UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One) | ||||||||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the quarterly period ended | ||||||||
| OR | ||||||||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to | ||||||||
Commission file number: 001-33492
(Exact name of registrant as specified in its charter)
 | ||||||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of principal executive offices) (Zip Code)
(281 ) 207-3200
(Registrant’s telephone number, including area code)
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☑ | Non-accelerated filer | ☐ | |||||||||||||
| Smaller reporting company | Emerging growth company | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
There were 100,530,599 shares of the registrant’s common stock outstanding at April 29, 2022.
TABLE OF CONTENTS
CVR Energy, Inc. - Quarterly Report on Form 10-Q
March 31, 2022
| PART I. Financial Information | PART II. Other Information | |||||||||||||||||||
Condensed Consolidated Balance Sheets - March 31, 2022 and December 31, 2021 (unaudited) | ||||||||||||||||||||
Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2022 and 2021 (unaudited) | ||||||||||||||||||||
Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2022 and 2021 (unaudited) | ||||||||||||||||||||
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021 (unaudited) | ||||||||||||||||||||
| ||||||||||||||||||||
This Quarterly Report on Form 10-Q (including documents incorporated by reference herein) contains statements with respect to our expectations or beliefs as to future events. These types of statements are “forward-looking” and subject to uncertainties. See “Important Information Regarding Forward-Looking Statements” section of this filing.
March 31, 2022 | 2
Important Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, those under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including without limitation, statements regarding future operations, financial position, estimated revenues and losses, growth, capital projects, stock or 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:
•volatile margins in the refining industry and exposure to the risks associated with volatile crude oil, refined product and feedstock prices;
•the availability of adequate cash and other sources of liquidity for the capital needs of our businesses;
•the severity, magnitude, duration, and impact of the novel coronavirus 2019 and any variant 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’ business;
•changes in market conditions and market volatility arising from the COVID-19 pandemic or inflation, including crude oil and other commodity prices, demand for those commodities, storage and transportation capacities, and the impact of such changes on our operating results and financial position;
•expectations regarding our business and the economic recovery relating to the COVID-19 pandemic, including beliefs regarding future customer activity and the timing of the recovery;
•the ability to forecast our future financial condition, results of operations, revenues and expenses;
•the effects of transactions involving forward or derivative instruments;
•changes in laws, regulations and policies with respect to the export of crude oil, refined products, other hydrocarbons or renewable feedstocks or products including, without limitation, the actions of the Biden Administration that impact oil and gas operations in the U.S.;
•interruption in pipelines supplying feedstocks or distributing the petroleum business’ products;
•competition in the petroleum and nitrogen fertilizer businesses, including potential impacts of domestic and global supply and demand and/or domestic or international duties, tariffs, or similar costs;
•capital expenditures;
•changes in our or our segments’ credit profiles;
•the cyclical and seasonal nature of the petroleum and nitrogen fertilizer businesses;
•the supply, availability and price levels of essential raw materials and feedstocks, and the effects of inflation thereupon;
•our production levels, including the risk of a material decline in those levels;
•accidents or other unscheduled shutdowns or interruptions affecting our facilities, machinery, or equipment, or those of our suppliers or customers;
•existing and future laws, regulations or rulings, including but not limited to those relating to the environment, climate change, renewables, safety, security and/or the transportation of production of hazardous chemicals like ammonia, including potential liabilities or capital requirements arising from such laws, regulations or rulings;
•potential operating hazards from accidents, fire, severe weather, tornadoes, floods, or other natural disasters;
•the impact of weather on commodity supply and/or pricing and on the nitrogen fertilizer business including our ability to produce, market or sell fertilizer products profitability or at all;
