. The Coffeyville
Facility is the only nitrogen fertilizer plant in North America that utilizes a pet coke gasification process to produce nitrogen fertilizer. The Coffeyville
Facility’s largest raw material used in the production of ammonia is pet coke, which it purchases from CVR Energy and third parties. For the years ended
December 31, 2021, 2020, and 2019, the Partnership purchased approximately $23.0 million, $18.4 million, and $20.0 million, respectively, of pet coke,
which equaled an average cost per ton of $44.69, $35.25, and $37.47, respectively. For the years ended December 31, 2021, 2020, and 2019, we upgraded
approximately 87%, 87%, and 90%, respectively, of our ammonia production into UAN, a product that generated greater profit per ton than ammonia for both
2021 and 2019 but, did not for 2020. When the economics are favorable, we expect to continue upgrading substantially all of our ammonia production into
UAN.
East Dubuque Facility - We own and operate a nitrogen fertilizer production facility in East Dubuque, Illinois that includes a 1,075 ton per day capacity
ammonia unit and a 1,100 ton per day capacity UAN unit. The East Dubuque Facility has the flexibility to vary its product mix enabling it to upgrade a
portion of its ammonia production into varying amounts of UAN, nitric acid, and liquid and granulated urea, depending on market demand, pricing, and
storage availability. The East Dubuque Facility’s largest raw material cost used in the production of ammonia is natural gas, which it purchases from third
parties. For the years ended December 31, 2021, 2020, and 2019, the East Dubuque Facility incurred approximately $31.8 million, $19.9 million, and $19.7
million for feedstock natural gas used in production, respectively, which equaled an average cost of $3.95, $2.31, and $2.88 per MMBtu, respectively.
Commodities
The nitrogen products we produce are globally traded commodities and are subject to price competition. The customers for our products make their
purchasing decisions principally on the basis of delivered price and, to a lesser extent, on customer service and product quality. The selling prices of our
products fluctuate in response to global market conditions, feedstock costs, and changes in supply and demand.
Agriculture
The three primary forms of nitrogen fertilizer used in the United States are ammonia, urea, and UAN. Unlike ammonia and urea, UAN can be applied
throughout the growing season and can be applied in tandem with pesticides and herbicides, providing farmers with flexibility and cost savings. As a result of
these factors, UAN typically commands a premium price to urea and ammonia, on a nitrogen equivalent basis. However, during 2020, UAN commanded a
discount price to urea and premium to ammonia, on a nitrogen equivalent basis.
Nutrients are depleted in soil over time and, therefore, must be replenished through fertilizer application. Nitrogen is the most quickly depleted nutrient
and must be replenished every year, whereas phosphate and potassium can be retained in soil for up to three years. Plants require nitrogen in the largest
amounts, and it accounts for approximately 59% of primary fertilizer consumption on a nutrient ton basis, per the International Fertilizer Industry Association
(“IFIA”).
Demand
Global demand for fertilizers is driven primarily by grain demand and prices, which, in turn, are driven by population growth, farmland per capita, dietary
changes in the developing world, and increased consumption of bio-fuels. According to the IFIA, from 1976 to 2019, global fertilizer demand grew 2%
annually. Global fertilizer use, consisting of nitrogen, phosphate, and potash, is projected to increase by 1% through 2023 to meet global food demand
according to a study funded by the Food and Agricultural Organization of the United Nations. Currently, the developed world uses fertilizer more intensively
than the developing world, but sustained economic growth in emerging markets is increasing food demand and fertilizer use. In addition, populations in
developing countries are shifting to more protein-rich diets as their incomes increase, with such consumption requiring more grain for animal feed. As an
example, China’s wheat and coarse grains production is estimated to have increased 40% between 2011 and 2021, but still failed to keep pace with increases
in demand, prompting China to grow its wheat and coarse grain imports by more than 1,452% over the same period, according to the United States
Department of Agriculture (“USDA”).
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The United States is the world’s largest exporter of coarse grains, accounting for 29% of world exports and 27% of world production for the fiscal year
ended December 31, 2021, according to the USDA. A substantial amount of nitrogen is consumed in production of these crops to increase yield. Based on
Fertecon Limited’s (“Fertecon”) 2021 estimates, the United States is the world’s third largest consumer of nitrogen fertilizer and the world’s largest importer
of nitrogen fertilizer. Fertecon is a reputable agency which provides market information and analysis on fertilizers and fertilizer raw materials for fertilizer and
related industries, as well as international agencies. Fertecon estimates indicate that the United States represented 12% of total global nitrogen fertilizer
consumption for 2021, with China and India as the top consumers representing 22% and 15% of total global nitrogen fertilizer consumption, respectively.
North American nitrogen fertilizer producers predominantly use natural gas as their primary feedstock. Over the last five years, U.S. oil and natural gas
reserves have increased significantly due to, among other factors, advances in extracting shale oil and gas, as well as relatively high oil and gas prices. More
recently, European and Asian natural gas prices have increased significantly since 2020 due to reduced production volumes and higher global demand, as
economies began to recover from the global COVID-19 pandemic. In Europe, the increase in natural gas prices as a feedstock has caused multiple fertilizer
plant shut-ins, and certain European countries have curtailed industrial natural gas usage, resulting in deteriorated economics for producing fertilizers in the
region. In addition, China and Russia have restricted exports of fertilizers in order to ensure domestic availability. In North America, natural gas prices also
increased throughout 2021, but higher nitrogen fertilizer prices more than offset the rise in natural gas costs. As a result, North America continues to be the
low-cost region for nitrogen fertilizer production.
Raw Material Supply
Coffeyville Facility - During the past five years, just under 48% of the Coffeyville Facility’s pet coke requirements on average were supplied by CVR
Energy’s adjacent Coffeyville, Kansas refinery pursuant to a multi-year agreement. Historically, our Coffeyville Facility has obtained the remainder of its pet
coke requirements through third-party contracts typically priced at a discount to the spot market. In 2021, 2020, and 2019, our supply of pet coke from the
Coffeyville refinery declined to approximately 43%, 33%, and 40%, respectively, generally attributable to increased processing of shale crude oil, which
reduced the amount of pet coke produced by the Coffeyville refinery and increased the amount of third-party purchases made at spot prices. With increased
reliance on third-party pet coke, we have contracts with four vendors, which could be delivered by truck, railcar or barge.
Additionally, our Coffeyville Facility relies on a third-party air separation plant at its location that provides contract volumes of oxygen, nitrogen, and
compressed dry air to the Coffeyville Facility gasifiers. The reliability of the air separation plant can have a significant impact on our Coffeyville Facility
operations. In 2020, to mitigate future impacts, we executed a new product supply agreement that obligates the counterparty to invest funds to upgrade its
facility to reduce downtime over the next several years. Should the oxygen volume fall below a specified level, the on-site vendor will provide excess oxygen
through its own mechanism or through third-party purchases.
East Dubuque Facility - Our East Dubuque Facility uses natural gas to produce nitrogen fertilizer. Our East Dubuque Facility is generally able to purchase
natural gas at competitive prices due to its connection to the Northern Natural Gas interstate pipeline system, which is within one mile of the facility, and a
third-party owned and operated pipeline. The pipelines are connected to a third-party distribution system at the Chicago Citygate receipt point and at the
Hampshire interconnect from which natural gas is transported to our East Dubuque Facility. As of December 31, 2021, we had commitments to purchase
approximately 0.7 million MMBtus of natural gas supply for planned use in our East Dubuque Facility for each of January and February of 2022 at a weighted
average rate per MMBtu of approximately $5.96 and $5.95, respectively, exclusive of transportation cost.
Marketing and Distribution
We primarily market UAN products to agricultural customers and ammonia products to agricultural and industrial customers. UAN and ammonia,
including freight, accounted for approximately 65% and 28%, respectively, of total net sales for the year ended December 31, 2021.
UAN and ammonia are primarily distributed by truck or railcar. If delivered by truck, products are most commonly sold on a free-on-board (“FOB”)
shipping point basis, and freight is normally arranged by the customer. We operate a fleet of railcars
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for use in product delivery. If delivered by railcar, products are most commonly sold on a FOB destination point basis, and we typically arrange the freight.
The nitrogen fertilizer products leave our Coffeyville Facility either in railcars for destinations located principally on the Union Pacific or Burlington
Northern Santa Fe railroads or in trucks for direct shipment to customers. Our East Dubuque Facility primarily sells product to customers located within 200
miles of the facility. In most instances, customers take delivery of nitrogen products at our East Dubuque Facility and arrange to transport them to their final
destinations by truck. Additionally, our East Dubuque Facility has direct access to a barge dock on the Mississippi River, as well as a nearby rail spur serviced
by the Canadian National Railway Company, both of which are used from time to time to sell and distribute its products.
Customers
Retailers and distributors are the main customers for UAN and, more broadly, the industrial and agricultural sectors are the primary recipients of our
ammonia products. Given the nature of our business, and consistent with industry practice, we sell our products on a wholesale basis under a contract or by
purchase order. Contracts with customers generally contain fixed pricing and most have terms of less than one year. Some of our industrial sales include long-
term purchase contracts. For the year ended December 31, 2021, our top customer represented 13% of net sales.
Competition
Nitrogen fertilizer production is a global market with competitors in every region of the world. The industry is dominated by price considerations which
are driven by raw material and transportation costs, currency fluctuations and trade barriers. Our business has experienced and expects to continue to
experience significant levels of competition from domestic and foreign nitrogen fertilizer producers, many of whom have significantly greater financial and
other resources. In the United States during the spring and fall fertilizer application periods, farming activities intensify and geographic proximity to these
activities is also a significant competitive advantage for domestic producers. We manage our manufacturing and distribution operations to best serve our
customers during these critical periods.
Subject to location and other considerations our major competitors generally include CF Industries Holdings, Inc., including its majority owned subsidiary
Terra Nitrogen Company, L.P.; LSB Industries, Inc.; Koch Fertilizer Company, LLC; and Nutrien Ltd. Domestic competition is intense due to customers’
sophisticated buying tendencies and competitor strategies that focus on cost and service. We also encounter competition from producers of fertilizer products
manufactured in foreign countries, including the threat of increased production capacity. In certain cases, foreign producers of fertilizer who export to the
United States may be subsidized by their respective governments.
Seasonality
Because we primarily sell agricultural commodity products, our business is exposed to seasonal fluctuations in demand for nitrogen fertilizer products in
the agricultural industry. In addition, the demand for fertilizers is affected by the aggregate crop planting decisions and fertilizer application rate decisions of
individual farmers who make planting decisions based largely on the prospective profitability of a harvest. The specific varieties and amounts of fertilizer they
apply depend on factors like crop prices, farmers’ current liquidity, soil conditions, weather patterns, and the types of crops planted. We typically experience
higher net sales in the first half of the calendar year, which is referred to as the planting season, and net sales tend to be lower during the second half of each
calendar year, which is referred to as the fill season.
Environmental Matters
Our business is subject to extensive and frequently changing federal, state, and local environmental laws and regulations governing the emission and
release of hazardous substances into the environment, the transportation, storage, and disposal of waste, the treatment and discharge of wastewater and
stormwater, the storage, handling, use, and transportation of our nitrogen fertilizer products, and the characteristics and composition of UAN and ammonia.
These laws and regulations and the enforcement thereof impact us by imposing:
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liability for the investigation and remediation of contaminated soil and groundwater at current and former facilities (if any) and for off-site waste
disposal locations; and
specifications for the products we market, primarily UAN and ammonia.
Our operations require numerous permits, licenses, and authorizations. Failure to comply with these permits or environmental laws and regulations could
result in fines, penalties, or other sanctions or a revocation of our permits, licenses, or authorizations. In addition, the laws and regulations to which we are
subject are often evolving and many of them have or could become more stringent or become subject to more stringent interpretation or enforcement by
federal or state agencies. These laws and regulations could result in increased capital, operating, and compliance costs.
The Federal Clean Air Act (“CAA”)
The CAA and its implementing regulations, as well as corresponding state laws and regulations governing air emissions, affect us both directly and
indirectly. Direct impacts may occur through the CAA’s permitting requirements and/or emission control and monitoring requirements relating to specific air
pollutants, as well as the requirement to maintain a risk management program to help prevent accidental releases of certain regulated substances. The CAA
affects the Partnership by extensively regulating the air emissions of sulfur dioxide (“SO ”), volatile organic compounds, nitrogen oxides, and other
substances. Some or all of the regulations promulgated pursuant to the CAA, or any future promulgations of regulations, may require the installation of
controls or changes to our nitrogen fertilizer facilities (collectively referred to as the “Facilities”) to maintain compliance. If new controls or changes to
operations are needed, the costs could be material.
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The regulation of air emissions under the CAA requires that we obtain various construction and operating permits and incur capital expenditures for the
installation of certain air pollution control devices at our operations. Various standards and programs specific to our operations have been implemented, such
as the National Emission Standard for Hazardous Air Pollutants, the New Source Performance Standards, and the New Source Review.
The EPA regulates greenhouse gas (“GHG”) emissions under the CAA. In October 2009, the U.S. Environmental Protection Agency (the “EPA”)
finalized a rule requiring certain large emitters of GHGs to inventory and report their GHG emissions to the EPA. In accordance with the rule, our Facilities
monitor and report our GHG emissions to the EPA. In May 2010, the EPA finalized the “Greenhouse Gas Tailoring Rule,” which established GHG emissions
thresholds that determine when stationary sources, such as the nitrogen fertilizer plants, must obtain permits under the Prevention of Significant Deterioration
(“PSD”) and Title V programs of the CAA. Under the rule, facilities already subject to the PSD and Title V programs that increase their emissions of GHGs
by a significant amount are required to undergo PSD review and to evaluate and implement air pollution control technology, known as “best available control
technology,” to reduce GHG emissions.
The Biden Administration has signaled that it will take steps to address climate change. On January 20, 2021, the White House issued its Executive Order
titled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis,” as well as a formal notification re-accepting entry
of the United States into the Paris Agreement. On January 27, 2021, the White house issued another climate-related Executive Order, titled “Tackling the
Climate Crisis at Home and Abroad.” On April 22, 2021, the Biden Administration announced a new target for the United States to achieve a 50 to 52 percent
reduction from 2005 levels in economy-wide net GHG emissions in 2030.
The EPA’s approach to regulating GHG emissions may change, including under future administrations. Therefore, the impact on our Facilities due to
GHG regulation is unknown.
Recent Greenhouse Gas Footprint Reduction Efforts
In October 2020, the Partnership announced that it generated its first carbon offset credits from voluntary nitrous oxide abatement at its Coffeyville
Facility. The Partnership has similar nitrous oxide abatement efforts at its East Dubuque Facility. According to the EPA, nitrous oxide represents
approximately 7% of carbon dioxide-equivalent (“CO e”) emissions in the United States.
2
The Partnership previously entered into a Joint Development Agreement with ClimeCo, a developer of emission-reduction projects for nitric acid plants,
to jointly design, install and operate a tertiary abatement system at one of its nitric acid plants in Coffeyville. The system was designed to abate 94% of all
N O in the unit while preventing the release of approximately 450,000 metric tons of carbon dioxide equivalent on an annualized basis. The N O abatement
systems at the East Dubuque
2
2
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Facility’s two nitric acid plants have abated, on average, the annual release of approximately 265,000 metric tons of CO e during the past five years.
2
CVR Partners’ N O abatement projects are registered with the Climate Action Reserve (the “Reserve”), a carbon offset registry for the North American
market. The Reserve employs high-quality standards and an independent third-party verification process to issue its carbon credits, known as Climate Reserve
Tonnes.
2
The Partnership also sequesters carbon dioxide that is not utilized for urea production at its Coffeyville Facility by capturing and purifying the CO as part
of its manufacturing process and then transfers it to its partner, CapturePoint LLC (formerly Perdure Petroleum LLC), that compresses and ships the CO for
sequestration through Enhanced Oil Recovery (“EOR”). In January 2021, the Internal Revenue Service published final regulations under Section 45Q which
provides tax credits to encourage CO sequestration. We believe that our process for CO sequestration would qualify for tax credits under Section 45Q and
intend to pursue a claim of those credits starting in 2022.
2
2
2
2
Combining our nitrous oxide abatement and CO sequestration activities should reduce our CO e footprint by over 1 million metric tons per year. In
addition, our Coffeyville Facility is uniquely qualified to produce hydrogen and ammonia that could be certified ‘blue’ to a market that is increasingly
demanding reduced carbon footprints. These greenhouse gas footprint reduction efforts support our core Values of Environment and Continuous Improvement,
and our goal of continuing to produce nitrogen fertilizers that feed the world’s growing population in the most environmentally responsible way possible.
2
2
The Federal Clean Water Act (“CWA”)
The CWA and its implementing regulations, as well as the corresponding state laws and regulations that govern the discharge of pollutants into the water,
affect the Partnership. The CWA’s permitting requirements establish discharge limitations that may be based on technology standards, water quality standards,
and restrictions on the total maximum daily load of pollutants allowed to enter a particular water body based on its use. In addition, water resources are
becoming more scarce. The Coffeyville Facility has contracts in place to receive water during certain water shortage conditions, but these conditions could
change over time depending on the scarcity of water.
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and the Emergency Planning and Community Right-to-Know
Act (“EPCRA”)
The release of hazardous substances or extremely hazardous substances into the environment is subject to release reporting requirements under federal
and state environmental laws. Our Facilities also periodically experience releases of hazardous and extremely hazardous substances from their equipment.
From time to time, the EPA has conducted inspections and issued information requests to us with respect to our compliance with reporting requirements under
the CERCLA and EPCRA. If we fail to timely or properly report a release, or if a release violates the law or our permits, we could become the subject of a
governmental enforcement action or third-party claims. Government enforcement or third-party claims relating to releases of hazardous or extremely
hazardous substances could result in significant expenditures and liability.
Environmental Remediation
As is the case with all companies engaged in similar industries, we face potential exposure from claims and lawsuits involving environmental matters,
including soil and water contamination and personal injury or property damage allegedly caused by hazardous substances that we manufactured, handled,
used, stored, transported, spilled, disposed of, or released. The Coffeyville Facility has entered into an agreement with the Kansas Department of Health and
Environment (“KDHE”) to address certain historical releases of UAN located on our property and comingled with legacy groundwater contamination from the
adjacent Coffeyville Resources Refining & Marketing, LLC (“CRRM”) refinery. The cleanup provisions of our agreement with KDHE are held in abeyance
so long as CRRM conducts corrective action for these comingled historical releases in accordance with its Resource Conservation and Recovery Act Permit.
There is no assurance that CRRM will comply with its Permit conditions in the future, which may trigger enforcement of the cleanup provisions of our
agreement with KDHE. There is no assurance that we will not become involved in future proceedings related to the release of hazardous or extremely
hazardous substances for which we have potential liability or that, if we were held responsible for damages in any existing or future proceedings, such costs
would be covered by insurance or would not be material.
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Environmental Insurance
We are covered by CVR Energy’s site pollution legal liability insurance policies, which include business interruption coverage. The policies insure any
location owned, leased, rented, or operated by the Partnership, including our Facilities. The policies insure certain pollution conditions at, or migrating from, a
covered location, certain waste transportation and disposal activities, and business interruption.
In addition to the site pollution legal liability insurance policy, we maintain umbrella and excess casualty insurance policies which include sudden and
accidental pollution coverage policies maintained by CVR Energy. This insurance provides coverage due to named perils for claims involving pollutants
where the discharge is sudden and accidental and first commences at a specific day and time during the policy period.
The site pollution legal liability policy and the pollution coverage provided in the casualty insurance policies are subject to retentions and deductibles and
contain discovery requirements, reporting requirements, exclusions, definitions, conditions, and limitations that could apply to a particular pollution claim, and
there can be no assurance such claim will be adequately insured for all potential damages.
Health, Safety, and Security Matters
We are subject to a number of federal and state laws and regulations related to safety, including the Occupational Safety and Health Act, which created the
Occupational Safety and Health Administration (“OSHA”), and comparable state statutes, the purposes of which are to protect the health and safety of
workers. We are also subject to OSHA Process Safety Management regulations, which are designed to prevent or minimize the consequences of catastrophic
releases of toxic, reactive, flammable, or explosive chemicals. We are committed to safe, reliable operations of our facilities to protect the health and safety of
our employees, our contractors, and the communities in which we operate. Our health and safety management system provides a comprehensive approach to
injury, illness and incident prevention, risk assessment and mitigation, and emergency management. Despite our efforts to achieve excellence in our health and
safety performance, there can be no assurances that there will not be accidents resulting in injuries or even fatalities. We routinely audit our programs and seek
to continually improve our management systems.
Our Facilities are subject to the Chemical Facility Anti-Terrorism Standards (“CFATS”), a regulatory program designed to ensure facilities have security
measures in place to reduce the risk that certain hazardous chemicals are weaponized by terrorists. In addition, the East Dubuque Facility is regulated under
the Maritime Transportation Security Act (the “MTSA”). We implement and maintain comprehensive security programs designed to comply with regulatory
requirements and protect our assets and employees.
We routinely assess risk and conduct audits of our programs and seek to continually improve our health, safety, and security management systems.
Human Capital
Core Values
At CVR Partners, our core Values define the way we do business every day. We put Safety first, care for our Environment, require high business ethics
and Integrity consistent with our Code of Ethics and Business Conduct, and are proud members of and good neighbors to the communities where we operate,
and are committed to Corporate Citizenship. We believe in Continuous Improvement for individuals to achieve their maximum potential through teamwork,
diversity and personal development. Our employees provide the energy behind our core Values to achieve excellence for all our key stakeholders – employees,
communities and unitholders. See “Management’s Discussion and Analysis” in Part II, Item 7 of this Report for further discussion on our core Values.
Workforce & Benefits
As of December 31, 2021, we had 296 employees across both Facilities and related marketing and logistics operations, all of which are located in the
United States. Of these, 93 employees are covered by collective bargaining agreements with various labor unions. We may engage independent contractors to
provide flexibility for our business and operating needs. We also rely
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on the services of employees of CVR Energy and its subsidiaries pursuant to a services agreement between us, CVR Energy, and our general partner.
We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees. We are committed to
providing wages and benefits that are competitive with a market-based, pay-for-performance compensation philosophy. We provide paid time off and paid
holidays, a 401(k) Company match program, dependent care flexible spending accounts, and an employee assistance program. In furtherance of our core Value
of continuous improvement, we also offer programs for tuition reimbursement and dependent scholarships. We also offer a remote work policy for eligible
employees to provide our employees with the flexibility that is key to a work-life balance. We encourage all employees to live our core Value of corporate
citizenship by making a positive impact in our communities by taking advantage of our volunteerism policy pursuant to which eligible employees are provided
paid time off from work to volunteer at 501(c)(3) non-profit entities.
Diversity
We are an equal opportunity employer and strive to maintain a diverse and inclusive work environment free from harassment and discrimination
regardless of race, religion, color, age, gender, disability, minority, sexual orientation or any other protected class. Our commitment to diversity and inclusion
helps us attract and retain the best talent, enables employees to realize their full potential, and drives high performance through innovation and collaboration.
We offer diversity training that focuses on unconscious bias where employees learn to recognize and address the effects thereof by encouraging diversity of
experience and opinion. Also, our Diversity & Inclusion Committee fosters innovative actions and promotes inclusiveness throughout our organization.
Health & Safety
We have an unwavering commitment to providing as safe and healthy of a workplace as possible for all employees. We accomplish this through strict
compliance with applicable laws and regulations regarding workplace safety, engaging employee input, and maintaining robust training and emergency
response and disaster recovery plans. We monitor and assess our safety performance by measuring and evaluating injuries, process safety incidents,
environmental events, and other events, as well as by performing compliance audits and risk assessments. We believe these efforts reinforce our safety culture;
promote a safe workplace, accountability, and stronger community relations; and reduce impact to personal safety, process safety, and the environment.
Our commitment to workplace safety was highlighted during the COVID-19 pandemic. Our leadership took immediate action aimed at maintaining a safe
and healthy workplace for our employees and contractors, while continuing operations to meet the needs of our customers. Our cross-functional CVR Crisis
Response Team was immediately activated, and we implemented a variety of policies and practices, including our enhanced entry requirements and return to
the workplace clearance policy. We provided masks, barriers, additional sanitation, and supplies in all common areas and for employee personal use,
implemented social distancing requirements and occupancy limits, and other protective measures. As the pandemic continues to evolve, our Crisis Response
Team remains ready to respond quickly to protect our workforce.
Available Information
Our website address is www.CVRPartners.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of
charge through our website under “Investor Relations,” as soon as reasonably practicable after the electronic filing or furnishing of these reports is made with
the Securities and Exchange Commission (the “SEC”) at www.sec.gov. In addition, our Corporate Governance Guidelines, Codes of Ethics and Business
Conduct, and the charters of the Audit Committee, the Compensation Committee, and the Environmental, Health and Safety Committee of the Board of
Directors of our general partner are available on our website. These guidelines, policies, and charters are also available in print without charge to any
unitholder requesting them. Information on our website is not a part of, and is not incorporated into, this Report or any other report we may file with or furnish
to the SEC, whether before or after the date of this Report and irrespective of any general incorporation language therein.
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Item 1A. Risk Factors
The following risks should be considered together with the other information contained in this Report and all of the information set forth in our filings
with the SEC. If any of the following risks or uncertainties develops into actual events, our business, financial condition or results of operations could be
materially adversely affected. 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.
Risks Related to Our Business
The COVID-19 pandemic, and actions taken in response thereto, could materially adversely affect our business, operations, financial condition,
liquidity, and results of operations.
The COVID-19 pandemic and actions of governments and others in response thereto continues to negatively impact worldwide economic and commercial
activity and financial markets. The COVID-19 pandemic has also resulted in significant business and operational disruptions, including closures, supply chain
disruptions, travel restrictions, stay-at-home orders, and limitations on the availability and effectiveness of the workforce. Further, if general economic
conditions continue to remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be harmed. The full impact
of the COVID-19 pandemic is unknown and is continuously evolving. The extent to which the COVID-19 pandemic negatively impacts our business and
operations, including the availability and pricing of feedstocks, will depend on the severity, location, and duration of the effects and spread of COVID-19 and
variants thereof, the actions undertaken by national, regional, and local governments and health officials to contain such virus or remedy its effects, and if,
how quickly and to what extent economic conditions recover and normal business and operating conditions resume.
Our business is, and nitrogen fertilizer prices are, cyclical and highly volatile, which could have a material adverse effect on our results of operations,
financial condition and cash flows.
Demand for nitrogen fertilizer products is dependent on fluctuating demand for crop nutrients by the global agricultural industry. These fluctuations
historically have had and could in the future have significant effects on prices across all nitrogen fertilizer products and, in turn, our results of operations,
financial condition and cash flows. Nitrogen fertilizer products are commodities, the price of which can be highly volatile. The prices of nitrogen fertilizer
products depend on a number of factors, including general economic conditions, cyclical trends in end-user markets, supply and demand imbalances,
governmental policies, and weather conditions, which have a greater relevance because of the seasonal nature of fertilizer application. If seasonal demand
exceeds the projections on which we base our production levels, customers may acquire nitrogen fertilizer products from competitors, and our profitability
may be negatively impacted. If seasonal demand is less than expected, we may be left with excess inventory that will have to be stored or liquidated. The
international market for nitrogen fertilizers is influenced by such factors as the relative value of the U.S. dollar and its impact upon the cost of importing
nitrogen fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets,
changes in the hard currency demands of certain countries and other regulatory policies of foreign governments, as well as the laws and policies of the U.S.
affecting foreign trade and investment. Supply is affected by available capacity and operating rates, raw material costs, government policies and global trade.
A decrease in nitrogen fertilizer prices would have a material adverse effect on our business, cash flow and ability to make distributions.
Nitrogen fertilizer products and our business face intense competition.
Our business is subject to intense price competition from both U.S. and foreign sources. With little or no product differentiation, customers make their
purchasing decisions principally on the basis of delivered price and availability of the product. Increased global supply or decreases in transportation costs for
foreign sources of fertilizer may put downward pressure on fertilizer prices. We compete with a number of U.S. producers and producers in other countries,
including state-owned and government-subsidized entities that may have greater total resources and are less dependent on earnings from fertilizer sales, which
make them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. In addition, imports of
fertilizer from other countries may be unfairly subsidized, as was found to be the case on November 30, 2021 by the U.S. Department of Commerce (the
“USDOC”) with respect to UAN imports from Russia and Trinidad. An inability to compete successfully could result in a loss of customers, which could
adversely affect our sales, profitability and cash flows and, therefore, have a material adverse effect on our results of operations and financial condition.
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The dynamic pricing environment for nitrogen fertilizer products, as well as any changes to government policy regarding fertilizer pricing in response
thereto, could negatively affect our results of operations.
In light of the recent strong pricing environment, farmers may shift preference to other types of fertilizer products or shift crop rotation to minimize
purchases of nitrogen fertilizer, both of which would negatively affect our sales volumes and revenue. Recent calls for governmental action related to fertilizer
pricing conditions, including related to an investigation of market manipulation and proposals to limit price increases or place a maximum price ceiling or cap
on fertilizer product pricing, would add complexity to the already dynamic global market for nitrogen fertilizer, and if such initiatives were adopted, our
product sales, business and results of operations may be negatively impacted.
Our business is geographically concentrated and is therefore subject to regional economic downturns and seasonal variations, which may affect our
production levels, transportation costs and inventory and working capital levels.
Our sales to agricultural customers are concentrated in the Great Plains and Midwest states, and nitrogen fertilizer demand is seasonal. Our quarterly
results may vary significantly from one year to the next due to weather-related shifts in planting schedules and purchase patterns. Because we build inventory
during low demand periods, the accumulation of inventory to be available for seasonal sales creates significant seasonal working capital and storage capacity
requirements. The degree of seasonality can change significantly from year-to-year due to conditions in the agricultural industry and other factors. As a
consequence of this seasonality, distributions of available cash, if any, may be volatile and may vary quarterly and annually.
Our sales volumes depend on significant customers, and the loss of several significant customers may have a material adverse impact on our results of
operations, financial condition and cash flows.
We have a significant concentration of customers. Our largest customer represented approximately 13% of net sales for the year ended December 31,
2021. Given the nature of our business, and consistent with industry practice, we do not have long-term minimum purchase contracts with our customers. The
loss of several of these significant customers, or a significant reduction in purchase volume by several of them, could have a material adverse effect on our
results of operations, financial condition, and cash flows.
Any decline in U.S. agricultural production or limitations on the use of nitrogen fertilizer for agricultural purposes could have a material adverse effect
on the sales of nitrogen fertilizer, and on our results of operations, financial condition and cash flows.
Conditions in the U.S. agricultural industry significantly impact our operating results. The U.S. agricultural industry can be affected by a number of
factors, including weather patterns and field conditions, current and projected grain inventories and prices, domestic and international population changes,
demand for U.S. agricultural products, U.S., state and foreign policies regarding trade in agricultural products, and changes in governmental regulations and
incentives for corn-based ethanol production that could affect future ethanol demand and production.
State and federal governmental policies, including farm and biofuel subsidies and commodity support programs, as well as the prices of fertilizer
products, may also directly or indirectly influence the number of acres planted, the mix of crops planted and the use of fertilizers for particular agricultural
applications. Developments in crop technology could also reduce the use of chemical fertilizers and adversely affect the demand for nitrogen fertilizer.
Unfavorable state and federal governmental policies could negatively affect nitrogen fertilizer prices and therefore have a material adverse effect on our
results of operations, financial condition and cash flows.
We are subject to cybersecurity risks and other cyber incidents resulting in disruption to our business.
We depend on internal and third-party information technology systems to manage and support our operations, and we collect, process, and retain sensitive
and confidential customer information in the normal course of business. To protect our facilities and systems against and mitigate cyber risk, we have
implemented several programs, including externally performed cyber risk monitoring, audits and penetration testing and an information security training
program, and we are actively engaged in evaluating the implementation of applicable Cybersecurity and Infrastructure Security Agency security standard
guidelines. On an as needed basis, but no less than quarterly, we brief the Audit Committee of the Board on information security matters. Despite these
measures (or those we may implement in the future), our facilities and these systems could be vulnerable to
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security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, or other events. Any disruption of these
systems or security breach or event resulting in the misappropriation, loss or other unauthorized disclosure of confidential information, whether by us directly
or our third-party service providers, could damage our reputation, expose us to the risks of litigation and liability, disrupt our business, or otherwise affect our
results of operations.
Risks Related to Our Plant Operations
Failure by CVR Energy’s Coffeyville refinery to continue to supply us with pet coke could negatively impact our results of operations.
Unlike our competitors, whose primary costs are related to the purchase of natural gas and whose costs are therefore largely variable, our Coffeyville
Facility uses a pet coke gasification process to produce nitrogen fertilizer. Our profitability is directly affected by the price and availability of pet coke
obtained from CVR Energy’s Coffeyville refinery pursuant to a long-term agreement. Our Coffeyville Facility has historically obtained a majority of its pet
coke from CVR Energy’s Coffeyville refinery over the past five years, although this percentage has decreased to 43% in 2021. However, should CVR
Energy’s Coffeyville refinery fail to perform in accordance with the existing agreement or to the extent pet coke from CVR Energy’s Coffeyville refinery is
insufficient, we would need to purchase pet coke from third parties on the open market, which could negatively impact our results of operations to the extent
third-party pet coke is unavailable or available only at higher prices. Currently, we purchase 100% of the pet coke CVR Energy’s Coffeyville refinery
produces. However, we are still required to procure additional pet coke from third parties to maintain our production rates. We are currently party to pet coke
supply agreements with multiple third-party refineries to provide a significant amount of pet coke at fixed prices. The terms of these agreements currently end
in December 2022.
The market for natural gas has been volatile, and fluctuations in natural gas prices could affect our competitive position.
Low natural gas prices benefit our competitors that rely on natural gas as their primary feedstock and disproportionately impact our operations at our
Coffeyville Facility by making us less competitive with natural gas-based nitrogen fertilizer manufacturers. Low natural gas prices could result in nitrogen
fertilizer pricing reductions and impair the ability of the Coffeyville Facility to compete with other nitrogen fertilizer producers who use natural gas as their
primary feedstock, which, therefore, would have a material adverse impact on our results of operations, financial condition and ability to make cash
distributions.
The East Dubuque Facility uses natural gas as its primary feedstock, and as such, the profitability of operating the East Dubuque Facility is significantly
dependent on the cost of natural gas. An increase in natural gas prices could make it less competitive with producers who do not use natural gas as their
primary feedstock. In addition, an increase in natural gas prices in the United States relative to prices of natural gas paid by foreign nitrogen fertilizer
producers may negatively affect our competitive position in the corn belt, and such changes could have a material adverse effect on our results of operations,
financial condition and cash flows.
We expect to purchase a portion of our natural gas for use in the East Dubuque Facility on the spot market. As a result, we remain susceptible to
fluctuations in the price of natural gas in general and in local markets in particular. We may use fixed supply, fixed price forward purchase contracts to lock in
pricing for a portion of its natural gas requirements, but we may not be able to enter into such agreements on acceptable terms or at all. Without forward
purchase contracts for the supply of natural gas, we would need to purchase natural gas on the spot market, which would impair its ability to hedge exposure
to risk from fluctuations in natural gas prices. If we enter into forward purchase contracts for natural gas, and natural gas prices decrease, then its cost of sales
could be higher than it would have been in the absence of the forward purchase contracts.
Any interruption in the supply of natural gas to our East Dubuque Facility could have a material adverse effect on our results of operations and
financial condition.
