CVR Partners, LP — 2019 Form 10-K
Business and period: Annual report for the fiscal year ended December 31, 2019, filed February 20, 2020. CVR Partners produces and wholesales nitrogen fertilizer, principally UAN and ammonia, from facilities in Coffeyville, Kansas, and East Dubuque, Illinois. Results are seasonal and exposed to fertilizer commodity prices, weather, feedstock costs, and plant reliability.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $404.2 million | $351.1 million |
| Operating income | $27.4 million | $6.3 million |
| Net loss | $35.0 million | $50.0 million |
| Net loss per common unit | $0.31 | $0.44 |
| Cash from operating activities | $39.2 million | $32.2 million |
| Capital expenditures | $18.7 million | $19.8 million |
| Cash and cash equivalents at year-end | $37.0 million | $61.8 million |
| Long-term debt, net of discount and issuance costs | $632.4 million | $629.0 million |
Sales increased 15.1%, primarily from more favorable pricing, which added approximately $49.1 million, and higher sales volumes, which added approximately $7.8 million; lower urea sales partly offset the gains. Operating income improved by $21.1 million. The net loss narrowed by $15.1 million, but interest expense remained high at $62.6 million.
Calculated from reported figures, operating margin was approximately 6.8% versus 1.8% in 2018, and net margin was approximately negative 8.7% versus negative 14.2%. Management-reported EBITDA was $107.5 million and adjusted EBITDA was $117.3 million, including $9.8 million of turnaround expense. Operating cash flow less capital expenditures was approximately $20.5 million.
Production was lower year over year: gross ammonia production was 766,000 tons versus 794,000; UAN production was 1.255 million tons versus 1.276 million. Two-year rolling ammonia utilization was 93%, down 2 percentage points, reflecting East Dubuque storage constraints and its 2019 turnaround. Pet coke cost rose to $37.47 per ton from $28.41; East Dubuque feedstock natural gas cost was $2.88 per MMBtu versus $3.28.
Liquidity, debt, and distributions
Year-end liquidity was reported at $61.8 million: $37.0 million of cash, including $9.1 million of customer advances, plus $49.8 million of available asset-based facility capacity, less $25.0 million of cash included in the borrowing base. The facility was undrawn and matures September 2021. Management believed cash, operating cash flow, and facility borrowings would cover expected needs for at least 12 months.
Debt principal consisted primarily of $645.0 million of 9.25% senior secured notes due 2023 and $2.2 million of 6.50% notes due 2021. The Partnership reported compliance with debt covenants at year-end. It paid distributions totaling $0.40 per unit during 2019, including a payment relating to fourth-quarter 2018; no distribution was declared for fourth-quarter 2019. Distribution amounts and timing remain discretionary and subject to debt restrictions and cash needs.
Material changes, outlook, and risks
- Weather and seasonality: Excessive rain delayed 2019 planting and fertilizer applications. Catch-up demand supported sales, but wet fall conditions constrained application and affected buying patterns.
- Turnaround and unusual items: East Dubuque underwent a 32-day turnaround in the third and fourth quarters, with $9.8 million of expense and estimated lost production of 33,706 ammonia tons. In contrast, 2018 included a $6.1 million business-interruption insurance recovery related to a 2017 Coffeyville outage.
- Costs and operating exposure: Higher pet coke costs, inventory drawdowns, turnaround costs, and depreciation contributed to expense increases. Coffeyville received only about 40% of its pet coke from the affiliated refinery in 2019; third-party fixed-price supply agreements then ran through December 2020. Other supplier agreements disclosed near-term expirations, including oxygen and nitrogen supply in April 2020 and natural-gas access through February 29, 2020.
- Capital outlook: Estimated 2020 capital expenditures were $23 million–$27 million, including $19 million–$21 million for maintenance and $4 million–$6 million for growth. The Partnership approved a Coffeyville urea reliability/expansion project; the filing text does not provide a clear project cost or completion timetable.
- Management outlook: Management described long-term U.S. nitrogen fertilizer fundamentals as solid, citing population and food-demand trends, corn-based ethanol use, and the region’s cost position. No quantified revenue or earnings guidance was provided.
- Key risks: Fertilizer price volatility and global competition; weather and seasonal working-capital needs; dependence on a small number of customers (the top two represented 28% of 2019 net sales); feedstock and utility supply; plant outages; environmental and process-safety liabilities; and substantial debt service. Related-party dependence and conflicts of interest are also material governance risks.
- Contingencies and subsequent items: The filing states there were no pending litigation or contingencies at December 31, 2019, and no environmental remediation liabilities were recorded because none were considered probable and estimable. A property-tax settlement is expected to yield $7.9 million through favorable assessments over 2019–2028, subject to its terms. New related-party Coffeyville and Corporate Master Service Agreements became effective February 19, 2020, replacing and consolidating prior agreements on substantially equivalent terms.
Important facts for investors to verify
- Whether fertilizer pricing and sales volumes can sustain the 2019 improvement, especially given weather-driven demand shifts and lower production.
- Renewal or replacement of near-term pet coke, oxygen/nitrogen, and natural-gas supply arrangements, and the resulting cost and reliability impacts.
- Liquidity after distributions and planned capital spending, debt-service capacity, and refinancing options ahead of the 2021 and 2023 maturities.
- Actual scope, cost, schedule, and expected returns of the Coffeyville urea project and the 2020 capital program.
- Terms, allocation of costs, and oversight of the February 2020 related-party master service agreements; also monitor customer concentration and environmental or safety developments.
The independent auditor issued an unqualified opinion on the financial statements, and management and the auditor reported effective internal control over financial reporting as of December 31, 2019.