•rulings, judgments or settlements in litigation, tax or other legal or regulatory matters;
•the dependence of the nitrogen fertilizer business on customers and distributors including to transport goods and equipment;
•the reliance on, or the ability to procure economically or at all, pet coke our nitrogen fertilizer business purchases from Coffeyville Resources Refining & Marketing, LLC (“CRRM”), a subsidiary of CVR Refining, LP, and third-party suppliers or the natural gas, electricity, oxygen, nitrogen, sulfur processing and compressed dry air and other products purchased from third parties by the nitrogen fertilizer and petroleum businesses;
•risks associated with third party operation of or control over important facilities necessary for operation of our refineries and nitrogen fertilizer facilities;
•risks of terrorism, cybersecurity attacks, and the security of chemical manufacturing facilities and other matters beyond our control;
March 31, 2022 | 3
•political disturbances, geopolitical instability and tensions, and associated changes in global trade policies and economic sanctions, including, but not limited to, in connection with Russia’s invasion of Ukraine in February 2022 and any ongoing conflicts in the region;
•our lack of diversification of assets or operating and supply areas;
•the petroleum business’ and nitrogen fertilizer business’ dependence on significant customers and the creditworthiness and performance by counterparties;
•the potential loss of the nitrogen fertilizer business’ transportation cost advantage over its competitors;
•the potential inability to successfully implement our business strategies at all or on time and within our anticipated budgets, including significant capital programs or projects, turnarounds or renewable or carbon reduction initiatives at our refineries and fertilizer facilities, including pretreater, carbon sequestration, segregation of our renewables business and other projects;
•our ability to continue to license the technology used for our operations;
•our petroleum business’ purchase of, or ability to purchase, renewable identification numbers (“RINs”) on a timely and cost effective basis or at all;
•the impact of refined product demand, declining inventories, and Winter Storm Uri on refined product prices and crack spreads;
•Organization of Petroleum Exporting Countries’ (“OPEC”) production levels and pricing;
•the impact of RINs pricing, our blending and purchasing activities and governmental actions, including by the U.S. Environmental Protection Agency (the “EPA”) on our RIN obligations, open RINs positions, small refinery exemptions, and our estimated consolidated cost to comply with our Renewable Fuel Standard (“RFS”) obligations;
•our businesses’ ability to obtain, retain or renew environmental and other governmental permits, licenses or authorizations necessary for the operation of its business;
•existing and proposed laws, regulations or rulings, including but not limited to those relating to climate change, alternative energy or fuel sources, and existing and future regulations related to the end-use of our products or the application of fertilizers;
•refinery and nitrogen fertilizer facilities’ operating hazards and interruptions, including unscheduled maintenance or downtime and the availability of adequate insurance coverage;
•risks related to services provided by or competition among our subsidiaries, including conflicts of interests and control of CVR Partners, LP’s general partner;
•instability and volatility in the capital, credit and commodities markets and in the global economy, including due to the ongoing Russia-Ukraine conflict;
•restrictions in our debt agreements;
•asset impairments and impacts thereof;
•the variable nature of CVR Partners, LP’s distributions, including the ability of its general partner to modify or revoke its distribution policy, or to cease making cash distributions on its common units;
•changes in tax and other laws, regulations and policies, including, without limitation, actions of the Biden Administration that impact conventional fuel operations or favor renewable energy projects in the U.S.;
•changes in CVR Partners’ treatment as a partnership for U.S. federal income or state tax purposes;
•our ability to recover under our insurance policies for damages or losses in full or at all; and
•the factors described in greater detail under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and our other filings with the Securities and Exchange Commission (the “SEC”).
All forward-looking statements 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 cvrenergy.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investor Relations section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.