Our East Dubuque Facility depends on the availability of natural gas. We have two agreements for pipeline transportation of natural gas with expiration
dates in 2022. We typically purchase natural gas from third parties on a spot basis and, from time to time, may enter into fixed-price forward purchase
contracts. Upon expiration of the agreements, we may be unable to extend the service under the terms of the existing agreements or renew the agreements on
satisfactory terms, or at all, necessitating construction of a new connection that could be costly and disruptive. Any disruption in the supply of natural gas to
our East
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Dubuque Facility could restrict our ability to continue to make products at the facility and have a material adverse effect on our results of operations and
financial condition.
If licensed technology were no longer available, our business may be adversely affected.
We have licensed, and may in the future license, a combination of patent, trade secret, and other intellectual property rights of third parties for use in our
plant operations. If our use of technology on which our operations rely were to be terminated or face infringement claims, licenses to alternative technology
may not be available, or may only be available on terms that are not commercially reasonable or acceptable, or in the case of infringement, may result in
substantial costs, all of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Compliance with and changes in environmental laws and regulations, including those related to climate change, could require us to make substantial
capital expenditures and adversely affect our performance.
Our operations are subject to extensive federal, state and local environmental laws and regulations relating to the protection of the environment, including
those governing the emission or discharge of pollutants into the environment, product use and specifications and the generation, treatment, storage,
transportation, disposal and remediation of solid and hazardous wastes. Violations of applicable environmental laws and regulations, or of the conditions of
permits issued thereunder, can result in substantial penalties, injunctive orders compelling installation of additional controls, civil and criminal sanctions,
operating restrictions, injunctive relief, permit revocations and/or facility shutdowns, which may have a material adverse effect on our ability to operate our
facilities and accordingly our financial performance.
In addition, new environmental laws and regulations, new interpretations of existing laws and regulations, or increased governmental enforcement of laws
and regulations could require us to make additional unforeseen expenditures. It is unclear the impact of the new federal administration will have on the laws
and regulations applicable to us, however, measures to address climate change and reduce GHG emissions (including carbon dioxide, methane and nitrous
oxides) are in various phases of discussion or implementation and could affect our operations by requiring increased operating and capital costs and/or
increasing taxes on GHG emissions. If we are unable to maintain sales of our products at a price that reflects such increased costs or have to increase the
prices of our products because of such increased costs, there could be a material adverse effect on our business, financial condition, results of operations and
cash flows.
End user demand for our products may also be adversely impacted by climate change legislation and other changes to or new interpretations of
environmental laws, due to increased costs or application restrictions. From time to time, various state legislatures have proposed bans or other limitations on
fertilizer products. Decreased demand for our products may have a material adverse effect on our results of operations, financial condition and cash flows.
Our operations are dependent on third-party suppliers, which could have a material adverse effect on our results of operations, financial condition and
cash flows.
Operations of our Coffeyville Facility depend in large part on the performance of third-party suppliers, including the adjacent third-party air separation
plant and a third-party electric service provider under a contract through June 30, 2029. Our East Dubuque Facility operations also depend in large part on the
performance of third-party suppliers, including for the purchase of electricity, which we purchase under a utility service agreement that terminates on June 1,
2022 and will continue year-to-year thereafter unless either party provides 12-month advance written notice of termination. Should these, or any of our other
third-party suppliers fail to perform in accordance with existing contractual arrangements, or should we otherwise lose the service of any third-party suppliers,
our operations (or a portion thereof) could be forced to halt. Alternative sources of supply could be difficult to obtain. Any shutdown of our operations (or a
portion thereof), even for a limited period, could have a material adverse effect on our results of operations, financial condition and ability to make cash
distributions.
We rely on third-party providers of transportation services and equipment, which subjects us to risks and uncertainties beyond our control and that may
have a material adverse effect on our results of operations, financial condition and ability to make distributions.
Our business also relies on third-party railroad, trucking, and barge companies to ship finished products to customers. These transportation services are
subject to various hazards, including extreme weather conditions, work stoppages, delays, spills, derailments and other accidents, and other operating hazards.
Further, the limited number of towing companies and
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barges available for ammonia transport may also impact the availability of transportation for our products. These transportation operations, equipment and
services are also subject to environmental, safety and other regulatory oversight. Due to concerns related to terrorism or accidents, local, state and federal
governments could implement new regulations affecting the transportation of our finished products. In addition, new regulations could be implemented
affecting the equipment used to ship our finished products. Any delay in our ability to ship our finished products as a result of these transportation companies’
failure to operate properly, the implementation of new and more stringent regulatory requirements affecting transportation operations or equipment, or
significant increases in the cost of these services or equipment could have a material adverse effect on our results of operations, financial condition and ability
to make cash distributions.
Any liability for accidents involving ammonia or other products we produce or transport that cause severe damage to property or injury to the
environment and human health could have a material adverse effect on our results of operations, financial condition and ability to make cash
distributions.
Our business manufactures, processes, stores, handles, distributes and transports ammonia, which can be very volatile and extremely hazardous. Major
accidents or releases involving ammonia could cause severe damage or injury to property, the environment and human health, as well as a possible disruption
of supplies and markets. Such an event could result in civil lawsuits, fines, penalties and regulatory enforcement proceedings, all of which could lead to
significant liabilities. Any damage or injury to persons, equipment, or property or other disruption of our ability to produce or distribute products could result
in a significant decrease in operating revenues and significant additional costs to replace or repair and insure our assets, which could have a material adverse
effect on our results of operations, financial condition and ability to make cash distributions. Our facilities periodically experience minor releases of ammonia
related to leaks from our facilities’ equipment. Similar events may occur in the future.
In addition, we may incur significant losses or increased costs relating to the operation of railcars used for the purpose of carrying various products,
including ammonia. Due to the dangerous and potentially hazardous nature of the cargo, in particular ammonia, a railcar accident may result in fires,
explosions, and releases of material which could lead to sudden, severe damage or injury to property, the environment, and human health. In the event of
contamination, under environmental law, we may be held responsible even if we are not at fault, and we complied with the laws and regulations in effect at the
time of the accident. Litigation arising from accidents involving ammonia and other products we produce or transport may result in us being named as a
defendant in lawsuits asserting claims for substantial damages, which could have a material adverse effect on our results of operations, financial condition and
ability to make cash distributions.
We could incur significant costs in cleaning up contamination.
We handle hazardous substances which may result in spills, discharges or other releases of hazardous substances into the environment. Past or future
spills related to or migrating from any of our current or former operations and solid or hazardous waste disposal, may give rise to liability (including for
personal injury, property damage, penalties, strict liability, and potential cleanup responsibility) to governmental entities or private parties under federal, state
or local environmental laws, as well as under common law. For example, we could be held strictly liable under CERCLA, and similar state statutes, for past or
future spills without regard to fault or whether our actions were in compliance with the law at the time of the spills, including in connection with
contamination associated with our current and former facilities, and facilities to which we transported or arranged for the transportation of wastes or
byproducts containing hazardous substances for treatment, storage, or disposal. Such liability could have a material adverse effect on our results of operations,
financial condition and cash flows and may not be covered by insurance.
The Coffeyville Facility has entered into an agreement with the Kansas Department of Health and Environment (“KDHE”) to address certain historical
releases of UAN located on our property and comingled with legacy groundwater contamination from CVR Energy’s adjacent Coffeyville refinery. The
cleanup provisions of our agreement with KDHE are held in abeyance so long as the Coffeyville refinery conducts corrective action for these comingled
historical releases in accordance with its Resource Conservation and Recovery Act Permit. There is no assurance that the Coffeyville refinery will comply
with its Permit conditions in the future, which may trigger enforcement of the cleanup provisions of our agreement with KDHE.
We may be unable to obtain or renew permits or approvals necessary for our operations, which could inhibit our ability to do business.
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Our business holds numerous environmental and other governmental permits and approvals authorizing operations at our facilities and future expansion
of our operations is predicated upon the ability to secure approvals therefore. A decision by a government agency to deny or delay issuing a new or renewed
material permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue
operations and on our financial condition, results of operations and cash flows.
Regulations concerning the transportation, storage and handling of hazardous chemicals, risks of terrorism, and the security of chemical
manufacturing facilities could result in higher operating and/or capital costs.
Critical infrastructure such as chemical manufacturing facilities may be at greater risk of terrorist attacks than other businesses in the U.S. As a result, the
chemical industry is subject to security regulations relating to physical and cyber security. The costs of compliance therewith may have a material adverse
effect on our financial condition.
Our facilities face significant risks due to physical damage hazards, environmental liability risk exposure, and unplanned or emergency partial or total
plant shutdowns which could cause property damage and a material decline in production which are not fully insured.
If any of our plants, logistics assets, or key suppliers sustain a catastrophic loss and operations are shutdown or significantly impaired, it would have a
material adverse impact on our operations, financial condition and cash flows. Operations at our plant could be curtailed, limited or completely shut down for
an extended period of time as the result of one or more unforeseen events and circumstances, which may not be within our control, including: major unplanned
maintenance requirements; catastrophic events caused by mechanical breakdown, electrical injury, pressure vessel rupture, explosion, contamination, fire, or
natural disasters, including floods, windstorms, and other similar events; labor supply shortages or labor difficulties that result in a work stoppage or
slowdown; cessation or suspension of a plant or specific operations dictated by environmental authorities; acts of terrorism or other deliberate malicious acts;
and an event or incident involving a large clean-up, decontamination, or the imposition of laws and ordinances regulating the cost and schedule of demolition
or reconstruction, which can cause significant delays in restoring property to its pre-event condition.
We are insured under casualty, environmental, property and business interruption insurance policies. The property and business interruption policies
insure our real and personal property. These policies are subject to limits, sub-limits, retention (financial and time-based), and deductibles. The application of
these and other policy conditions could materially impact insurance recoveries and potentially cause us to assume losses which could impair earnings. There is
potential for a common occurrence to impact both our Coffeyville Facility and CVR Energy’s Coffeyville refinery in which case the insurance limits and
applicable sub-limits would apply to all damages combined.
There is finite capacity in the commercial insurance industry engaged in underwriting chemical industry risk, and factors impacting cost and availability
include: (i) losses in our industries, (ii) natural disasters, (iii) specific losses incurred by us, and (iv) inadequate investment returns earned by the insurance
industry. If the supply of commercial insurance is curtailed, we may not be able to continue our present limits of insurance coverage or obtain sufficient
insurance capacity to adequately insure our risks.
We are subject to strict laws and regulations regarding employee and process safety, and failure to comply with these laws and regulations could have a
material adverse effect on our results of operations, financial condition and profitability.
We are subject to the requirements of OSHA and comparable state statutes that regulate the protection of the health and safety of workers, the proper
design, operation, and maintenance of our equipment, and require us to provide information about hazardous materials used in our operations. Failure to
comply with these requirements may result in significant fines or compliance costs, which could have a material adverse effect on our results of operations,
financial condition and cash flows.
A significant portion of our workforce is unionized, and we are subject to the risk of labor disputes and adverse employee relations, which may disrupt
our business and increase our costs.
As of December 31, 2021, approximately 31% of our employees were represented by labor unions under collective bargaining agreements. We may not
be able to renegotiate our collective bargaining agreements when they expire on satisfactory terms or at all. A failure to do so may increase our costs. In
addition, our existing labor agreements may not prevent
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a strike or work stoppage at any of our facilities in the future, and any work stoppage could negatively affect our results of operations, financial condition and
cash flows.
Risks Related to Our Capital Structure
Instability and volatility in the capital, credit, and commodity markets in the global economy could negatively impact our business, financial condition,
results of operations and cash flows.
Our business, financial condition and results of operations could be negatively impacted by difficult conditions and volatility in the capital, credit, and
commodities markets and in the global economy. For example: there can be no assurance that funds under our credit facilities will be available or sufficient,
and in such a case, we may not be able to successfully obtain additional financing on favorable terms, or at all; market volatility could exert downward
pressure on our common units, which may make it more difficult for us to raise additional capital and thereby limit our ability to grow, which could in turn
cause our unit price to drop; or customers experiencing financial difficulties may fail to meet their financial obligations when due because of bankruptcy, lack
of liquidity, operational failure or other reasons could result in decreased sales and earnings for us.
Our level of indebtedness may affect our ability to operate our business and may have a material adverse effect on our financial condition and results of
operations.
We have incurred significant indebtedness, and we may be able to incur significant additional indebtedness in the future. If new indebtedness is added to
our current indebtedness, the risks described below could increase. Our level of indebtedness could have important consequences, such as: (i) limiting our
ability to obtain additional financing to fund our working capital needs, capital expenditures, debt service requirements, acquisitions, or other purposes; (ii)
requiring us to utilize a significant portion of our cash flows to service our indebtedness, thereby reducing available cash and our ability to make distributions
on our common units; (iii) limiting our ability to use operating cash flow in other areas of the business because we must dedicate a substantial portion of
additional funds to service debt; (iv) limiting our ability to compete with other companies who are not as highly leveraged, as we may be less capable of
responding to adverse economic and industry conditions; (v) limiting our ability to make certain payments on debt that is subordinated or secured on a junior
basis; (vi) restricting the way in which we conduct business because of financial and operating covenants, including regarding the ability of subsidiaries to pay
dividends or make other distributions; (vii) limiting our ability to enter into certain transactions with our affiliates; (viii) limiting our ability to designate our
subsidiaries as unrestricted subsidiaries; (ix) exposing us to potential events of default (if not cured or waived) under financial and operating covenants
contained in our or our respective subsidiaries’ debt instruments; and (x) limiting our ability to react to changing market conditions.
Further, we are and will be subject to covenants contained in agreements governing present and future indebtedness. These covenants include, and will
likely include, restrictions on certain payments (including restrictions on distributions to our unitholders), the granting of liens, the incurrence of additional
indebtedness, asset sales, transactions with affiliates, and mergers and consolidations. Any failure to comply with these covenants could result in a default
under our current credit agreements or debt instruments or future credit agreements.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our debt obligations
that may not be successful.
Our ability to satisfy debt obligations will depend upon, among other things, our future financial and operating performance, which will be affected by
prevailing economic conditions and financial, business, regulatory, and other factors, many of which are beyond our control; and our future ability to obtain
other financing. We cannot offer any assurance that our business will generate sufficient cash flow from operations or that we will be able to draw funds under
our ABL Credit Facility or from other sources of financing, in an amount sufficient to fund our liquidity needs. If cash flows and capital resources are
insufficient to service our indebtedness, we could face substantial liquidity problems and may be forced to reduce or delay capital expenditures, sell assets,
seek additional capital, restructure or refinance indebtedness, or seek bankruptcy protection. These alternative measures may not be successful and may not
permit us to meet scheduled debt service and other obligations. Our ability to restructure or refinance debt will depend on the condition of the capital markets
and our financial condition at such time. Any refinancing of debt could be at higher interest rates and may require us to comply with more onerous covenants,
which could further restrict business operations, and the terms of existing or future debt agreements may restrict us from adopting some of these alternatives.
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Further, our ABL Credit Facility bears interest at variable rates and other debt we incur could likewise be variable-rate debt. If market interest rates
increase, variable-rate debt will create higher debt service requirements, which could adversely affect our ability to fund our liquidity needs, capital
investments, and distributions to our unitholders. We may enter into agreements limiting our exposure to higher interest rates, but any such agreements may
not offer complete protection from this risk.
Mr. Carl C. Icahn exerts significant influence over the Partnership through his controlling ownership of CVR Energy, and his interests may conflict
with the interests of the Partnership and our unitholders.
Mr. Carl C. Icahn indirectly controls approximately 71% of the voting power of CVR Energy’s common stock and, by virtue of such ownership, is able to
control the Partnership through CVR Energy’s ownership of our general partner and its sole member, including: the election and appointment of directors;
business strategy and policies; mergers or other business combinations; acquisition or disposition of assets; future issuances of common stock, common units,
or other securities; incurrence of debt or obtaining other sources of financing; and the payment of distributions on our common units. The existence of a
controlling stockholder may have the effect of making it difficult for, or may discourage or delay, a third-party from seeking to acquire a majority of our
common units, which may adversely affect the market price of such common units.
Further, Mr. Icahn’s interests may not always be consistent with the Partnership’s interests or with the interests of our common unitholders. Mr. Icahn and
entities controlled by him may also pursue acquisitions or business opportunities in industries in which we compete, and there is no requirement that any
additional business opportunities be presented to us. We also have and may in the future enter into transactions to purchase goods or services with affiliates of
Mr. Icahn. To the extent that conflicts of interest may arise between us and Mr. Icahn and his affiliates, those conflicts may be resolved in a manner adverse to
us and our common unitholders.
Risks Related to Our Limited Partnership Structure
We may not have sufficient “available cash” to pay any quarterly distribution on common units or the Board may elect to distribute less than all of our
available cash.
The current policy of the board of directors of our general partner (“Board”) is to distribute an amount equal to the available cash generated by our
business each quarter to our common unitholders. As a result of its cash distribution policy, we will likely need to rely primarily upon external financing
sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion capital expenditures, and
our growth, if any, may not be as robust as that of businesses that reinvest available cash to expand ongoing operations. We may not have sufficient available
cash each quarter to enable the payment of distributions to common unitholders. Furthermore, the partnership agreement does not require us to pay
distributions on a quarterly basis or otherwise. As such, the Board may modify or revoke its cash distribution policy at any time at its discretion, including in
such a manner that would result in an elimination of cash distributions regardless of the amount of available cash our business generates.
To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures or as in-kind distributions, current
unitholders would experience dilution and the payment of distributions on those additional units may decrease the amount we distribute in respect of its
outstanding units. Under our partnership agreement, we are authorized to issue an unlimited number of additional interests without a vote of the common
unitholders. The issuance by us of additional common units or other equity interests of equal or senior rank would reduce the proportionate ownership interest
of common unitholders immediately prior to the issuance. As a result of the issuance of common units, the following may occur: the amount of cash
distributions on each common unit may decrease; the ratio of our taxable income to distributions may increase; the relative voting strength of each previously
outstanding common unit will be diminished; and the market price of the common units may decline. In addition, our partnership agreement does not prohibit
the issuance by our subsidiaries of equity interests, which may effectively rank senior to the common units. The incurrence of additional commercial
borrowings or other debt to finance its growth strategy would result in increased interest expense, which, in turn, would reduce the available cash we have to
distribute to unitholders.
Our partnership agreement has limited our general partner’s liability, replaces default fiduciary duties, and restricts the remedies available to common
unitholders for actions that, without these limitations and reductions, might otherwise constitute breaches of fiduciary duty.
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As permitted under Delaware law, our partnership agreement, which applies to and binds common unitholders, limits the liability and replaces the
fiduciary duties of our general partner, while also restricting the remedies available to our common unitholders for actions that, without these limitations and
reductions, might constitute breaches of fiduciary duty. The partnership agreement contains provisions that replace the standards to which our general partner
would otherwise be held by state fiduciary duty law. For example: (i) the partnership agreement permits our general partner to make a number of decisions in
its individual capacity, as opposed to its capacity as general partner, which entitles our general partner to consider only the interests and factors that it desires
and means that it has no duty or obligation to give any consideration to any interest of, or factors affecting, any limited partner; (ii) the partnership agreement
provides that our general partner will not have any liability to unitholders for decisions made in its capacity as general partner so long as it acted in good faith,
meaning it believed the decision was in our best interest; (iii) the partnership agreement provides that our general partner and the officers and directors of its
general partner will not be liable for monetary damages to common unitholders, including us, for any acts or omissions unless there has been a final and non-
appealable judgment entered by a court of competent jurisdiction determining that the general partner or its officers or directors acted in bad faith or engaged
in fraud or willful misconduct, or in the case of a criminal matter, acted with knowledge that the conduct was criminal; (iv) the partnership agreement
generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of its
general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from
unrelated third parties or be “fair and reasonable” to us, as determined by its general partner in good faith, and that, in determining whether a transaction or
resolution is “fair and reasonable,” the general partner may consider the totality of the relationships between the parties involved, including other transactions
that may be particularly advantageous or beneficial to affiliated parties, including us; and (v) the partnership agreement provides that in resolving conflicts of
interest, it will be presumed that in making its decision, the general partner or its conflicts committee acted in good faith, and in any proceeding brought by or
on behalf of any holder of common units, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Our general partner, an indirect wholly-owned subsidiary of CVR Energy, has fiduciary duties to CVR Energy and its stockholders, and the interests of
CVR Energy and its stockholders may differ significantly from, or conflict with, the interests of our public common unitholders.
Our general partner is responsible for managing us. Although our general partner has fiduciary duties to manage us in a manner that is in our best
interests, the fiduciary duties are specifically limited by the express terms of our partnership agreement, and the directors and officers of our general partner
also have fiduciary duties to manage our general partner in a manner beneficial to CVR Energy and its stockholders. The interests of CVR Energy and its
stockholders may conflict with, the interests of our public common unitholders. In resolving these conflicts, our general partner may favor its own interests,
the interests of CVR Services, its sole member, or the interests of CVR Energy and holders of CVR Energy’s common stock, including its majority
stockholder, an affiliate of Icahn Enterprises L.P., over our interests and those of our common unitholders..
The potential conflicts of interest include, among others, the following: (i) neither our partnership agreement nor any other agreement requires the owners
of our general partner, including CVR Energy, to pursue a business strategy that favors us and the affiliates of our general partner, including CVR Energy,
have fiduciary duties to make decisions in their own best interests and in the best interest of holders of CVR Energy’s common stock, which may be contrary
to our interests (ii) our general partner is allowed to take into account the interests of parties other than us or our common unitholders, such as its owners or
CVR Energy, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our common unitholders; (iii) our general partner has
limited its liability and reduced its fiduciary duties under our partnership agreement and has also restricted the remedies available to our common unitholders
for actions that, without the limitations, might constitute breaches of fiduciary duty; (iv) the Board determines the amount and timing of asset purchases and
sales, capital expenditures, borrowings, repayment of indebtedness, and issuances of additional partnership interests, each of which can affect the amount of
cash that is available for distribution to our common unitholders; (v) our partnership agreement does not restrict our general partner from causing us to pay it
or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf and there is no
limitation on the amounts that can be paid; (vi) our general partner controls the enforcement of obligations owed to us by it and its affiliates, and decides
whether to retain separate counsel or others to perform services for us; (vii) our general partner determines which costs incurred by it and its affiliates are
reimbursable by us; and (viii) certain of the executive officers of our general partner also serve as executive officers of CVR Energy, including our executive
chairman, who will face conflicts of interest when making decisions which may benefit either us or CVR Energy. Additionally, the compensation of such
executive officers is set by CVR Energy, and we have no control over the amount paid to such officers.
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CVR Energy has the power to elect all of the members of the Board. Our general partner has control over all decisions related to our operations. Our
public common unitholders do not have an ability to influence any operating decisions and will not be able to prevent us from entering into any transactions.
Certain subsidiaries of CVR Energy perform certain corporate services for us, including finance, accounting, legal, information technology, auditing, and cash
management activities, and we could be impacted by any failure of those entities to adequately perform these services.
If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, which it may assign to
any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by public common unitholders at a price not
less than their then-current market price, as calculated pursuant to the terms of our partnership agreement. As a result, each holder of our common units may
be required to sell such holder’s common units at an undesirable time or price and may not receive any return on investment, and may also incur a tax liability
upon a sale of its common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by
it upon exercise of the call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units
and then exercising its call right. Our general partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this
right.
Our general partner may transfer its general partner interest in us to a third-party, including in a merger or in a sale of all or substantially all of its assets
without the consent of our common unitholders. The new equity owner of our general partner would then be in a position to replace the board of directors and
the officers of our general partner with its own choices and to influence their decisions. If control of our general partner were transferred to an unrelated third-
party, the new owner would have no interest in CVR Energy and CVR Energy could, upon 90 days’ notice, terminate the services agreement pursuant to
which it provides us with the services of its senior management team.
As a publicly traded partnership we qualify for certain exemptions from many of the NYSE’s corporate governance requirements.
As a publicly traded partnership, we qualify for certain exemptions from the NYSE’s corporate governance requirements, which include the requirements
that (i) a majority of the Board consist of independent directors and (ii) the Board have a nominating/corporate governance committee and compensation
committee that are composed entirely of independent directors. Our general partner’s board of directors has not and does not currently intend to establish a
nominating/corporate governance committee and we could avail ourselves of the additional exemptions available to publicly traded partnerships at any time in
the future. Accordingly, common unitholders do not have the same protections afforded to equity holders of companies that are subject to all of the corporate
governance requirements of the NYSE.
Our public common unitholders have limited voting rights and are not entitled to elect our general partner or our general partner’s directors and do not
have sufficient voting power to remove our general partner without CVR Energy’s consent.
Unlike the holders of common stock in a corporation, our common unitholders have only limited voting rights on matters affecting our business and,
therefore, limited ability to influence management’s decisions. Our common unit holders do not choose the Members of the Board do not elect directors or
participate in other matters routinely conducted at annual meetings of stockholders, and have no practical ability to remove our general partner without the
consent of CVR Energy. As a result of these limitations, the price at which the common units will trade could be diminished. Our partnership agreement
restricts common unitholders’ voting rights by providing that any units held by a person that owns 20% or more of any class of units then outstanding, other
than our general partner, its affiliates, their transferees, and persons who acquired such units with the prior approval of the Board, may not vote on any matter.
Our partnership agreement also contains provisions limiting the ability of common unitholders to call meetings or to acquire information about our operations,
and to influence the manner or direction of management.
Common unitholders may have liability to repay distributions.
In the event that: (i) we make distributions to our common unitholders when our nonrecourse liabilities exceed the sum of (a) the fair market value of our
assets not subject to recourse liability and (b) the excess of the fair market value of our assets subject to recourse liability over such liability, or a distribution
causes such a result, and (ii) a common unitholder knows at the time of the distribution of such circumstances, such common unitholder will be liable for a
period of three years from the time of the impermissible distribution to repay the distribution under Section 17-607 of the Delaware Act. Likewise, upon the
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winding up of the partnership, in the event that (i) we do not distribute assets in the following order: (a) to creditors in satisfaction of their liabilities; (b) to
partners and former partners in satisfaction of liabilities for distributions owed under our partnership agreement; (c) to partners for the return of their
contribution; and finally (d) to the partners in the proportions in which the partners share in distributions; and (ii) a common unitholder knows at the time of
such circumstances, then such common unitholder will be liable for a period of three years from the impermissible distribution to repay the distribution under
Section 17-807 of the Delaware Act.
Tax Risks Related to Common Unitholders
If the IRS were to treat us as a corporation for U.S. federal income tax purposes or we become subject to entity-level taxation for state tax purposes, our
cash available for distribution to our common unitholders would be substantially reduced, likely causing a substantial reduction in the value of our
common units.
The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federal
income tax purposes. Despite the fact that we are organized as a limited partnership under Delaware law, we would be treated as a corporation for U.S. federal
income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations, we believe we satisfy the qualifying income
requirement. Although we have received favorable private letter rulings from the IRS with respect to certain of our operations, no ruling has been or will be
requested regarding our treatment as a partnership for U.S. federal income tax purposes. Failing to meet the qualifying income requirement or a change in
current law (which could be retroactive) could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation
at the corporate tax rate and distributions to our common unitholders would generally be taxed again as corporate distributions, and no income, gains, losses,
or deductions would flow through to our common unitholders. Because a tax would be imposed upon us as a corporation, our cash available for distribution to
our common unitholders would be substantially reduced and result in a material reduction in the anticipated cash flow and after-tax return to our common
unitholders, likely causing a substantial reduction in the value of our common units. At the state level, several states have been evaluating ways to subject
partnerships to entity-level taxation through the imposition of state income, franchise, or other forms of taxation. We currently own assets and conduct
business in several states, many of which impose a margin or franchise tax. In the future, we may expand our operations. Imposition of a similar tax on us in
other jurisdictions that we may expand could substantially reduce our cash available for distribution to our common unitholders.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it may assess and collect any taxes
(including any applicable penalties and interest) resulting from such audit adjustments directly from us, in which case our cash available for distribution
to our common unitholders might be substantially reduced and our current and former common unitholders may be required to indemnify us for any
taxes (including any applicable penalties and interest) resulting from such audit adjustments that were paid on such common unitholders’ behalf.
For tax years beginning after December 31, 2017, the IRS (and some states) may assess and collect from us taxes (including any applicable penalties and
interest) resulting from audit adjustments to our income tax returns. Our general partner may elect to either pay the taxes (including any applicable penalties
and interest) directly to the IRS or, if we are eligible, issue a revised information statement to each common unitholder and former common unitholder with
respect to an audited and adjusted return. There can be no assurance that such an election to allocate the audit adjustment and tax payment obligation to our
current and former common unitholders will be practical, permissible, or effective in all circumstances. As a result, our current common unitholders may bear
some or all of the tax liability resulting from such audit adjustment, even if they did not own common units in us during the tax year under audit. If, as a result
of any such audit adjustment, we are required to make payments of taxes, penalties, and interest, our cash available for distribution to our common unitholders
might be substantially reduced and our current and former unitholders may be required to indemnify us for any taxes (including any applicable penalties and
interest) resulting from such audit adjustments that were paid on such unitholders behalf.
Our unitholders are required to pay income taxes on their share of our taxable income even if they do not receive any cash distributions from us.
A unitholder’s allocable share of our taxable income will be taxable to it, which may require the unitholder to pay federal income taxes and, in some
cases, state and local income taxes, even if the unitholder receives no cash distributions or cash distributions from us that are less than the actual tax liability
that results from that income. For example, if we sell assets and use the proceeds to repay existing debt or fund capital expenditures, you may be allocated
taxable income and gain resulting from the sale, and our cash available for distribution would not increase. Similarly, taking advantage of opportunities to
reduce
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our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt could result in “cancellation of indebtedness income” being
allocated to our common unitholders as taxable income without any increase in our cash available for distribution.
Common unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
In general, we are entitled to a deduction for interest paid or accrued on indebtedness properly allocable to our trade or business during our taxable year.
However, for taxable years beginning after December 31, 2017, our deduction for “business interest” is limited to the sum of our business interest income and
30% of our “adjusted taxable income.” For the purposes of this limitation, our adjusted taxable income is computed without regard to any business interest
expense or business interest income, and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation,
amortization, or depletion.
Non-U.S. common unitholders will be subject to U.S. taxes and withholding with respect to their income and gain from owning our common units.
Non-U.S. common unitholders are generally taxed and subject to income tax filing requirements by the United States on income effectively connected
with a U.S. trade or business (“effectively connected income”). Income allocated to our common unitholders and any gain from the sale of our common units
will generally be considered to be “effectively connected” with a U.S. trade or business. As a result, distributions to a Non-U.S. common unitholder will be
subject to withholding at the highest applicable effective tax rate, and a Non-U.S. common unitholder who sells or otherwise disposes of a common unit will
also be subject to U.S. federal income tax on the gain realized from the sale or disposition of that common unit.
The Tax Cuts and Jobs Act imposes a withholding obligation of 10% of the amount realized upon a Non-U.S. common unitholder’s sale or exchange of an
interest in a partnership that is engaged in a U.S. trade or business, effective January 1, 2022 per final Regulations. Non-U.S. common unitholders should
consult a tax advisor before investing in our common units.
Tax-exempt entities face unique tax issues from owning our common units that may result in adverse tax consequences.
Investment in our common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts, raises unique issues. For
example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax will be unrelated business taxable income and
will be taxable. Further, with respect to taxable years beginning after December 31, 2017, a tax-exempt entity with more than one unrelated trade or business
(including by attribution from investment in a partnership such as ours that is engaged in one or more unrelated trade or business) is required to compute the
unrelated business taxable income of such tax-exempt entity separately with respect to each such trade or business (including for purposes of determining any
net operating loss deduction). As a result, for years beginning after December 31, 2017, it may not be possible for tax-exempt entities to utilize losses from an
investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa.
The IRS may challenge our treatment of each purchaser of our common units as having the same tax benefits without regard to the common units
actually purchased, which could adversely affect the value of our common units.
Because we cannot match transferors and transferees of common units, we have adopted certain methods for allocating depreciation and amortization
deductions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to the use of these methods could adversely affect
the amount of tax benefits available to our common unitholders. It also could affect the timing of these tax benefits or the amount of gain from any sale of
common units and could have a negative impact on the value of our common units or result in audit adjustments to a common unitholder’s tax returns.
Our proration methods may be challenged by the IRS, which could change the allocation of items of income, gain, loss, and deduction among our
common unitholders.
We generally (i) prorate our items of income, gain, loss, and deduction between transferors and transferees of our common units; and (ii) allocate certain
deductions for depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets, and, in the discretion of the general partner,
any other extraordinary item of income, gain, loss, or deduction, each month based upon the ownership of our units on the first day of each month (the
“Allocation Date”), instead of on the basis of the date a particular common unit is transferred. Treasury Regulations allow a similar monthly simplifying
convention, but such
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regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change
the allocation of items of income, gain, loss, and deduction among our common unitholders.
IRS challenge of certain valuation methodologies we have adopted to determine a unitholder’s allocations of income, gain, loss, and deduction, could
adversely affect the value of our common units.
In determining the items of income, gain, loss, and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets
and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders. The IRS may challenge our valuation methods and
allocations. A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our
unitholders, the amount of taxable gain from our unitholders’ sale of common units, and the value of the common units or result in audit adjustments to our
unitholders’ tax returns without the benefit of additional deductions.
Our common unitholders will likely be subject to state and local taxes, as well as income tax return filing requirements, in jurisdictions where they do
not live as a result of investing in our common units.
In addition to U.S. federal income taxes, our common unitholders may be subject to other taxes, including foreign, state, and local taxes, unincorporated
business taxes, and estate, inheritance, or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or
in the future, even if they do not live in any of those jurisdictions, will likely be required to file foreign, state, and local income tax returns and pay state and
local income taxes in some or all of these various jurisdictions, and may be subject to penalties for failure to comply with those requirements.
General Risks Related to the Partnership
The acquisition and expansion strategy of our business involves significant risks that could have a material adverse effect on our results of operations,
financial condition and cash flows.
From time to time, we may consider pursuing acquisitions and expansion projects (“Expansion Projects”) to continue to grow and increase profitability.
However, we may not be able to consummate such Expansion Projects due to intense competition for suitable acquisition targets; the potential unavailability
of necessary financial resources; difficulties in identifying suitable Expansion Projects or in completing them on sufficiently favorable terms; and the failure to
obtain requisite regulatory approvals. In addition, any Expansion Projects may entail significant transaction costs and risks associated with entry into new
markets and lines of business, including but not limited to, new regulatory obligations and risks.
In the case of an acquisition, integration of acquired entities can involve significant difficulties, such as: disruption of the ongoing operations; failure to
achieve cost savings or other financial or operating objectives contributing to the accretive nature of an acquisition; strain on operational and managerial
controls, procedures and management; difficulties in the integration and retention of customers or personnel; assumption of unknown material liabilities or
regulatory non-compliance issues; amortization of acquired assets, which would reduce future reported earnings; and possible adverse short-term effects on
our cash flows or operating results.
When considering potential Expansion Projects, will also consider impact on our tax treatment as a partnership for federal income tax purposes. If we are
unable to conclude that the activities of the Expansion Project would not affect our treatment as a partnership for federal income tax purposes, we may elect to
seek a ruling from the Internal Revenue Service (“IRS”). Seeking such a ruling could be costly or, in the case of competitive acquisitions, place the business in
a competitive disadvantage compared to other potential acquirers who do not seek such a ruling. If we are unable to conclude that an activity would not affect
our treatment as a partnership for federal income tax purposes and are unable or unwilling to obtain an IRS ruling, we may choose to acquire such business or
develop such expansion project in a corporate subsidiary, which would subject the income related to such activity to entity-level taxation, which would reduce
the amount of cash available for distribution to our common unitholders and could likely cause a substantial reduction in the value of our common units.
