CVR Partners, LP — 2021 Form 10-K
Business context and reporting period. CVR Partners is a publicly traded limited partnership that operates nitrogen fertilizer plants in Coffeyville, Kansas, and East Dubuque, Illinois. It produces ammonia and UAN primarily for wholesale customers in the U.S. This filing reports the fiscal year ended December 31, 2021, with comparisons to 2020. The partnership’s common units trade on the NYSE under UAN.
Financial results and position
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $532.6 million | $350.0 million |
| Operating income (loss) | $134.5 million | $(34.9) million |
| Net income (loss) | $78.2 million | $(98.2) million |
| EBITDA / Adjusted EBITDA | $212.7 million | $41.4 million / $82.3 million |
| Net cash from operating activities | $188.7 million | $19.7 million |
| Capital expenditures | $25.7 million | $16.4 million |
| Cash and cash equivalents at year-end | $112.5 million | $30.6 million |
| Total debt at year-end | $610.6 million | $636.2 million, including current portion |
Revenue rose about 52%. Operating margin was approximately 25.3% in 2021, versus an operating loss in 2020; net margin was approximately 14.7%. The 2020 results included a $41.0 million non-cash goodwill impairment. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP results.
- Ammonia and UAN prices increased 92% and 74%, respectively, year over year. Higher pricing added $205.1 million to revenue, partly offset by a $35.4 million revenue reduction from lower sales volumes.
- Ammonia gross production was 807,000 tons versus 852,000; UAN production was 1.208 million tons versus 1.303 million. Utilization fell six percentage points to 92%.
- Higher feedstock and operating costs partly offset stronger pricing: direct operating expenses increased $40.8 million and cost of materials and other rose $7.2 million.
- Net cash increased by $82.0 million. Year-end liquidity was reported at $147.5 million, comprising $112.5 million cash and $35.0 million of available ABL capacity. Cash included $34.2 million in customer advances.
Material changes and capital allocation
- In June 2021, the partnership issued $550 million of 6.125% notes due 2028 and used proceeds and cash to redeem $550 million of 9.25% notes due 2023. It redeemed a further $30 million of the 2023 notes during 2021; the remaining $65 million was repaid on February 22, 2022. Management cited approximately $26 million of annual future interest savings compared with its 2020 Form 10-K.
- The new asset-based credit facility provides up to $35 million and matures in September 2024; no amount was drawn at year-end. The partnership reported compliance with debt covenants.
- Cash distributions paid for 2021’s second and third quarters totaled $4.65 per unit. A further $5.24 per unit for the fourth quarter was declared in February 2022, for total distributions of $9.89 per unit related to 2021. Distribution amounts and timing remain discretionary.
- 2022 capital expenditure estimates are $36–$39 million. Planned summer 2022 turnarounds are estimated at $10–$13 million for Coffeyville and $13–$15 million for East Dubuque.
Outlook, commentary, risks and unusual items
Management said strong grain prices, low crop inventories, attractive farm economics and restricted global fertilizer supply supported strong fertilizer demand entering 2022. It also expects volatility to continue and said it could not predict the future effects of the pandemic, feedstock availability and prices, demand, or global supply disruptions. Management believed operating cash, existing liquidity and potential borrowings would be sufficient for anticipated needs over at least the next 12 months, while warning that inflation in materials and labor could raise cash requirements.
- Operating reliability: 2021 production was disrupted by outages at the Coffeyville air separation plant, Winter Storm Uri, power outages, and an East Dubuque repair. Planned 2022 turnarounds and reliance on third-party utilities and transportation create execution and supply risks.
- Commodity and market exposure: Fertilizer prices, natural gas and pet coke costs, weather, planting decisions, seasonality, global supply, and competition can materially affect margins and cash distributions. The partnership does not identify an effective derivative hedge for its fertilizer sales exposure.
- Supply dependence: Coffeyville received 43% of its pet coke from CVR Energy’s refinery in 2021 and relies on third-party suppliers for the balance. Third-party fixed-price pet coke contracts discussed in the filing ran through December 2022. East Dubuque depends on natural gas and pipeline transportation arrangements.
- Policy and environmental matters: U.S. preliminary antidumping and countervailing duty determinations concerning UAN imports from Russia and Trinidad may reduce imports if confirmed. The partnership intends to pursue Section 45Q tax credits for CO2 sequestration starting in 2022; qualification and realization are uncertain. Climate and environmental rules could increase costs or constrain operations.
- Contingencies: The filing reports no loss contingencies or environmental remediation liabilities requiring recognition or disclosure at year-end. Historical UAN releases at Coffeyville remain subject to an agreement with Kansas regulators, whose cleanup provisions could be triggered if the adjacent refinery does not meet permit conditions. Management stated it did not believe adverse resolution of the legal matters discussed would materially affect liquidity, financial position or results.
- Other unusual item: Share-based compensation rose to $23.1 million from $1.0 million, primarily reflecting the higher unit price; the partnership also reported a $8.5 million loss on debt extinguishment.
The financial statements received an unqualified audit opinion, and the auditor reported no critical audit matters. Management and the auditor concluded internal control over financial reporting was effective as of year-end.
Investor facts to verify
- Whether high fertilizer pricing and demand persist, and how price changes compare with feedstock and operating-cost inflation.
- Completion, cost and production impact of both 2022 turnarounds, and progress resolving recurring supplier and outage risks.
- Cash generation after customer advances, working-capital needs, capital spending, debt service and distributions; distributions are not guaranteed.
- Terms and availability of pet coke and natural gas supply after the disclosed contract periods, and the status of East Dubuque pipeline arrangements.
- Repayment of the remaining 2023 notes in February 2022, actual interest savings, and any conditions or restrictions under the 2028 notes and ABL facility.
- Confirmation of UAN import duty determinations and eligibility, timing and value of any Section 45Q credits.
- Potential costs or liability from environmental matters, related-party supply arrangements and the partnership’s concentrated customer base; its largest customer represented 13% of 2021 net sales.