March 31, 2022 | 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| (in millions) | March 31, 2022 | December 31, 2021 | |||||||||
ASSETS | |||||||||||
| Current assets: | |||||||||||
Cash and cash equivalents (including $ | $ | $ | |||||||||
Accounts receivable (including $ | |||||||||||
Inventories (including $ | |||||||||||
Prepaid expenses and other current assets (including $ | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net (including $ | |||||||||||
Other long-term assets (including $ | |||||||||||
| Total assets | $ | $ | |||||||||
LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
Accounts payable (including $ | $ | $ | |||||||||
Other current liabilities (including $ | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities: | |||||||||||
Long-term debt and finance lease obligations, net of current portion (including $ | |||||||||||
| Deferred income taxes | |||||||||||
Other long-term liabilities (including $ | |||||||||||
| Total long-term liabilities | |||||||||||
Commitments and contingencies (See Note 12) | |||||||||||
| CVR stockholders’ equity | |||||||||||
| CVR Energy stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in-capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
Treasury stock, | ( | ( | |||||||||
Total CVR stockholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 31, 2022 | 5
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in millions, except per share data) | 2022 | 2021 | |||||||||
Net sales | $ | $ | |||||||||
| Operating costs and expenses: | |||||||||||
Cost of materials and other | |||||||||||
Direct operating expenses (exclusive of depreciation and amortization) | |||||||||||
Depreciation and amortization | |||||||||||
Cost of sales | |||||||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization) | |||||||||||
Depreciation and amortization | |||||||||||
| Operating income (loss) | ( | ||||||||||
Other (expense) income: | |||||||||||
Interest expense, net | ( | ( | |||||||||
| Investment income on marketable securities | |||||||||||
| Other (expense) income, net | ( | ||||||||||
| Income (loss) before income tax expense | ( | ||||||||||
| Income tax expense (benefit) | ( | ||||||||||
| Net income (loss) | ( | ||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | ( | ||||||||||
| Net income (loss) attributable to CVR Energy stockholders | $ | $ | ( | ||||||||
| Basic and diluted earnings (loss) per share | $ | $ | ( | ||||||||
| Weighted-average common shares outstanding: | |||||||||||
| Basic and diluted | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 31, 2022 | 6
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
| Common Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except share data) | Shares Issued | $ Value Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Total CVR Stockholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Distributions from CVR Partners to its public unitholders | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Changes in equity due to CVR Partners’ common unit repurchases | — | — | ( | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Common Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except share data) | Shares Issued | $ Value Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Total CVR Stockholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Changes in equity due to CVR Partners’ common unit repurchases | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 31, 2022 | 7
CVR ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended March 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Gain on marketable securities | ( | ||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Loss on extinguishment of debt | |||||||||||
| Share-based compensation | |||||||||||
| (Gain) loss on derivatives, net | ( | ||||||||||
| Other items | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Current assets and liabilities | |||||||||||
| Non-current assets and liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Turnaround expenditures | ( | ( | |||||||||
| Acquisition of pipeline assets | ( | ||||||||||
| Proceeds from sale of assets | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Principal payments on senior secured notes | ( | ||||||||||
| Repurchase of common units by CVR Partners | ( | ( | |||||||||
| Distributions to CVR Partners’ noncontrolling interest holders | ( | ||||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase in cash and cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
March 31, 2022 | 8
(1) Organization and Nature of Business
Organization
CVR Energy, Inc. (“CVR Energy,” “CVR,” “we,” “us,” “our,” or the “Company”) is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through its holdings in CVR Refining, LP (the “Petroleum Segment” or “CVR Refining”) and CVR Partners, LP (the “Nitrogen Fertilizer Segment” or “CVR Partners”). CVR Refining is an independent petroleum refiner and marketer of high value transportation fuels. CVR Partners produces and markets nitrogen fertilizers in the form of urea ammonium nitrate (“UAN”) and ammonia. CVR’s common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “CVI.” Icahn Enterprises L.P. and its affiliates (“IEP”) owned approximately 71 % of the Company’s outstanding common stock as of March 31, 2022.
CVR Partners, LP
Interest Holders - As of March 31, 2022, public common unitholders held approximately 63 % of CVR Partners’ outstanding common units and CVR Services, LLC (“CVR Services”), a wholly owned subsidiary of CVR Energy, held approximately 37 % of CVR Partners’ outstanding common units. In addition, CVR Services held 100 % of the interests in CVR Partners’ general partner, CVR GP, LLC (“CVR GP”), which held a non-economic general partner interest in CVR Partners as of March 31, 2022. The noncontrolling interest reflected on the condensed consolidated balance sheets of CVR is only impacted by the net income of, and distributions from, CVR Partners.
Unit Repurchase Program - On May 6, 2020, CVR Partners announced that the board of directors of its general partner (the “UAN GP Board”), on behalf of CVR Partners, authorized a common unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized CVR Partners to repurchase up to $20 million of its common units. During the three months ended March 31, 2022 and 2021, CVR Partners repurchased 111,695 and 24,378 common units, respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12 million and $1 million, respectively, exclusive of transaction costs, or an average price of $110.98 and $21.69 per common unit, respectively. As of March 31, 2022, CVR Partners, considering all repurchases made since inception of the Unit Repurchase Program, had a no minal amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to repurchase any common units and may be cancelled or terminated by the UAN GP Board at any time.