Internally generated cash flows and other sources of liquidity may not be adequate for our capital needs.
Our business is capital intensive and working capital needs may vary significantly over relatively short periods of time. For instance, nitrogen fertilizer
demand volatility can significantly impact working capital on a week-to-week and month-to-month basis. If we cannot generate adequate cash flow or
otherwise secure sufficient liquidity to meet our working capital needs or
December 31, 2021 | 25
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support our short-term and long-term capital requirements, we may be unable to meet our debt obligations, pursue our business strategies, or comply with
certain environmental standards, which would have a material adverse effect on our business and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Refer to Part I, Item 1, “Facilities” of this Report for more information on our core business properties. CVR Energy also leases property for our
executive and marketing offices in Sugar Land, Texas and Kansas City, Kansas, respectively.
Item 3. Legal Proceedings
In the ordinary course of business, we may become party to lawsuits, administrative proceedings, and governmental investigations, including
environmental, regulatory, and other matters. Large, and sometimes unspecified, damages or penalties may be sought from us in some matters and certain
matters may require years to resolve. Refer to Part II, Item 8, Note 2 (“Summary of Significant Accounting Policies”), Loss Contingencies for further
discussion on current litigation matters. Although we cannot provide assurance, we believe that an adverse resolution of the matters described therein would
not have a material impact on our liquidity, consolidated financial position, or consolidated results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
December 31, 2021 | 26
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PART II
Item 5. Market For Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities
Performance Graph
The performance graph below compares the cumulative total return of the Partnership’s common units to (a) the cumulative total return of the S&P 500
Composite Index and (b) a composite peer group (“Peer Group”) consisting of The Mosaic Company, CF Industries Holdings, Inc., Intrepid Potash, Inc., and
Arcadia Biosciences, Inc. The graph assumes that the value of the investment in common units and each index was $100 on December 31, 2016 and that all
distributions were reinvested. Investment is weighted on the basis of market capitalization.
The unit price performance shown on the graph is not necessarily indicative of future price performance. Information used in the graph was obtained from
Yahoo! Finance (finance.yahoo.com). The performance graph above is furnished and not filed for purposes of the Securities Act and the Exchange Act. The
performance graph is not soliciting material subject to Regulation 14A.
Market Information
CVR Partners’ common units are listed under the symbol “UAN” on the New York Stock Exchange (“NYSE”). The Partnership has 27 holders of record
of the outstanding units as of December 31, 2021.
Equity Compensation Plan
The CVR Partners Long-Term Incentive Plan (“CVR Partners LTIP”) provides for the grant of options, unit appreciation rights, distribution equivalent
rights, restricted units, phantom units and other unit-based awards, each in respect of common units. Individuals who are eligible to receive awards under the
CVR Partners LTIP include employees, officers, consultants and directors of CVR Partners and the general partner and their respective subsidiaries and
parents. A maximum of 500,000 common units are issuable under the CVR Partners LTIP.
December 31, 2021 | 27
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The table below contains information about securities authorized for issuance under the CVR Partners LTIP as of December 31, 2021.
Plan Category
Equity compensation plans approved by security holders:
CVR Partners, LP Long-Term Incentive Plan
Equity compensation plans not approved by security holders:
None
Total
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants, and Rights
Weighted-Average Exercise
Price of Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for Future
Issuance Under Equity
Compensation Plans
—
—
—
—
—
—
482,022
(1)
—
482,022
(1) Represents units that remain available for future issuance pursuant to the CVR Partners LTIP in connection with awards of options, unit appreciation rights, distribution
equivalent rights, restricted units, and phantom units.
Item 6. [Reserved]
Item 7. 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 flow should be read in conjunction with our consolidated
financial statements and related notes and with the statistical information and financial data included elsewhere in this Report. 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.
This discussion and analysis covers the years ended December 31, 2021 and 2020 and discusses year-to-year comparisons between such periods. The
discussions of the year ended December 31, 2019 and year-to-year comparisons between the years ended December 31, 2020 and 2019 that are not included
in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II,
Item 7 of the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed on February 23, 2021, and such discussions are
incorporated by reference into this Report.
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.
Strategy and Goals
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.
December 31, 2021 | 28
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•
•
•
•
Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is
essential. We understand our obligation to the environment and that it’s our duty to protect it.
Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way—
the right way with integrity.
Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it’s a privilege we can’t
take for granted. We seek to make a positive economic and social impact through our financial donations and the contributions of time, knowledge
and talent of our employees to the places where we live and work.
Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports
creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work
practices for consistency, efficiency and to create value across the organization.
Our core 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:
Safety - We aim to achieve continuous improvement in all environmental, health, and safety 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 efficient as possible by maintaining low operating costs and disciplined deployment of capital.
Achievements
We successfully executed a number of achievements in support of our strategic objectives shown below through the date of this filing despite the
challenges experienced by the industry during 2021 as a result of the continuing COVID-19 pandemic:
Operated both facilities safely and reliably and at high utilization rates
Achieved reductions in environmental events and process safety management
tier 1 incidents of 67% and 73%, respectively, compared to 2020
Achieved record truck shipments from the Coffeyville Facility in March 2021
Achieved record ammonia production at the Coffeyville Facility in September
2021 and at the East Dubuque Facility in November 2021
ü
ü
ü
ü
ü
ü
ü
ü
Safety
Reliability
Market Capture
Financial
Discipline
ü
December 31, 2021 | 29
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Utilized downtime throughout the year to proactively complete maintenance
work at the Coffeyville Facility, enabling the deferral of the planned
turnaround from Fall 2021 to Summer 2022
Increased UAN production capacity at Coffeyville by 100 tons per day through
the installation of a CO2 compressor and ammonia pump
Reduced CVR Partners’ annual cash interest expense by over 33% through
refinancing a substantial portion of the 2023 Notes and subsequently
redeeming $30 million of the remaining balance of the 2023 Notes
Declared total cash distributions of $9.89 per common unit related to 2021
Environmental, Social & Governance (“ESG”) Highlights
Safety
Reliability
Market Capture
Financial
Discipline
ü
ü
ü
ü
ü
ü
In the past year, we achieved numerous milestones through our commitment to sustainability, including environmental and safety stewardship, diversity
and inclusion, community outreach and sound corporate governance. We have also established our ESG priorities, which will serve as a guide to the
development of our ESG strategy and our first ESG report, which we target for publication in 2022 based on the Sustainability Accounting Standards Board
standards. The following highlights some key achievements of 2021:
Environmental & Safety
Stewardship
ü Manufactured hydrogen and ammonia that qualifies as “blue” with carbon capture and sequestration through
enhanced oil recovery
ü Mitigated >1mm metric tons of carbon dioxide equivalents (CO e)/year
2
ü Reduced process safety Tier 1 incident rate by 73%
ü Diversity is key component of our Mission & Values
Building
Inclusive
Communities
ü Site-Level Community Impact Committees steer local contributions, sponsorships and volunteer activities
ü Paid time off pursuant to Volunteerism Policy
ü Launched Company-wide Diversity & Inclusion training
ü Implemented Remote Work Policy supporting employee engagement and retention
ü Board-level ESG oversight
ü Average tenure of directors is less than 8 years
Leadership
Accountability
ü Standing EH&S Committee with a majority of independent members
ü Annual Code of Ethics & Business Conduct Acknowledgement
ü More than 75% of CEO compensation is variable and tied to the Partnership’s performance
We make modern life possible through the products we manufacture while contributing to the economic well-being of our employees and the communities
where we operate.
Industry Factors and Market Conditions
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
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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
Throughout 2020, the COVID-19 pandemic and actions taken by governments and others in response thereto negatively impacted the worldwide
economy, financial markets, and the agricultural industry, resulting in significant business and operational disruptions. Consequently, the U.S. demand for
liquid transportation fuels, including ethanol (the production of which is a significant driver of demand for corn), declined, causing many refineries and plants
to reduce production or idle. During 2021, government restrictions eased, vaccines became available, and demand for transportation fuels increased. Demand
for ethanol for fuels blending has largely recovered to pre-COVID-19 levels, although an increase in outbreaks of any variant of COVID-19 could reverse this
recovery. Concerns over the long-term negative effects of the COVID-19 pandemic on economic and business prospects across the world have contributed to
increased market and grain price volatility and have diminished expectations for the global economy.
The Partnership believes the general business environment in which it operates will continue to remain volatile into 2022, driven by uncertainty around
the availability and prices of its feedstocks, demand for its products, 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, remain volatile, and do not return to pre-pandemic levels. Due to the
uncertainty of the global recovery, including its duration, timing, and strength, the Partnership is not able at this time to predict the extent to which these
events may have a material, or any, effect on its financial or operational results in future periods.
Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the commodity cycle, the Partnership believes the long-term fundamentals for the
U.S. nitrogen fertilizer industry remain intact. The Partnership views the anticipated combination of (i) increasing global population, (ii) decreasing arable
land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn and soybeans as feedstock for the
domestic production of ethanol and other renewable fuels, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for
nitrogen fertilizer producers in the U.S. over the longer term.
Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil
in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain
most of their own nitrogen through a process known as “N fixation.” As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which
results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a
balanced corn-soybean rotational planting cycle as evident through the chart presented below for 2021, 2020, and 2019.
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. Due to the uncertainty of how these
factors will truly affect the grain markets, it is not yet known how the nitrogen business will be impacted.
The 2021 United States Department of Agriculture (“USDA”) reports on corn and soybean acres planted indicated farmers planted 93.4 million acres of
corn, representing an increase of 3.0% in corn acres planted as compared to 90.7 million corn acres in 2020. Planted soybean acres are estimated to be 87.2
million acres, representing a 4.6% increase in soybean acres planted as compared to 83.4 million soybean acres in 2020. The combined corn and soybean
planted acres of 180.6 million is
December 31, 2021 | 31
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the highest in history. Based on current grain inventories and crop prices, farm economics are expected to continue to be very attractive in 2022.
Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed
approximately 35% of the U.S. corn crop, so demand for corn generally rises and falls with ethanol demand. There was a decline in ethanol demand that began
in 2020 and continued through 2021 due to decreased demand for transportation fuels as a result of the COVID-19 pandemic. However, the lower ethanol
demand did not alter the spring 2021 planting decisions by farmers as evidenced in the charts below.
(1)
(2)
Information used within this chart was obtained from the U.S. Energy Information Administration (“EIA”).
Information used within this chart was obtained from the USDA, National Agricultural Statistics Services.
Weather continues to be a critical variable for crop production. Grain prices rose significantly from the summer of 2020 into the spring of 2021, leading to
higher planted acreage for corn and soybeans. Even with higher planted acres and trendline yields per acre, inventory levels for corn and soybeans remain
below historical levels and prices have remained elevated. The higher grain prices and historically low crop inventories are leading to strong farm economics
in advance of spring 2022. These conditions are expected to drive strong demand for nitrogen fertilizer, as well as other crop inputs.
Fertilizer prices have risen significantly since January 1, 2021 due to strong grain prices, the strong spring 2021 planting season, and lower fertilizer
supply due to nitrogen fertilizer production outages during Winter Storm Uri and Hurricane Ida and significant escalation in global feedstock costs for
nitrogen fertilizer production. While natural gas prices were at historical lows across the world in 2020, they have escalated significantly since the summer of
2021, causing nitrogen fertilizer production to be reduced or shut-in in Europe. In addition to escalating coal and LNG prices in China, nitrogen fertilizer
exports have been reduced significantly in the second half of 2021 and are expected to continue to be reduced through the first half of 2022.
On June 30, 2021, CF Industries Nitrogen, L.L.C., Terra Nitrogen, Limited Partnership, and Terra International (Oklahoma) LLC filed petitions with the
U.S. Department of Commerce (“USDOC”) and the U.S. International Trade Commission (the “ITC”) requesting the initiation of antidumping and
countervailing duty investigations on imports of UAN from Russia and Trinidad and Tobago (“Trinidad”). In August 2021, USDOC decided to pursue an
investigation to determine the extent of dumping and unfair subsidies associated with imports from Russia and Trinidad, and the ITC initiated a concurrent
investigation to determine whether such imports materially injure the U.S. industry. 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.
December 31, 2021 | 32
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The tables below show relevant market indicators by month through December 31, 2021:
(1)
Information used within these charts was obtained from various third-party sources including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly,
and the EIA, amongst others.
Results of Operations
The following should be read in conjunction with the information outlined within the previous sections of this Part II, Item 7, and the financial statements
and related notes thereto in Part II, Item 8 of this Report.
The chart presented below summarizes our ammonia utilization rates on a consolidated basis for the years ended December 31, 2021, 2020, and 2019.
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.
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On a consolidated basis, utilization decreased 6% to 92% for the year ended December 31, 2021 compared to the year ended December 31, 2020. This
decrease was primarily due to downtime associated with the Messer air separation plant at the Coffeyville Facility in January, June, August, October, and
November of 2021 (the “Messer Outages”), downtime at the East Dubuque Facility due to Winter Storm Uri in February 2021, downtime at the Coffeyville
Facility and East Dubuque Facility in July and September 2021, respectively, due to externally driven power outages (the “Power Outages”), and downtime at
the East Dubuque Facility in October 2021 for an R2 repair (the “R2 Outage”).
Sales and Pricing per Ton - Two of our key operating metrics are total sales volumes for ammonia and UAN, along with the product pricing per ton
realized at the gate. Total product sales volumes were unfavorable, driven by lower production due to the Messer Outages, Winter Storm Uri, Power Outages,
and the R2 Outage. For the year ended December 31, 2021, the lower sales volumes were more than offset by improved prices of 92% for ammonia and 74%
for UAN. Ammonia and UAN sales prices were favorable primarily due to higher crop pricing coupled with lower fertilizer supply driven by production
outages from Winter Storm Uri in February 2021 and Hurricane Ida in August and September 2021, as well as increased industry turnaround activity and
lower global fertilizer production due to higher natural gas prices in Europe and Asia. 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.
Production Volumes - Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other
fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products. Production for the
year ended December 31, 2021 was impacted by the Messer Outages, Winter Storm Uri, the Power Outages, and the R2 Outage. The table below presents
these metrics for the years ended December 31, 2021, 2020, and 2019:
(in thousands of tons)
Ammonia (gross produced)
Ammonia (net available for sale)
UAN
2021
807
275
1,208
Year Ended December 31,
2020
852
303
1,303
2019
76
22
1,25
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 years ended December 31, 2021, 2020, and 2019.
December 31, 2021 | 34
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Pet coke used in production (thousand tons)
Pet coke (dollars per ton)
Natural gas used in production (thousands of MMBtu)
(1)
Natural gas used in production (dollars per MMBtu)
Natural gas in cost of materials and other (thousands of MMBtu)
(1)
Natural gas in cost of materials and other (dollars per MMBtu)
(1)
(1)
2021
Year Ended December 31,
2020
2019
514
44.69
8,049
3.95
7,848
3.83
$
$
$
523
35.25
8,611
2.31
9,349
2.35
$
$
$
53
37.4
6,85
2.8
6,96
3.0
$
$
$
(1) The feedstock natural gas shown above does not include natural gas used for fuel. The cost of natural gas used for fuel is included in Direct operating expenses (exclusive
of depreciation and amortization).
Financial Highlights
Overview - For the year ended December 31, 2021, the Partnership’s operating income and net income were $134.5 million and $78.2 million,
respectively, a $169.4 million increase from an operating loss and a $176.4 million increase from a net loss, respectively, compared to the year ended
December 31, 2020. Beyond the goodwill impairment of $41.0 million negatively impacting the 2020 period, these income improvements were driven
primarily by higher ammonia and UAN sales prices in 2021, partially offset by higher feedstock costs and operating expenses.
(1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measure shown above.
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Net Sales - Net sales increased by $182.6 million to $532.6 million for the year ended December 31, 2021 compared to the year ended December 31,
2020. This increase was primarily due to favorable sales pricing contributing $205.1 million in higher revenue, offset by decreased sales volumes resulting in
$35.4 million of lower revenue as compared to the year ended December 31, 2020. For the years ended December 31, 2021 and 2020, net sales included $31.4
million and $33.3 million in freight revenue, respectively, and $10.3 million and $10.1 million in other revenue, respectively.
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 year ended December 31, 2021 as compared to the year ended December 31, 2020.
(in thousands)
UAN
Ammonia
Price
Variance
$
135,191
69,943
$
Volume
Variance
(17,44
(17,92
For the year ended December 31, 2021 compared to the year ended December 31, 2020, ammonia and UAN sales prices were favorable primarily due to
higher crop pricing coupled with lower fertilizer supply driven by production outages from Winter Storm Uri in February 2021 and Hurricane Ida in August
and September 2021, as well as increased industry turnaround activity and lower global fertilizer production due to higher natural gas prices in Europe and
Asia during 2021. Total product sales volumes were unfavorable driven by lower production due to the Messer Outages, Winter Storm Uri, the Power
Outages, and the R2 Outage.
(1) Exclusive of depreciation and amortization expense.
Cost of Materials and Other - Cost of materials and other for the year ended December 31, 2021 was $98.3 million, compared to $91.1 million for the
year ended December 31, 2020. The $7.2 million increase was comprised primarily of a $12.0 million increase in natural gas costs at our East Dubuque
Facility due to higher natural gas prices, $4.5 million increase in pet coke costs at our Coffeyville Facility related to higher third-party coke pricing caused by
higher crude oil prices and higher related party pet coke pricing due to the UAN-indexed pricing formula, and $1.5 million increase in purchases of hydrogen.
These increases were offset by a decrease in freight expenses and distribution costs of $4.0 million due to downtime in October and November 2021 and a
discontinuation of the Gavilon Railcar Lease in April 2021, a decrease related to a build in our ammonia and UAN inventories contributing $3.5 million, and a
decrease in ammonia purchases of $3.3 million.
Direct Operating Expenses (exclusive of depreciation and amortization) - For the year ended December 31, 2021, direct operating expenses (exclusive of
depreciation and amortization) were $198.7 million as compared to $157.9 million for the year ended December 31, 2020. The $40.8 million increase was
primarily due to higher personnel costs for labor of $4.6 million and share-based compensation expenses of $15.6 million as a result of higher market prices
for CVR Partners’ units, higher electrical provider pricing and usage of $13.7 million, higher natural gas prices of $9.9 million, higher insurance costs of
$2.4 million, and increased turnaround expenses of $2.2 million. These costs were partially offset by a decrease related to a build in ammonia and UAN
inventories of $7.8 million.
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Depreciation and Amortization Expense - Depreciation and amortization expense decreased $2.6 million for the year ended December 31, 2021 compared
to the year ended December 31, 2020, primarily as a result of inventory changes offset by increases in accelerated depreciation related to projects to be
completed by 2025 that will retire assets earlier than their original expected useful life.
Selling, General, and Administrative Expenses, and Other - Selling, general and administrative expenses and other increased approximately $8.8 million
for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily related to higher personnel costs in 2021
due to an increase in share-based compensation expenses resulting from the increase in CVR Partners’ unit price.
Other Income, Net - Other income, net for the year ended December 31, 2021 was $4.7 million, compared to $0.2 million for the year ended December
31, 2020. The increase was due to sales of natural gas volumes at the East Dubuque Facility in February 2021.
Non-GAAP Measures
Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and
prospects for the future to supplement our financial information presented in accordance with U.S. GAAP. These non-GAAP financial measures are important
factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.
Beginning with the second quarter of 2021, management began reporting Adjusted EBITDA, as defined below. We believe the presentation of this non-
GAAP measure is meaningful to compare our operating results between periods and peer companies. All prior periods presented have been conformed to the
definition below. The following are non-GAAP measures we present for the year ended December 31, 2021:
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 and Adjusted 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.
December 31, 2021 | 37
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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.
Major Scheduled Turnaround Activities
Coffeyville Facility - The next planned turnaround at the Coffeyville Facility is expected to commence in the summer of 2022. Additionally, the
Coffeyville Facility had planned downtime which was completed during the fourth quarter of 2021 at a cost of $2.0 million. For the year ended December 31,
2021, we also incurred turnaround expense of $0.3 million, related to planning for the Coffeyville Facility’s expected turnaround in the summer of 2022.
East Dubuque Facility - The next planned turnaround at the East Dubuque Facility is expected to occur in the summer of 2022. For the year ended
December 31, 2021, we incurred turnaround expense of $0.6 million, related to planning for the East Dubuque Facility’s expected turnaround in the summer
of 2022.
Goodwill Impairment
As a result of lower expectations for market conditions in the fertilizer industry during 2020, the market performance of the Partnership’s common units, a
qualitative analysis, and additional risks associated with the business, the Partnership performed an interim quantitative impairment assessment of goodwill for
the Coffeyville Facility reporting unit as of June 30, 2020. The results of the impairment test indicated the carrying amount of this reporting unit exceeded the
estimated fair value, and a full, non-cash impairment charge of $41.0 million was required.
Non-GAAP Reconciliations
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
(in thousands)
Net income (loss)
Interest expense, net
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Goodwill impairment
Adjusted EBITDA
2021
Year Ended December 31,
2020
2019
$
$
78,155
60,978
57
73,480
212,670
—
212,670
$
$
(98,181)
63,428
30
76,077
41,354
40,969
82,323
$
$
(34,969)
62,636
(18)
79,839
107,488
—
107,488
December 31, 2021 | 38
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Reconciliation of Net Cash Provided By Operating Activities to EBITDA and Adjusted EBITDA
(in thousands)
Net cash provided by operating activities
Non-cash items:
Loss on extinguishment of debt
Goodwill impairment
Other
Adjustments:
Interest expense, net
Income tax expense (benefit)
Change in assets and liabilities
EBITDA
Goodwill impairment
Adjusted EBITDA
Reconciliation of EBITDA to Available Cash for Distribution
(in thousands)
EBITDA
Non-cash items:
Goodwill impairment
Current (reserves) adjustments for amounts related to:
Net cash interest expense (excluding capitalized interest)
Debt service
Financing fees
Maintenance capital expenditures
Utility pass-through
Common units repurchased
Other (reserves) releases:
Reserve for recapture of prior negative available cash
Future turnaround
Previously established cash reserves
Reserve for repayment of current portion of long-term debt
Cash reserves for future operating needs
Major scheduled expenditures
Available cash for distribution
(1) (2)
Common units outstanding
2021
Year Ended December 31,
2020
2019
$
188,725
$
19,740
$
39,157
(8,462)
—
(26,958)
60,978
57
(1,670)
212,670
—
212,670
$
—
(40,969)
(6,630)
63,428
30
5,755
41,354
40,969
82,323
$
—
—
(10,503)
62,636
(18)
16,216
107,488
—
107,488
2021
Year Ended December 31,
2020
2019
212,670
$
41,354
$
107,488
—
(50,562)
(30,000)
(4,627)
(16,226)
4,013
(529)
(14,980)
(10,750)
—
—
5,308
2,240
96,557
10,681
$
40,969
(59,995)
—
—
(11,649)
—
(7,076)
(5,917)
(4,500)
—
(2,240)
(5,308)
2,567
(11,795)
10,706
$
—
(59,997)
—
—
(18,247)
—
—
—
—
25,433
—
(28,000)
—
26,677
11,328
$
$
$
(1) Amount represents the cumulative available cash based on full year results. However, available cash for distribution is calculated quarterly, with distributions (if any) being
paid in the period following declaration.
(2) The Partnership did not declare a cash distributions for the first quarter of 2021, declared and paid a $1.72 and $2.93 cash distribution related to the second and third
quarter of 2021, respectively, and declared a cash distribution of $5.24 per common unit related to the fourth quarter of 2021.
December 31, 2021 | 39
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Liquidity and Capital Resources
Our principal source of liquidity has historically been and continues to be cash from operations, which can include cash advances from customers
resulting from prepay contracts. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying
distributions to our unitholders, as further discussed below.
The effects of the COVID-19 pandemic resulted in a reduction in U.S. economic activity in 2020 and 2021. These effects caused significant volatility and
disruption of the financial markets, and we have observed adverse impacts to our business and financial performance, of which the nature and extent of such
impacts remains uncertain. In early 2021, as the impacts of the COVID-19 pandemic started to recover, Winter Storm Uri and Hurricane Ida caused
unprecedented disruptions to natural gas and electricity supply throughout the Midwest and Gulf Coast regions, leading to lower fertilizer supply due to
production outages which increased the price of fertilizer. This period of extreme economic disruption may continue to have an impact on our business, results
of operations, and access to sources of liquidity. While we believe demand for our fertilizer products is stable, there is still uncertainty on the horizon as
COVID-19 vaccines are distributed and countries and states continue to monitor their efforts against the virus, and variants thereof, and weigh further lock-
down measures. In executing financial discipline, we have successfully implemented and are maintaining the following measures:
•
•
Taking advantage of downtime to perform maintenance activities which enabled us to defer the East Dubuque Facility turnaround from 2021 to 2022;
and
Reducing the amount of maintenance capital expenditures to only include those projects which are a priority to support continuing safe and reliable
operations, or which we consider are critical to support future activities.
When paired with the actions outlined above, we 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 otherwise refinance our existing debt. There can be no assurance that we will seek to do any of the foregoing or that
we will be able to do any of the foregoing on terms acceptable to us or at all.
On June 23, 2021, the Partnership and certain of its subsidiaries completed a private offering of $550.0 million aggregate principal amount of 6.125%
Senior Unsecured Notes due June 2028 (the “2028 Notes”), which mature on June 15, 2028, and partially redeemed the Partnership’s 9.25% Senior Notes due
June 2023 (the “2023 Notes”) in the amount of $550.0 million. On September 23, 2021 and December 22, 2021, the Partnership redeemed an additional
$15.0 million and $15.0 million, respectively, in aggregate principal of the 2023 Notes. On February 22, 2022, the Partnership redeemed the remaining
$65 million in aggregate principal amount of the 2023 Notes. Collectively, these transactions represent a significant and favorable change in the Partnership’s
cash flow and liquidity position, with an annual savings of approximately $26.0 million in future interest expense, as compared to our 2020 Form 10-K.
Additionally, on September 30, 2021, the Partnership entered into a new credit agreement with an aggregate principal amount of up to $35.0 million with a
maturity date of September 30, 2024 (the “ABL Credit Facility”) and terminated its $35.0 million ABL Credit Agreement, dated as of September 30, 2016, as
amended (the “2016 ABL Credit Agreement”). The Partnership and its subsidiaries were in compliance with all applicable covenants under their respective
debt instruments as of December 31, 2021. Refer to Part II, Item 8, Note 5 (“Long-Term Debt”) of this Report for further information.
We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC.
December 31, 2021 | 40
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Cash and Other Liquidity
As of December 31, 2021, we had cash and cash equivalents of $112.5 million, including $34.2 million of customer advances. Combined with $35.0
million available under our ABL Credit Agreement, we had total liquidity of $147.5 million as of December 31, 2021. As of December 31, 2020, we had
$30.6 million in cash and cash equivalents, including $7.6 million of customer advances.
(in thousands)
9.25% Senior Secured Notes, due June 2023
6.125% Senior Notes, due June 2028
(1)
Unamortized discount and debt issuance costs
Total long-term debt
Current portion of long-term debt
(2)
Total long-term debt, including current portion
December 31,
2021
2020
$
$
65,000
550,000
(4,358)
610,642
—
610,642
$
$
645,00
—
(11,05
633,94
2,24
636,18
(1) The call price of the 9.25% Senior Secured Notes due June 2023 (the “2023 Notes”) decreased to par on June 15, 2021. On June 23, 2021, September 23, 2021, and
December 22, 2021, the Partnership redeemed $550 million, $15 million, and $15 million, respectively, of the 2023 Notes, at par, plus accrued and unpaid interest. The
remaining balance of $65 million was outstanding as of December 31, 2021. The $65 million outstanding balance of the 2023 Notes was paid in full on February 22, 2022
at par, plus accrued and unpaid interest.
(2) The $2.2 million outstanding balance of the 6.5% Notes, due April 2021 (the “2021 Notes”) was paid in full on April 15, 2021.
On June 23, 2021, the Partnership and its subsidiary, CVR Nitrogen Finance Corporation (“Finance Co.” and, together with CVR Partners, the “Issuers”),
completed a private offering of $550 million aggregate principal amount of 6.125% Senior Secured Notes due 2028 (the “2028 Notes”). The net proceeds
from the 2028 Notes, plus cash on hand, were used to redeem $550 million aggregate principal amount of the 2023 Notes. On September 23, 2021 and
December 22, 2021, the Partnership redeemed $15 million and $15 million aggregate principal amount of the outstanding 2023 Notes, respectively. On
September 30, 2021, the Partnership entered into the ABL Credit Agreement and terminated its 2016 ABL Credit Agreement. As of December 31, 2021, the
Partnership had the remaining portion of the 2023 Notes, the 2028 Notes, and the ABL Credit Agreement, the proceeds of which may be used to fund working
capital, capital expenditures, and for other general corporate purposes. On February 22, 2022, the Partnership redeemed the remaining $65 million in
aggregate principal amount of the 2023 Notes. Refer to Part II, Item 8, Note 5 (“Long-Term Debt”) of this Report 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.
Our total capital expenditures for the years ended December 31, 2021 and 2020, along with our estimated expenditures for 2022 are as follows:
(in thousands)
Maintenance capital
Growth capital
Total capital expenditures
Year Ended December 31,
2021
2020
$
$
16,226
9,460
25,686
$
$
11,651
4,780
16,431
Estimated
2022
$32,000 - 34,0
4,000 - 5,0
$36,000 - 39,0
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
December 31, 2021 | 41
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by the Board. We will continue to monitor market conditions and make adjustments, if necessary, to our current capital spending or turnaround plans.
The next planned turnaround is at the Coffeyville Facility and is expected to occur in the summer of 2022, with an estimated cost of $10 to $13 million.
The turnaround at our East Dubuque Facility is expected to commence in the summer of 2022, with an estimated cost of $13 to $15 million. Additionally, the
Coffeyville Facility had planned downtime for certain maintenance activities, which was completed in the fourth quarter of 2021 at a cost of $2.0 million. For
the year ended December 31, 2021, we also incurred approximately $0.3 million and $0.6 million, in turnaround expense related to planning for the
Coffeyville Facility’s and East Dubuque Facility’s expected turnarounds in 2022, respectively.
Distributions to Unitholders
The current policy of the Board is to distribute all Available Cash the Partnership generated on a quarterly basis. Available Cash for each quarter will be
determined by the Board following the end of such quarter. Available Cash for each quarter is calculated as EBITDA for the quarter excluding non-cash
income or expense items (if any), for which adjustment is deemed necessary or appropriate by the Board in its sole discretion, less (i) reserves for maintenance
capital expenditures, debt service and other contractual obligations, and (ii) reserves for future operating or capital needs (if any), in each case, that the Board
deems necessary or appropriate in its sole discretion. Available cash for distribution may be increased by the release of previously established cash reserves, if
any, and other excess cash, at the discretion of the Board.
Distributions, if any, including the payment, amount, and timing thereof, are subject to change at the discretion of the Board. The following table presents
distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of December 31, 2021.
Related Period
2021 - 2nd Quarter
2021 - 3rd Quarter
Total distributions
Date Paid
August 23, 2021
November 22, 2021
$
$
Distribution Per
Common Unit
Distributions Paid (in thousands)
Public Unitholders
CVR Energy
Total
1.72 $
2.93
4.65 $
11,678 $
19,893
31,571 $
6,694 $
11,404
18,098 $
18,372
31,297
49,669
There were no distributions declared or paid by the Partnership related to the first quarter of 2021 and fourth quarter of 2020, and no distributions were
declared or paid during 2020. During the year ended December 31, 2019, CVR Partners paid distributions totaling $4.00 per common unit on a split-adjusted
basis, or $45.3 million. Of these distributions, CVR Energy received $15.6 million.
For the fourth quarter of 2021, the Partnership, upon approval by the Board on February 21, 2022, declared a distribution of $5.24 per common unit, or
$56.0 million, which is payable March 14, 2022 to unitholders of record as of March 7, 2022. Of this amount, CVR Energy will receive approximately $20.4
million, with the remaining amount payable to public unitholders.
Capital Structure
On May 6, 2020, the Board, on behalf of the Partnership, authorized a unit repurchase program (the “Unit Repurchase Program”). The Unit Repurchase
Program enables the Partnership to repurchase up to $10 million of the Partnership’s common units. On February 22, 2021, the Board authorized an additional
$10 million for the Unit Repurchase Program. During the year ended December 31, 2021, the Partnership repurchased 24,378 common units 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 $0.5
million, inclusive of transaction costs, or an average price of $21.70 per common unit. During the year ended December 31, 2020, as adjusted to reflect the
impact of the 1-for-10 reverse unit split of the Partnership’s common units that was effective as of November 23, 2020, the Partnership repurchased 623,177
common units, respectively, at a cost of $7.1 million, inclusive of transaction costs, or an average price of $11.35 per common unit. As of December 31, 2021,
the Partnership had $12.4 million in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership
to acquire any common units and may be cancelled or terminated by the Board at any time.
December 31, 2021 | 42
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Cash Flows
The following table sets forth our cash flows for the periods indicated below:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents and
restricted cash
2021
Year Ended December 31,
2020
2019
$
$
188,725
(20,342)
(86,426)
81,957
$
$
19,740
(18,550)
(7,625)
(6,435)
$
$
39,15
(18,52
(45,41
(24,78
Operating Activities
The change in net cash flows from operating activities for the year ended December 31, 2021 as compared to the year ended December 31, 2020 is
primarily due to a $171.3 million increase in EBITDA, a $22.0 million net increase in non-cash share based compensation as a result of higher market prices
for CVR Partners’ units, favorable changes in working capital of $6.7 million, and a $8.5 million loss on extinguishment of debt primarily associated with the
partial redemption of the 2023 Notes in June 2021. This activity is partially offset by a non-cash impairment of goodwill of $41.0 million recognized in 2020.
Investing Activities
The change in net cash used in investing activities for the year ended December 31, 2021 compared to the year ended December 31, 2020 was due to
increased capital expenditures during 2021 of $2.0 million due to deferring certain capital projects from 2020 to 2021.
Financing Activities
The change in net cash used in financing activities for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily
due to the partial redemptions of the 2023 Notes of $580.0 million, cash distributions paid of $49.7 million, the payment of $3.9 million in deferred financing
costs during the second and third quarters of 2021 related to the offering of the 2028 Notes and the ABL Credit Facility, and the redemption of the remaining
2021 Notes of $2.2 million. These decreases were partially offset by the Partnership’s June 2021 offering of $550.0 million of the 2028 Notes, coupled with a
reduction of $6.5 million in repurchases of the Partnership’s common units in 2021 compared to 2020.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Note 2 (“Summary of Significant Accounting Policies”) of this Report for a discussion of recent accounting pronouncements
applicable to the Partnership.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP requiring management to make judgments, assumptions, and estimates based
on the best available information at the time. Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material
due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and (2) the
impact of the estimates and assumptions on financial condition or operating performance is material. Actual results could differ from the estimates and
assumptions used.
Inventory Valuation
The cost of our fertilizer product inventories is determined under the first-in, first-out (FIFO) method. Our FIFO inventories are carried at the lower of
cost or net realizable value. We compare the estimated realizable value of inventories to their cost by product at each of our facilities. Depending on inventory
levels, the per-ton realizable value of our fertilizer
December 31, 2021 | 43
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products is estimated using pricing on in-transit orders, pricing for open, fixed-price orders that have not shipped, and, if volumes remain unaccounted for,
current management pricing estimates for fertilizer products. Management’s estimate for current pricing reflects up-to-date pricing in each facility’s market as
of the end of each reporting period. Reductions to selling prices for unreimbursed freight costs are included to arrive at net realizable value, as applicable.
