CVR Partners(UAN) - 2021 Q4 - Annual Report

PART I Business CVR Partners produces nitrogen fertilizers at two US facilities, one using pet coke and the other natural gas, focusing on environmental initiatives - CVR Partners operates two nitrogen fertilizer facilities: the Coffeyville Facility, which uses a unique pet coke gasification process, and the East Dubuque Facility, which uses natural gas[34][37][38] - The company's primary products are ammonia and urea ammonium nitrate (UAN), sold wholesale in the United States, mainly for agricultural use in corn and wheat farming[34] - The company is pursuing environmental initiatives, including nitrous oxide abatement and CO2 sequestration, and believes its CO2 sequestration process will qualify for Section 45Q tax credits starting in 2022[64] - As of December 31, 2021, the Partnership had 296 employees, with 93 covered by collective bargaining agreements. It also relies on services from employees of its parent company, CVR Energy[75][76] - For the year ended December 31, 2021, the company's largest customer accounted for 13% of its net sales[52] Risk Factors The Partnership faces significant business, operational, financial, structural, and tax risks, including volatile prices and related-party dependencies - The business is exposed to cyclical and volatile nitrogen fertilizer prices, which are influenced by global supply and demand, weather, and governmental policies[84] - The Coffeyville Facility's profitability is highly dependent on the price and availability of pet coke from CVR Energy's refinery. In 2021, only 43% of its pet coke was supplied by the refinery, down from historical averages[93] - The company has significant indebtedness, which could limit its financial flexibility, and is subject to restrictive covenants in its debt agreements[120][121] - Carl C. Icahn exerts significant influence through his controlling ownership of CVR Energy, which owns the Partnership's general partner. His interests may conflict with those of public unitholders[124][125] - A primary tax risk is the possibility of being treated as a corporation for U.S. federal income tax purposes if the "qualifying income" requirement is not met, which would substantially reduce cash available for distribution[139] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[157] Properties Information on primary manufacturing facilities is in Item 1; executive and marketing offices are leased by CVR Energy - Information on the company's primary manufacturing facilities is located in Item 1 of the report. Executive and marketing offices are leased by the parent company, CVR Energy[158] Legal Proceedings The company is involved in ordinary course legal matters, not expecting material adverse impacts on its financial position - The company is party to ordinary course lawsuits and proceedings but does not expect any material adverse impact from them[159] Mine Safety Disclosures This section is not applicable to the company - This item is not applicable[160] PART II Market For Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities CVR Partners' common units trade on the NYSE under 'UAN', with 482,022 units available for future issuance under its LTIP - The Partnership's common units are listed on the NYSE under the trading symbol 'UAN'[165] - Under the CVR Partners Long-Term Incentive Plan (LTIP), a maximum of 500,000 common units are issuable. As of December 31, 2021, 482,022 units remained available for future issuance[166][168] Management's Discussion and Analysis of Financial Condition and Results of Operations CVR Partners achieved a significant financial turnaround in 2021, driven by higher sales prices and debt refinancing, despite production outages Key Financial Highlights (2021 vs 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Operating Income (Loss) | $134.5 million | ($34.9 million) | | Net Income (Loss) | $78.2 million | ($98.2 million) | | Adjusted EBITDA | $212.7 million | $82.3 million | | Net Sales | $532.6 million | $350.0 million | - The significant increase in profitability was primarily due to higher sales prices for ammonia (+92%) and UAN (+74%), which offset lower sales volumes and higher feedstock costs[204][208][212] - The company refinanced a substantial portion of its 2023 Notes, reducing annual cash interest expense by over 33% (approximately $26.0 million)[181][238] - Consolidated ammonia utilization decreased to 92% in 2021 from 98% in 2020, primarily due to downtime from an air separation plant outage, Winter Storm Uri, and power outages[203] - Total cash distributions of $9.89 per common unit were declared related to 2021 performance, including a $5.24 per unit distribution for Q4 2021[181][233][252] - In 2020, the company recorded a full, non-cash goodwill impairment charge of $41.0 million related to the Coffeyville facility[229][263] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to significant market risk from volatile fertilizer and natural gas prices, lacking effective hedging instruments - The company faces significant market risk from price changes in fertilizer products and natural gas[265] - Management believes there are no effective derivative instruments to hedge its commodity sales commitments[266] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2021, 2020, and 2019, showing significant 2021 improvement and detailed notes Consolidated Financial Statements 2021 consolidated financial statements show strong recovery with increased net sales, net income, and robust cash flow from operations Consolidated Statement of Operations Highlights (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net Sales | $532,581 | $349,953 | $404,177 | | Operating Income (Loss) | $134,479 | ($34,882) | $27,380 | | Net Income (Loss) | $78,155 | ($98,181) | ($34,969) | | Basic and Diluted EPS | $7.31 | ($8.77) | ($3.09) | Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $262,245 | $118,214 | | Total Assets | $1,127,058 | $1,032,880 | | Total Current Liabilities | $161,860 | $76,341 | | Long-Term Debt, net | $610,642 | $633,942 | | Total Partners' Capital | $342,198 | $314,241 | Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $188,725 | $19,740 | $39,157 | | Net Cash used in Investing Activities | ($20,342) | ($18,550) | ($18,529) | | Net Cash used in Financing Activities | ($86,426) | ($7,625) | ($45,410) | Notes to Consolidated Financial Statements Notes detail the 2021 debt refinancing, 2020 goodwill impairment, revenue sources, and extensive related-party transactions with CVR Energy - In June 2021, the company issued $550 million of 6.125% Senior Secured Notes due 2028 and used the proceeds to redeem $550 million of its 9.25% Senior Secured Notes due 2023. Additional redemptions of the 2023 notes were made later in the year[345][351][359] - A full non-cash goodwill impairment charge of $41.0 million was recorded in 2020, leaving no remaining goodwill on the balance sheet[321] - The company has extensive related-party agreements with CVR Energy and its subsidiaries for feedstock supply (pet coke, hydrogen), services, and corporate administration, governed by the Coffeyville MSA and Corporate MSA[404][407][411] - The company has a Unit Repurchase Program and had $12.4 million in remaining authority as of December 31, 2021[300] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the Partnership's disclosure controls and procedures were effective as of December 31, 2021[421] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework. The independent auditor's report concurred with this assessment[422] PART III Directors, Executive Officers and Corporate Governance CVR Partners is managed by its general partner, controlled by CVR Energy, with a seven-member board utilizing controlled company exemptions - The Partnership is managed by its general partner, CVR GP, LLC, which is controlled by CVR Energy, Inc[428] - The Board has seven directors, three of whom are independent (Donna R. Ecton, Frank M. Muller, Jr., Peter K. Shea). The company utilizes 'controlled company' exemptions from NYSE rules requiring a majority-independent board[430][444][445] - The Board has five standing committees: Audit, Compensation, EH&S, Conflicts, and Special, each with defined responsibilities[447] - Executive officers are employees of CVR Services, a CVR Energy subsidiary, and allocate their time between CVR Partners and CVR Energy[455][460] Executive Compensation Executive compensation, influenced by CVR Energy, aligns pay with performance, featuring variable components and long-term incentives for NEOs - All Named Executive Officers (NEOs) are employed by CVR Services, a subsidiary of CVR Energy, and their compensation is allocated between the two entities[460][462] - For 2021, the CEO's (Mr. Pytosh) target compensation mix was 75.7% variable ('at-risk'), composed of a target annual bonus and long-term incentive awards[472][473] - The 2021 annual performance-based bonus plan paid out at 102% of target, driven by strong performance in EH&S metrics and certain financial metrics like Reliability and ROCE, despite missing the Operating Expense target[485] - Long-term incentives are granted as cash-settled phantom units (from CVR Partners) and incentive units (from CVR Energy), which generally vest ratably over three years[486][492] - The CEO pay ratio for the President & CEO (Mr. Pytosh) was 12:1, based on the portion of his compensation attributable to service to the Partnership[546][547] Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters CVR Services, LLC (CVR Energy) beneficially owns 36.4% of common units, with other significant institutional holders and minimal director/officer ownership Beneficial Ownership as of Feb 22, 2022 | Beneficial Owner | Common Units Owned | Percentage | | :--- | :--- | :--- | | CVR Services, LLC (CVR Energy) | 3,892,000 | 36.4% | | Goldman Sachs Group, Inc. | 954,430 | 8.9% | | Barclays Plc | 621,054 | 5.8% | | All directors and executive officers (as a group) | 37,614 | < 1% | Certain Relationships and Related Transactions, and Director Independence The Partnership has numerous non-arm's-length agreements with CVR Energy, managed by a Conflicts Committee of independent directors - The Partnership is party to several non-arm's-length agreements with CVR Energy and its subsidiaries, including the Corporate Master Service Agreement and the Coffeyville Master Service Agreement[563] - Conflicts of interest exist due to the overlapping directors and officers between the Partnership's general partner and CVR Energy[565] - The Board has a Related Party Transaction Policy and utilizes a Conflicts Committee of independent directors to review and approve transactions with affiliates[567] Principal Accounting Fees and Services Grant Thornton LLP served as the independent auditor, with all $805,000 in fees for 2021 attributed to audit services Accounting Fees (in thousands) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit fees | $805 | $654 | | Audit-related fees | $0 | $0 | | Tax fees | $0 | $0 | | All other fees | $0 | $0 | | Total | $805 | $654 | PART IV Exhibits, Financial Statement Schedules This section lists financial statements and provides a detailed index of all exhibits filed with the Form 10-K - This section contains an index of all exhibits filed with the annual report, such as the Partnership Agreement, debt indentures, material contracts with affiliates, and executive compensation plans[575][576] Form 10-K Summary The company states that no Form 10-K summary is provided in this report - No summary is provided under this item[584]