As a result of these repurchases, and the resulting change in CVR Energy’s ownership of CVR Partners while maintaining control, CVR Energy recognized a decrease of $2 million to additional paid-in capital from the reduction of non-controlling interests totaling $3 million and a related reduction of a deferred tax liability totaling $1 million from changes in its book versus tax basis in CVR Partners as of March 31, 2022. CVR Energy recognized a no minal increase to additional paid-in capital from the non-cash reduction of non-controlling interests totaling $0.1 million and the recognition of a deferred tax liability totaling $0.1 million from changes in its book versus tax basis in CVR Partners as of December 31, 2021.
(2) Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements should be read in conjunction with the December 31, 2021 audited consolidated financial statements and notes thereto included in CVR Energy’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
Our condensed consolidated financial statements include the consolidated results of CVR Partners, which is defined as a variable interest entity.
In the opinion of the Company’s management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary for fair presentation of the financial position and results of operations of the Company for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.
March 31, 2022 | 9
Certain reclassifications have been made within the condensed consolidated financial statements for prior periods to conform with current presentation.
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Results of operations and cash flows for the interim periods presented are not necessarily indicative of the results that will be realized for the year ending December 31, 2022 or any other interim or annual period.
(3) Recent Accounting Pronouncements and Accounting Changes
Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). This ASU was issued because, by the end of 2022, banks will no longer be required to report information that is used to determine London Interbank Offered Rate (“LIBOR”), which is used globally by all types of entities. As a result, LIBOR could be discontinued, as well as other interest rates used globally. ASU 2020-04 provides companies with optional expedients for contract modifications under Topics 310, 470, 842, and 815-15, excluded components of certain hedging relationships, fair value hedges, and cash flow hedges, as well as certain exceptions, which are intended to help ease the potential accounting burden associated with transitioning away from these reference rates. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which clarifies certain optional expedients and exceptions for contract modifications and hedge accounting. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the impact of adopting this new accounting standard, but does not currently expect it to have a material impact on its consolidated financial statements and related disclosures.
(4) Inventories
Inventories consisted of the following:
| (in millions) | March 31, 2022 | December 31, 2021 | |||||||||
| Finished goods | $ | $ | |||||||||
| Raw materials | |||||||||||
| In-process inventories | |||||||||||
| Parts, supplies and other | |||||||||||
| Total inventories | $ | $ | |||||||||
March 31, 2022 | 10
(5) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| (in millions) | March 31, 2022 | December 31, 2021 | |||||||||
| Machinery and equipment | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Land and improvements | |||||||||||
| Furniture and fixtures | |||||||||||
| Construction in progress | |||||||||||
| Other | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Total property, plant and equipment, net | $ | $ | |||||||||
On February 1, 2021, the Company completed a pipeline acquisition for total consideration of $23 million, which is accounted for as a business combination under Accounting Standards Codification (“ASC”) 805. An intangible asset of $3 million was recognized in Other long-term assets related to acquired contracts that will be amortized in less than three years . The accounting for the business combination was finalized during January 2022.
As of March 31, 2022, the Company had not identified the existence of an impairment indicator for our long-lived asset groups as outlined under ASC 360.
(6) Leases
Lease Overview
We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer, and corporate operations. Most leases include one or more options to renew, with renewal terms that can extend the lease term from to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. Certain of our lease agreements include rental payments which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.