During the year ended December 31, 2021 and December 31, 2019, there was no adjustment. For the year ended December 31, 2020, we recognized a loss on
inventory to reflect net realizable value of $0.7 million. Due to the amount and variability in volume of fertilizer product inventories maintained, changes in
production costs, and the volatility of market pricing for fertilizer products, losses recognized to reflect fertilizer product inventories at the lower of cost or net
realizable value could have a material impact on the Partnership’s results of operations.
Impairment of Long-lived Assets and Goodwill
Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration
in future expected cash flows. If the sum of the undiscounted expected future cash flows of an asset group is less than the carrying value, including applicable
liabilities, the carrying value is written down to its estimated fair value. Individual assets are grouped for impairment purposes based on a judgmental
assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets (for example, at a
fertilizer facility level).
The Partnership tests goodwill for impairment annually on November 1 of each year, or more frequently if events or changes in circumstances indicate the
asset might be impaired. One of our reporting units, the Coffeyville Facility, had a goodwill balance of $41.0 million at December 31, 2019. During the second
quarter of 2020, following completion of the spring planting season, the market pricing for ammonia and UAN, which are the facility’s two primary products,
experienced significant pricing declines driven by updated market expectations around supply and demand fundamentals which were expected to continue into
the second half of 2020. Additionally, significant uncertainty remained as to the nature and extent of impacts to be seen on the overall demand for corn and
soybean given reduced ethanol production and broader economic conditions which had negatively impacted demand. Therefore, in connection with the
preparation of the financial statements for the three months ended June 30, 2020, given the pricing declines experienced in the second quarter of 2020, further
muting of our near-term economic recovery assumptions, including management’s revised forecasts for product pricing in 2020 and beyond, and market price
performance of our common units, we concluded an impairment indicator was present and a triggering event under Accounting Standards Codification
(“ASC”) Topic 350, Intangibles-Goodwill and Other, had occurred as of June 30, 2020 and an interim quantitative impairment assessment was performed.
Significant assumptions inherent in the valuation methodologies for goodwill included, but are not limited to, prospective financial information, growth rates,
discount rates, inflationary factors, and cost of capital. Based on the interim quantitative analysis, it was determined that the estimated fair value of the
Coffeyville Facility reporting unit did not exceed its carrying value. As a result, we recorded a non-cash impairment charge of $41.0 million during 2020.
There was no goodwill remaining as of December 31, 2020.
We performed our annual impairment reviews of goodwill for 2019, on November 1 and concluded no impairments. For the period ended December 31,
2019, we performed a qualitative assessment and concluded there were no events or circumstances which would trigger the performance of a quantitative
analysis after reviewing all factors impacting the Coffeyville Facility reporting unit, including improved market conditions and financial results in 2019 as
compared to the financial forecasts from those used in the fair value analysis at December 31, 2018, where the estimated fair value of the Coffeyville Facility
reporting unit exceeded its carrying value by approximately 36% based upon the results of our quantitative goodwill impairment test.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
We are exposed to significant market risk due to potential changes in prices for fertilizer products and natural gas. Natural gas is the primary raw material
used in the production of various nitrogen-based products manufactured at our East Dubuque Facility. We have commitments to purchase natural gas for use in
our East Dubuque Facility at the spot market and through short-term, fixed supply, fixed price, and index price purchase contracts.
December 31, 2021 | 44
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In the normal course of business, we produce nitrogen-based fertilizer products throughout the year to supply the needs of our customers during the high-
delivery-volume spring and fall seasons. The value of fertilizer product inventory is subject to market risk due to fluctuations in the relevant commodity
prices. Prices of nitrogen fertilizer products can be volatile. We believe that market prices of nitrogen products are affected by changes in grain prices and
demand, natural gas prices, and other factors. In the opinion of our management, there is no derivative financial instrument that correlates effectively with, and
has a trading volume sufficient to hedge, our firm commitments and forecasted commodity sales transactions.
December 31, 2021 | 45
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Item 8. Financial Statements and Supplementary Data
CVR Partners, LP and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Partners’ Capital for the Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
Notes to the Consolidated Financial Statements
47
49
50
51
52
53
December 31, 2021 | 46
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Report of Independent Registered Public Accounting Firm
The Board of Directors of CVR GP, LLC
The Unitholders of CVR Partners, LP
The General Partner of CVR Partners, LP:
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of CVR Partners, LP (a Delaware limited partnership) and subsidiaries (the “Partnership”) as
of December 31, 2021 and 2020, the related consolidated statements of operations, partners’ capital, and cash flows for each of the three years in the period
ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Partnership as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Partnership’s
internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 22, 2022 expressed an unqualified
opinion.
Basis for opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to
the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Partnership’s auditor since 2013.
Dallas, Texas
February 22, 2022
December 31, 2021 | 47
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Report of Independent Registered Public Accounting Firm
The Board of Directors of CVR GP, LLC
The Unitholders of CVR Partners, LP
The General Partner of CVR Partners, LP:
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of CVR Partners, LP (a Delaware limited partnership) and subsidiaries (the “Partnership”) as of
December 31, 2021, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2021, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
financial statements of the Partnership as of and for the year ended December 31, 2021, and our report dated February 22, 2022 expressed an unqualified
opinion on those financial statements.
Basis for opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Dallas, Texas
February 22, 2022
December 31, 2021 | 48
Table of Contents
(in thousands)
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
Current liabilities:
Current portion of long-term debt
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
Commitments and contingencies (See Note 8)
Partners’ capital:
CVR Partners, LP and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2021
2020
LIABILITIES AND PARTNERS’ CAPITAL
$
$
$
$
112,516 $
88,351
52,270
9,108
262,245
850,462
14,351
1,127,058 $
— $
41,504
8,895
87,060
24,401
161,860
610,642
12,358
623,000
342,197
1
342,198
1,127,058 $
30,559
36,896
42,349
8,410
118,214
897,847
16,819
1,032,880
2,240
19,544
5,217
30,631
18,709
76,341
633,942
8,356
642,298
314,240
1
314,241
1,032,880
Common unitholders, 10,681,332 and 10,705,710 units issued and outstanding as of December 31,
2021 and 2020, respectively
General partner interest
Total partners’ capital
Total liabilities and partners’ capital
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 2021 | 49
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CVR Partners, LP and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
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 disposals
Goodwill impairment
Operating income (loss)
Other (expense) income:
Interest expense, net
Other income, net
Income (loss) before income tax expense
Income tax expense (benefit)
Net income (loss)
Basic and diluted earnings (loss) per common unit
Distributions declared per common unit
Weighted-average common units outstanding:
Basic and Diluted
2021
Year Ended December 31,
2020
2019
$
532,581 $
349,953 $
404,177
98,345
198,714
73,480
370,539
26,615
948
—
134,479
(60,978)
4,711
78,212
57
78,155 $
7.31 $
4.65
91,117
157,916
76,077
325,110
18,174
582
40,969
(34,882)
(63,428)
159
(98,151)
30
(98,181) $
(8.77) $
—
94,103
173,629
79,839
347,571
25,829
3,397
—
27,380
(62,636)
269
(34,987)
(18)
(34,969)
(3.09)
4.00
10,685
11,195
11,328
$
$
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 2021 | 50
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CVR Partners, LP and Subsidiaries
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
Common Units
(in thousands, except unit data)
Balance at December 31, 2018
Cash distributions to common unitholders – Affiliates
Cash distributions to common unitholders – Non-affiliates
Net loss
Balance at December 31, 2019
Net loss
Repurchase of common units
Fractional unit impact of reverse unit split
Other
Balance at December 31, 2020
Cash distributions to common unitholders – Affiliates
Cash distributions to common unitholders – Non-affiliates
Net income
Repurchase of common units
Balance at December 31, 2021
Issued
11,328,297 $
—
—
—
11,328,297
—
(623,177)
590
—
10,705,710
—
—
—
(24,378)
10,681,332 $
Amount
General
Partner
Interest
Total Partners’
Capital
499,825 $
(15,568)
(29,745)
(34,969)
419,543
(98,181)
(7,076)
—
(46)
314,240
(18,098)
(31,571)
78,155
(529)
342,197 $
1 $
—
—
—
1
—
—
—
—
1
—
—
—
—
1 $
499,826
(15,568)
(29,745)
(34,969)
419,544
(98,181)
(7,076)
—
(46)
314,241
(18,098)
(31,571)
78,155
(529)
342,198
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 2021 | 51
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(in thousands)
Cash flows from operating activities:
CVR Partners, LP and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
2021
Year Ended December 31,
2020
2019
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$
78,155 $
(98,181) $
(34,969)
Depreciation and amortization
Amortization of deferred financing costs and original issue discount
Goodwill impairment
Loss on asset disposals
Loss on debt extinguishment
Share-based compensation
Other adjustments
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Deferred revenue
Accrued expenses and other current liabilities
Other long-term assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from the sale of assets
Net cash used in investing activities
Cash flows from financing activities:
Principal payments on senior secured notes
Proceeds on issuance of senior secured notes
Payment of deferred financing costs
Repurchase of common units
Cash distributions to common unitholders – Affiliates
Cash distribution to common unitholders – Non-affiliates
Other financing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
73,480
2,799
—
948
8,462
23,069
142
(21,877)
(7,508)
(785)
11,367
26,658
(7,182)
997
188,725
(20,594)
252
(20,342)
(582,240)
550,000
(3,892)
(529)
(18,098)
(31,571)
(96)
(86,426)
81,957
30,559
112,516 $
76,077
4,049
40,969
582
—
1,035
964
2,892
538
(4,514)
(1,635)
(1,612)
(1,726)
302
19,740
(18,598)
48
(18,550)
—
—
(448)
(7,076)
—
—
(101)
(7,625)
(6,435)
36,994
30,559 $
79,839
3,666
—
3,397
—
3,445
(5)
936
9,914
1,582
(8,077)
(14,575)
(6,542)
546
39,157
(18,656)
127
(18,529)
—
—
—
—
(15,568)
(29,745)
(97)
(45,410)
(24,782)
61,776
36,994
The accompanying notes are an integral part of these consolidated financial statements.
December 31, 2021 | 52
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, which are located in Coffeyville, Kansas (the “Coffeyville Facility”) and East Dubuque, Illinois (the “East
Dubuque Facility”). Both facilities manufacture ammonia and are able to further upgrade 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. 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 December 31, 2021, public common unitholders held approximately 64% of the Partnership’s outstanding limited partner interests; CVR Services,
LLC (“CVR Services”), a wholly-owned subsidiary of CVR Energy, held approximately 36% 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 December 31, 2021, Icahn Enterprises L.P. (“IEP”) 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”). The Unit Repurchase Program enables the Partnership to repurchase up to $10 million of the Partnership’s
common units. On February 22, 2021, the Board authorized an additional $10 million for the Unit Repurchase Program. During the year ended December 31,
2021, the Partnership repurchased 24,378 common units 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 $0.5 million, inclusive of transaction costs, or an average price of $21.70 per common unit. During
the year ended December 31, 2020, as adjusted to reflect the impact of the 1-for-10 reverse unit split of the Partnership’s common units that was effective as of
November 23, 2020, the Partnership repurchased 623,177 common units, respectively, at a cost of $7.1 million, inclusive of transaction costs, or an average
price of $11.35 per common unit. As of December 31, 2021, the Partnership had $12.4 million in authority remaining under the Unit Repurchase Program.
This Unit Repurchase Program does not obligate the Partnership to acquire any common units and may be cancelled or terminated by the Board at any time.
Management and Operations
The Partnership, including CVR GP, is led by the Board and its committees and managed by the general partner’s executive officers, CVR Services (as
sole member of the general partner), and certain officers of CVR Energy and its subsidiaries, pursuant to the Partnership Agreement, as well as a number of
agreements between the Partnership, CVR GP, CVR Energy, and certain of their respective subsidiaries, including a service agreement. See Note 9 (“Related
Party Transactions”) for further discussion. Common unitholders have limited voting rights on matters affecting the Partnership and have no right to elect the
general partner’s directors or officers, whether on an annual or continuing basis or otherwise.
Subsequent Events
The Partnership evaluated subsequent events, if any, that would require an adjustment to the Partnership’s consolidated financial statements or require
disclosure in the notes to the consolidated financial statements through the date of issuance of these consolidated financial statements. Where applicable, the
notes to these consolidated financial statements have been updated to discuss all significant subsequent events which have occurred.
December 31, 2021 | 53
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements, prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in
accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), include the accounts of CVR Partners and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made within the consolidated financial statements for prior periods to conform with current presentation.
Use of Estimates
The consolidated financial statements are prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect
the reported amounts and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Estimates are reviewed on an ongoing basis, based on currently available information. Changes in facts and circumstances may result in
revised estimates and actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit, investments in highly liquid money market accounts, and debt instruments with original
maturities of three months or less.
Accounts Receivable, net
Accounts receivable, net primarily consist of customer accounts receivable recorded at the invoiced amounts and generally do not bear interest. Also
included within Accounts Receivable are unbilled fixed price contracts which is discussed further within Note 6 (“Revenue”).
Allowances for doubtful accounts are generally recorded when it becomes probable the receivable will not be collected and is booked to bad debt
expense. The largest concentration of credit for any one customer was approximately 22% and 20% of the net accounts receivable balance at December 31,
2021 and 2020, respectively. Bad debt expense was $0.2 million, $0.1 million and $0.1 million for the years ended December 31, 2021, 2020, and 2019,
respectively.
Inventories
Inventories consist of fertilizer products which are valued at the lower of FIFO cost, or net realizable value. Inventories also include raw materials
(primarily gauze, natural gas, and pet coke) and parts and supplies that are valued at the lower of moving-average cost, which approximates FIFO, or net
realizable value. The cost of inventories includes inbound freight costs.
Inventories consisted of the following:
(in thousands)
Finished goods
Raw materials
Parts, supplies and other
Total inventories
December 31,
2021
2020
$
$
17,141
833
34,296
52,270
$
$
9,81
15
32,38
42,34
At December 31, 2021 and 2020, inventories included depreciation of approximately $3.1 million and $2.0 million, respectively.
December 31, 2021 | 54
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, Plant and Equipment, net
Additions to property, plant and equipment, including capitalized interest and certain costs allocable to construction and property purchases, are recorded
at cost. Expenditures for improvements that increase economic benefit or returns and/or extend useful life are capitalized. Depreciation is computed using the
straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for significant asset
classes are as follows:
Asset
Land and improvements
Buildings and improvements
Automotive equipment
Machinery and equipment
Other
Range of Useful
Lives, in Years
10 to 30
3 to 30
5 to 30
1 to 30
3 to 10
Property, plant and equipment, net consisted of the following:
(in thousands)
Machinery and equipment
Buildings and improvements
Automotive equipment
Land and improvements
Construction in progress
Other
Less: Accumulated depreciation
Total property, plant and equipment, net
December 31,
2021
2020
$
$
1,410,203
17,598
16,433
14,199
14,167
2,221
1,474,821
(624,359)
850,462
$
$
1,388,73
17,59
16,60
14,13
12,09
1,72
1,450,89
(553,04
897,84
Leasehold improvements and assets held under finance leases are depreciated or amortized on the straight-line method over the shorter of the contractual
lease term or the estimated useful life of the asset. Expenditures for routine maintenance and repair costs are expensed when incurred. Such expenses are
reported in Direct operating expenses (exclusive of depreciation and amortization) in the Partnership’s Consolidated Statements of Operations.
As of December 31, 2021, 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.
Leases
At inception, the Partnership determines whether an arrangement is a lease and the appropriate lease classification. Operating leases are included as
operating lease right-of-use (“ROU”) assets within Other long-term assets and lease liabilities within Other current liabilities and Other long-term liabilities on
our Consolidated Balance Sheets. Finance leases are included as ROU finance leases within Property, plant, and equipment, net, and finance lease liabilities
within Other current liabilities and Long-term debt, net of current portion on our Consolidated Balance Sheets. Leases with an initial expected term of 12
months or less are considered short-term and are not recorded on our Consolidated Balance Sheets. The Partnership recognizes lease expense for these leases
on a straight-line basis over the expected lease term.
ROU assets represent the Partnership’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease
payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of minimum lease payments
over the lease term using an incremental borrowing rate with a maturity similar to the lease term, as our leases do not generally provide an implicit rate. The
lease term is modified to reflect options to extend or terminate the lease when it is reasonably certain we will exercise such option. The depreciable life of
assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably
December 31, 2021 | 55
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
certain of exercise, in which case the depreciation policy in the “Property, Plant and Equipment, net” section above is applicable. The periodic lease payments
are treated as payments of the lease obligation and interest is recorded as interest expense.
Impairment of Long-Lived Assets and Goodwill
Long-lived assets (excluding goodwill, intangible assets with indefinite lives, and deferred tax assets) are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the
asset exceeds their fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less cost to sell.
Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired less liabilities assumed. Intangible assets are
assets that lack physical substance (excluding financial assets). Goodwill acquired in a business combination and intangible assets with indefinite useful lives
are not amortized, while intangible assets with finite useful lives are amortized. Goodwill and intangible assets not subject to amortization are tested for
impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. The Partnership uses November 1 of each
year as its annual valuation date for its goodwill impairment test.
One of the Partnership’s reporting units, the Coffeyville Facility, had a goodwill balance of $41.0 million at December 31, 2019. During the second
quarter of 2020, following completion of the spring planting season, the market pricing for ammonia and UAN, which are the facility’s two primary products,
experienced significant pricing declines driven by updated market expectations around supply and demand fundamentals which were expected to continue into
the second half of 2020. Additionally, significant uncertainty remained as to the nature and extent of impacts to be seen on the overall demand for corn and
soybean given reduced ethanol production and broader economic conditions which may negatively impacted demand. Therefore, in connection with the
preparation of the financial statements for the three months ended June 30, 2020, given the pricing declines experienced in the second quarter of 2020, further
muting of the Partnership’s near-term economic recovery assumptions, and market price performance of the Partnership’s common units, the Partnership
concluded an impairment indicator was present and a triggering event under ASC Topic 350, Intangibles-Goodwill and Other, had occurred as of June 30,
2020. Significant assumptions inherent in the valuation methodologies are goodwill include, but are not limited to, prospective financial information, growth
rates, discount rates, inflationary factors, and cost of capital. Based on the interim quantitative analysis, it was determined that the estimated fair value of the
Coffeyville Facility reporting unit did not exceed its carrying value. As a result, the Partnership recorded a full non-cash impairment charge of $41.0 million
during the year ended December 31, 2020.
As there was no goodwill remaining as of December 31, 2021 and 2020, no annual impairment review was performed. The Partnership performed the
annual impairment review of goodwill for 2019 associated with the Coffeyville Facility reporting unit and concluded there were no impairments. For the
period ended December 31, 2019, no events or circumstances were identified which would trigger the performance of a quantitative analysis after reviewing
all qualitative factors impacting the reporting unit including improved market conditions, financial results, and financial forecasts from those used in the fair
value analysis for December 31, 2018, which resulted in the fair value of the Coffeyville Facility reporting unit exceeding its carrying value by approximately
36%.
Loss Contingencies
In the ordinary course of business, CVR Partners 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. Accrued amounts are
reflected in Other current liabilities or Other long-term liabilities depending on when the Company expects to expend such amounts. As of December 31, 2021
and 2020, there are no matters or contingencies that require recognition or disclosure.
December 31, 2021 | 56
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Environmental, Health & Safety (“EHS”) Matters
The Partnership is subject to various stringent federal, state, and local environmental, health, and safety rules and regulations. Liabilities related to future
remediation costs of past environmental contamination of properties are recognized when the related costs are considered probable and can be reasonably
estimated. Estimates of these costs are based upon currently available facts, internal and third-party assessments of contamination, available remediation
technology, site-specific costs, and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries.
Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change and
such accruals can take into account the legal liability of other parties. Management periodically reviews and, as appropriate, revises its environmental accruals.
Environmental expenditures for capital assets are capitalized at the time of the expenditure when such costs provide future economic benefits. Accrued
amounts are reflected in Other current liabilities or Other long-term liabilities depending on when the Company expects to expend such amounts. As of
December 31, 2021 and 2020, no liabilities have been recognized for environmental remediation matters as no matters have been identified that are considered
to be probable or estimable.
Revenue Recognition
The Partnership recognizes revenue based on consideration specified in contracts or agreements with customers when performance obligations are
satisfied by transferring control over products or services to a customer. The adoption of ASC Topic 606, Revenue from Contracts with Customers, resulted in
the recognition of deferred revenue and related receivables, on a gross basis, associated with contracts that guarantee a price and supply of nitrogen fertilizer
products in quantities expected to be delivered in the normal course of business.
Other accounting policies relevant to revenue include:
•
Revenue transactions that pass control at customers’ designated facilities;
• Non-monetary product exchanges which are entered into in the normal course of business are included on a net cost basis in operating expenses on
the Consolidated Statements of Operations; and
•
Pass-through finished goods delivery costs reimbursed by customers are reported in net sales, while an offsetting expense is included in cost of
materials and other.
Other considerations - Excise and other taxes collected from customers and remitted to governmental authorities are excluded from reported revenues.
Cost Classifications
Cost of materials and other consist primarily of freight and distribution expenses, feedstock expenses, purchased ammonia, and purchased hydrogen.
Direct operating expenses (exclusive of depreciation and amortization) consist primarily of energy and other utility costs, direct costs of labor, property taxes,
plant-related maintenance services, including turnaround, and environmental and safety compliance costs, as well as catalyst and chemical costs. Each of these
financial statement line items are also impacted by changes in inventory balances. Direct operating expenses also include allocated share-based compensation
from CVR Energy and its subsidiaries, as discussed in Note 7 (“Share-Based Compensation”). Selling, general and administrative expenses consist primarily
of legal expenses, treasury, accounting, marketing, human resources, information technology, and maintaining the corporate and administrative offices in
Texas and Kansas.
Share-Based Compensation
The Partnership accounts for share-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation (“ASC 718”).
Currently, all of the Partnership’s share-based compensation awards are liability-classified and are measured at fair value at the end of each reporting period
based on the applicable closing unit price. Compensation expense will fluctuate based on changes in the applicable unit price value and expense reversals
resulting from employee terminations prior to award vesting. See Note 7 (“Share-Based Compensation”) for further discussion.
December 31, 2021 | 57
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Income Taxes
CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CVR Partners accounts for income taxes utilizing the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for
the anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
Allocation of Costs
CVR Energy and its subsidiaries provide a variety of services to the Partnership, including employee benefits provided through CVR Energy’s benefit
plans, administrative services provided by CVR Energy’s employees and management, insurance, and office space leased by CVR Energy. As such, the
accompanying consolidated financial statements include costs that have been incurred by CVR Energy on behalf of the Partnership. These amounts incurred
by CVR Energy are then billed or allocated to the Partnership and are classified on the Consolidated Statements of Operations as either Direct operating
expenses (exclusive of depreciation and amortization) or as Selling, general and administrative expenses. See Note 9 (“Related Party Transactions”) for a
detailed discussion of the billing procedures and the basis for calculating the charges for specific products and services.
Recent Accounting Pronouncements - Adoption of Income Taxes Standard
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic
740). The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and modifies other areas of
the topic to clarify the application of GAAP. Certain amendments within the standard are required to be applied on a retrospective basis and others on a
prospective basis. Effective January 1, 2021, we adopted this ASU with no material impact on the Partnership’s consolidated financial position or results of
operations.
Recent Accounting Pronouncements - Adoption of Codification Improvements Standard
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The ASU amends various sections of the codification in the FASB’s
ongoing efforts to simplify and improve guidance. Effective January 1, 2021, we adopted this ASU with no material impact on the Partnership’s consolidated
financial position or results of operations.
Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented
In March 2020, the FASB issued 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 expect it to
have a material impact on its consolidated financial statements and related disclosures.
(3) Leases
Lease Overview
We lease railcars and certain facilities and equipment to support the Partnership’s operations. Most leases include one or more options to renew, with
renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also
include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there
is a transfer of title or purchase
December 31, 2021 | 58
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 at December 31, 2021 and 2020
The following tables summarize the ROU asset and lease liability balances for the Partnership’s operating and finance leases at December 31, 2021 and
2020:
(in thousands)
ROU asset, net
Railcars
Real estate and other
Lease liability
Railcars
Real estate and other
December 31, 2021
December 31, 2020
Operating Leases
Finance Leases
Operating Leases
Finance Leases
$
$
4,570
2,755
4,570
665
$
$
—
34
—
—
$
$
7,327
3,040
7,696
867
$
$
—
10
—
10
Lease Expense Summary for the Years Ended December 31, 2021, 2020, and 2019
We recognize lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of
depreciation and amortization). For the years ended December 31, 2021, 2020, and 2019, we recognized lease expense comprised of the following
components:
(in thousands)
Operating lease expense
Finance lease expense:
Amortization of ROU asset
Interest expense on lease liability
Short-term lease expense
Lease Terms and Discount Rates
2021
3,827
102
2
552
$
$
$
Year Ended December 31,
2020
$
$
$
4,113
101
6
372
$
$
$
2019
3,12
32
1
41
The following outlines the remaining lease terms and discount rates used in the measurement of the Partnership’s ROU assets and liabilities:
December 31, 2020
December 31, 2021
Operating Leases
Finance Leases
Operating Leases
Finance Leases
Weighted-average remaining lease
term
Weighted-average discount rate
2.1 years
5.1 %
0.0 years
— %
2.9 years
%
5.1
1.3 ye
4.0
December 31, 2021 | 59
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Maturities of Lease Liabilities
CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following summarizes the remaining minimum operating lease payments through maturity of the Partnership’s ROU assets and liabilities at
December 31, 2021. There were no finance lease payments remaining at December 31, 2021.
(in thousands)
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Total lease liability
Operating Leases
3,22
1,35
67
26
—
—
5,51
(28
5,23
$
$
On July 31, 2020, the Partnership and Messer LLC (“Messer”) entered into an On-Site Product Supply Agreement (the “Messer Agreement”). On
February 21, 2022, the Partnership entered into the First Amendment to the On-Site Product Supply Agreement (the “Messer Amendment”, and collectively,
the “Amended Messer Agreement”) with Messer. Under the Amended Messer Agreement, among other obligations, Messer is obligated to supply and make
certain capital improvements during the term of the Amended Messer Agreement, and the Partnership is obligated to take as available and pay for, oxygen,
nitrogen, and compressed dry air from Messer’s facility. This arrangement for the Partnership’s purchase of oxygen, nitrogen, and dry air from Messer does
not meet the definition of a lease under FASB Accounting Standards Codification (“ASC”) Topic 842, Leases (“Topic 842”), as the Partnership 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 Amended Messer Agreement.
The Amended 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 the Partnership will receive all output associated with the Vessel. Based on terms outlined in the Amended Messer Agreement, the Partnership
expects the lease of the Oxygen Storage Vessel to be classified as a financing lease with an amount of approximately $25 million being capitalized upon lease
commencement when the Vessel is placed in service.
(4) Other Current Liabilities
Other current liabilities were as follows:
(in thousands)
Personnel accruals
Share-based compensation
Operating lease liabilities
Accrued taxes other than income taxes
Accrued interest
Sales incentives
Prepaid revenue contracts
Other accrued expenses and liabilities
Total other current liabilities
December 31,
2021
2020
$
$
7,920
5,888
3,052
1,744
1,654
1,555
954
1,634
24,401
$
$
7,47
44
3,30
1,76
2,50
2,21
19
79
18,70
December 31, 2021 | 60
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(5) Long-Term Debt
Long-term debt consists of the following:
(in thousands)
9.25% Senior Secured Notes, due June 2023
6.125% Senior Notes, due June 2028
(1)
(1) (2)
Unamortized discount and debt issuance costs
(3)
Total long-term debt
Current portion of long-term debt and finance lease obligations
(4)
Total long-term debt, including current portion
December 31,
2021
2020
$
$
65,000
550,000
(4,358)
610,642
—
610,642
$
$
$
645,000
—
(11,058)
633,942
2,240
636,182
(1) The estimated fair value of the 9.25% Senior Secured Notes due June 2023 (the “2023 Notes”) was approximately $65.1 million and $645.7 million as of December 31,
2021 and December 31, 2020, respectively. The estimated fair value of the 6.125% Senior Secured Notes due June 2028 was approximately $580.3 million as of December
31, 2021. This estimate of fair value is a Level 2 measurement as it was determined by quotations obtained from a broker-dealer who makes a market in these and similar
securities.
(2) The call price of the 2023 Notes decreased to par on June 15, 2021. On June 23, 2021, September 23, 2021, and December 22, 2021, the Partnership redeemed
$550 million, $15 million, and $15 million, respectively, of the 2023 Notes, at par, plus accrued and unpaid interest on the redeemed portion. The remaining balance of
$65 million was outstanding as of December 31, 2021. The $65 million outstanding balance of the 2023 Notes was paid in full on February 22, 2022 at par, plus accrued
and unpaid interest.
(3) For the years ended December 31, 2021, 2020, and 2019, amortization of the discount on debt and amortization of deferred financing costs reported as Interest expense,
net totaled approximately $2.5 million, $3.8 million, and $3.4 million, respectively.
(4) The $2.2 million outstanding balance of the 6.5% Notes, due April 2021, was paid in full on April 15, 2021.
Credit Agreements
(in thousands)
ABL Credit Agreement
(1) (2) (3)
Total Capacity
Amount borrowed
as of December 31,
2021
Outstanding Letters
of Credit
Available capacity
as of December 31,
2021
Maturity Date
$
35,000
$
—
$
—
$
35,000
September 30, 2024
(1) On September 30, 2021, the Partnership entered into a senior secured asset based credit agreement with an aggregate principal amount of up to $35.0 million with a
maturity date of September 30, 2024 (the “ABL Credit Facility”) and terminated its $35.0 million ABL Credit Agreement, dated as of September 30, 2016, as amended
(the “2016 ABL Credit Agreement”).
(2) Beginning September 30, 2021, loans under the Partnership’s ABL Credit Facility bear interest at an annual rate equal to, at the option of the borrowers, (i) (a) 1.615%
plus the daily simple Secured Overnight Financing Rate (“SOFR”) or (b) 0.615% plus a base rate, if our quarterly excess availability is greater than or equal to 75%, (ii)
(a) 1.865% plus SOFR or (b) 0.865% plus a base rate, if our quarterly excess availability is greater than or equal to 50% but less than 75%, or (iii) (a) 2.115% plus SOFR
or (b) 1.115% plus a base rate, otherwise.
(3) For the years ended December 31, 2021, 2020, and 2019, amortization expense for deferred financing costs were approximately $0.3 million, $0.2 million, and $0.2
million, respectively.
6.125% Senior Secured Notes due June 2028
On June 23, 2021, CVR Partners and its subsidiary, CVR Nitrogen Finance Corporation (“Finance Co.” and, together with CVR Partners, the “Issuers”),
completed a private offering of $550 million aggregate principal amount of 6.125% Senior Secured Notes due June 2028 (the “2028 Notes”). Interest on the
2028 Notes is payable semi-annually in arrears on June 15 and December 15 each year, commencing on December 15, 2021. The 2028 Notes mature on June
15, 2028, unless earlier redeemed or repurchased by the Issuers. The 2028 Notes are jointly and severally guaranteed on a senior secured basis by all the
existing domestic subsidiaries of CVR Partners, excluding Finance Co.
In relation to the issuance of the 2028 Notes, the Partnership received $546.7 million of net cash proceeds, net of underwriting fees and other third-party
fees and expenses associated with the offering. The debt issuance costs of the 2028 Notes totaled approximately $3.9 million and are being amortized over the
term of the 2028 Notes as interest expense using the effective-interest amortization method.
December 31, 2021 | 61
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We may, at our option, at any time and from time to time prior to June 15, 2024, on any one or more occasions, redeem all or part of the 2028 Notes at a
price equal to 100% of the principal amount plus a “make whole” premium, plus accrued and unpaid interest. On or after June 15, 2024, we may, on any one
or more occasions, redeem all or part of the 2028 Notes at the redemption prices set forth below, expressed as a percentage of the principal amount of the
respective notes, plus accrued and unpaid interest to the applicable redemption date.
12-month period beginning June 15,
2024
2025
2026 and thereafter
Percentage
103.063%
101.531%
100.000%
The indenture governing the 2028 Notes contains covenants that are substantially the same as the indenture governing the 2023 Notes. However, the 2028
Notes contain a permitted investment activity carveout that allows for the transfer of certain carbon capture assets to a joint venture for the purpose of
monetizing potential tax credits.
9.25% Senior Secured Notes due June 2023
On June 10, 2016, CVR Partners and Finance Co. (together the “2023 Notes Issuers”), certain subsidiary guarantors named therein and Wilmington Trust,
National Association, as trustee and as collateral trustee, completed a private offering of $645 million aggregate principal amount of 9.25% Senior Secured
Notes due 2023 (the “2023 Notes”). The 2023 Notes mature on June 15, 2023, unless earlier redeemed or repurchased by the issuers. Interest on the 2023
Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The 2023 Notes are guaranteed on a senior secured basis by all of the
Partnership’s existing subsidiaries.
On or after June 15, 2021, the 2023 Notes Issuers may redeem all or part of the 2023 Notes at a price equal to 100% of the principal amount plus accrued
and unpaid interest to the applicable redemption date. The 2023 Notes contain customary covenants for a financing of this type that, among other things,
restrict CVR Partners’ ability and the ability of certain of its subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Partnership’s
units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create
or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from the Partnerships’ restricted subsidiaries to the Partnership;
(vii) consolidate, merge or transfer all or substantially all of the Partnerships’ assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted
subsidiaries. In addition, the indenture contains customary events of default, the occurrence of which would result in or permit the trustee or the holders of at
least 25% of the 2023 Notes to cause the acceleration of the 2023 Notes, in addition to the pursuit of other available remedies.
On June 23, 2021, the Partnership redeemed $550 million aggregate principal amount of the outstanding 2023 Notes at par and settled accrued interest of
approximately $1.1 million through the date of redemption. As a result of this transaction, the Partnership recognized in Interest expense, net a $7.8 million
loss on extinguishment of debt in the second quarter of 2021, which includes the write-off of unamortized deferred financing costs and original issue discount
of $2.9 million and $4.9 million, respectively.
On September 23, 2021 and December 22, 2021, the Partnership redeemed $15 million and $15 million, respectively, in aggregate principal amount of the
outstanding 2023 Notes at par and settled accrued interest of approximately $0.4 million and less than $0.1 million, respectively, through the date of each
redemption. As a result of these redemptions and for the year ended December 31, 2021, the Partnership recognized in Interest expense, net a $0.3 million loss
on extinguishment of debt, which includes the write-off of unamortized deferred financing costs and discount of $0.1 million and $0.2 million, respectively.
On February 22, 2022, the Partnership redeemed all of the outstanding 2023 Notes at par and settled accrued interest of approximately $1.1 million
through the date of redemption. As a result of this transaction, the Partnerships will recognize a loss on extinguishment of debt of $0.6 million in the first
quarter of 2022, which includes the write-off of unamortized deferred financing costs and discount of $0.2 million and $0.4 million, respectively.
December 31, 2021 | 62
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ABL Credit Agreement
CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On September 30, 2021, CVR Partners, LP and its subsidiaries, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers, LLC, Coffeyville Resources
Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, Finance Co. and CVR Nitrogen GP, LLC, entered into the ABL Credit Facility with Wells Fargo
Bank National Association, a national banking association (“Wells Fargo”), as administrative agent, collateral agent, and lender. The ABL Credit Facility has
an aggregate principal amount of availability of up to $35.0 million with an incremental facility, which permits an increase in borrowings of up to
$15.0 million in the aggregate subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for general
corporate purposes of the Partnership and its subsidiaries. The ABL Credit Facility provides for loans and letters of credit, subject to meeting certain
borrowing base conditions, with sub-limits of $3.5 million for swingline loans and $10.0 million for letters of credit. The ABL Credit Facility is scheduled to
mature on September 30, 2024.
