CVR Partners, LP — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; the filing also reports unaudited fourth-quarter results. CVR Partners produces wholesale UAN and ammonia at its Coffeyville, Kansas facility, using petroleum coke gasification. Its UAN expansion was completed in February 2013.
Financial and operating performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $323.7 million | $302.3 million |
| Operating income | $124.9 million | $115.8 million |
| Net income | $118.6 million | $112.2 million |
| Adjusted EBITDA | $152.8 million | $148.2 million |
| Operating cash flow | $129.0 million | $133.5 million |
| Capital expenditures | $43.8 million | $82.2 million |
| Cash and cash equivalents at year-end | $85.1 million | $127.8 million |
| Total debt at year-end | $125.0 million | $125.0 million |
| Working capital at year-end | $108.4 million | $116.6 million |
FY2013 operating margin was approximately 38.6% and net margin approximately 36.7%, versus 38.3% and 37.1%, respectively, in FY2012. Interest expense and other financing costs rose to $6.3 million from $3.8 million. The $125 million term loan matures in April 2016; none of the $25 million revolving facility was drawn at year-end. The Partnership reported compliance with debt covenants.
Fourth quarter: Net sales were $84.2 million and net income was $27.9 million, compared with $67.6 million and $15.3 million in Q4 2012. Q4 2013 operating income was $29.7 million, versus $15.9 million a year earlier.
Changes versus prior periods
- Annual sales increased 7.1%, operating income 7.9%, and net income 5.7%. Higher UAN volume drove growth, partly offset by lower UAN prices and reduced ammonia sales.
- UAN production rose to 930,600 tons from 643,800 tons, reflecting the expansion; UAN sales volume increased about 40.6%. Ammonia sales volume fell about 68.3% as more ammonia was upgraded into UAN.
- Average plant-gate UAN price declined to $282 per ton from $303; ammonia rose to $643 per ton from $613. Pet coke cost fell to approximately $30 per ton from $33.
- Cash from operations was lower by $4.5 million, while investing cash outflow fell as expansion spending wound down. Financing cash outflow primarily reflected distributions.
- Cash distributions paid during 2013 totaled $1.745 per unit for the quarters shown. A further $0.43 per unit distribution for Q4 2013 was declared on February 19, 2014; total distributions based on 2013 available cash were approximately $1.98 per unit.
Outlook, risks, contingencies and unusual items
- Management said cash from operations, remaining IPO proceeds and available revolving borrowings were expected to cover anticipated commitments and planned capital spending for the next 12 months. This is not earnings or distribution guidance.
- For 2014, estimated maintenance capital expenditures were approximately $11 million. A $5–$7 million PSA-unit upgrade was planned, with a mid-year shutdown, intended to improve hydrogen recovery and add an estimated 7,000–8,000 tons of annual ammonia production. The next full turnaround was planned for 2015.
- The business is seasonal and exposed to volatile commodity fertilizer prices, weather and crop economics. Fixed operating costs, a single production site, concentrated customers, and reliance on suppliers—including Linde for oxygen and CVR Refining for most pet coke—could amplify interruptions or margin declines.
- CVR Energy affiliates own the general partner and approximately 53% of common units. Related-party arrangements supply management, services, feedstocks and pet coke; service charges are not capped, and the filing notes these agreements were not negotiated at arm’s length.
- Montgomery County’s property-tax settlement was expected to lower annual taxes by about $10.7 million versus 2012 levels for tax years 2013–2016. A separate appeal concerning 2008 plant classification remained pending before the Kansas Supreme Court.
- The EPA had conducted inspections and issued information requests related to release reporting and risk-management compliance after earlier incidents; the filing says no formal EPA claims had been made and no liability was accrued for those investigations. Management considered environmental accruals adequate.
- The Partnership reported no material pending legal proceeding, no impairment charges, and unqualified audit opinions; management and the auditor reported effective internal control over financial reporting as of year-end.
- The general partner may change or suspend the distribution policy, and distributions are not guaranteed. Debt covenants can restrict distributions. Other notable risks include environmental and safety regulation, hazardous-ammonia handling, and competition from natural-gas-based producers.
Important facts for investors to verify
- Whether expanded UAN capacity can be sustained at planned utilization and whether UAN’s price premium over ammonia supports the upgrade strategy.
- Cash generation, working-capital needs, planned 2014 spending, and liquidity relative to the April 2016 term-loan maturity and covenant requirements.
- Actual distribution decisions and available cash, recognizing that the $0.43 Q4 distribution was declared after year-end and distributions are discretionary.
- Progress and outcome of the property-tax appeal, and any developments from EPA reviews, environmental obligations, or insurance renewals.
- Terms and costs of related-party supply and service agreements, customer concentration, and continuity of critical third-party supplies.