Balance Sheet Summary as of March 31, 2022 and December 31, 2021
The following tables summarize the right-of-use (“ROU”) asset and lease liability balances for the Company’s operating and finance leases at March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| (in millions) | Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||||||||
| ROU assets, net | |||||||||||||||||||||||
| Pipeline and storage | $ | $ | $ | $ | |||||||||||||||||||
| Railcars | |||||||||||||||||||||||
| Real estate and other | |||||||||||||||||||||||
| Lease liability | |||||||||||||||||||||||
| Pipelines and storage | $ | $ | $ | $ | |||||||||||||||||||
| Railcars | |||||||||||||||||||||||
| Real estate and other | |||||||||||||||||||||||
March 31, 2022 | 11
Lease Expense Summary for the Three Months Ended March 31, 2022 and 2021
We recognize lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of depreciation and amortization). For the three months ended March 31, 2022 and 2021, we recognized lease expense comprised of the following components:
| Three Months Ended March 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Operating lease expense | $ | $ | |||||||||
| Finance lease expense: | |||||||||||
| Amortization of ROU asset | $ | $ | |||||||||
| Interest expense on lease liability | |||||||||||
| Short-term lease expense | $ | $ | |||||||||
Lease Terms and Discount Rates
The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and liabilities:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | ||||||||||||||||||||
| Weighted-average remaining lease term | |||||||||||||||||||||||
| Weighted-average discount rate | % | % | % | % | |||||||||||||||||||
Maturities of Lease Liabilities
The following summarizes the remaining minimum lease payments through maturity of the Company’s lease liabilities at March 31, 2022:
| (in millions) | Operating Leases | Finance Leases | |||||||||
| Remainder of 2022 | $ | $ | |||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less: imputed interest | ( | ( | |||||||||
| Total lease liability | $ | $ | |||||||||
On February 21, 2022, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”), a wholly owned subsidiary of CVR Partners, entered into the First Amendment to the On-Site Product Supply Agreement with Messer LLC (“Messer”), which amended the July 31, 2020 On-Site Product Supply Agreement (as amended, the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for, oxygen, nitrogen, and compressed dry air from Messer’s facility. This arrangement for CRNF’s purchase of oxygen, nitrogen, and dry air from Messer does not meet the definition of a lease under FASB ASC Topic 842, Leases (“Topic 842”), as CRNF does not expect to receive substantially all of the output of Messer’s on-site production from its air separation unit over the life of the Messer Agreement. The Messer Agreement also obligates Messer to install a new oxygen storage vessel, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Fertilizer Facility. The arrangement for the use of the Oxygen Storage Vessel meets the definition of a lease under Topic 842, as CRNF will receive all output associated with the Vessel. Based on terms outlined in the Messer Agreement, the Company expects the lease of the Oxygen Storage Vessel to be classified as a
March 31, 2022 | 12
(7) Other Current Liabilities
Other current liabilities were as follows:
| (in millions) | March 31, 2022 | December 31, 2021 | |||||||||
| Accrued Renewable Fuel Standards (“RFS”) obligation | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Accrued taxes other than income taxes | |||||||||||
| Share-based compensation | |||||||||||
| Personnel accruals | |||||||||||
| Accrued interest | |||||||||||
| Accrued income taxes | |||||||||||
| Current portion of long-term debt and finance lease obligations | |||||||||||
| Accrued derivatives | |||||||||||
| Other accrued expenses and liabilities | |||||||||||
| Total other current liabilities | $ | $ | |||||||||
(8) Long-Term Debt and Finance Lease Obligations
Long-term debt and finance lease obligations consist of the following:
| (in millions) | March 31, 2022 | December 31, 2021 | |||||||||
| CVR Partners: | |||||||||||
| $ | $ | ||||||||||
| Unamortized discount and debt issuance costs | ( | ( | |||||||||
| Total CVR Partners debt, net of current portion | $ | $ | |||||||||
| CVR Refining: | |||||||||||
| Total CVR Refining debt, net of current portion | $ | $ | |||||||||
| CVR Energy: | |||||||||||
| $ | $ | ||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Total CVR Energy debt | |||||||||||
| Total long-term debt and finance lease obligations, net of current portion | $ | $ | |||||||||
Current portion of long-term debt and finance lease obligations (2) | |||||||||||
| Total long-term debt and finance lease obligations, including current portion | $ | $ | |||||||||
(1)The $65 million outstanding balance of the 9.25 % Senior Secured Notes, due June 2023 (the “2023 UAN Notes”) was paid in full on February 22, 2022 at par, plus accrued and unpaid interest.