Loans under the ABL Credit Facility initially bear interest at an annual rate equal to, at the option of the borrowers, (i) 1.615% plus SOFR or (ii) 0.615%
plus a base rate. Based on the previous quarter’s excess availability, such annual rate could increase to, at the option of the borrowers, (i) 2.115% plus SOFR
or (ii) 1.115% plus a base rate. The borrowers must also pay a commitment fee on the unutilized commitments and also pay customary letter of credit fees.
The ABL Credit Facility contains customary covenants for a financing of this type and requires the Partnership in certain circumstances to comply with a
minimum fixed charge coverage ratio test and contains other restrictive covenants that limit the ability of the Partnership and its subsidiaries ability to, among
other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and
loans, enter into affiliate transactions, issue certain equity interests, create subsidiaries and unrestricted subsidiaries, and create certain restrictions on the
ability to make distributions, loans, and asset transfers among the Partnership or its subsidiaries.
In connection with the ABL Credit Facility, the Partnership incurred lender and other third-party costs of $0.8 million which have been deferred in
Prepaid expenses and other current assets and Other long-term assets and are being amortized as interest expense over the term of the ABL Credit Facility
using the straight-line amortization method.
Covenant Compliance
The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of December 31, 2021.
(6) Revenue
The following table presents the Partnership’s revenue, disaggregated by major product:
(in thousands)
Ammonia
UAN
Urea products
Net sales, exclusive of freight and other
Freight revenue
Other revenue
Net sales
2021
Year Ended December 31,
2020
2019
$
$
146,140
316,014
28,746
490,900
31,419
10,262
532,581
$
$
94,117
198,258
14,115
306,490
33,329
10,134
349,953
$
$
94,46
251,19
17,43
363,09
33,43
7,64
404,17
The Partnership sells its products on a wholesale basis under a contract or by purchase order. The Partnership’s contracts with customers generally contain
fixed pricing and most have terms of less than one year. The Partnership recognizes revenue at the point in time at which the customer obtains control of the
product, which is generally upon delivery and acceptance by the customer. The customer acceptance point is stated in the contract and may be at one of the
Partnership’s manufacturing facilities, at one of the Partnership’s off-site loading facilities, or at the customer’s designated facility. Freight revenue recognized
by the Partnership represents the pass-through finished goods delivery costs incurred prior to customer acceptance
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and is reimbursed by customers. An offsetting expense for freight is included in Cost of materials and other. Qualifying taxes collected from customers and
remitted to governmental authorities are not included in reported revenues.
Depending on the product sold and the type of contract, payments from customers are generally either due prior to delivery or within 15 to 30 days of
product delivery.
The Partnership generally provides no warranty other than the implicit promise that goods delivered are free of liens and encumbrances and meet the
agreed upon specifications. Product returns are rare, and as such, the Partnership does not record a specific warranty reserve or consider activities related to
such warranty, if any, to be a separate performance obligation.
The Partnership has an immaterial amount of variable consideration for contracts with an original duration of less than a year. A small portion of the
Partnership’s revenue includes contracts extending beyond one year, some of which contain variable pricing in which the majority of the variability is
attributed to the market-based pricing. The Partnership’s contracts do not contain a significant financing component.
The Partnership has an immaterial amount of fee-based revenue, included in other revenue in the table above, that is recognized based on the net amount
of the proceeds received.
Transaction Price - Allocation to Remaining Performance Obligations
As of December 31, 2021, the Partnership had approximately $10.2 million of remaining performance obligations for contracts with an original expected
duration of more than one year. The Partnership expects to recognize approximately $6.0 million of these performance obligations as revenue by the end of
2022, an additional $4.0 million in 2023, and the remaining balance thereafter. The Partnership has elected to not disclose the amount of transaction price
allocated to remaining performance obligations for contracts with an original expected duration of less than one year. The Partnership has elected to not
disclose variable consideration allocated to wholly unsatisfied performance obligations that are based on market prices that have not yet been determined.
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 during the year ended December 31, 2021 is presented below:
(in thousands)
Balance at December 31, 2020
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 December 31, 2021
(1)
Includes $93.7 million where payment associated with prepaid contracts was collected as of December 31, 2021.
$
$
30,63
146,59
(29,72
(59,91
(53
87,06
December 31, 2021 | 64
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Major Customers
CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CVR Partners had one customer who comprised 13% of net sales for the year ended December 31, 2021 and two customers who comprised 26% and 28%
of net sales for the years ended December 31, 2020 and 2019, respectively.
(7) Share-Based Compensation
Overview
CVR Partners has a Long-Term Incentive Plan (“CVR Partners LTIP”) which permits the granting of options, stock and unit appreciation rights (“SARs”),
restricted shares, restricted stock units, phantom units, unit awards, substitute awards, other unit-based awards, cash awards, dividend and distribution
equivalent rights, share awards, and performance awards (including performance share units, performance units, and performance-based restricted stock).
Individuals who are eligible to receive awards under or in connection with the CVR Partners LTIP include any director, officer, employee, employee
candidate, consultant or advisor of the Partnership, its subsidiaries, or its parent.
CVR Partners’ Phantom Unit Awards and Compensation Expense
Phantom unit awards have been granted to officers, employees, and directors (the “Share-Based Awards”). As a result, Share-Based Awards that reflect
the value and distributions of CVR Partners, as applicable, have been granted and remain outstanding as of December 31, 2021. Each Share-Based Award and
the related distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one unit, in
accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid, as applicable, from the grant date through the
vesting date. The Share-Based Awards are generally graded-vesting awards, which vest over three years with one-third of the award vesting each year the
grantee remains employed by the Partnership and its subsidiaries. Compensation expense is recognized ratably, based on service provided to the Partnership
and its subsidiaries, with the amount recognized fluctuating as a result of the Share-Based Awards being re-measured to fair value at the end of each reporting
period due to their liability-award classification.
A summary of phantom unit award activity during the year ended December 31, 2021 is presented below:
(in thousands, except per unit data)
Non-vested at December 31, 2020
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Units
(1)
518,881
46,581
(189,177)
(14,445)
361,840
$
$
Weighted-
Average
Grant Date
Fair Value
14.70
80.61
14.21
11.67
18.89
$
$
Aggregate
Intrinsic
Value
8,31
29,92
(1) As of December 31, 2021, there are no outstanding awards under the CVR Partners LTIP, and the only outstanding and unvested phantom awards are issued in connection
with, not under, the CVR Partners LTIP.
Unrecognized compensation expense associated with the phantom units at December 31, 2021 was approximately $19.0 million, which is expected to be
recognized over a weighted average period of 2.0 years. Compensation expense recorded for the years ended December 31, 2021, 2020, and 2019 related to
these awards was approximately $27.0 million, $0.6 million, and $2.3 million, respectively.
As of December 31, 2021 and 2020, the Partnership had a liability of $9.1 million and $0.6 million, respectively, for cash settled non-vested phantom unit
awards and associated distribution equivalent rights and, for the years ended December 31, 2021, 2020, and 2019, paid cash of $11.1 million, $0.5 million, and
$0.8 million, respectively, to settle liability-classified awards upon vesting.
As of December 31, 2021 and 2020, CVR Energy had a liability associated with the CVR Partners LTIP of $3.3 million and $0.3 million, respectively, for
cash settled non-vested phantom unit awards and associated distribution equivalent rights
December 31, 2021 | 65
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and, for the years ended December 31, 2021, 2020, and 2019, paid cash of $4.4 million, $0.3 million, and $0.9 million, respectively, to settle liability-
classified awards upon vesting under the CVR Partners LTIP.
Incentive Unit Awards — CVR Energy
CVR Energy grants awards of incentive units and dividend equivalent rights to certain of its employees and those of its subsidiaries, including CVR GP,
who provide shared services for CVR Energy and its subsidiaries, including the Partnership. Costs related to these incentive unit awards are allocated to the
Partnership based on time spent on Partnership business. Total compensation expense allocated to the Partnership for the years ended December 31, 2021,
2020, and 2019 related to the incentive units was $2.3 million, $0.4 million and $1.0 million, respectively.
The Partnership had no separate liabilities related to these incentive unit awards as of December 31, 2021 and 2020, as the allocation of compensation
expense for incentive unit awards is part of the amount charged to the Partnership under the Corporate MSA. For the years ended December 31, 2021 and
2019, the Partnership had no reimbursements related to its allocated portion of CVR Energy’s incentive unit awards payments, respectively, and for the year
ended December 31, 2020, the Partnership made reimbursements to CVR Energy of $2.2 million. See Note 9 (“Related Party Transactions”) for further
discussion of the Corporate MSA.
Performance Unit Awards
Pursuant to the employment agreement, as amended, with the Partnership’s Executive Chairman, CVR Energy entered into a performance unit award
agreement (the “2017 Performance Unit Award Agreement”) on November 1, 2017 with our Executive Chairman representing the right to receive upon
vesting, a cash payment equal to $10.0 million if the average closing price of CVR Energy’s common stock over the 30 day trading period from January 4,
2022 to February 15, 2022 is equal to or greater than $60 per share. Effective as of December 22, 2021, CVR Energy and our Executive Chairman entered into
an amendment to the 2017 Performance Unit Award Agreement, which extended the end of the performance period thereunder to December 31, 2024, and
changed the 30 day trading period on which the average closing price of CVR Energy’s common stock is based to January 6, 2025 through February 20, 2025.
Under the 2017 Performance Unit Award Agreement, for the year ended December 31, 2021, the Partnership recognized a benefit of $0.6 million. No
compensation costs were recognized for the years ended December 31, 2020 and 2019. Under the 2017 Performance Unit Award Agreement, as of
December 31, 2021 and 2020, the Partnership had no outstanding liability. Once the performance parameters are probable of being met under the 2017
Performance Unit Award Agreement, the Partnership’s allocated portion of unrecognized compensation costs would be approximately $2.3 million.
Other Benefit Plans
CVR Energy sponsors and administers two defined contribution 401(k) plans, the CVR Energy 401(k) Plan and the CVR Energy 401(k) Plan for
Represented Employees (the “Plans”), in which employees of the general partner, CVR Partners and its subsidiaries may participate. Participants in the Plans
may elect to contribute a designated percentage of their eligible compensation in accordance with the Plans, subject to statutory limits. CVR Partners provides
a matching contribution of 100% of the first 6% of eligible compensation contributed by participants. Participants in both Plans are immediately vested in
their individual contributions. The Plans provide for a three-year vesting schedule for the Partnership’s matching contributions and contain a provision to
count service with predecessor organizations. The Partnership did not have contributions under the Plans for the year ended December 31, 2021, as the
Partnership’s matching contributions for the Plans were suspended effective January 1, 2021, and had approximately $1.9 million, and $1.8 million for the
years ended December 31, 2020 and 2019, respectively. The Partnership’s matching contributions for the Plans resumed effective January 1, 2022.
December 31, 2021 | 66
CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Table of Contents
(8) Commitments
Supply Commitments
The minimum required payments for unconditional purchase obligations, including the natural gas purchases outlined below, are as follows:
(in thousands)
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Unconditional
Purchase
Obligations
41,35
9,26
8,77
8,77
8,77
37,59
114,54
$
$
Supply Commitments - The Partnership is a party to various supply agreements with both related and third parties which commit the Partnership to
purchase minimum volumes of hydrogen, oxygen, nitrogen, pet coke, and natural gas to run its plants’ operations.
The Partnership is also party to a natural gas supply agreement with various third-parties. Natural gas expense for the years ended December 31,
2021, 2020, and 2019 totaled approximately $52.9 million, $32.4 million, and $33.1 million, respectively, and is included in Cost of materials and other and
Direct operating expenses (exclusive of depreciation and amortization).
The Partnership entered into the Coffeyville Master Service Agreement (“Coffeyville MSA”) with Coffeyville Resources Refining & Marketing, LLC, an
indirect, wholly-owned subsidiary of CVR Energy (“CRRM”), pursuant to which, it agrees to pay a monthly fee for pet coke purchases. The Partnership’s
Coffeyville Facility obtains a significant amount (48% on average during last five years, 43% in 2021) of the pet coke it needs from the Coffeyville MSA. Any
remaining pet coke needs are required to be purchased from various third parties. The price paid pursuant to the Coffeyville MSA is based on the lesser of a
pet coke price derived from the price received for UAN (the “UAN-based Price”) or a pet coke price index. The UAN-based Price begins with a pet coke price
of $25 per ton based on a price per ton for UAN that excludes transportation cost (“netback price”) of $205 per ton, and adjusts up or down $0.50 per ton for
every $1.00 change in the netback price. The UAN-based price has a ceiling of $40 per ton and a floor of $5 per ton. See Note 9 (“Related Party
Transactions”) for further discussion of the Coffeyville MSA.
Pursuant to the Coffeyville MSA, the Partnership agreed, with respect to the Coffeyville Facility, to pay CRRM for hydrogen purchases. The committed
hydrogen volume pricing is based on a monthly fixed fee (based on the fixed and capital charges associated with producing the committed volume) and a
monthly variable fee (based on the natural gas price associated with hydrogen actually received). In the event the Coffeyville Facility fails to take delivery of
the full committed volume in a month, the Partnership remains obligated to pay CRRM for the monthly fixed fee and the monthly variable fee based upon the
actual hydrogen volume received, if any. In the event CRRM fails to deliver any portion of the committed volume for the applicable month for any reason
other than planned repairs and maintenance, the Partnership will be entitled to a pro-rata reduction of the monthly fixed fee. See Note 9 (“Related Party
Transactions”) for further discussion.
The Partnership, with respect to the Coffeyville Facility, is also party to the Messer Agreement, pursuant to which, it is required to take as available and
pay for the supply of oxygen and nitrogen to the plant. This agreement was renewed and commenced in July 2020 for an initial term of 15 years with annual
renewals thereafter. Expenses associated with this agreement are included in Direct operating expenses (exclusive of depreciation and amortization), and, for
the years ended December 31, 2021, 2020, and 2019, totaled approximately $3.9 million, $4.2 million, and $4.2 million, respectively.
In addition to the related party Coffeyville MSA, the Coffeyville Facility has pet coke supply agreements with multiple third-party refineries to purchase
approximately 327,000 tons of pet coke at a fixed price for delivery at different dates through
December 31, 2021 | 67
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 2022. The Coffeyville Facility has historically purchased third-party pet coke based on spot purchases and supply agreements in place at the time.
The delivered cost of third-party pet coke purchases is included in Cost of materials and other and totaled approximately $17.4 million, $17.9 million, and
$10.3 million for the years ended December 31, 2021, 2020, and 2019, respectively.
During 2019, the Partnership, with respect to the East Dubuque Facility, entered into a utility service agreement with a new third-party energy
cooperative. The new utility service agreement does not contain purchase commitments. The cost of utilities, including natural gas purchases, is included in
Direct operating expenses (exclusive of depreciation and amortization). Prior to entering into the new utility service agreement, the East Dubuque Facility had
a utility service agreement with a third-party energy cooperative which included certain charges on a take-or-pay basis and amounts associated with this
agreement totaled approximately $3.7 million for the year ended December 31, 2019.
(9) Related Party Transactions
Limited Partnership Agreement
The Partnership’s general partner manages the Partnership’s operations and activities as specified in CVR Partners’ limited partnership agreement. The
general partner of the Partnership, CVR GP, is managed by its board of directors. The partnership agreement provides that the Partnership will reimburse CVR
GP for all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership, including salary, bonus, incentive compensation, and other
amounts paid to any person to perform services for the Partnership or for its general partner in connection with operating the Partnership.
Omnibus Agreement
We are party to an omnibus agreement with CVR Energy and our general partner, pursuant to which we have agreed that CVR Energy will have a
preferential right to acquire any assets or group of assets that do not constitute assets used in a fertilizer restricted business. In determining whether to exercise
any preferential right under the omnibus agreement, CVR Energy will be permitted to act in its sole discretion, without any fiduciary obligation to us or the
unitholders whatsoever. These obligations will continue so long as CVR Energy owns at least 50% of our general partner. There was no activity reported
under this agreement during the years ended 2021, 2020, and 2019.
Coffeyville MSA
Effective January 1, 2020, the Conflicts Committee of the Board and the audit committee of CVR Energy approved, and CRNF and CRRM entered into,
the Coffeyville MSA which is comprised of various supply and service agreements effectively replacing, on substantially equivalent terms, other related party
agreements in place during 2019 (the “Replaced Coffeyville Agreements”). In addition to affirming the terms and services described in the Replaced
Coffeyville Agreements and resetting the durations thereof, as applicable, commencing January 1, 2020, the Coffeyville MSA provides for monthly payments,
subject to netting, for all goods and services supplied under the Coffeyville MSA. The Coffeyville MSA will continue in effect until terminated in writing, in
whole or in part, by either party, or until terminated automatically in the event a party falls out of common control with the other party. The Coffeyville MSA
provides the following services:
•
Cross Easements - Both CRNF and CRRM can access and utilize each other’s land in certain circumstances in order to operate their respective
businesses.
• Hydrogen Purchase and Sale - CRRM agrees to sell and deliver a committed hydrogen volume of 90,000 mscf per month to CRNF and CRNF agrees
to purchase and receive the committed volume. CRNF also has the option to purchase excess volume from CRRM, if available.
•
•
Raw Water and Facilities Sharing - CRNF and CRRM are each owners of an undivided one-half interest in and to the water rights and agree to (i)
allocate raw water resources between CVR Energy’s Coffeyville refinery and our Coffeyville Facility and (ii) provide for the management of the
water intake system which draws raw water from the Verdigris River for both our Coffeyville Facility and CVR Energy’s Coffeyville Refinery.
Coke Supply - Our Coffeyville Facility purchases pet coke from CVR Energy’s Coffeyville Refinery which provides that CRRM must deliver, and the
Coffeyville Facility must purchase, during each calendar year an annual required
December 31, 2021 | 68
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
amount of pet coke equal to the lesser of (i) 100 percent of the pet coke or (ii) 500,000 tons of pet coke. If during a calendar month, more than 41,667
tons of pet coke is produced and available for purchase, then the Coffeyville Facility will have the option to purchase the excess at the purchase price
provided for in the agreement. If the option is declined, CRRM may sell the excess to a third-party.
Feedstock and Shared Services - CRNF and CRRM provide feedstock and other services to one another. These feedstocks and services are utilized in
the respective production processes of CRRM’s Coffeyville Refinery and our Coffeyville Facility. Feedstocks provided under the agreement include,
among others, hydrogen, high-pressure steam, nitrogen, instrument air, oxygen, and natural gas.
Lease - CRNF leases certain office and laboratory space from CRRM.
•
•
Corporate MSA
Also effective January 1, 2020, the Conflicts Committee of the Board and the audit committee of CVR Energy approved, and the parties entered into the
Corporate MSA between CVR Services and certain of its affiliates, including CVR Energy, CVR GP and the Partnership and its subsidiaries, which is
comprised of various management and service agreements effectively replacing other related party agreements, on substantially equivalent terms, in place for
2019 (the “Replaced Corporate Agreements”). In addition to affirming the terms and services described in the Replaced Corporate Agreements and resetting
the durations thereof, as applicable, commencing January 1, 2020, the Corporate MSA provides for payment by each service recipient under the Corporate
MSA of a monthly fee for goods and services supplied under the Corporate MSA, subject to netting and an annual true up, as well as pass-through of any
direct costs incurred on behalf of a service recipient without markup. Either CVR Services or CVR GP may terminate the Corporate MSA upon at least 90
days notice.
Under the Corporate MSA, CVR GP and the Partnership and its subsidiaries obtain certain management and other professional services from CVR
Services, including the following, among others:
•
•
•
services from CVR Services’ employees in capacities equivalent to the capacities of corporate executive officers, except that those who serve in such
capacities under the agreement will serve the Partnership on a shared, part-time basis only, unless the Partnership and CVR Services agree otherwise;
administrative and professional services, including legal, accounting, SOX compliance, financial reporting, human resources, information technology,
communications, insurance, tax, credit, finance, corporate compliance, enterprise risk management, consulting, and government and regulatory
affairs;
recommendations on capital raising activities to the board of directors of the general partner, including the issuance of debt or equity interests, the
entry into credit facilities, and other capital market transactions;
• managing or overseeing litigation and administrative or regulatory proceedings, investigations and other reviews in the ordinary course of business or
operations, establishing appropriate insurance policies for the Partnership, and providing safety and environmental advice;
•
recommending the payment of distributions;
• managing or providing advice for other projects, including acquisitions, as may be agreed by the general partner and CVR Services from time to
time; and
•
permitting the use of the CVR Energy and CVR Partners trademarks by CVR GP and the Partnership at no cost.
For services performed in connection with the services agreement, the Partnership recognized personnel costs, excluding amounts related to share based
compensation (refer to Note 7 (“Share-Based Compensation”)), of $8.1 million, $6.6 million, and $7.3 million, respectively, for the years ended December 31,
2021, 2020, and 2019.
December 31, 2021 | 69
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Related Party Activity
CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity associated with the Partnership’s related party arrangements for the years ended December 31, 2021, 2020, and 2019 is summarized below:
(in thousands)
Sales to related parties
Purchases from related parties
(1)
(2)
Due to related parties
(3)
2021
$
Year Ended December 31,
2020
308 $
41,717
993 $
26,276
December 31,
2019
119
30,876
2021
2020
$
3,580 $
694
(1) Sales to related parties, included in Net sales, consist primarily of sales of feedstocks and services to CRRM under 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, consist primarily of amounts payable for feedstocks and other supplies and services provided by CRRM
and CVR Services under the Coffeyville MSA and Corporate MSA.
Environmental Agreement
Our Coffeyville Facility is a party to an environmental agreement with CRRM which provides for certain indemnification and access rights in connection
with environmental matters affecting CVR Energy’s Coffeyville refinery and our Coffeyville Facility. To the extent that liability arises from environmental
contamination that is caused by CRRM but is also commingled with environmental contamination caused by our Coffeyville Facility, CRRM may elect, in its
sole discretion and at its own cost and expense, to perform government mandated environmental activities relating to such liability, subject to certain
conditions and provided that CRRM will not waive any rights to indemnification or compensation otherwise provided for in the agreement. No liability under
this agreement was recorded as of December 31, 2021 and 2020.
Terminal and Operating Agreement
Our Coffeyville Facility entered into a lease and operating agreement with Coffeyville Resources Terminal, LLC, an indirect wholly owned subsidiary of
CVR Energy (“CRT”), under which it leases the premises located at Phillipsburg, Kansas to be utilized as a UAN terminal. The initial term of the agreement
will expire in May 2032, provided, however, we may terminate the lease at any time during the initial term by providing 180 days prior written notice. In
addition, this agreement will automatically renew for successive five-year terms, provided that we may terminate the agreement during any renewal term with
at least 180 days written notice. Under the terms of this agreement, we will pay CRT $1.00 per year for rent, $4.00 per ton of UAN placed into the terminal,
and $4.00 per ton of UAN taken out of the terminal.
Property Exchange
On October 18, 2019, the Conflicts Committee of the Board and on October 22, 2019, the audit committee of CVR Energy each agreed to authorize the
exchange of certain parcels of property owned by subsidiaries of CVR Energy with an equal number of parcels owned by subsidiaries of CVR Partners, all
located in Coffeyville, Kansas (the “Property Exchange”). On February 19, 2020, a subsidiary of CVR Energy and a subsidiary of CVR Partners executed the
Property Exchange agreement. This Property Exchange will enable each such subsidiary to create a more usable, contiguous parcel of land near its own
operating footprint. CVR Energy and the Partnership accounted for this transaction in accordance with the ASC Topic 805-50, Business Combinations (“
Topic 805-50”), guidance on transferring assets between entities under common control. This transaction had a net impact to the Partnership’s partners’ capital
of less than $0.1 million.
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CVR Partners, LP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Distributions to CVR Partners’ Unitholders
The Board has a policy for the Partnership to distribute all available cash generated on a quarterly basis. Cash distributions are made to the common
unitholders of record on the applicable record date, generally within 60 days after the end of each quarter. Available cash for each quarter is determined by the
Board following the end of such quarter.
Distributions, if any, including the payment, amount, and timing thereof, are subject to change at the discretion of the Board. The following table presents
distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of December 31, 2021.
Related Period
2021 - 2nd Quarter
2021 - 3rd Quarter
Total distributions
Date Paid
August 23, 2021
November 22, 2021
$
$
Distribution Per
Common Unit
Distributions Paid (in thousands)
Public Unitholders
CVR Energy
Total
1.72 $
2.93
4.65 $
11,678 $
19,893
31,571 $
6,694 $
11,404
18,098 $
18,372
31,297
49,669
There were no distributions declared or paid by the Partnership related to the first quarter of 2021 and fourth quarter of 2020, and no distributions were
declared or paid during 2020. During the year ended December 31, 2019, the Partnership paid distributions totaling $4.00 per common unit on a split-adjusted
basis, or $45.3 million. Of these distributions, CVR Energy received $15.6 million.
For the fourth quarter of 2021, the Partnership, upon approval by the Board on February 21, 2022, declared a distribution of $5.24 per common unit, or
$56.0 million, which is payable March 14, 2022 to unitholders of record as of March 7, 2022. Of this amount, CVR Energy will receive approximately $20.4
million, with the remaining amount payable to public unitholders.
(10) 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:
(in thousands)
Supplemental disclosures:
Cash paid for income taxes, net of refunds
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
Change in deferred financing costs included in accounts payable
2021
Year Ended December 31,
2020
2019
$
27 $
51,369
69 $
59,850
3,652
2
96
5,092
675
4,117
6
100
(2,167)
—
40
60,057
4,019
20
321
1,618
—
December 31, 2021 | 71
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
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
December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting.
The Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, we
conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in the 2013 Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, the Partnership’s
Executive Chairman, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have concluded that internal control over financial
reporting was effective as of December 31, 2021. The Partnership’s independent registered public accounting firm, that audited the consolidated financial
statements included herein under Item 8, has issued a report on the effectiveness of the Partnership’s internal control over financial reporting. This report can
be found under Item 8.
Changes in Internal Control Over Financial Reporting.
There have been no changes in the Partnership’s internal control over financial reporting required by Rule 13a-15 of the Exchange Act that occurred
during the fiscal quarter ended December 31, 2021 that materially affected or is reasonably likely to materially affect, the Partnership’s internal control over
financial reporting.
Item 9B. Other Information
During the fourth quarter of 2021, the Compensation Committee of our Board adopted and approved an amendment to extend the term of the CVR
Energy, Inc. Change in Control and Severance Plan (the “CVI Severance Plan”), which was to expire by its terms on January 1, 2022. The CVI Severance
Plan, as amended, now provides that the plan will continue until the occurrence of specified change in control events or until it is terminated by the
Compensation Committee of our Board. The CVI Severance Plan provides for severance benefits to certain officers of our general partner, including its chief
executive officer, principal financial officer, and other named executive officers, in the event of a termination of his or her employment under certain
circumstances. The description of the amendment to the CVI Severance Plan herein is qualified in its entirety by the text of the amended CVI Severance Plan,
filed as Exhibit 10.19.1 to this Annual Report on Form 10-K.
On February 21, 2022, the Compensation Committee of our Board adopted the CVR Partners, LP 2022 Performance Based Bonus Plan (the “2022 UAN
Plan”), which applies to all eligible employees of our subsidiaries and contains terms equivalent to the CVR Partners, LP 2021 Performance Based Bonus
Plan. The 2022 UAN Plan will be filed with the Partnership’s Quarterly Report on Form 10-Q for the period ending March 31, 2022.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
December 31, 2021 | 72
Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance
Management of CVR Partners, LP
PART III
As a publicly traded partnership, we are managed by our general partner, CVR GP, LLC (“General Partner”), either directly by its board of directors (the
“Board”), by its executive officers (who are appointed by the Board) or by its sole member, CVR Services, LLC (“CVR Services”) an indirect wholly owned
subsidiary of CVR Energy, Inc. (“CVR Energy”) subject to the terms and conditions specified in our partnership agreement. Limited partners are not entitled
to directly or indirectly participate in our management or operations. Neither our General Partner nor the members of its Board are elected by our unitholders,
and none are subject to re-election on a regular basis in the future.
Actions by our General Partner that are made in its individual capacity are made by CVR Services as the sole member of our General Partner and not by
the Board. Our partnership agreement contains various provisions which replace default fiduciary duties with more limited contractual corporate governance
standards. Whenever our General Partner makes a determination or takes or declines to take an action in its individual, rather than representative, capacity, it is
entitled to make such determination or to take or decline to take such action free of any fiduciary duty or obligation whatsoever to us, any limited partner or
assignee, and it is not required to act in good faith or pursuant to any other standard imposed by our partnership agreement or under Delaware law or any other
law. Examples include the exercise or assignment of its call right or its registration rights, its voting rights with respect to the units it owns and its
determination whether or not to consent to any merger or consolidation of the Partnership. Our General Partner is liable, as a General Partner, for all of our
debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made expressly non-recourse to it. Our debt instruments are
non-recourse to our General Partner. Our General Partner therefore may cause us to incur indebtedness or other obligations that are non-recourse to it.
The Board
As of December 31, 2021, the Board consisted of three directors affirmatively determined by the Board to be independent, non-employee directors
(Donna R. Ecton, Frank M. Muller, Jr. and Peter K. Shea); two non-management directors who are also officers or employees of Icahn Enterprises L.P.
(“IEP”) (Kapiljeet Dargan and David Willetts); as well as two directors who are executive officers of our General Partner (David L. Lamp, our Executive
Chairman, and Mark A. Pytosh, our President and Chief Executive Officer). Four other non-management directors who are currently or were previously
officers or employees of IEP also served as directors during 2021 (Patricia A. Agnello (until December 28, 2021), Jonathan Frates (until June 28, 2021),
Hunter C. Gary (until March 19, 2021) and Andrew Langham (until March 19, 2021)). The Board is led by its Chairman of the Board, Mr. Lamp. As required
by our Corporate Governance Guidelines, the Board oversees the business of the Partnership, including its fundamental financial and business strategies and
major corporate actions, significant risks facing the Partnership and its risk management activities, and the Partnership’s Environmental, Social and
Governance (“ESG”) initiatives. The Board also periodically evaluates its composition, including the skill sets, diversity, leadership structure, background and
experience of its directors. The Board believes its current structure and composition is best for the Partnership and its unitholders at this time. All actions of
the Board, other than any matters delegated to a committee, will require approval by majority vote of the directors, with each director having one vote. The
directors of our General Partner hold office until the earlier of their death, resignation or removal. In 2021, the Board met four times and acted nine times by
written consent. All of the directors who served during 2021 attended 100% of the total meetings of the Board and each of the committees on which such
director served during their respective tenure, except for Mr. Willetts who during his tenure attended 75% of the meetings of the Board and the committees on
which he served.
December 31, 2021 | 73
Table of Contents
The following table sets forth the names, positions, ages, and a description of the backgrounds, experience, and qualifications of our directors, as of
February 22, 2022:
Name, Position and Age
David L. Lamp
Executive Chairman and
Chairman of the Board
Age 64
Current Public Company Directorships:
CVR Partners, LP (January 2018 to Current)
CVR Energy, Inc. (January 2018 to Current)
Mark A. Pytosh
President and Chief Executive Officer and Director
Age 57
Current Public Company Directorships:
CVR Partners, LP (2011 to Current)
(1)
Principal Occupation, Experience and Qualifications
Mr. Lamp has served as our director and Chairman of the Board since January 2018. Mr. Lamp has
served as the Executive Chairman of our general partner and as President and Chief Executive
Officer of CVR Energy since December 2017, and as a Director of CVR Energy, since January 2018.
Mr. Lamp has more than forty years of technical, commercial and operational experience in the
refining and chemical industries. He previously served as a director of the general partner of CVR
Refining, LP (“CVRR”), an independent downstream energy limited partnership, from January 2018
to February 2019; as president and chief operating officer of Western Refining, Inc. (“WNR”),
formerly an independent refining and marketing company, from July 2016 until its sale to Andeavor
in June 2017; and as president and chief executive officer and a director of the general partner of
Northern Tier Energy, L.P. (“NTI”), formerly an independent refining and marketing company, from
2013 until its merger with WNR in July 2016. Mr. Lamp serves on the Board of Directors of the
American Fuel & Petrochemical Manufacturers Association and is a past Chairman. Mr. Lamp
graduated from Michigan State University with a Bachelor of Science in Chemical Engineering. We
believe Mr. Lamp's extensive knowledge and experience in the refining and chemical industries, as
well as his significant background serving in key executive roles at public and private companies and
strong leadership skills make him well qualified to serve as our director.
Former Public Company Directorships: CVR Refining, LP (2018 to 2019); Northern Tier Energy,
LP (2013 to 2016)
Mr. Pytosh has served as a Director and the President and Chief Executive Officer of our general
partner, since 2011 and 2014, respectively, as well as the Executive Vice President – Corporate
Services for CVR Energy since January 2018. Mr. Pytosh has over thirty years of experience in
senior executive roles, including as chief financial officer, with various companies in the fertilizer,
petroleum refining, environmental, power, solid waste and investment banking industries. Mr. Pytosh
has served as a director of the University of Illinois Foundation since 2007 and The Fertilizer
Institute since 2015. Mr. Pytosh received a Bachelor of Science degree in chemistry from the
University of Illinois, Urbana-Champaign. Based on Mr. Pytosh’s extensive business and financial
experience and significant background serving in key executive roles, we believe that he is well
qualified to serve as our director.
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Kapiljeet Dargan
Director
Age 40
Current Public Company Directorships:
CVR Partners, LP (March 2021 to Current)
CVR Energy, Inc. (April 2021 to Current)
Donna R. Ecton
Director
Age 74
Current Public Company Directorships:
CVR Partners, LP (2008 to Current)
Mr. Dargan has served as our director since March 2021. Mr. Dargan has served as Senior Tax
Counsel for IEP and its affiliates since January 2022. Mr. Dargan previously served as Tax Counsel
for IEP and its affiliates from June 2018 until December 2021. Mr. Dargan previously was an
associate in the tax department of the law firm Willkie Farr & Gallagher from October 2013 to June
2018. Since April 2021, Mr. Dargan has served as a director of CVR Energy. Previously, Mr. Dargan
served as a director of Viskase Companies, Inc. (“Viskase”), a meat-casing company from March
2021 to January 2022. Mr. Dargan received a B.S. in Computer Science and Quantitative Economics
from Tufts University, a J.D. from UCLA School of Law, and an LL.M. in Taxation from New York
University School of Law. We believe Mr. Dargan’s experience in complex tax and legal matters
make him well qualified to serve as our director.
