CVR Energy, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparison is primarily with FY2020. CVR Energy is a holding company operating petroleum refining and nitrogen fertilizer businesses. Icahn Enterprises and affiliates owned approximately 71% of CVR Energy at year-end.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $7.242 billion | $3.930 billion |
| Operating income (loss) | $87 million | $(333) million |
| Net income (loss) | $74 million | $(320) million |
| Net income (loss) attributable to CVR Energy stockholders; diluted EPS | $25 million; $0.25 | $(256) million; $(2.54) |
| Cash from operating activities | $396 million | $90 million |
| Free cash flow, a non-GAAP measure | $167 million | $(193) million |
Net sales rose approximately 84%, and operating results improved materially as refined-product demand and fertilizer prices recovered from pandemic-disrupted 2020 levels. FY2021 results also included an $81 million investment gain on marketable securities and a favorable $127 million petroleum inventory valuation impact. The company reported $279 million of depreciation and amortization and $117 million of net interest expense. FY2021 income tax benefit was $8 million.
- Petroleum: Net sales were $6.721 billion, versus $3.586 billion. Operating loss narrowed to $27 million from $281 million. Refining margin was $621 million, or $8.14 per throughput barrel, versus $298 million, or $4.44. Throughput increased to 209,084 barrels per day from 183,295. Higher crack spreads and favorable inventory effects were partly offset by $435 million of RFS compliance expense, up from $190 million, and $44 million of derivative losses versus $55 million of gains.
- Nitrogen fertilizer: Net sales rose to $533 million from $350 million; operating income improved to $134 million from an operating loss of $35 million. Ammonia and UAN gate prices rose 92% and 74%, respectively, while sales volumes fell. Utilization was 92%, down from 98%, following supplier, weather, power and equipment outages. The FY2020 comparison included a $41 million goodwill impairment.
Liquidity, debt and capital allocation
Year-end cash and cash equivalents were $510 million, down from $667 million. Total reported liquidity was approximately $906 million, including $361 million available under the Petroleum ABL and $35 million under the Nitrogen Fertilizer ABL. Total debt and finance lease obligations were approximately $1.660 billion. CVR Partners refinanced $550 million of its 9.25% notes with 6.125% notes due 2028 and redeemed additional 2023 notes; the remaining $65 million was repaid in February 2022. The company reported compliance with applicable debt covenants at year-end.
CVR Energy paid a $492 million special dividend, equivalent to $4.89 per share, consisting of approximately $241 million cash and substantially all of its Delek shares. No quarterly CVR Energy dividends were declared for the first three quarters or fourth quarter of 2021. CVR Partners paid $4.65 per unit for 2021 periods and declared a further $5.24-per-unit fourth-quarter distribution in February 2022. Operating cash flow less capital expenditures and turnaround expenditures was $167 million; this non-GAAP free-cash-flow measure excludes the dividend and debt principal payments.
Outlook, risks and unusual items
- Management said cash from operations, existing cash and borrowings, as needed, were expected to cover anticipated operating cash needs for at least the next 12 months, while cautioning that capital and compliance costs could exceed expectations.
- Management estimated 2022 consolidated RFS compliance costs of $200 million to $210 million, without assuming small-refinery exemptions. At year-end, the company recorded a $494 million RFS liability and estimated an open position of approximately 370 million RINs for 2020–2021, subject to exemptions, waivers, final EPA rules and market prices.
- The Wynnewood renewable diesel unit project was estimated at $170 million, with capacity of up to 100 million gallons annually and startup expected in Q2 2022. A related feedstock pretreatment project was estimated at $60 million, with completion expected in Q4 2022. Management expected the projects to reduce RFS exposure, but said the actual benefit depended on regulation and market conditions. Estimated 2022 capital spending was $222 million to $251 million.
- Key risks include volatile refining margins, crude and product prices, RIN prices and RFS rulemaking; fertilizer and feedstock price cycles; seasonal demand and weather; plant outages and third-party supply or transportation interruptions; environmental and climate regulation; and COVID-19 and its variants.
- Consolidated Call Option litigation remained unresolved after trial. Plaintiffs alleged damages exceeding $300 million; the company disputed the claims and said it could not determine the outcome or potential financial impact. Environmental remediation accruals were approximately $12 million. Separate Clean Air Act claims involving the Coffeyville refinery were also unresolved.
- Other notable items include the 2020 $41 million non-cash fertilizer goodwill impairment and the $81 million FY2021 marketable-securities gain. The auditor issued unqualified opinions on the financial statements and internal control; finished-goods inventory valuation was identified as a critical audit matter.
Important facts for investors to verify
- Final RFS obligations, the outcome of pending exemption petitions and litigation, and whether 2022 compliance costs fall within management’s estimate.
- Renewable diesel and pretreatment project completion, capital costs, production ramp-up, and realized RIN and low-carbon-credit benefits.
- Refinery and fertilizer operating reliability, outage impacts, throughput, utilization, and commodity margins.
- Resolution and potential exposure from the Call Option and Clean Air Act proceedings, including insurance coverage.
- Liquidity, debt and covenant headroom, planned turnaround spending, and the board’s future dividend decisions.