(2)Current portion of finance lease obligations recognized was approximately $6
March 31, 2022 | 13
Credit Agreements
| (in millions) | Total Available Borrowing Capacity | Amount Borrowed as of March 31, 2022 | Outstanding Letters of Credit | Available Capacity as of March 31, 2022 | Maturity Date | ||||||||||||||||||||||||
| CVR Partners: | |||||||||||||||||||||||||||||
Asset Based (“Nitrogen Fertilizer ABL”) Credit Agreement (1) | $ | $ | $ | $ | September 30, 2024 | ||||||||||||||||||||||||
| CVR Refining: | |||||||||||||||||||||||||||||
Amended and Restated Asset Based (“Petroleum ABL”) Credit Agreement (2) | $ | $ | $ | $ | November 14, 2022 | ||||||||||||||||||||||||
(1)Beginning September 30, 2021, loans under the Nitrogen Fertilizer ABL 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 CVR Partners’ 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 CVR Partners’ quarterly excess availability is greater than or equal to 50% but less than 75%, or (iii) (a) 2.115 % plus SOFR or (b) 1.115 % plus a base rate, otherwise.
(2)Loans under the Petroleum ABL bear interest at an annual rate equal to (i) (a) 1.50 % plus LIBOR, to the extent available, or (b) 0.50 % plus a base rate, if CVR Refining’s quarterly excess availability is greater than 50%, and (ii) (a) 1.75 % plus LIBOR, to the extent available, or (b) 0.75 % plus a base rate, otherwise.
CVR Partners
2023 UAN Notes - On February 22, 2022, CVR Partners redeemed all of the outstanding 2023 UAN Notes at par and settled accrued and unpaid interest of approximately $1 million through the date of redemption. As a result of this transaction, CVR Partners recognized a loss on extinguishment of debt of $1 million, which includes the write-off of unamortized deferred financing costs and discount of less than $1
CVR Refining
Petroleum ABL - On April 12, 2022, in connection with our Petroleum ABL, a new wholly owned subsidiary of CVR Energy, CVR Renewables, LLC (“CVR Renew”), delivered to Wells Fargo Bank, National Association, as administrative agent and collateral agent for the secured parties, a Joinder Agreement pursuant to which CVR Renew became a borrower for all purposes under the Petroleum ABL and other Credit Documents (as defined in the Petroleum ABL).
CVR Energy
2025 Notes and 2028 Notes - On April 12, 2022, in connection with our 5.25 % Senior Notes, due 2025 (the “2025 Notes”) and the 5.75 % Senior Notes, due 2028 (the “2028 Notes” and together with the 2025 Notes, the “Notes”), issued pursuant to the Indenture dated January 27, 2020, among CVR Energy, the subsidiary guarantors listed therein (collectively, the “Guarantors”), and Wells Fargo Bank, National Association, as trustee (the “Trustee”), CVR Renew, the Guarantors, and the Trustee executed and delivered a Supplemental Indenture pursuant to which CVR Renew unconditionally guaranteed all of the Company’s obligations under the Notes on the terms and conditions set forth in the Note Guarantee and the Indenture.
Covenant Compliance
The Company and its subsidiaries were in compliance with all covenants under their respective debt instruments as of March 31, 2022.
March 31, 2022 | 14
(9) Revenue
The following tables present the Company’s revenue, disaggregated by major product. The following tables also include a reconciliation of the disaggregated revenue with the Company’s reportable segments.
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||
| (in millions) | Petroleum | Nitrogen Fertilizer | Other / Elimination | Consolidated | |||||||||||||||||||
| Gasoline | $ | $ | $ | $ | |||||||||||||||||||
Distillates (1) | |||||||||||||||||||||||
| Ammonia | |||||||||||||||||||||||
| UAN | |||||||||||||||||||||||
| Other urea products | |||||||||||||||||||||||
| Freight revenue | |||||||||||||||||||||||
Other (2) | ( | ||||||||||||||||||||||
| Revenue from product sales | ( | ||||||||||||||||||||||
| Crude oil sales | |||||||||||||||||||||||
Other revenue (2) | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | ||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| (in millions) | Petroleum | Nitrogen Fertilizer | Other / Elimination | Consolidated | |||||||||||||||||||
| Gasoline | $ | $ | $ | $ | |||||||||||||||||||
Distillates (1) | |||||||||||||||||||||||
| Ammonia | |||||||||||||||||||||||
| UAN | |||||||||||||||||||||||
| Other urea products | |||||||||||||||||||||||
| Freight revenue | |||||||||||||||||||||||
Other (2) | ( | ||||||||||||||||||||||
| Revenue from product sales | ( | ||||||||||||||||||||||
| Crude oil sales | |||||||||||||||||||||||
Other revenue (2) | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | ( | $ | ||||||||||||||||||
(1)Distillates consist primarily of diesel fuel, kerosene, and jet fuel.