Former Public Company Directorships: Viskase Companies, Inc. (2021 to 2022)
Ms. Ecton has served as our director since 2008. Ms. Ecton is chairman and chief executive officer of
EEI Inc. which she founded in 1998. EEI is a management consulting practice which provides private
equity and sub debt firms with turnaround assistance, due diligence through market/operational
assessments of companies being considered for acquisition, as well as mentoring and coaching for
executive officers. Prior to this, she served on the board of directors of PetSmart, Inc. where she was
asked to take over the role of chief operating officer. Other operating experience includes serving as
chief executive officer of Business Mail Express, Inc., Van Houten North America and Andes
Candies, Inc. Ms. Ecton has also served as a corporate officer of Nutri/System, Inc. and Campbell
Soup Company, as well as running the upper Manhattan middle-market lending business and the
midtown Manhattan banks for Citibank, N.A. Ms. Ecton has previously served as a member of the
following boards of directors: Mellon Bank Corporation and Mellon Bank N.A., Mellon PSFS, H&R
Block, Inc., Tandy Corporation, Barnes Group Inc., Vencor, Inc., Body Central Corp., and KAR
Auction Services, Inc. Ms. Ecton has also served as a board member or chairman of numerous
privately held companies and non-profit organizations. Ms. Ecton earned her MBA from the Harvard
Graduate School of Business Administration, and received her BA in economics from Wellesley
College, graduating as a Durant Scholar. Ms. Ecton was elected and served on the Harvard Board of
Overseers, and as president of the Harvard Business School Association’s Executive Council. She
also served on the Business Advisory Council of the Carnegie Mellon Graduate School of Industrial
Administration. Ms. Ecton serves on the Board of Trustees of Hillsdale College. We believe Ms.
Ecton's significant background as both an executive officer and director of public companies and
extensive experience in finance is an asset to our Board. Her knowledge and experience, as well as
risk oversight expertise, provide the audit committee with valuable perspective in managing the
relationship with our independent accountants and in the performance of financial auditing oversight.
Former Public Company Directorships: Body Central Corp (2011 to 2014); KAR Auction Services,
Inc. (2013 to 2019); Mellon Bank Corporation and Mellon Bank N.A., Mellon PSFS; H&R Block,
Inc.; Tandy Corporation; Barnes Group Inc.; Vencor, Inc.; and PetSmart, Inc.
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Frank M. Muller, Jr.
Director
Age 79
Current Public Company Directorships:
CVR Partners, LP (2008 to Current)
Peter K. Shea
Director
Age 70
Current Public Company Directorships:
CVR Partners, LP (2014 to Current)
Viskase Companies, Inc. (2006 to Current)
Mr. Muller has served as our director since 2008. Mr. Muller is currently the president of Toby
Enterprises, which he founded in 1999 to invest in startup companies, and until 2018, served as the
chairman of Topaz Technologies, LTD., a software engineering company. Until August 2009, Mr.
Muller served as chairman and chief executive officer of the technology design and manufacturing
from TenX Technology, Inc., which he founded in 1985. Mr. Muller was a senior vice president of the
Coastal Corporation from 1989 to 2001, focusing on business acquisitions and joint ventures, and
general manager of the Kensington Company, Ltd. from 1984 to 1989. Mr. Muller started his
business career in the oil and chemical industries with PepsiCo, Inc. and Agrico Chemical Company.
Mr. Muller served in the United States Army from 1965 to 1973. Mr. Muller received a BS and MBA
from Texas A&M University. Mr. Muller's experience in the chemical industry and expertise in
developing and growing new businesses make him well qualified to serve as our director.
Mr. Shea has been our director since 2014. Mr. Shea served as an operating partner of Snow Phipps, a
private equity firm, from 2013 to 2021 and as an operating advisor for OMERS Private Equity from
2011 to 2016. He has served as a director of Viskase, since October 2006, and currently serves as its
audit committee chair. Mr. Shea previously served as a director of Voltari Corporation, a company in
the business of acquiring, financing and leasing commercial real properties, and as its chairman, from
September 2015 to July 2019; Trump Entertainment Resorts (“TER”) from January 2017 to June
2017; and Hennessy Capital Acquisition Company I from January 2014 to February 2015, Hennessy
Capital Acquisition Company II from July 2016 to February 2017, Hennessy Capital Acquisition
Company III from July 2017 to October 2018, and Hennessy Capital Acquisition Company IV from
February 2019 to December 2020, all four of which were special purpose acquisition companies. He
has also served as a director of DecoPac, Inc., a privately-held supplier of bakery goods, and as its
chairman, from 2017 to 2021; FeraDyne Outdoors, LLC, a privately-held manufacturer of sporting
goods products, and as its chairman from May 2014 to February 2019; Teasdale Foods Inc., a
privately-held provider of Hispanic food products, and as its chairman from November 2014 to
February 2019; Give and Go Prepared Foods, a bakery manufacturer, from January 2012 to July
2016; and Sitel Worldwide Corporation, a customer care solutions provider, from November 2011 to
April 2015. Mr. Shea was President of Icahn Enterprises G.P. Inc. and Head of Icahn Associates
Portfolio Operations from October 2006 to June 2009. He was previously on the Boards of Roncadin
Gmbh, Premium Standard Farms, Sabert Company, and New Energy Company of Indiana. Mr. Shea
was chairman, chief executive officer, president or managing director of H.J. Heinz in Europe, R&R
Foods in Europe, John Morrell & Company and Grupo Polymer United SA. Previously, he was Head
of Global Corporate Development for United Brands Company, a Fortune 50 Company. Mr. Shea
began his career with General Foods Corporation. He has an M.B.A. from the University of Southern
California and a B.B.A. from Iona College. We believe Mr. Shea's broad executive, financial and
operational experience, combined with his extensive board experience will be an asset to our board
and qualify him to serve as our director.
Former Public Company Directorships: Hennessy Capital lV (2019 to 2020); Voltari Corporation
(2015 to 2019); Trump Entertainment Resorts (2016 to 2017); Hennessy Capital I (2014 to 2015);
Hennessy Capital II (2016 to 2017); Hennessy Capital III (2017 to 2018).
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David Willetts
Director
Age 46
Current Public Company Directorships:
CVR Partners, LP (July 2021 to Current)
CVR Energy, Inc. (July 2021 to Current)
Viskase Companies, Inc. (June 2021 to Current)
Mr. Willetts has served as our director since July 2021. Mr. Willetts has been the Chief Executive
Officer and a director of IEP since November 2021 and June 2021, respectively, and also previously
served as IEP’s chief financial officer from June to November 2021. Prior to IEP, he served as a
managing director at AlixPartners, a global consulting firm which specializes in improving corporate
financial and operational performance and executing corporate turnarounds. Since 2012, Mr. Willetts
has worked continuously with Private Equity firms and public companies in the industrial,
automotive, consumer products, retail and energy sectors. Mr. Willetts has been a director of CVR
Energy, since July 2021; and a director and chairman of the board of Viskase, since June 2021. Mr.
Willetts graduated from Franklin and Marshall College in 1997 Summa Cum Laude, with a B.A. in
business, with a double concentration in accounting and finance. Mr. Willett’s leadership skills and
extensive experience driving financial and operational improvements make him well qualified to
serve as our director.
(1)
Each of CVR Energy, CVRR, Icahn Associates, IEP, TER, Viskase and Voltari are each indirectly controlled by Mr. Icahn.
Director Independence & Controlled Company Exemptions
To be considered independent under NYSE listing standards, our Board must determine that a director has no material relationship with us other than as a
director. The standards specify the criteria by which the independence of directors will be determined, including guidelines for directors and their immediate
family members with respect to employment or affiliation with us or with our independent public accountants. The Board has affirmatively determined that
each of Ms. Ecton and Messrs. Muller and Shea meet the independence standards established by the NYSE and the Exchange Act for membership on an audit
committee and are non-employee directors, as defined by the rules and regulations of the NYSE, the SEC, and our Corporate Governance Guidelines.
As a publicly traded partnership, we qualify for, and rely on, certain exemptions from the NYSE’s corporate governance requirements, including the
following:
• A majority of our directors are not required to be (and are not) independent;
• Our Board has not and does not currently intend to establish a nominating/corporate governance committee; and
•
The Compensation Committee of our Board does not need to be (and is not) composed entirely of independent directors.
As a result, unitholders do not have the same protections afforded to equity holders of companies that are subject to all of the corporate governance
requirements of the NYSE.
December 31, 2021 | 77
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Board Committees
Our Board has five standing committees appointed by the Board: the Audit Committee; the Compensation Committee; the Environmental Health &
Safety (“EH&S”) Committee; the Conflicts Committee; and the Special Committee. Any standing committee with a written charter reviews the adequacy of
such charter, at least annually, in addition to evaluating its performance and reporting to the Board on such evaluation. These charters are available free of
charge on our website at www.CVRPartners.com or in print without charge to any unitholder requesting them by sending a written request to our Secretary at
the address listed under “Communications with Directors” below.
Audit Committee
Members:
Primary Responsibilities:
Donna R. Ecton, Chair
Frank M. Muller, Jr.
Peter K. Shea
(2) (3)
(2) (3)
(1) (3)
Meetings in 2021: 4
Acted by Written Consent in 2021: 1
(1)
(2)
(3)
Audit Committee Financial Expert
Financially Literate
Independent, Non-Employee Director
Ø Appoints, compensates, oversees and evaluates the performance of the independent auditors, including
approval of all services to be performed by and the independence of the independent auditor.
Ø Reviews with management, our internal auditors and independent auditors the adequacy, quality and
integrity of the Partnership’s internal controls, the fair presentation and accuracy of the Partnership’s
financial statements and disclosures, audit reports and management’s responses thereto, and the
Partnership’s critical accounting policies and practices.
Ø Oversees and evaluates the performance, responsibilities, budget and staffing of the internal audit
function including its senior audit executive.
Ø Establishes procedures for and oversees handling of complaints regarding accounting, internal accounting
controls or auditing matters and the confidential submission of concerns regarding questionable accounting
or auditing matters.
Ø Monitors and periodically reviews the Partnership’s compliance with applicable laws, major litigation,
regulatory compliance, risk management, insurance coverage and any policies, practices or mitigation
activities relating thereto.
Ø Reviews and discusses with management potential significant risks to the Partnership and risk mitigation
efforts including relating to information technology and cybersecurity controls.
Ø Assists the Board in its oversight of the governance portions of the Partnership’s ESG initiatives
including the Partnership’s governance practices and reputation, Code of Ethics and Business Conduct, anti-
bribery and anti-corruption programs and of the overall risks relating to such ESG initiatives.
Ø Reviews and discusses with management and Grant Thornton LLP, our independent registered accounting
firm, the audited financial statements contained in this Annual Report on Form 10-K.
Ø Received written disclosures and the letter from Grant Thornton LLP required by applicable requirements
of the Public Company Accounting Oversight Board.
Ø Based on the reviews and discussions referred to above, recommended to the Board that the audited
financial statements be included in this Annual Report on Form 10-K, for filing with the SEC.
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Compensation Committee
Members:
Frank M. Muller, Jr., Chair
Kapiljeet Dargan
David Willetts
(3)
Meetings in 2021: 3
Acted by Written Consent in 2021: 1
Ø Reviews, amends, modifies, adopts and oversees the incentive compensation plans, equity-bas
compensation plans, qualified retirement plans, health and welfare plans, deferred compensation plans, a
any other benefit plans, programs or arrangements sponsored or maintained by the Partnership or its gene
partner.
Ø Evaluates the performance of our executive officers and, in connection therewith, reviews a
determines, or recommends to the Board, the annual salary, bonus, equity-based compensation, and oth
compensation, incentives and benefits of our executive officers (other than compensation and benef
provided by one of its affiliates).
Ø Reviews and approves any employment, consulting, change in control, severance or termination,
other compensation agreements or arrangements with our executive officers.
Ø Reviews and makes recommendations to the Board with respect to the compensation of no
employee directors or any plans or programs relating thereto.
Ø Reviews and discusses the Compensation Committee Report and the Compensation Discussion a
Analysis and recommends to the Board their inclusion in the Partnership’s Annual Reports on Form 10-K.
Ø Assists the Board in assessing any risks to the Partnership associated with compensation practic
and policies.
Ø Assists the Board in its oversight of the social portions of the Partnership’s ESG initiatives includi
diversity, inclusion and human rights strategies, commitments, and reporting.
(3)
Independent, Non-Employee Director
Ø Based on the reviews and discussions referred to above, recommended to the Board that t
Compensation Discussion and Analysis, the Compensation Committee Report, and other disclosures relati
to the Compensation Committee be included in this Annual Report on Form 10-K.
EH&S Committee
Members:
Peter K. Shea, Chair
Donna R. Ecton
Frank M. Muller, Jr.
Mark A. Pytosh
(3)
(3)
(3)
Ø Oversees the establishment and administration of environmental, health and safety policie
programs, procedures, and initiatives.
Ø Assists the Board in its oversight of risk relating to environmental, health, safety, and securi
matters.
Meetings in 2021: 1
Ø Assists the Board in its oversight of the environmental, health, safety, and security portions of th
Partnership’s ESG initiatives including the Partnership’s environmental, health, safety and security risk
opportunities, policies and reporting, including those related to climate change and sustainability.
(3)
Independent, Non-Employee Director
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Conflicts Committee
Members:
Donna R. Ecton, Chair
(3)
Frank M. Muller, Jr.
(3)
Ø As requested by the Board, investigates, reviews, evaluates and acts upon any potential conflicts of
interest between our general partner or its affiliates, on the one hand, and us or any public unitholder, on the
other, the approvals of which (if any) are conclusively deemed to be fair and reasonable to the Partnership
and its common unitholders.
Acted by Written Consent in 2021: 1
Ø As requested by the Board, determines whether the resolution of a conflict of interest is in the best
interests of the Partnership.
Ø Carries out any other duties delegated by the Board that relate to potential conflicts of interest.
Ø Has the sole authority to retain, compensate, direct, oversee, and terminate any counsel or other
advisers, including consultants, attorneys, independent accountants and other service providers, to assist in
the evaluation of conflicts matters and to approve such consultants’ fees and other retention terms.
Ø Approvals are conclusively deemed to be fair and reasonable to the Partnership, approved by all of the
Partnership’s partners and not a breach by the general partner of any duties it may owe us or our unitholders.
(3)
Independent, Non-Employee Director
Special Committee
Members:
Kapiljeet Dargan
David L. Lamp
David Willetts
Acted by Written Consent in 2021: 8
Ø Evaluates and approves matters arising during the intervals between meetings of the Board that did not
warrant convening a special meeting of the Board but should not be postponed until the next scheduled
meeting of that Board.
Ø Exercises approval authority delegated to it by the Board.
Executive Sessions of Independent and Non-Management Directors
To promote open discussion among independent and non-management directors, we schedule regular executive sessions in which our non-management
directors meet without management participation, as well as when our independent directors meet without management or any directors affiliated with IEP.
During 2021, six of our eight directors were non-management and three of our eight directors were independent. Our non-management and independent
directors met during six and eight executive sessions, respectively, in 2021. Ms. Ecton presided over the executive sessions held by our non-management and
independent directors.
Communications with Directors
Unitholders and other interested parties wishing to communicate with our Board may send a written communication addressed to:
CVR Partners, LP
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: Executive Vice President, General Counsel and Secretary
Our General Counsel will forward all appropriate communications directly to our Board or to any individual director or directors, depending upon the
facts and circumstances outlined in the communication. Any unitholder or other interested party who is interested in contacting only the independent directors
or non-management directors as a group or the director who presides over the meetings of the independent directors or non-management directors may also
send written communications to the contact above and should state for whom the communication is intended.
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Compensation Committee Interlocks and Insider Participation
As of December 31, 2021, the Compensation Committee was comprised of Messrs. Muller, Dargan and Willetts. During 2021, three other non-
management directors who were officers and/or employees of IEP also served at various times on the Compensation Committee (Patricia A. Agnello (until
December 28, 2021), Jonathan Frates (until June 28, 2021), and Andrew Langham (until March 19, 2021)). None of the members of the Compensation
Committee during 2021 has, at any time, been an officer or employee of the Partnership or our General Partner and none has any relationship requiring
disclosure under Item 404 of Regulation S-K under the Exchange Act. No interlocking relationship exists between the Board or Compensation Committee and
the board of directors or compensation committee of any other company.
Corporate Governance Guidelines and Codes of Ethics
Our Corporate Governance Guidelines, as well as our Code of Ethics and Business Conduct, which applies to all of our directors, officers, and employees
(and which includes additional provisions that apply to our principal executive officer, principal financial officer, principal accounting officer, and other
persons performing similar functions) are available free of charge on our website at www.CVRPartners.com. These documents are also available in print
without charge to any unitholder requesting them. We intend to disclose any changes in or waivers from our Code of Ethics and Business Conduct by posting
such information on our website or by filing a Form 8-K with the SEC.
Executive Officers
While the Board provides high-level strategy and guidance for the Partnership, our day-to-day activities are carried out by the executive officers of our
General Partner, who are appointed by the Board and act within the authorities granted by the Board and our organizational documents. Limited partners are
not entitled to appoint the executive officers or directly or indirectly participate in our management or operations. In this report, we refer to the executive
officers of our General Partner as “our executive officers.” The following table sets forth the names, positions, ages, background, experience and qualifications
(as of February 22, 2022) of the executive officers of our General Partner, other than Messrs. Lamp and Pytosh, who are listed under “The Board” above.
Name
Dane J. Neumann
Age: 37
Executive Vice President and Chief Financial
Officer (since October 2021)
Principal Occupation, Experience and Qualifications
Mr. Neumann has served as the Executive Vice President and Chief Financial Officer of our general
partner, and in that same role for CVR Energy since October 2021. Mr. Neumann most recently served
as Interim Chief Financial Officer of our general partner from August to October 2021, and as Vice
President – Finance & Treasurer of our general partner from June 2020 to October 2021, and in those
same roles for CVR Energy. Prior to that, he served in various other roles within our finance
organization since June 2018, including Vice President of Financial Planning & Analysis and Director of
Projects & Controls. Mr. Neumann has nearly 15 years of experience in the refining and petrochemicals
industry in areas relating to finance, accounting, business development, planning and analytics. Before
joining the Partnership, Mr. Neumann served in various roles of increasing responsibility for several
formerly publicly traded refining and marketing entities, including Andeavor and its affiliates from
March 2011 until June 2018, including as Director of Commercial Business Planning and Analytics from
June 2017 until June 2018; Director of Financial Planning and Analysis for WNR from 2017 until its
acquisition by Andeavor (then Tesoro Corp.) in June 2017; and Corporate Finance Manager for the
general partner of NTI, a WNR affiliate, from 2012 until its acquisition by WNR in June 2016. Mr.
Neumann obtained a Bachelor of Science in Finance and Political Science and a Master of Business
Administration from the University of Minnesota and is a Certified Public Accountant.
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Melissa M. Buhrig
Age: 46
Executive Vice President,
General Counsel and Secretary
(since July 2018)
Jeffrey D. Conaway
Age: 47
Vice President, Chief Accounting Officer &
Corporate Controller (since August 2021)
Item 11. Executive Compensation
Compensation Discussion and Analysis
Ms. Buhrig has served as our Executive Vice President, General Counsel and Secretary and in that same
role for CVR Energy, since July 2018. Prior to joining the Partnership, Ms. Buhrig served as executive
vice president, general counsel and secretary of Delek US Holdings, Inc. and the general partner of
Delek Logistics Partners, LP from October 2017 to June 2018 and held various positions with WNR
from November 2005 until June 2017 including senior vice president - services and compliance officer
from August 2016 until WNR’s acquisition by Andeavor in July 2017, and executive vice president,
general counsel, secretary and compliance officer of the general partner of NTI from March 2014 until
August 2016. Ms. Buhrig received a Bachelor of Arts in Political Science from the University of
Michigan and a Juris Doctor with honors from the University of Miami School of Law.
Mr. Conaway has served as the Vice President, Chief Accounting Officer & Corporate Controller of our
general partner, and in that same role for CVR Energy, Inc. since August 2021. Mr. Conaway has nearly
25 years of experience in finance, accounting and auditing services. Mr. Conaway previously served as
Director – Commercial & Operations Accounting for an affiliate of the Partnership since August 2020.
Prior to joining the Partnership, Mr. Conaway served as Assistant Controller of Patterson-UTI Energy,
Inc., an oilfield services company, since February 2019 and in various roles of increasing responsibility
at CITGO Petroleum Corporation since August 2010, including Senior Advisor from November 2017 to
February 2019 and Assistant Controller – Manufacturing & Operations Accounting from July 2014 until
November 2017. Mr. Conaway obtained a Bachelor of Business Administration with a concentration in
Accounting and a Master of Business Administration from Angelo State University and is a Certified
Public Accountant.
The following discussion and analysis of compensation arrangements (the “Compensation Discussion and Analysis”) of our named executive officers
(defined below) for 2021 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward
looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation actions. Our actual
compensation actions may differ materially from the currently planned programs and payouts summarized in this discussion. This Compensation Discussion
and Analysis provides unitholders with an understanding of our compensation philosophy, objectives, policies, and practices in place during 2021, as well as
the factors considered by our Compensation Committee in making compensation decisions for 2021.
Named Executive Officers
This Compensation Discussion and Analysis focuses on the compensation of persons who served as our principal executive officers, our chief financial
officer, our next two other most highly compensated executive officers for 2021, including the individuals who were executive officers during 2021, but were
not serving at December 31, 2021 (collectively, the “named executive officers”):
David L. Lamp
Mark A. Pytosh
Dane J. Neumann
Melissa M. Buhrig
Jeffrey D. Conaway
Executive Chairman
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, General Counsel and Secretary
Vice President, Chief Accounting Officer and Corporate Controller
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Tracy D. Jackson
Matthew W. Bley
Former Executive Vice President and Chief Financial Officer
Former Chief Accounting Officer and Corporate Controller
Neither the Partnership nor our General Partner directly employ or compensate our named executive officers. All of our named executive officers are
employed by CVR Services, and all of our named executive officers divide their time between working for us and working for CVR Energy and its other
subsidiaries.
The approximate weighted-average percentages of the amount of time that the named executive officers dedicated to the management of our business in
2021 were as follows: David L. Lamp (10%); Mark A. Pytosh (60%); Dane J. Neumann (18%); Melissa M. Buhrig (20%); and Jeffrey D. Conaway (20%).
The approximate weighted-average percentages of the amount of time that the named executive officers who no longer served as executive officers of the
Company as of December 31, 2021, dedicated to the management of our business in 2021 were as follows: Tracy D. Jackson (18%) and Matthew W. Bley
(20%). These numbers are weighted because the named executive officers may spend a different percentage of their time dedicated to our business each
quarter. The remainder of their time, if any, was spent working for CVR Energy and its other subsidiaries.
Our named executive officers provide services to us under a Corporate Master Service Agreement (the “Corporate MSA”) between us and certain of our
subsidiaries, and CVR Services and certain of its affiliates, which was effective January 1, 2020, and was approved by the Conflicts Committee of the Board.
Under the Corporate MSA:
•
CVR Services makes available to our General Partner the services of certain CVR Energy executive officers and employees, some of whom serve as
executive officers of our General Partner;
• We, our General Partner and our operating subsidiaries, as the case may be, are obligated to reimburse CVR Services for any portion of the costs that
CVR Services incurs in providing compensation and benefits to such CVR Energy executive officers and employees while they are providing
services to us, as well as our allocated portion of performance-based performance plans and incentive and performance units issued by CVR Energy
and its subsidiaries to those employees providing services to us under the Corporate MSA; and
• We pay CVR Services a monthly fee for goods and services supplied under the Corporate MSA, subject to netting and an annual true up, as well as
pass-through of any direct costs incurred on behalf of a service recipient without markup.
For more information on the Corporate MSA, see “Certain Relationships and Related Transactions, and Director Independence - Agreements with CVR
Energy.”
Compensation Philosophy, Objectives and Processes
Our Compensation Committee approves compensation only for Mr. Pytosh (other than 40% of his base salary and annual bonus and equity-based
incentives attributable to his service for CVR Energy and its subsidiaries, which are set by the compensation committee of the board of directors of CVR
Energy (the “CVI Compensation Committee”)). Although our Compensation Committee generally engages in discussions with the CVI Compensation
Committee regarding compensation for our named executive officers and the performance of such named executive officers, it does not determine any part of
the compensation of those named executive officers other than Mr. Pytosh, and has no control over and does not establish or direct the compensation policies
or practices of CVR Energy. Accordingly, while the compensation philosophies, objectives and processes described below are generally applicable to both the
Partnership and CVR Energy, the remainder of this Compensation Discussion and Analysis discusses CVR Partners’ compensation programs in which
references to our named executive officers refer solely to Mr. Pytosh, except where otherwise indicated.
In establishing named executive officer compensation, our Compensation Committee (and the CVI Compensation Committee) generally seeks to
compensate named executive officers in a way that meaningfully aligns their interests with the interests of our unitholders, including:
•
Incentivizing important business priorities such as safety, reliability, environmental performance and earnings growth;
• Aligning the named executive officers’ interests with those of our unitholders and stakeholders, including providing long-term economic benefits to
the unitholders;
•
Providing competitive financial incentives in the form of salary, bonuses and benefits with the goal of retaining and attracting talented and highly
motivated executive officers; and
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• Maintaining a compensation program whereby the named executive officers, through exceptional performance and equity-based incentive awards,
have the opportunity to realize economic rewards commensurate with appropriate gains of other unitholders and stakeholders.
The Compensation Committee takes these main objectives into consideration when creating its compensation programs, setting each element of
compensation under those programs, and determining the proper mix of the various compensation elements. Named executive officer compensation will
generally include a mix of fixed elements, intended to provide stability, as well as variable elements, which align pay and performance, incentivizing and
rewarding our named executive officers in years where the Partnership achieves superior results.
The Compensation Committee also generally considers, among other factors, the success and performance of the Partnership, the contributions of named
executive officers to such success and performance, and the current economic conditions and industry environment in which the Partnership operates. From
time to time, the Compensation Committee may utilize various tools in evaluating and establishing named executive officer compensation, including their own
common sense, knowledge and experience, as well as some or all of the following:
•
Input from Board members or management. The Compensation Committee may from time to time ask that certain members of the Board and/or
management provide information and recommendations relating to named executive officer compensation. Such information typically includes the
named executive officers’ roles and responsibilities, job performance, the Partnership’s performance generally and among the industry, and such
other information as may be requested by the Compensation Committee.
• Market data and peer comparisons. The Compensation Committee may utilize market data derived from the executive pay practices and levels of
industry companies supplemented with broad-based compensation survey data, survey data from the fertilizer, energy, refining and chemical
industries that influence the competitive market for executive talent and/or from companies comparable to the Partnership in terms of size and scale.
•
The analysis, judgment and expertise of an independent compensation consultant. The Compensation Committee may engage an independent outside
compensation consultant periodically to provide a comprehensive analysis and recommendations regarding named executive officer compensation,
although a compensation consultant was not engaged in 2021.
Compensation Risk Assessment
Our Compensation Committee periodically evaluates and considers risks of our compensation policies and practices and those of CVR Energy as
generally applicable to employees, including our named executive officers. Our Compensation Committee believes that neither our policies and practices nor
the policies and practices of CVR Energy encourage excessive or unnecessary risk-taking, and are not reasonably likely to have a material adverse effect on
us. In reaching this conclusion, our Compensation Committee reviewed and discussed the design features, characteristics, and performance metrics of our
compensation programs, approval mechanisms for compensation, and observed the following factors, among others, which the Compensation Committee
believes reduces risks associated with our and CVR Energy’s compensation policies and practices:
• Our compensation policies and practices are centrally designed and administered;
• Our compensation is balanced among (i) fixed components like salary and benefits, (ii) variable incentives tied to a mix of financial and operational
performance, and (iii) variable long-term incentives;
•
•
The Compensation Committee has discretion to adjust performance-based awards when appropriate based on our interests and the interests of our
unitholders; and
Certain elements of our compensation contain claw-back provisions.
Compensation Process for 2021
In setting named executive officer compensation for 2021, while the Compensation Committee considered the philosophies and objectives described
above, it did not engage an independent compensation consultant or reference any reports from an independent compensation consultant. Instead, the
Compensation Committee utilized their own knowledge, experience and judgment in assessing reasonable compensation and ensuring compensation levels
remain competitive in the marketplace, and considered input from management including the Executive Chairman. The Compensation Committee further
considered the structure it utilized for 2020 compensation, and because CVR Energy’s compensation philosophies, objectives and processes are generally
aligned with ours, the vote of CVR Energy’s stockholders from its 2021 Annual Meeting, in which CVR Energy
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stockholders overwhelmingly approved, on an advisory basis, its named executive officer compensation for 2020, including for Mr. Pytosh. As a result, the
Compensation Committee determined no material changes to such structure was appropriate at the time, and elected to keep the compensation structure for
2021 compensation, the same as 2020.
2021 Named Executive Officer Compensation - CVR Partners
2021 Target Compensation Mix. The 2021 target compensation mix for our CEO, Mr. Pytosh, was predominantly variable or “at risk” at 75.7%.
(1) Comprised of the sum of our CEO’s 2021 base salary, target annual performance-based bonus, and long-term incentive phantom awards.
Compensation Elements. As with 2020, the three primary components of CVR Partners’ compensation program for 2021 included base salary, an annual
performance-based cash bonus, and an annual equity-based long-term incentive award vesting ratably over three years. The Compensation Committee has not
adopted any formal or informal policies or guidelines for allocating compensation between long-term and current compensation.
Base Salary. Base salaries are set at a level intended to enable CVR Partners to hire and retain executives and to enhance the executive’s motivation in a
highly competitive and dynamic environment. Rather than establishing compensation solely on a formula-driven basis, decisions by our Compensation
Committee are made using an approach that considers several important factors in developing compensation levels. In determining base salary levels, the
Compensation Committee takes into account the following factors: (i) CVR Partners’ financial and operational performance for the year; (ii) the previous
years’ compensation level for each executive; (iii) recommendations of the Executive Chairman based on individual responsibilities and performance, (iv) the
directors’ own common sense, knowledge, experience, judgment and views of the skills necessary for long-term performance; (v) whether individual base
salaries reflect responsibility levels and are reasonable, competitive and fair; and (vi) each named executive officer’s commitment and ability to strategically
meet business challenges, achieve financial results, promote legal and ethical compliance, lead their own business or business team for which they are
responsible and diligently and effectively respond to immediate needs of the volatile industry and business environment. In February 2021, considering the
factors set forth above, the Compensation Committee established 2021 base salary for Mr. Pytosh of $354,171, making Mr. Pytosh’s total 2021 base salary,
including time dedicated to CVR Energy, $590,284.
2020 Annual Performance-Based Bonus. During 2021, the Compensation Committee evaluated the metrics included in CVR Partners’ annual
performance-based bonus program for 2020 (the “2020 UAN Plan”), which applies to all eligible employees of the Partnership’s subsidiaries (including Mr.
Pytosh), and the Partnership’s Mission and Values described in Management’s Discussion and Analysis above, and further considered the Compensation
Committee’s objectives of rewarding employees (including named executive officers) for measured performance, aligning employees’ interests with those of
its unitholders, encouraging employees to focus on targeted performance, and providing employees with the opportunity to earn additional compensation
based on their and the Partnership’s performance. In February 2021, the Compensation Committee
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approved payout to Mr. Pytosh under the 2020 UAN Plan of $535,700, approximately 116% of his respective target annual bonus based on his base salary for
the Partnership.
2021 Annual Performance-Based Bonus. In February 2021, the Compensation Committee considered the same factors it evaluated in connection with
the 2020 UAN Plan, and following consultation with our Executive Chairman, established the 2021 CVR Partners, LP Performance-Based Bonus Plan (the
“2021 UAN Plan”), which applies to all eligible employees of the Partnership’s subsidiaries (including Mr. Pytosh), and contains terms generally equivalent to
the 2020 UAN Plan, subject to adjustment of the definition of the Adjusted EBITDA Threshold under the 2021 UAN Plan to reflect an adjustment to
turnaround reserve from $8 million to $7 million.
As was the case with the 2020 UAN Plan, payout under the 2021 UAN Plan was dependent first on achievement of an Adjusted EBITDA threshold and
following achievement thereof, based upon the achievement of the Partnership under the performance measures specified below, followed by an adjustment
based on employees’ individual performance. These performance measures, including the threshold, target and maximum performance goals for each such
performance measure, were determined by the Compensation Committee based on its discussions with management including the Executive Chairman and the
Directors’ knowledge and experience, and were selected with the goals of enforcing the Partnership’s Mission and Values, optimizing operations, maintaining
financial stability and providing a safe and environmentally responsible workplace intended to maximize CVR Partners’ overall performance resulting in
increased unitholder value. The Partnership performance measures in the 2021 UAN Plan were substantially the same as the 2020 UAN Plan, and included the
following:
1
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)
Increase in Incident Rate or Incidents
0%
Decrease > 0% and < 3%
Decrease of 3%
Decrease > 3% and < 10%
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
Bonus Achievement
Zero
50% of Target Percentage (Threshold)
Linear Interpolation between Threshold and Target
Target Percentage
Linear Interpolation between Target and Maximum
150% of Target (Maximum)
Financial Measures (75%)
Four measures evenly weighted (25% each):
Reliability
Greater than 8.0%
8.00%
6.01% to 7.99%
6.00%
5.0% to 5.99%
Less than 5.0%
Bonus Achievement
Zero
50% of Target Percentage (Threshold)
Linear Interpolation between Threshold and Target
Target Percentage
Linear Interpolation between Target and Maximum
150% of Target (Maximum)
1
Per the 2021 UAN Plan, “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.
December 31, 2021 | 86
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Equipment Utilization
Less than 95%
95%
95.01% to 99.99%
100%
100.01% to 104.99%
Greater than 105%
Operating Expense
Greater than 103.0%
103%
100.1% to 102.99%
100%
95.0% to 99.99%
Less than 95%
ROCE (Ranking vs. Peer Group*)
First (highest)
Second
Third
Fourth
Fifth
Sixth
Seventh
Bonus Achievement
Zero
50% of Target Percentage (Threshold)
Linear Interpolation between Threshold and Target
Target Percentage
Linear Interpolation between Target and Maximum
150% of Target (Maximum)
Bonus Achievement
Zero
50% of Target Percentage (Threshold)
Linear Interpolation between Threshold and Target
Target Percentage
Linear Interpolation between Target and Maximum
150% of Target (Maximum)
Bonus Achievement
150% of Target (Maximum)
125% of Target Percentage
112.5% of Target Percentage
Target Percentage (100%)
75% of Target Percentage
50% of Target Percentage (Minimum)
Zero
The Peer Group utilized in the 2021 UAN Plan for determination of ROCE was selected by the Compensation Committee based on discussions with the
Executive Chairman and the President and Chief Executive Officer and the Directors’ knowledge of the fertilizer industry, and was intended to include
companies in the fertilizer industry with similar operations to the Partnership and those with which the Partnership competes for executive talent. The
Compensation Committee elected to keep the Peer Group for 2021 the same as 2020, including CF Industries Holdings, Inc.; LSB Industries, Inc.; Nutrien
Ltd.; The Andersons, Inc.; Green Plains Partners LP; and Flotek Industries Inc.
The 2021 UAN Plan includes a target bonus percentage for each participant, with possible payout between 0% and 150% of target based on achievement
under the measures set forth in the 2021 UAN Plan. In setting Mr. Pytosh’s target bonus percentage for 2021, the Compensation Committee considered his
bonus target for 2020, the total cash compensation to which Mr. Pytosh may be eligible in 2021, the expected ratio of salary to bonus and the Compensation
Committee’s belief that a significant portion of its named executive officers’ compensation should be at risk based on individual and entity performance, and
elected to keep his bonus target for 2021 the same as 2020, at 135% of base salary.
2021 Annual Performance-Based Bonus Results
In February 2022, the Compensation Committee evaluated the metrics included in the 2021 UAN Plan. Pursuant to its evaluation of the performance of
the Partnership under the 2021 UAN Plan, the Compensation Committee determined that the Partnership had achieved Adjusted EBITDA under the 2021
UAN Plan in excess of the Adjusted EBITDA Threshold, and
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thereafter determined that the Partnership’s achievement of the metrics under the 2021 UAN Plan resulted in payout of 102% of target, based on the following:
EH&S:
Measure
TRIR
PSIR
EE
Financial:
Reliability
Equipment Utilization
Operating Expenses
ROCE
2021 Actual
Decrease of 1%
Decrease of 73%
Decrease of 67%
Overall EH&S
2.2%
101.8%
110.2%
14% (Third)
Overall Financial
Bonus Achievement
63 %
150 %
150 %
121 %
150 %
118 %
0 %
113 %
95 %
As a result, in February 2022, the Compensation Committee approved payout to Mr. Pytosh under the 2021 UAN Plan of $482,200, approximately 102%
of his respective target annual bonus based on his base salary for the Partnership. The CVI Compensation Committee also awarded a payout to Mr. Pytosh
under the 2021 performance-based bonus plan for CVR Energy (the “2021 CVI Plan”), resulting in a total performance-based bonus payout of $834,100.
Long-Term Incentive Awards. The Compensation Committee believes long-term incentive compensation is one of the most crucial elements of its
compensation program. The amount of a long-term incentive award is made after consideration of various relevant factors including the named executives’
overall compensation package, the compensation philosophies and objectives described above, the Partnership’s interest in rewarding long-term performance
of, and in retaining, its named executive officers and the ability to generate greater future value if the value of CVR Partners increases for all of its unitholders.
CVR Partners established its long-term incentive plan in March 2011 (the “CVR Partners LTIP”) in connection with the completion of its initial public
offering in April 2011. The Compensation Committee may elect to make grants of restricted units, options, phantom units or other equity-based awards under
the CVR Partners LTIP in its discretion or may recommend grants to the Board for its approval, as determined by the Compensation Committee in its
discretion. Effective December 2020, the Compensation Committee awarded Mr. Pytosh 93,288 phantom units of the Partnership, as part of his 2021
compensation, which phantom units vest ratably over three years, subject to the terms and conditions of the award agreement.
Perquisites. The total value of all perquisites and personal benefits provided to each of its named executive officers in 2021 was less than $10,000.
Benefits. During 2021, all of the named executive officers participated in the health and welfare benefit and retirement plans of CVR Energy.
Other Forms of Compensation. Mr. Lamp has provisions in his employment agreements with CVR Energy that provide for severance benefits in the
event a termination of his employment under certain circumstances. Additionally, all of our other named executive officers are subject to a Change in Control
Severance Plan (the “CVI Severance Plan”), which provides for severance benefits in the event of employment termination under certain circumstances. These
severance provisions are described below in “Change-in-Control and Termination Payments.”
2021 Named Executive Officer Compensation - CVR Energy
The objectives, considerations and process utilized by the CVI Compensation Committee in general, as well as in setting 2021 compensation for named
executive officers of CVR Energy was virtually identical to the objectives, considerations, process, and structure used by the Compensation Committee.
Related to 2021, the CVI Compensation Committee approved:
•
2021 Compensation Structure. Compensation structure consistent with the compensation structure approved by the Compensation Committee
including a mix of base salary, performance-based bonus compensation, and long-term incentives.
December 31, 2021 | 88
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•
•
•
•
2021 Base Salaries. Base salaries for Messrs. Lamp, Pytosh (as to 40% of his base salary), Neumann, Conaway and Bley and Mses. Buhrig and
2
Jackson, of $1,000,000; $236,113; $400,000 $290,000; $171,547; $570,413; and $299,356, respectively.
2020 Performance-Based Bonus Plan Results. The 2020 performance-based bonus plan for CVR Energy (the “2020 CVI Plan”), including target
payouts as a percentage of base salary of 150% for Mr. Lamp, 135% for Mr. Pytosh, 120% for each of Mses. Buhrig and Jackson, and 60% for Mr.
Bley, contained terms and performance measures substantially similar to the performance-based bonus plan of CVI for 2019 and the 2020 UAN Plan
subject to adjustment of Adjusted EBITDA and Adjusted EBITDA Threshold to reflect changed inventory accounting treatment. In February 2021,
the CVI Compensation Committee evaluated the performance metrics contained in the 2020 CVI Plan and determined that, due to market conditions
including the significant impact of the COVID-19 pandemic on the refining industry, CVR Energy did not meet the Adjusted EBITDA Threshold
contained in the 2020 CVI Plan. As a result, the CVI Compensation Committee awarded no payouts to the named executive officers, including Mr.
Pytosh, under the 2020 CVI Plan. However, based on individual performance, significant achievements and related factors, the CVI Compensation
Committee approved discretionary bonuses to Messrs. Pytosh and Bley and to Mses. Buhrig and Jackson of $21,000, $7,700, and $25,500, and
$19,600, respectively. Although Messrs. Neumann and Conaway were employed by an indirect subsidiary of CVR Energy at the time of the adoption
of or payout under the 2020 CVI Plan, they were not executive officers of CVR Energy. The target payouts for Messrs. Neumann and Conaway under
the 2020 CVI Plan as a percentage of base salary was 60% and 40%, respectively, and like the named executive officers at the time, they did not
receive a payout under the 2020 CVI Plan.
2021 Performance-Based Bonus Plan Results. The 2021 CVI Plan, including target payouts as a percentage of base salary of 150% for Mr. Lamp,
135% for Mr. Pytosh, 120% for each of Mr. Neumann and Mses. Buhrig and Jackson, and 60% for Messrs. Conaway and Bley, contained terms and
performance measures substantially similar to the 2020 CVI Plan and the 2021 UAN Plan subject to adjustment of Adjusted EBITDA and the
Adjusted EBITDA Threshold. The peer group in the 2021 CVI Plan is the same as in the 2020 CVI Plan, and included six publicly traded petroleum
refining and marketing companies the CVI Compensation Committee considered to be similar to CVR Energy with respect to operations and also
competitive with CVR Energy for executive talent (Valero Energy Corp.; Marathon Petroleum Corp.; PBF Energy Inc.; Delek US Holdings, Inc.;
HollyFrontier Corp.; and Par Pacific Holdings, Inc.). In February 2022, the CVI Compensation Committee approved payouts for Messrs. Lamp,
Pytosh, Neumann, and Conaway and Ms. Buhrig under the 2021 CVI Plan of $1,710,000, $351,900, $250,400, $128,000, and $793,500, respectively.
3
2021 Long-Term Incentive Awards. In December 2020, as part of 2021 compensation, incentive units in connection with the long-term incentive plan
of CVR Energy (the “CVI LTIP”) were granted to Messrs. Lamp, Pytosh, Neumann, Conaway and Bley and Mses. Buhrig and Jackson of 134,168;
40,608; 13,506; 7,334; 15,563; 57,781; and 50,536, respectively, which vest in one-third increments each December following the date of award,
4
subject to the terms and conditions of the award agreement.
2
2021 Base Salaries listed here for Messrs. Neumann and Conaway reflect the amounts approved by the CVI Compensation Committee upon their appointments as named
executive officers, in October and August 2021, respectively. The amounts listed here for Ms. Jackson and Mr. Bley are pro-rated through the date of their resignations in
August and July 2021, respectively.
The target payouts as a percentage of base salary listed here for Messrs. Neumann and Conaway are those effective upon their appointments as named executive officers, in
3
October and August 2021, respectively.
4
Although they were not one of our named executive officers on the date of award, in December 2020, as a component of their 2021 compensation, Messrs. Neumann and
Conaway received long-term incentive unit awards of 13,506 and 7,334 units, respectively, which vest in one-third increments in December in each of the three years following
the date of award, subject to the terms and conditions of the award agreement. Although the CVI Compensation Committee approved the award to Mr. Neumann, it did not, and
was not required to, approve Mr. Conaway’s award. No additional long-term incentive unit awards were made at the time of their appointments. These incentive unit awards to
Ms. Jackson and Mr. Bley were, pursuant to the terms of the award agreements, automatically forfeited upon their resignations and rescinded by the CVI Compensation
Committee.
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Equity Ownership Requirements. CVR Partners has not established equity ownership requirements for its executive officers, and all long-term incentive
or phantom awards, as applicable, are generally settled in cash. The Compensation Committee believes that cash-settled awards provide the executive officers
with a more attractive compensation package and are less burdensome for the Partnership to administer than equity-settled awards. Additionally, equity-settled
compensation in the form of Partnership common units or CVR Energy common stock would dilute the ownership interests of existing unit/stockholders.
Hedging. We have a policy that prohibits our directors and named executive officers from engaging in transactions that hedge or offset, or are designed to
hedge or offset, any decrease in the market value of CVR Partners securities by selling securities of CVR Partners “short,” and we recommend all employees
follow this practice. We also strongly recommend that directors, named executive officers and employees, as well as persons residing in their households, not
trade in exchange-traded or other third-party options, warrants, puts and calls or similar instruments on CVR Partners securities, hold securities of CVR
Partners in margin accounts, or conduct “sales against the box” (i.e., selling of borrowed securities without ownership of sufficient shares to cover the sale).
Recoupment of Compensation. In addition to any claw-back provisions applicable under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, NYSE listing standards or other applicable laws and regulations, our long-term incentive plan award agreements and performance-based bonus plan
contain provisions providing for cancellation, forfeiture, rescission, repayment, recoupment or claw-back, as applicable, of certain compensation paid to our
employees, including our named executive officers, under certain circumstances, including in the event of (i) a restatement of the financial results of CVR
Partners that would reduce (or would have reduced) the amount of any previously awarded phantom units, (ii) a determination by the Board or the
Compensation Committee that the grantee of an award has engaged in misconduct (including by omission) or that an event or condition has occurred, which,
in each case, would have given the Partnership or its subsidiaries the right to terminate the grantee’s employment for cause, (iii) misconduct or gross
dereliction of duty resulting in a violation of law or Partnership policy that causes significant harm to the Company, or (iv) other triggering events defined in
the long-term incentive plan award agreements and the CVR Partners’ performance-based bonus plan.
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The Compensation Committee of our General Partner has reviewed and discussed the Compensation Discussion and Analysis with management. Based
on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this
Report.
Compensation Committee Report
Compensation Committee
Frank M. Muller, Jr. (Chair)
Kapiljeet Dargan
David Willetts
February 22, 2022
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Summary Compensation Table
The following table sets forth the compensation paid to the named executive officers during the years ended December 31, 2021, 2020, and 2019. All
compensation paid to such named executive officers is reflected in the table, not only the portion of compensation attributable to services performed for our
business.
Name and Principal Position
David L. Lamp, Executive Chairman
Mark A. Pytosh, President and Chief
Executive Officer
Dane J. Neumann, Executive Vice President
and Chief Financial Officer
Melissa M. Buhrig, Executive Vice President,
General Counsel and Secretary
Jeffrey D. Conaway, Vice President, Chief
Accounting Officer and Corporate Controller
Tracy D. Jackson, Former Executive Vice
President and Chief Financial Officer
Matthew W. Bley, Former Chief Accounting
Officer and Corporate Controller
$
$
$
$
$
$
$
Year
2021
2020
2019
2021
2020
2019
2021
2021
2020
2019
2021
2021
2020
2019
2021
2020
2019
Salary
(1)
Bonus
(2)
Stock
Awards
(3)
Non-Equity Incentive
(4)
Plan Compensation
All Other
Compensation
(5)
Total
$
$
$
$
$
$
$
1,000,000
1,000,000
1,000,000
590,284
567,582
551,050
286,961
570,413
538,125
512,500
238,849
299,356
470,459
456,756
171,547
289,626
281,190
$
$
$
$
$
$
$
—
—
—
—
21,000
457,300
—
—
25,500
236,100
—
—
19,600
200,800
—
7,700
96,100
$
$
$
$
$
$
$
1,196,795
2,144,005
1,500,000
1,041,190
1,772,104
1,102,000
382,965
545,738
923,340
615,000
138,815
—
807,565
548,000
—
248,697
169,000
$
$
$
$
$
$
$
1,710,000
—
1,770,000
834,100
535,700
818,000
250,400
793,500
—
737,000
128,000
—
—
621,300
—
—
189,200
$
$
$
$
$
$
$
3,564
20,801
20,364
2,322
19,511
20,364
440
810
17,941
99,410
279
225,448
18,390
17,865
33,924
17,561
17,044
3,910,359
3,164,806
4,290,364
2,467,896
2,915,897
2,948,714
920,766
1,910,461
1,504,906
2,200,010
505,943
524,804
1,316,014
1,844,721
205,471
563,584
752,534
(1) For 2021, amounts in the “Salary” column for Messrs. Neumann and Conaway reflect total compensation received, including for time periods prior to their appointment to
Chief Financial Officer and Chief Accounting Officer, in October and August, 2021 respectively, and for Ms. Jackson and Mr. Bley for time periods prior to their
resignation dates in August and July 2021, respectively.
(2) Amounts in this column include a discretionary bonus amount, if any, paid based on individual performance, significant achievements and related factors.
(3) Amounts in this column reflect the aggregate grant date fair value, as calculated in accordance with Financial Accounting Standards Board Accounting Standards
Codification Topic 718, Compensation—Stock Compensation (“ASC 718”), of incentive units granted to each named executive officer during the periods specified in
connection with the CVI LTIP, and for Mr. Pytosh, incentive units granted in connection with the CVI LTIP plus phantom units granted in connection with the CVR
Partners LTIP.
(4) Amounts in this column reflect: (a) for 2021, amounts earned under the 2021 CVI Plan, and for Mr. Pytosh, amounts earned under the 2021 UAN Plan plus amounts
earned under the 2021 CVI Plan, which are expected to be paid in March 2022; (b) for 2020, for Mr. Pytosh, amounts earned under the 2020 UAN Plan; and (c) for 2019,
amounts earned under the 2019 CVI Plan, and for Mr. Pytosh, amounts earned under the 2019 UAN Plan plus amounts earned under the 2019 CVI Plan.
(5) Amounts in this column for 2021 include the following: (a) a company contribution under the CVR Energy basic life insurance program of $3,564 for Mr. Lamp, $2,322
for Mr. Pytosh, $440 for Mr. Neumann, $810 for Ms. Buhrig, $279 for Mr. Conaway, $717 for Ms. Jackson, and $291 for Mr. Bley; (b) $35,731 and $33,633 in accrued
and unused paid time off for Ms. Jackson and Mr. Bley, respectively, which was payable upon their departures in August 2021 and July 2021, respectively; and (c)
$189,000 in severance for Ms. Jackson in accordance with her severance agreement. Amounts in this column for 2020 include the following: (a) a company contribution
under the CVR Energy 401(k) plan of $17,100 for each of Messrs. Lamp and Pytosh and Mses. Buhrig and Jackson; and (b) a company contribution under the CVR
Energy basic life insurance program of $3,701 for Mr. Lamp, $2,411 for Mr. Pytosh, $841 for Ms. Buhrig, and $1,290 for Ms. Jackson. Amounts in this column for 2019
include the following: (a) a company contribution under the CVR Energy 401(k) plan of $16,800 for each of Messrs. Lamp and Pytosh and Ms. Jackson and $8,577 for
Ms. Buhrig; (b) a company contribution under the CVR Energy basic life insurance program of $3,564 for Messrs. Lamp and Pytosh, $540 for Ms. Buhrig, and $1,065 for
Ms. Jackson; and (c) a Company relocation contribution of $90,293 for Ms. Buhrig.
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As described in more detail in the Compensation Discussion and Analysis, the named executive officers, including Mr. Pytosh, are employed by CVR
Services and dedicated only a portion of their time to our business in 2021, with the remainder dedicated to the business of CVR Energy and its subsidiaries.
The following table outlines 2021 compensation paid or granted to the named executive officers who are employed by CVR Services and was attributable
to their service to our business, based on the approximate percentage of time that each of them dedicated to our business during 2021 (10%, 60%, 18%, 20%
and 20% for Messrs. Lamp, Pytosh, Neumann, Conaway and Bley, respectively, and 20% and 18% for Mses. Buhrig and Jackson, respectively), including the
Stock Award and Non-Equity Incentive Compensation for Mr. Pytosh granted to him by the Compensation Committee.
Name
Salary
Bonus
Stock Awards
Non-Equity Incentive
Compensation
All Other
Compensation
David L. Lamp
Mark A. Pytosh
Dane J. Neumann
Melissa M. Buhrig
Jeffrey D. Conaway
Tracy D. Jackson
Matthew W. Bley
Grants of Plan-Based Awards
$
100,000 $
354,171
51,653
114,083
47,770
53,884
34,309
— $
—
—
—
—
—
—
119,680 $
664,280
68,934
109,148
27,763
—
—
171,000 $
482,200
45,072
158,700
25,600
—
—
356
1,393
79
162
56
40,581
6,785
The following table sets forth information concerning amounts that could have been earned by our named executive officers under the 2021 UAN Plan
and the 2021 CVI Plan, as well as granted in connection with the CVR Partners LTIP and the CVI LTIP, as applicable, during 2021.
Name
David L. Lamp
Mark A. Pytosh
Dane J. Neumann
Melissa M. Buhrig
Jeffrey D. Conaway
Bonus Plan /
Award Type
2021 CVI Plan
Incentive Units
2021 CVI Plan
2021 UAN Plan
Incentive Units
Phantom Units
2021 CVI Plan
Incentive Units
2021 CVI Plan
Incentive Units
2021 CVI Plan
Incentive Units
Grant Date
n/a
12/8/21
n/a
n/a
12/8/21
12/8/21
n/a
12/8/21
n/a
12/8/21
n/a
12/8/21
$
$
$
$
$
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(1)
Threshold
(3)
Target
Maximum
Estimated Future Payouts under Equity
Incentive
Plan Awards
(2)
Number
of Shares of
Stock or Units
Grant Date Fair
Value
62,500
—
13,281
19,922
—
—
20,000
—
28,251
—
7,250
—
$
$
$
$
$
1,500,000
—
318,753
478,131
—
—
480,000
—
684,496
—
174,000
—
$
$
$
$
$
2,250,000
—
478,129
717,196
—
—
720,000
—
1,026,743
—
261,000
—
—
72,533
—
—
22,843
8,774
—
23,210
—
33,075
—
8,413
$
$
$
$
$
—
1,196,795
—
—
376,910
664,280
—
382,965
—
545,738
—
138,815
(1) Amounts in these columns reflect amounts that could have been earned by the named executive officers under the 2021 UAN Plan (with respect to Mr. Pytosh) or under
the 2021 CVI Plan (with respect to Messrs. Lamp, Pytosh, Neumann, and Conaway and Ms. Buhrig) in respect of 2021 performance with respect to each performance
measure, excluding the impact of any individual discretionary performance adjustments. Amounts for Messrs. Neumann and Conaway reflect amounts that could have
been earned based on their respective base salaries and target bonus percentages in effect upon their appointment as named executive officers. The performance measures
for 2021 were set by the Compensation Committee and the CVI Compensation Committee, as applicable, as described in the “Compensation Discussion and Analysis.” As
of December 31, 2021, Ms. Jackson and Mr. Bley were no longer employed by CVR Services, and thus were not eligible to and did not and will not receive a payout under
the 2021 CVI Plan.
(2) Amounts in these columns reflect the number of and grant date fair value, as calculated in accordance with ASC 718, of (i) phantom units awarded to Mr. Pytosh during
2021 as part of 2022 compensation in connection with the UAN LTIP; and (ii) incentive units
December 31, 2021 | 93
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awarded to Messrs. Lamp, Pytosh, Neumann, and Conaway and Ms. Buhrig by CVR Energy during 2021 as part of 2022 compensation in connection with the CVI LTIP.
Ms. Jackson and Mr. Bley did not receive an award of Phantom Units or Incentive Units in 2021.
(3) For the 2021 UAN Plan and the 2021 CVI Plan, ‘Threshold’ represents the minimum payout under the 2021 UAN Plan and the 2021 CVI Plan, as applicable, assuming the
Partnership and CVR Energy, as applicable, have satisfied the Adjusted EBITDA Thresholds and have achieved performance under one of the EH&S measures equal to
the prior year performance, resulting in a payout of 50% of the 8.33% measure value, or 4.167% of total target payout. For more information and full description of the
2021 CVI Plan and the 2021 UAN Plan, see “Compensation Discussion and Analysis.” However, in certain circumstances, including in the event the Adjusted EBITDA
threshold is not achieved, the named executive officers may receive payout that is less than the Threshold or zero.
Employment Agreements
Employment Agreements with CVR Partners. None of our named executive officers have an employment agreement with the Partnership, our General
Partner or their subsidiaries.
Employment Agreements with CVR Energy. None of our named executive officers have an employment agreement with CVR Energy or its subsidiaries
other than Mr. Lamp. On December 22, 2021, CVR Energy and Mr. Lamp entered into a new employment agreement (the “2021 Employment Agreement”),
which was effective immediately and superseded and replaced in the entirety, the Original Employment Agreement (as hereinafter defined). The 2021
Employment Agreement has an approximate three-year term, which expires on December 31, 2024, unless otherwise terminated by CVR Energy or Mr.
Lamp. Under the 2021 Employment Agreement, in addition to the ability to participate in such health, insurance, retirement and other employee benefit plans
and programs of CVR Energy in effect from time to time on the same basis as other senior executives of CVR Energy, Mr. Lamp is also eligible to receive:
• An annual base salary of $1,100,000;
• A performance-based annual cash bonus with a target payment equal to 150% of his annual base salary, to be based upon individual and/or
performance criteria as established by the CVI Compensation Committee; and
•
For each fiscal year during the Term, an incentive unit award equal to 150% of his base salary (or such other amount as agreed to by the CVR Energy
and Mr. Lamp) granted in connection with the CVI LTIP.
The 2021 Employment Agreement provides for the payment of certain severance payments to Mr. Lamp that may have been due following termination of
his employment under certain circumstances and are described below under “Change-in-Control and Termination Payments,” and requires Mr. Lamp to abide
by a perpetual restrictive covenant relating to non-disclosure and non-disparagement, as well as covenants relating to non-solicitation and non-competition
that govern during his employment and thereafter for the period severance is paid and, if no severance is paid, for six months following termination of
employment.
Mr. Lamp is also eligible to receive an incentive payment of $10 million (the “Incentive Payment”) payable if either the conditions set forth in the 2021
Employment Agreement or the conditions set forth in a separate Performance Unit Award Agreement, as amended on December 22, 2021 (as amended, the
“PU Award Agreement”), are fulfilled, as follows:
Agreement
2021 Employment
Agreement
PU Award Agreement
Conditions
Measurement Period
• a transaction is consummated that constitutes a Change-in-Control,
• the Board approves a transaction which, if consummated, would constitute a
and such transaction is consummated on or prior to
or
(1)
(1)
Change-in-Control
December 31, 2025
Prior to December 31, 2024
The average closing price of CVR Energy’s common stock is equal to or
greater than $60.00 per share (subject to any equitable adjustments required to
account for splits, dividends, combinations, acquisitions, dispositions,
recapitalizations and the like)
30-trading day period:
January 6, 2025 - February 20, 2025
(1) Change-in-Control as defined in the 2021 Employment Agreement.
Payment of the Incentive Payment under the 2021 Employment Agreement or the PU Award Agreement is conditioned upon Mr. Lamp remaining
employed with CVR Energy through December 30, 2024 (unless terminated by CVR Energy without cause or by Mr. Lamp for good reason (as defined in the
2021 Employment agreement) on or after the satisfaction of
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the foregoing conditions and prior to December 30, 2024). Mr. Lamp will not under any circumstance be entitled to receive more than one Incentive Payment
and if he becomes entitled to the Incentive Payment under the terms of the 2021 Employment Agreement, Mr. Lamp will immediately forfeit any right to
payments under the PU Award Agreement.
The original employment agreement between CVR Energy and Mr. Lamp that was effective on January 1, 2018 (the “Original Employment Agreement”),
was superseded in the entirety by the 2021 Employment Agreement. Although substantially similar in content, the 2021 Employment Agreement includes
changes to (i) adjust Mr. Lamp’s base salary from $1,00,000 to $1,100,00; (ii) provide for full vesting of certain outstanding incentive units held by Mr. Lamp
following termination of employment under certain circumstances; and (iii) extend the Incentive Achievement Date (as defined in the 2021 Employment
Agreement) to align with the extended term of the 2021 Employment Agreement.
The descriptions of these agreements are qualified in their entirety by the text of such agreements, each as referenced in previous filings with the SEC and
as exhibits to this Annual Report on Form 10-K.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning outstanding phantom unit awards granted in connection with the CVR Partners LTIP that were held
by certain of the named executive officers, as well as outstanding incentive unit awards made by CVR Energy granted in connection with the CVI LTIP and
for which the Partnership will share in the expense, both as of December 31, 2021. This table also includes information regarding outstanding incentive unit
awards made by CVR Energy to Mr. Pytosh for which the Partnership does not share in the expense. All of the outstanding units or shares reflected below are
subject to accelerated vesting under certain circumstances as described in more detail in the section titled “Change-in-Control and Termination Payments.”
Any outstanding phantom or incentive unit awards held Ms. Jackson and Mr. Bley were, pursuant to the terms of the award agreements, automatically
forfeited upon their resignations and rescinded by the CVI Compensation Committee, and therefore neither Ms. Jackson nor Mr. Bley had any phantom or
incentive unit awards outstanding as of December 31, 2021.
David L. Lamp
Mark A. Pytosh
Dane J. Neumann
Melissa M. Buhrig
Jeffrey D. Conaway
Name
Award Type
(1)
Incentive Units
Incentive Units
Incentive Units
Phantom Units
Incentive Units
Phantom Units
Incentive Units
Phantom Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Grant Date
12/13/19
12/9/20
12/8/21
12/13/19
12/13/19
12/9/20
12/9/20
12/8/21
12/8/21
12/13/19
12/9/20
12/8/21
12/13/19
12/9/20
12/8/21
8/19/20
12/9/20
12/8/21
Equity Awards That Have Not Vested
Number of Shares or
Units
Market Value of
(2)
Shares or Units
$
$
$
$
$
$
10,912
89,445
72,533
6,397
3,206
62,192
27,072
8,774
22,843
953
9,004
23,210
4,474
38,520
33,075
930
4,889
8,413
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
(3)
249,885
1,940,957
1,219,280
558,714
73,417
5,431,849
587,462
725,522
383,991
21,824
195,387
390,160
102,455
835,884
555,991
20,181
106,091
141,423
(1) These incentive and phantom units vest ratably in annual installments in each of the three years following the date of grant, subject to the terms of the applicable award
agreement.
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(2) This column represents the number of unvested units outstanding on December 31, 2021, multiplied by: (a) for incentive units issued on December 8, 2021, $16.81 (the
December 31, 2021, closing price of CVR Energy common stock (the “CVI Closing Price”)); (b) for incentive units issued on August 19, 2020 and December 9, 2020,
$21.70 (equal to the CVI Closing Price plus $4.89 in accrued dividends); (c) for incentive units issued on December 13, 2019, $22.90 (equal to the CVI Closing Price plus
$6.09 in accrued dividends); (d) for phantom units issued on December 8, 2021, $82.69 (equal to the December 31, 2021 closing price of Partnership common units (the
“UAN Closing Price”)); and (e) for phantom units issued on December 13, 2019 and December 9, 2020, $87.34 (equal to the UAN Closing Price, plus $4.65 in accrued
distributions which has been adjusted to reflect the Reverse Unit Split of the Partnership’s common units that was effective as of November 23, 2020 (the “Reverse Unit
Split”)).
(3) The Partnership will share in a pro-rated portion of the costs associated with these awards based on the percentage of time that the named executive officer dedicates to our
business during the year of vesting.
Equity Awards Vested During Fiscal Year 2021
This table sets forth information concerning phantom units awarded by us that vested during 2021, as well as incentive unit awards made by CVR Energy
that vested during 2021, for which the Partnership shared in the expense. This table also includes incentive unit awards made by CVR Energy to Mr. Pytosh
that vested during 2021 and for which the Partnership does not share in the expense. Neither Ms. Jackson nor Mr. Bley had any equity-based awards that
vested in 2021.
Name
David L. Lamp
Mark A. Pytosh
Dane J. Neumann
Melissa M. Buhrig
Jeffrey D. Conaway
Award Type
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Phantom Units
Incentive Units
Phantom Units
Incentive Units
Phantom Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Incentive Units
Equity Awards
Number of Shares or Units
Acquired on Vesting
Value Realized on
Vesting
13,217 $
10,912
44,723
3,771 $
5,661
3,207
6,398
13,536
31,096
855 $
953
4,502
5,287 $
4,474
19,261
465 $
2,445
333,201
243,665
944,997
95,067
483,619
71,612
527,515
286,016
2,563,865
21,555
21,280
95,127
133,285
99,904
406,985
8,235
51,663
(1)
(2)
(3)
(1)
(4) (5)
(2)
(6) (5)
(3)
(6) (5)
(1)
(2)
(3)
(1)
(2)
(3)
(3)
(3)
(1) For incentive units for Messrs. Lamp, Pytosh, and Neumann and Ms. Buhrig that vested during fiscal year 2021, the amount reflected includes a per unit value equal to (i)
the average closing price of CVR Energy’s common stock in accordance with the agreement, and (ii) $9.14 in accrued dividends.
(2) For incentive units for Messrs. Lamp, Pytosh, and Neumann and Ms. Buhrig that vested during fiscal year 2021, the amount reflected includes a per unit value equal to (i)
the average closing price of CVR Energy’s common stock in accordance with the agreement, and (ii) $6.09 in accrued dividends.
(3) For incentive units for Messrs. Lamp, Pytosh, Neumann, and Conaway and Ms. Buhrig that vested during fiscal year 2021, the amount reflected includes a per unit value
equal to (i) the average closing price of CVR Energy’s common stock in accordance with the agreement, and (ii) $4.89 in accrued dividends.
(4) For phantom units that vested during fiscal year 2021, the amount reflected includes a per unit value equal to (i) the average closing price of CVR Partners’ common units
in accordance with the agreement, and (ii) accrued distributions of $8.65 per unit.
(5) Accrued distributions have been adjusted to reflect the Reverse Unit Split.
(6) For phantom units that vested during fiscal year 2021, the amount reflected includes a per unit value equal to the average closing price of CVR Partners’ common units in
accordance with the agreement, and (ii) accrued distributions of $4.65 per unit.
December 31, 2021 | 96
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Reimbursement of Expenses of Our General Partner
Our General Partner and its affiliates are reimbursed for expenses incurred on our behalf under the Corporate MSA. See “Certain Relationships and
Related Transactions, and Director Independence - Agreements with CVR Energy and its Subsidiaries.” These expenses include the costs of employee, officer
and director compensation and benefits properly allocable to us, and all other expenses necessary or appropriate to the conduct of our business and allocable to
us. These expenses also include costs incurred by CVR Energy or its affiliates in rendering corporate staff and support services to us pursuant to the Corporate
MSA, including a pro-rata portion of the compensation of CVR Energy’s executive officers who provide management services to us based on the amount of
time such executive officers devote to our business. For the year ended December 31, 2021, the total amount paid to our General Partner and its affiliates
(including amounts paid to CVR Energy pursuant to the Corporate MSA) was approximately $15.5 million.
Our partnership agreement provides that our General Partner determines which of its affiliates’ expenses are allocable to us and the Corporate MSA
provides that CVR Energy invoice us monthly for services provided thereunder. Our General Partner may dispute the costs that CVR Energy charges us under
the Corporate MSA, but we are not entitled to a refund of any disputed cost unless it is determined not to be a reasonable cost incurred by CVR Energy in
connection with services it provided.
Change-in-Control and Termination Payments
Our named executive officers are entitled to severance and other benefits from CVR Energy following the termination of their employment under certain
circumstances as follows:
David L. Lamp, Executive Chairman. If Mr. Lamp’s employment is terminated he is entitled to the following benefits as more fully described in the 2021
Employment Agreement:
Reason for Employment Termination
Death, Disability or Termination other than for
cause not in connection with a change-in-
control
Resignation for good reason
Resignation or Retirement
Termination without cause in connection with a
change-in-control
(5)
Resignation for good reason in connection with
a change-in-control
(5)
Accrued Amounts
(1)
Severance Payments
(2)
LTIP Payout
(3)
Incentive Payment
(4)
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
(1)
(2)
(3)
Includes base salary earned but unpaid through date of termination or resignation, earned but unpaid Annual Bonus for completed fiscal years, unused accrued paid time
off, unreimbursed expenses, accrued and vested rights or benefits under any CVR Energy sponsored employee benefit plans.
Includes continuation of base salary for the lesser of (i) six months, and (ii) the remainder of the term, plus a pro-rata Annual Bonus for the fiscal year of termination based
on individual achievement and/or performance criteria for such fiscal year, and/or in the case of termination due to disability payments under CVR Energy’s disability
plan(s).
Includes the value of full vesting of any unvested incentive units (and accumulated dividend equivalent rights) but only if such incentive units were granted more than one
year prior to the date of termination of employment.
(4) $10 million.
(5) Change-in-Control Related Termination (as defined in his 2021 Employment Agreement), occurring within the 120-day period prior to the change of control and payable
within 30 days following the consummation of the change in control. For the avoidance of doubt, such benefits are conditioned upon the consummation of a change in
control on or prior to December 31, 2025.
As a condition to receiving these severance benefits, Mr. Lamp must execute, deliver and not revoke a general release of claims and abide by restrictive
covenants relating to non-solicitation and non-competition during Mr. Lamp’s employment term, and thereafter during the period he receives severance
payments or supplemental disability payments, as applicable, or for
December 31, 2021 | 97
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six months following the end of the term (if no severance or disability payments are payable), as well as a perpetual restrictive covenant relating to non-
disclosure and non-disparagement and covenants relating to non-solicitation and noncompetition. If any payments or distributions due to Mr. Lamp under his
2021 Employment Agreement would be subject to the excise tax imposed under Section 4999 of the Code, then such payments or distributions will be “cut
back” only if that reduction would be more beneficial to him on an after-tax basis than if there was no reduction. The meaning of all terms used, but not
defined in this description of these benefits to which Mr. Lamp is entitled upon employment termination, are as defined in the 2021 Employment Agreement
and are qualified thereby in the entirety.
Other Named Executive Officers. Ms. Buhrig and Messrs. Pytosh, Neumann, and Conaway do not have employment agreements. However, under the CVI
Severance Plan, Ms. Buhrig and Messrs. Pytosh, Neumann, and Conaway are generally eligible for certain payments in the event of their involuntary
termination (other than for cause, as defined in the CVI Severance Plan) or their resignation for good reason (as defined in the CVI Severance Plan), as
follows:
Reason for Employment Termination
Involuntary termination (other than for cause) in connection with a change-
in-control
(4)
Resignation for good reason in connection with a change-in-control
(4)
Accrued Amounts
(1)
Severance Payments
(2)
Vesting Acceleration
(3)
ü
ü
ü
ü
ü
ü
(1) The sum of any base pay earned but unpaid through the date of termination, any unused accrued paid time off in accordance with the applicable paid time off policy, any
unreimbursed expenses in accordance with the applicable expense reimbursement policy, and any accrued and vested rights or benefits under any CVR Energy sponsored
employee benefits plans.
(2) The sum of (a) twelve (12) months of base pay, and (b) the average of the annual bonuses actually paid during the three calendar years immediately preceding (or for such
shorter period of time or 100% of target bonus, if applicable).
(3) Accelerated vesting as to 100% of the unvested incentive awards, calculated based on the 20-day average closing price of a share or common unit of CVR Energy or the
Partnership, as applicable.
(4) Occurring within the 120 days preceding or the 24 months following a change-in-control (as defined in the CVI Severance Plan).
Payout of these amounts are subject to various conditions including the execution of a release agreement, a perpetual restrictive covenant relating to non-
disclosure and non-disparagement and covenants relating to non-solicitation and non-competition for a period of 12 months. Ms. Jackson and Mr. Bley, while
employed with CVR Services, were also eligible for certain payments in the event of their involuntary termination. Based on the circumstances of their
resignations, however, neither Ms. Jackson nor Mr. Bley were eligible for nor received any payments under the CVI Severance Plan upon the termination of
their employment.