Transaction Price Allocated to Remaining Performance Obligations
As of March 31, 2022, the Nitrogen Fertilizer Segment had approximately $10 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Nitrogen Fertilizer Segment expects to recognize approximately $6 million of these performance obligations as revenue by the end of 2022, an additional $4 million in 2023, and a no minal amount thereafter.
March 31, 2022 | 15
Contract Balances
The Nitrogen Fertilizer Segment’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. A summary of the Nitrogen Fertilizer Segment’s deferred revenue activity during the three months ended March 31, 2022 is presented below:
| (in millions) | |||||
| Balance at December 31, 2021 | $ | ||||
| Add: | |||||
New prepay contracts entered into during the period (1) | |||||
| Less: | |||||
| Revenue recognized that was included in the contract liability balance at the beginning of the period | ( | ||||
| Revenue recognized related to contracts entered into during the period | ( | ||||
| Balance at March 31, 2022 | $ | ||||
(1) Includes $14 million where payment associated with prepaid contracts was collected as of March 31, 2022.
(10) Derivative Financial Instruments, Investments and Fair Value Measurements
Derivative Financial Instruments
Our segments are subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations, and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, the Petroleum Segment from time to time enters into various commodity derivative transactions. On a regular basis, the Company enters into commodity contracts with counterparties for the purchases or sale of crude oil, blendstocks, various finished products, and RINs. The contracts usually qualify for the normal purchase normal sale exception and follow the accrual method of accounting. All other derivative instruments are recorded at fair value using mark-to-market accounting on a periodic basis utilizing third-party pricing.
The Petroleum Segment holds derivative instruments, such as exchange-traded crude oil futures and over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges under GAAP. There are no premiums paid or received at inception of the derivative contracts or upon settlement. The Petroleum Segment may enter into forward purchase or sale contracts associated with RINs. As of March 31, 2022, the Petroleum Segment had open fixed-price commitments to purchase a net 1 million RINs.
Commodity derivatives include commodity swaps and forward purchase and sale commitments. There were 1 million barrels in outstanding commodity swap positions as of March 31, 2022. There were approximately 1 million barrels in forward purchase commitments and less than 1 million barrels in forward sale commitments as of March 31, 2022.
The following outlines the gains (losses) recognized on the Company’s derivative activities, all of which are recorded in Cost of materials and other on the condensed consolidated statements of operations:
| Three Months Ended March 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Forward purchases and sales contracts, net | $ | $ | |||||||||
| Commodity swap instruments | ( | ||||||||||
| Futures contracts | ( | ||||||||||
| Total gain (loss) on derivatives, net | $ | $ | ( | ||||||||
March 31, 2022 | 16
Offsetting Assets and Liabilities
The Company elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty. These amounts are recognized as current assets and current liabilities within the Prepaid expenses and other current assets and Other current liabilities financial statement line items, respectively, in the condensed consolidated balance sheets as follows:
| Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||
| (in millions) | March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | |||||||||||||||||||
| Commodity derivatives | $ | $ | $ | $ | ( | ||||||||||||||||||
| Less: Counterparty netting | ( | ||||||||||||||||||||||
| Total net fair value of derivatives | $ | $ | $ | $ | ( | ||||||||||||||||||
Investments
Investments consist of equity securities, which are reported at fair value in our condensed consolidated balance sheets. These investments are considered trading securities. Investment income on marketable securities consists of the following:
| Three Months Ended March 31, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Gain on marketable securities | $ | $ | |||||||||
| Investment income on marketable securities | $ | $ | |||||||||