Accrued Amounts and Severance Payments
The amounts of potential post-employment payments and benefits in the table below assume that the triggering event took place on December 31, 2021.
Pursuant to the Corporate MSA, we are responsible for the payment of our proportionate share of severance benefits under the 2021 Employment Agreement
and the CVI Severance Plan and other benefits costs following the termination of employment of the named executive officers that are employed by CVR
Services. The actual payments to which a named executive officer would be entitled may only be determined based upon the actual occurrence and
circumstances surrounding the termination.
Cash Severance
Benefit Continuation
Death
Disability
Retirement
Termination without Cause or
with Good Reason
(2)
(1)
Death
Disability
Retirement
Termination without
Cause or with Good
Reason
(1)
(2)
$
4,146,885 $
4,146,885 $
1,886,885 $
4,146,885 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
11,886,885
1,401,081
943,827
1,162,954
483,714
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
(3)
(4)
David L. Lamp
Mark A. Pytosh
Dane J. Neumann
Melissa M. Buhrig
Jeffrey D. Conaway
(5)
(4)
(5)
(1) Severance payments and benefits in the event of termination without cause or resignation for good reason not in connection with a change in control.
December 31, 2021 | 98
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(2) Severance payments and benefits in the event of termination without cause or resignation for good reason in connection with a change in control.
(3) For Mr. Lamp, payments upon (a) death, disability, or termination without cause or resignation for good reason not in connection with a change in control include: (i)
Accrued Amounts, plus (ii) a Pro-Rata Bonus under the applicable bonus plan based on actual achievement; (b) resignation or retirement not in connection with a change
in control include Accrued Amounts; and (c) termination without cause or resignation for good reason in connection with a change in control include: (i) the Incentive
Payment, plus (ii) Accrued Amounts. Mr. Lamp is also entitled to the “LTIP Payout,” a payment associated with the accelerated vesting of certain incentive awards
following termination of employment, which amounts are itemized in the table entitled “Value of Accelerated Vesting of Restricted Stock Unit and Incentive Unit
Awards.” The terms Accrued Amounts, Pro-Rata Bonus, LTIP Payout and Incentive Payment are all as defined in the 2021 Employment Agreement.
(4) For Mr. Pytosh and Ms. Buhrig, payments in the termination without cause or resignation for good reason column include, as defined under the CVI Severance Plan, (a)
Accrued Amounts, plus (b) a lump sum of twelve months’ base pay plus a sum equal to the average of the annual bonuses actually paid during the immediately preceding
three calendar years.
(5) For Messrs. Neumann and Conaway, payments in the termination without cause or resignation for good reason column include, as defined under the CVI Severance Plan,
(a) Accrued Amounts, plus (b) a lump sum of twelve months’ base pay plus a sum equal to 100% of their current target bonus based on such shorter period of time during
which they served as a named executive officer.
Accelerated Vesting of Restricted Stock Unit and Incentive Unit Awards
Certain of our named executive officers have received phantom unit awards in connection with the CVR Partners LTIP, as well as incentive unit awards in
connection the CVI LTIP, each of which generally represents the right to receive, upon vesting, a cash payment equal to (i) the number of units times the
average closing price of a common unit of Partnership or a common share of CVR Energy, as applicable, for the ten trading days preceding the vest, plus (ii)
distributions declared and paid by the Partnership and the per unit cash value of all dividends declared and paid by CVR Energy, as applicable, from the grant
date to and including the vest date. These awards generally provide for acceleration upon certain termination events, as follows:
•
•
If the phantom units or incentive units, as applicable, are cancelled or if such named executive officer (a) is terminated other than for cause or (b) is
terminated due to death or disability, then the portion of the award scheduled to vest in the year in which such event occurs becomes immediately
vested and the remaining portion is forfeited.
If such named executive officer is terminated other than for cause or resigns for good reason in connection with a change in control all unvested
awards accelerate.
The following table reflects the value of accelerated vesting of the unvested phantom units and incentive units held by the named executive officers
assuming the triggering event took place on December 31, 2021. For the purposes of phantom units awarded by us to Mr. Pytosh, the value is based on the 20-
day average closing price for the Partnership common units for the 20 trading days preceding December 31, 2021, or $78.98 per unit. For the purposes of the
incentive units awarded by CVR Energy to all named executive officers other than Mr. Lamp, the value is based on the 20-day average closing price for the
CVR Energy common stock for the 20-trading days preceding December 31, 2021, or $16.12 per share. Ms. Jackson and Mr. Bley, prior to their resignations,
were also eligible for accelerated vesting of outstanding incentive unit awards in the event of their involuntary termination. However, based on the
circumstances of their resignations, the outstanding incentive unit awards held by Ms. Jackson and Mr. Bley at the time of their resignations did not accelerate,
and neither received any payments in connection with any accelerated vestings upon the termination of their employment.
(3)
David L. Lamp
Mark A. Pytosh
Dane J. Neumann
Melissa M. Buhrig
Jeffrey D. Conaway
Death
Disability
Retirement
$
$
2,141,666
—
—
—
—
$
2,141,666
—
—
—
—
Termination without Cause or with Good
Reason
(1)
(2)
$
—
—
—
—
—
$
2,141,666
—
—
—
—
2,141,666
7,437,286
584,485
1,441,842
257,875
(1) Termination without cause or resignation for good reason not in connection with a change in control.
(2) Termination without cause or resignation for good reason in connection with a change in control.
(3) The amounts reflected for Mr. Lamp represent the value of full vesting of any unvested incentive units (and any accumulated but unvested dividend equivalents) held by
Mr. Lamp as of December 31, 2021, that were granted more than one year prior thereto, as defined in the 2021 Employment Agreement calculated pursuant to the award
agreements upon the average closing price of a common share of CVR Energy for the ten trading days before vest, plus accrued dividends declared and paid through the
vest date.
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Pay Ratio
For 2021, to identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our
median employee and our Principal Executive Officers, Mr. Lamp, our Executive Chairman, and Mr. Pytosh, our President and Chief Executive Officer
(collectively,“PEOs”), we used the following methodology and made the following material assumptions, adjustments, and estimates:
(1) We determined that, as of December 31, 2021, the employee population of the Partnership and its consolidated subsidiaries consisted of 297
individuals, excluding our PEOs who are employed by CVR Services.
(2) To identify the “median employee” from the employee population, we compared the amount of annual total compensation of such employees for
2021 determined in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, which consisted of salary, bonus, non-equity incentive
plan compensation and other compensation. We “annualized” the compensation of our full-time and part-time permanent employees as of
December 31, 2021, to adjust for the portion of the year that the employee did not work, if applicable. We did not make any cost-of-living
adjustments in identifying the “median employee.”
(3) To identify the annual total compensation of our median employee, we included the elements of such employee’s compensation for 2021 determined
in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K.
(4) To identify the annual total compensation of our PEOs, we used the amounts reported in the “Total” column of our 2021 Summary Compensation
Table included in this Item 11, which was calculated in accordance with the same requirements of Item 402(c)(2)(x) of Regulation S-K, as adjusted to
reflect the portion of such amount attributable to Mr. Lamp’s and Mr. Pytosh’s service to the Partnership, of ten percent (10%) and sixty percent
(60%), respectively, and as further described in the table immediately following our 2021 Summary Compensation Table.
Based on this methodology, we estimate that the ratio of the annual total compensation of each of our PEOs to the median of the annual total
compensation of all employees for 2021 was as follows:
Annual total compensation of Median Employee
Annual total compensation of Executive Chairman
CEO Pay Ratio (Executive Chairman)
Annual total compensation of President & CEO
CEO Pay Ratio (President & CEO)
(2)
(1)
(2)
$125,857
$391,036
3:1
$1,502,044
12:1
(1) Excludes our PEOs.
(2) Adjusted to reflect the portion of such compensation attributable to service to the Partnership.
The totals and pay ratios described above are reasonable estimates calculated in a manner consistent with Item 402(u) of Regulation S-K.
Compensation of Directors
Directors of our General Partner who are not officers, employees, or directors of CVR Energy or its affiliates receive compensation for their services. This
compensation is designed to attract and retain nationally recognized, highly qualified directors to lead the Partnership and to be demonstrably fair to both the
Partnership and such directors, taking into consideration, among other things, the time commitments required for service on the Board and its committees.
In November 2020, the Board considered these goals and the compensation paid to such directors for 2020, and upon recommendation of the
Compensation Committee, elected to keep such compensation for 2021 the same as 2020. During 2021, independent directors received an annual director fee
of $35,000. The Audit Committee chair received an additional fee of $15,000 per year, while independent directors serving on the Audit Committee received
an additional fee of $7,500 per year. The Compensation Committee and EH&S Committee chairs received an additional fee of $8,000 per year, while
independent directors serving on the Compensation Committee received an additional fee of $5,000 per year. In addition, independent directors are reimbursed
for out-of-pocket expenses in connection with attending meetings of the board of directors (and
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committees thereof) of our General Partner and for other director-related education expenses. Each member of the Committee is eligible to receive an
additional $1,500 per meeting for all meetings in excess of the following threshold:
Board/Committee Meeting
Board
Audit Committee
Compensation Committee
EH&S Committee
Threshold Per Year
6
12
6
6
The following table sets forth the compensation earned by or paid to each independent director of our General Partner who are not officers, employees, or
directors of CVR Energy or its affiliates for the year ended December 31, 2021.
Donna R. Ecton
Frank M. Muller, Jr.
Peter K. Shea
Name
Fees Earned or Paid in
Cash
(1)
Unit Awards
Total Compensation
$
55,000 $
55,500
50,500
— $
—
—
55,000
55,500
50,500
(1) Amounts reflected in this column include annual retainer fees and additional fees for service as committee members, including the chair positions.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding beneficial ownership of our common units as of February 22, 2022 by:
• our General Partner;
• each of our General Partner’s directors;
• each of our named executive officers;
• each unitholder known by us to beneficially hold five percent or more of our outstanding units; and
• all of our General Partner’s executive officers and directors as a group.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Unless
indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all common units
beneficially owned, subject to community property laws where applicable. The business address for each of our beneficial owners is c/o CVR Partners, LP,
2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479.
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Name of Beneficial Owner
(1)
(4)
(2)
CVR Services, LLC
Goldman Sachs Group, Inc.
(3)
Barclays Plc
CVR GP, LLC
Kapiljeet Dargan
Donna R. Ecton
David L. Lamp
Frank M. Muller, Jr.
Mark A. Pytosh
Peter K. Shea
David Willetts
Melissa M. Buhrig
Jeffrey D. Conaway
Dane J. Neumann
All directors and executive officers of our General Partner as a group (10 persons)
(5)
Common Units
Beneficially Owned
Number
Percent
3,892,000
954,430
621,054
—
—
1,250
—
3,512
30,593
59
—
2,200
—
—
37,614
36.4 %
8.9 %
5.8 %
—
—
—
—
—
—
*
*
*
*
*
*
*
Less than 1%
(1) CVR Services is an indirect wholly-owned subsidiary of CVR Energy, with an address at 2277 Plaza Drive, Suite 500, Sugar Land, TX 77479. CVR Energy may be
deemed to have direct beneficial ownership of the common units held by CVR Services by virtue of its control of CVR Services. The directors of CVR Energy are
Kapiljeet Dargan, Jaffrey A. Firestone, Hunter C. Gary, David L. Lamp, Stephen Mongillo, James M. Strock and David Willetts.
(2) Beneficial ownership information is based on a Schedule 13G/A filed with the SEC on February 2, 2022 by Goldman Sachs Group, Inc. with an address of 200 West
Street, New York, New York 10282. Goldman Sachs Group, Inc. has shared voting power with respect to 954,430 units and shared dispositive power of 954,430 units.
(3) Beneficial ownership information is based on a Schedule 13G filed with the SEC on February 11, 2022, which indicates that Barclays Plc and Barclays Bank Plc, both with
an address of 1 Churchill Place, London, X0 E14 5HP, have sole voting power and sole dispositive power with respect to 621,054 units.
(4) CVR GP, LLC, a wholly-owned subsidiary of CVR Services, is our General Partner and manages and operates CVR Partners and has a non-economic general partner
interest with an address at 2277 Plaza Drive, Suite 500, Sugar Land, TX 77479.
(5) The number of common units owned by all of the directors and executive officers of our General Partner, as a group, reflects the sum of (i) the 30,593 common units owned
by Mr. Pytosh, (ii) the 2,200 common units owned by Ms. Buhrig, (iii) the 1,250 common units owned by Ms. Ecton, (iv) the 3,512 common units owned by Mr. Muller,
and (v) the 59 common units owned by Mr. Shea.
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Item 13. Certain Relationships and Related Transactions, and Director Independence
CVR Services owns (i) 3,892,000 common units, representing approximately 36% of our outstanding units, and (ii) 100 % of our General Partner with its
non-economic general partner interest (which does not entitle it to receive distributions).
Agreements with CVR Services and Its Subsidiaries
The General Partner and the Partnership and its subsidiaries are party to, or otherwise subject to certain agreements with CVR Services and its
subsidiaries that govern the business relations among each party. The Partnership is party to the Limited Partnership Agreement, the Corporate Master Service
Agreement, and the Omnibus Agreement. Our Coffeyville Facility is party to the Coffeyville Master Service Agreement, the Terminal and Operating
Agreement, and the Environmental Agreement. Further, some of these agreements were not the result of arm’s-length negotiations and the terms of these
agreements are not necessarily at least as favorable to the parties to these agreements as terms which could have been obtained from unaffiliated third parties.
Refer to Part II, Item 8, Note 9 (“Related Party Transactions”) of this Report for additional information related to these agreements. Refer also to Part IV, Item
15 of this Report for the filed agreements.
Agreements with IEP
Insight Portfolio Group
Insight Portfolio Group LLC (“ISG”) is an entity formed and controlled by Mr. Icahn in order to maximize the potential buying power of a group of
entities with which Mr. Icahn has a relationship by negotiating with a wide range of suppliers of goods, services, and tangible and intangible property at
negotiated rates. For 2021 and 2020, the Partnership did not pay any fees to ISG. However, we indirectly received services from certain of CVR Energy’s
negotiated agreements with third parties, certain of which were initiated through the ISG. On January 23, 2020, CVR Energy assigned its minority equity
interest in ISG to a third party, terminated its agreement relating to ISG, and is no longer expected to transact with ISG.
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a result of the relationships between our General Partner and its affiliates (including IEP, CVR
Services, CVR Energy, and CVR Refining), on the one hand, and us and our public unitholders, on the other hand. Conflicts may arise as a result of (i) the
overlap of directors and officers between our General Partner and CVR Energy, which may result in conflicting obligations by these officers and directors, and
(ii) duties of our General Partner to act for the benefit of CVR Energy and its stockholders, which may conflict with our interests and the interests of our
public unitholders. The directors and officers of our General Partner have fiduciary duties to manage our General Partner in a manner beneficial to CVR
Services, its owner, and the stockholders of CVR Energy, its indirect parent. At the same time, our General Partner has a contractual duty under our
partnership agreement to manage us in a manner that is in our best interests.
Whenever a conflict arises between our General Partner, on the one hand, and CVR Services or any other public unitholder, on the other, our General
Partner will resolve that conflict. Our partnership agreement contains provisions that replace default fiduciary duties with contractual corporate governance
standards as set forth therein.
Related Party Transaction Policy
Our Board has adopted a Related Party Transaction Policy, which is designed to monitor and ensure the proper review, approval, ratification, and
disclosure of related party transactions involving us. This policy applies to any transaction, arrangement, or relationship (or any series of similar or related
transactions, arrangements, or relationships) in which we are a participant, and the amount involved exceeds $120,000, and in which any related party had or
will have a direct or indirect material interest. At the discretion of the Board, a proposed related party transaction may generally be reviewed by the Board in
its entirety or by a “conflicts committee” meeting the definitional requirements for such a committee under our partnership agreement. After appropriate
review, the Board or the Conflicts Committee may approve or ratify a related party transaction if such transaction is consistent with the Related Party
Transaction Policy and is on terms that, taken as a whole, are no less favorable to us than could be obtained in an arm’s-length transaction with an unrelated
third-party, unless the Board or the Conflicts Committee otherwise determines that the transaction is not in our best interests. Related party transactions
involving compensation will be approved by the Board in its entirety or by the Compensation Committee of the Board in lieu of the Conflicts Committee.
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On October 18, 2019, the Conflicts Committee of the Board and on October 22, 2019, the audit committee of CVR Energy, each agreed to authorize the
exchange of certain parcels of property owned by a subsidiary of CVR Energy with an equal number of parcels owned by a subsidiary of CVR Partners, all
located in Coffeyville, Kansas (the “Property Exchange”). On February 19, 2020, a subsidiary of CVR Energy and a subsidiary of CVR Partners executed the
Property Exchange agreement effectuating the same. This Property Exchange will enable each such subsidiary to create a more usable, contiguous parcel of
land near its own operating footprint. CVR Energy and the Partnership accounted for this transaction in accordance with the Topic 805-50 guidance on
transferring assets between entities under common control. This transaction had a net impact to the Partnership’s partners’ capital of approximately
$0.1 million.
Director Independence
The NYSE does not require a listed publicly traded partnership, such as ours, to have a majority of independent directors on the Board of our General
Partner. The Board consists of seven directors, three of whom the Board has affirmatively determined are independent in accordance with the rules of the
NYSE. For a discussion of the independence of the Board, please see Part III, Item 10. Directors, Executive Officers and Corporate Governance.
Item 14. Principal Accounting Fees and Services
Grant Thornton LLP (“Grant Thornton”) has served as the Partnership’s independent public registered accounting firm since August 2013. The Audit
Committee has not selected the independent registered public accounting firm to conduct the audit of our books and records for the fiscal year ending
December 31, 2022.
The charter of the Audit Committee of the Board, which is available on our website at www.cvrpartners.com, requires the Audit Committee to pre-
approve all audit services and non-audit services (other than de-minimis non-audit services as defined by the Sarbanes-Oxley Act of 2002) to be provided by
our independent registered public accounting firm. The Audit Committee has a pre-approval policy with respect to services that may be performed by the
independent auditors. The Audit Committee pre-approved all fees incurred in fiscal year 2021.
The following table represents fees billed and expected to be billed for professional services and other services in the following categories and amounts
by Grant Thornton for the fiscal years ended December 31, 2021 and 2020:
(1)
(in thousands)
Audit fees
Audit-related fees
Tax fees
All other fees
Total
Year Ended December 31,
2020
2021
805 $
—
—
—
805 $
654
—
—
—
654
$
$
(1) Represents the aggregate fees for professional services rendered for the annual audit of the Partnership’s financial statements, the annual audit of the effectiveness of the
Partnership’s internal control over financial reporting, comfort letters, consents, and consultations on financial accounting and reporting standards arising during the course
of the audits and reviews. Also includes the review of the consolidated financial statements included in the Partnership’s quarterly reports on Form 10-Q.
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Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements - See Part II, Item 8 of this Annual Report on Form 10-K.
PART IV
(a)(2) Financial Statement Schedules - All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission (the “SEC”) are not required under the related instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
Exhibit Number Exhibit Description
INDEX TO EXHIBITS
3.1**
3.2**
4.1**
4.2**
4.3**
4.4**
4.5**
4.6**
4.7**
Third Amended and Restated Limited Liability Company Agreement of CVR GP, LLC, dated April 13, 2011 (incorporated by reference to
Exhibit 3.4 of the Form 10-K filed on February 24, 2012).
Composite copy of the Second Amended and Restated Agreement of Limited Partnership of CVR Partners, LP (as amended by
Amendment No. 1 referenced in Exhibit 3.4 above) (incorporated by reference to Exhibit 3.2 of the Form 10-Q filed on April 26, 2018).
Description of Common Units (incorporated by reference to Exhibit 4.1 of the Form 10-K filed on February 20, 2020).
Specimen certificate for the common units (incorporated by reference to Appendix A to the Prospectus contained within the Form S-1/A
filed on March 17, 2011).
Amended and Restated Registration Rights Agreement, dated as of April 13, 2011, by and between CVR Partners, LP and Coffeyville
Resources, LLC (incorporated by reference to Exhibit 10.6 of the Form 8-K/A filed by CVR Energy, Inc. on May 23, 2011 (Commission
File No. 001-33492)).
Registration Rights Agreement, dated as of August 9, 2015, by and among CVR Partners, LP, Coffeyville Resources, LLC, Rentech
Nitrogen Holdings, Inc., and DSHC, LLC (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on August 13, 2015).
Indenture, dated June 10, 2016, by and among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as defined therein)
and Wilmington Trust, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit 4.1 of the Form 8-K
filed on June 16, 2016).
Form of 9.250% Senior Secured Note due 2023 (included within the Indenture filed as Exhibit 4.4 and incorporated by reference to
Exhibit 4.1 of the Form 8-K filed on June 16, 2016).
Indenture, dated as of June 23, 2021, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors party thereto and
Wilmington Trust, National Association, as trustee and collateral trustee (incorporated by reference to Exhibit 4.1 of the Form 8-K filed on
June 23, 2021).
4.8**
10.1**
10.1.1**
10.1.2**
Form of 6.125% Senior Secured Note due 2028 (incorporated by reference to Exhibit 4.2 of the Form 8-K filed on June 23, 2021).
Environmental Agreement, dated as of October 25, 2007, by and between Coffeyville Resources Refining & Marketing, LLC and
Coffeyville Resources Nitrogen Fertilizers, LLC (incorporated by reference to Exhibit 10.7 of the Form 10-Q filed by CVR Energy, Inc.
on December 6, 2007 (Commission File No. 001-33492)).
Supplement to Environmental Agreement, dated as of February 15, 2008, by and between Coffeyville Resources Refining &
Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers, LLC (incorporated by reference to Exhibit 10.17.1 of the Form 10-K
filed by CVR Energy, Inc. on March 28, 2008 (Commission File No. 001-33492)).
Second Supplement to Environmental Agreement, dated as of July 23, 2008, by and between Coffeyville Resources Refining &
Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers, LLC (incorporated by reference to Exhibit 10.1 of the Form 10-Q filed
by CVR Energy, Inc. on August 14, 2008 (Commission File No. 001-33492)).
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10.2**
10.3**
10.4**
10.5**
10.6**
Amended and Restated Omnibus Agreement, dated as of April 13, 2011, among CVR Energy, Inc., CVR GP, LLC and CVR Partners, LP
(incorporated by reference to Exhibit 10.2 of the Form 8-K/A filed by CVR Energy, Inc. on May 23, 2011 (Commission File No. 001-
33492)).
Amended and Restated Contribution, Conveyance and Assumption Agreement, dated as of April 7, 2011, among Coffeyville
Resources, LLC, CVR GP, LLC, Coffeyville Acquisition III LLC, CVR Special GP, LLC and CVR Partners, LP (incorporated by
reference to Exhibit 10.1 of the Form 8-K/A filed by CVR Energy, Inc. on May 23, 2011 (Commission File No. 001-33492)).
Lease and Operating Agreement, dated as of May 4, 2012, by and between Coffeyville Resources Terminal, LLC and Coffeyville
Resources Nitrogen Fertilizers, LLC (incorporated by reference to Exhibit 10.2 of the Form 10-Q filed on August 2, 2012).
Master Service Agreement among Coffeyville Resources Refining & Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers,
LLC, dated February 19, 2020 (incorporated by reference to Exhibit 10.13 of the Form 10-K filed on February 20, 2020).
Master Service Agreement among CVR Services, LLC and subsidiaries of CVR Energy, dated February 19, 2020 (incorporated by
reference to Exhibit 10.14 of the Form 10-K filed on February 20, 2020).
10.7**+
CVR Partners, LP Long-Term Incentive Plan (adopted March 16, 2011) (incorporated by reference to Exhibit 10.1 to the Form S-8 filed
on April 12, 2011).
10.7.1**+
Form of Employee Phantom Unit Agreement (incorporated by reference to Exhibit 10.17.5 of the Form 10-K filed on February 20, 2015).
10.7.2**+
10.7.3**+
10.7.4*+
10.7.5*+
10.8**+
10.9**+
10.10**
10.11**+
Form of CVR Partners, LP Long-Term Incentive Plan Employee Phantom Unit Agreement (Executive) (incorporated by reference to
Exhibit 10.15.2 of the Form 10-K filed on February 20, 2020).
Form of CVR Partners, LP Long-Term Incentive Plan Employee Phantom Unit Agreement (incorporated by reference to Exhibit 10.15.3
of the Form 10-K filed on February 20, 2020).
Form of CVR Partners, LP Long-Term Incentive Plan Employee Phantom Unit Agreement (Executive).
Form of CVR Partners, LP Long-Term Incentive Plan Employee Phantom Unit Agreement.
Employment Agreement, dated as of November 1, 2017, by and between CVR Energy, Inc. and David L. Lamp (incorporated by reference
to Exhibit 10.20 to the Partnership’s Form 10-K filed on February 23, 2018 (Commission File No. 001-35120)).
Performance Unit Award Agreement, dated as of November 1, 2017, by and between CVR Energy, Inc. and David L. Lamp (incorporated
by reference to Exhibit 10.22 to the Partnership’s Form 10-K filed on February 23, 2018 (Commission File No. 001-35120)).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.26 of the Form 10-K filed on February 24, 2012).
CVR Energy, Inc. Change in Control and Severance Plan (incorporated by reference to Exhibit 10.1 of CVR Energy, Inc.’s Form 10-Q
filed on October 25, 2018).
10.11.1*+
CVR Energy, Inc. Change in Control and Severance Plan, as amended effective January 1, 2022.
10.12**
10.13**
10.14**
Collateral Trust Agreement, dated as of June 10, 2016, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors (as
defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit 10.1
of the Form 8-K filed on June 16, 2016).
Parity Lien Security Agreement, dated as of June 10, 2016, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors
(as defined therein) and Wilmington Trust, National Association, as Trustee and Collateral Trustee (incorporated by reference to Exhibit
10.2 of the Form 8-K filed on June 16, 2016).
AB Credit Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers,
LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR
Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, the lenders from time to time party thereto, UBS AG,
Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on October
6, 2016).
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10.15**
10.16**
10.17**
10.17.1*
10.18**+
10.19**+
10.20**+
10.21**
10.22**
10.23**
10.24**
10.25**
10.26**
10.27**
10.28**
Security Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers,
LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR
Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent and
collateral agent (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on October 6, 2016).
Intercreditor Agreement, dated as of September 30, 2016, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen
Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation,
CVR Nitrogen GP, LLC, certain of their affiliates from time to time party thereto, UBS AG, Stamford Branch, as administrative agent and
collateral agent for the secured parties, Wilmington Trust, National Association, as trustee and collateral trustee for the secured parties in
respect of the outstanding senior secured notes and other parity lien obligations and other parity lien representative from time to time party
thereto (incorporated by reference to Exhibit 10.3 of the Form 8-K filed on October 6, 2016).
On-Site Product Supply Agreement among Coffeyville Resources Nitrogen Fertilizers, LLC and Messer LLC dated as of July 31, 2020
(incorporated by reference to Exhibit 10.1 of the Form 10-Q filed on August 4, 2020).
Amendment No. 1 to On-Site Product Supply Agreement among Coffeyville Resources Nitrogen Fertilizers, LLC and Messer LLC dated
as of February 21, 2022.
CVR Partners, LP 2019 Performance-Based Bonus Plan, approved March 19, 2019 (incorporated by reference to Exhibit 10.2 of the Form
10-Q filed on April 25, 2019).
CVR Partners, LP 2020 Performance-Based Bonus Plan, approved February 19, 2020 (incorporated by reference to Exhibit 10.26 of the
Form 10-K filed on February 20, 2020).
CVR Partners, LP 2021 Performance-Based Bonus Plan, approved February 19, 2021 (incorporated by reference to Exhibit 10.27 of the
Form 10-K filed on February 23, 2021).
Amendment No. 1 to ABL Credit Agreement, dated as of September 29, 2020, among CVR Partners, LP, CVR Nitrogen, LP, East
Dubuque Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen GP,
LLC and CVR Nitrogen Finance Corporation, the lenders party thereto and UBS AG, Stamford Branch, as administrative agent and
collateral agent (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on September 30, 2020).
Collateral Trust Joinder, dated as of June 23, 2021, among CVR Partners, LP, CVR Nitrogen Finance Corporation, the Guarantors party
thereto and Wilmington Trust, National Association, as trustee and collateral trustee (incorporated by reference to Exhibit 10.3 of the
Form 8-K filed on June 23, 2021).
The Joinder Agreement (Other Parity Lien Obligations), dated as of June 23, 2021, among Wilmington Trust, National Association, as an
other parity obligations representative, UBS AG, Stamford Branch, as collateral agent under the Existing ABL Facility, Wilmington Trust,
National Association, as applicable parity lien representative, Wilmington Trust, National Association, as parity lien collateral trustee and
CVR Partners, LP (incorporated by reference to Exhibit 10.4 of the Form 8-K filed on June 23, 2021).
Offer Letter, dated as of October 7, 2021, by and between CVR Services, LLC and Dane J. Neumann (incorporated by reference to
Exhibit 10.1 of the Form 10-Q filed on November 2, 2021).
Offer Letter, dated as of August 9, 2021, by and between CVR Services, LLC and Jeffrey D. Conaway (incorporated by reference to
Exhibit 10.2 of the Form 10-Q filed on November 2, 2021).
Severance and Release Agreement, effective as of August 29, 2021, by and between CVR Services, LLC, and Tracy D. Jackson
(incorporated by reference to Exhibit 10.3 of the Form 10-Q filed on November 2, 2021).
Credit Agreement, dated as of September 30, 2021, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen Fertilizers,
LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation, CVR
Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, the lenders from time to time party thereto and Wells
Fargo Bank, National Association, a national banking association, as administrative agent and collateral agent (incorporated by reference
to Exhibit 10.1 of the Form 8-K filed on September 30, 2021).
Guaranty and Security Agreement, dated as of September 30, 2021, among CVR Partners, LP, CVR Nitrogen, LP, East Dubuque Nitrogen
Fertilizers, LLC, Coffeyville Resources Nitrogen Fertilizers, LLC, CVR Nitrogen Holdings, LLC, CVR Nitrogen Finance Corporation,
CVR Nitrogen GP, LLC, certain of their subsidiaries from time to time party thereto, and Wells Fargo Bank, National Association, a
national banking association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 of the Form 8-K filed
on September 30, 2021).
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10.29**
10.30**
10.31**
Joinder Agreement (Other Parity Lien Obligations), dated as of September 30, 2021, among Wilmington Trust, National Association
(“WTNA”), as an other applicable parity obligations representative, UBS AG, Stamford Branch (“UBS”), as collateral agent under the
existing ABL Facility, WTNA, as applicable parity lien representative, WTNA, as parity lien collateral trustee, Wells Fargo, as collateral
agent under the ABL Credit Facility and CVR Partners (on behalf of itself and its subsidiaries) to that certain intercreditor agreement
dated as of September 30, 2016 (as amended, supplemented or otherwise modified to date), among the Credit Parties, certain of their
subsidiaries from time to time party thereto, UBS as trustee and collateral trustee for the secured parties in respect of the outstanding
senior secured notes and other parity lien obligations and other parity lien representative from time to time party thereto (incorporated by
reference to Exhibit 10.3 of the Form 8-K filed on September 30, 2021).
Employment Agreement, dated as of December 22, 2021, by and between CVR Energy, Inc. and David L. Lamp (incorporated by
reference to Exhibit 10.1 of the Form 8-K filed on December 27, 2021).
Amendment to Performance Unit Award Agreement, dated as of December 22, 2021, by and between CVR Energy, Inc. and David L.
Lamp (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on December 27, 2021).
21.1**
List of Subsidiaries of CVR Partners, LP (incorporated by reference to Exhibit 21.1 of the Form 10-K filed on February 21, 2017).
23.1*
31.1*
31.2*
31.3*
31.4*
32.1†
101*
Consent of Grant Thornton LLP.
Rule 13a-14(a) or 15(d)-14(a) Certification of Executive Chairman.
Rule 13a-14(a) or 15(d)-14(a) Certification of President and Chief Executive Officer.
Rule 13a-14(a) or 15(d)-14(a) Certification of Executive Vice President and Chief Financial Officer.
Rule 13a-14(a) or 15(d)-14(a) Certification of Chief Accounting Officer and Corporate Controller.
Section 1350 Certification of Executive Chairman, President and Chief Executive Officer, Executive Vice President and Chief Financial
Officer and Chief Accounting Officer and Corporate Controller.
The following financial information for CVR Partners, LP’s Annual Report on Form 10-K for the year ended December 31, 2021,
formatted in Inline XBRL (“Extensible Business Reporting Language”) includes: (1) Consolidated Balance Sheets, (2) Consolidated
Statements of Operations, (3) Consolidated Statements of Comprehensive Income (Loss), (4) Consolidated Statement of Partners’ Capital,
(5) Consolidated Statements of Cash Flows and (6) the Notes to Consolidated Financial Statements, tagged as blocks of text. The instance
document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** 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 or its business or operations. In particular, the assertions embodied in any
representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different
from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure
schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements.
Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties,
rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have
changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the 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 or its business or operations on the date hereof.
December 31, 2021 | 108
Table of Contents
Item 16. Form 10-K Summary
None.
December 31, 2021 | 109
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CVR Partners, LP
By:
By:
CVR GP, LLC, its general partner
/s/ MARK A. PYTOSH
Mark A. Pytosh
President and Chief Executive Officer
Date: February 22, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report had been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ DAVID L. LAMP
David L. Lamp
/s/ MARK A. PYTOSH
Mark A. Pytosh
/s/ DANE J. NEUMANN
Dane J. Neumann
/s/ JEFFREY D. CONAWAY
Jeffrey D. Conaway
/s/ KAPILJEET DARGAN
Kapiljeet Dargan
/s/ DONNA R. ECTON
Donna R. Ecton
/s/ FRANK M. MULLER, JR.
Frank M. Muller, Jr.
/s/ PETER K. SHEA
Peter K. Shea
/s/ DAVID WILLETTS
David Willetts
Title
Date
Chairman of the Board of Directors, Executive Chairman
(Principal Executive Officer)
February 22, 202
Director, President and Chief Executive Officer
(Principal Executive Officer)
February 22, 202
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 22, 202
Vice President, Chief Accounting Officer and Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
February 22, 202
February 22, 202
February 22, 202
February 22, 202
February 22, 202
February 22, 202
December 31, 2021 | 110
Exhibit 10.7.4
CVR PARTNERS, LP
LONG-TERM INCENTIVE PLAN
EMPLOYEE PHANTOM UNIT AGREEMENT – EXECUTIVE
THIS AGREEMENT (this “Agreement”), made as of the [ ] day of [ ] (the “Grant Date”), between CVR Partners, LP, a
Delaware limited partnership (the “Partnership”), and the individual grantee designated on the signature page hereof (the
“Grantee”).
WHEREAS, the board of directors of CVR GP, LLC, a Delaware limited liability company (the “General Partner”), has
adopted the CVR Partners, LP Long-Term Incentive Plan (the “Plan”) in order to provide an additional incentive to certain of the
Partnership’s and its Subsidiaries’ and Parents’ employees, officers, consultants and directors; and
WHEREAS, the Committee responsible for administration of the Plan has authorized the grant of Phantom Units to the Grantee
as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1.
Grant of Phantom Units.
(a) The Partnership hereby grants to the Grantee, and the Grantee hereby accepts from the Partnership on the terms
and conditions set forth in this Agreement, an award of <