CVR Energy, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. CVR Energy is a holding company with petroleum refining and nitrogen fertilizer businesses. The comparison with Q1 2016 is affected by the East Dubuque fertilizer facility acquisition, completed April 1, 2016; its results are included for a full quarter in 2017 but not in the 2016 comparison.
Financial and operating performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Net sales | $1,507.1 million | $905.5 million |
| Operating income (loss) | $67.6 million | $(39.9) million |
| Net income (loss) | $38.2 million | $(30.9) million |
| Net income (loss) attributable to CVR stockholders | $22.2 million; $0.26 per share | $(16.2) million; $(0.19) per share |
| Cash from operating activities | $137.2 million | $21.6 million |
| Capital expenditures | $24.2 million | $47.5 million |
- Sales rose $601.6 million, primarily on higher petroleum product prices and volumes. Gasoline and distillate average selling prices increased 48% and 50%, respectively.
- Consolidated operating income improved $107.5 million, mainly due to stronger petroleum refining results. Petroleum segment operating income was $66.0 million, versus a $56.0 million loss; nitrogen fertilizer operating income fell to $5.3 million from $19.7 million.
- Petroleum refining margin increased to $11.52 per crude-oil-throughput barrel from $6.67. Adjusted Petroleum EBITDA was $114.5 million, versus $35.1 million.
- Nitrogen fertilizer Adjusted EBITDA declined to $20.8 million from $27.9 million. Product pricing at gate was lower: UAN was $160 per ton versus $209, and ammonia was $308 per ton versus $367.
- Operating cash flow improved substantially, supported by net income, non-cash depreciation and amortization, and working-capital inflows, including customer prepayments. Cash used in investing was $25.6 million; cash used in financing was $43.8 million, primarily the parent’s dividend.
Liquidity, debt and distributions
- Cash and cash equivalents were $803.6 million at March 31, 2017, up from $735.8 million at year-end. Reported working capital was $787.9 million. Cash is held across separate entities with independent capital structures and is not necessarily freely available throughout the consolidated group.
- Total debt, including current portion, was reported as $1,165.2 million. Debt and capital lease obligations before unamortized issuance costs and discounts totaled $1,193.7 million. Principal debt includes $500 million of 6.5% notes due 2022 and $645 million of 9.25% secured notes due 2023.
- No borrowings were outstanding on either revolving facility. Refining had $343.3 million of ABL availability, subject to borrowing-base limits; the facility matures December 20, 2017, and management was considering refinancing options. Nitrogen fertilizer had $50 million available under its ABL.
- CVR paid a $0.50-per-share dividend in March and declared another $0.50-per-share dividend for Q1 2017, payable May 15. The fertilizer partnership declared a $0.02-per-unit distribution. Its 2023 Notes fixed-charge coverage ratio was below 1.75-to-1.0, limiting restricted payments to the applicable basket and other permitted amounts; the partnership reported covenant compliance.
Outlook, risks and unusual items
- Management stated that cash, operating cash flow and available credit were expected to fund anticipated operating needs for at least the next 12 months, while cautioning that results and future cash needs could differ. Estimated 2017 capital spending was $196.1 million.
- Based on estimated production, RFS requirements and then-current RIN prices, management estimated an additional 2017 renewable-fuel obligation of approximately $170 million. RIN prices are volatile; the recorded biofuel blending obligation was $180.3 million at March 31.
- Wynnewood’s two-phase turnaround was planned to begin in the second half of 2017, with the second phase in the second half of 2018; estimated costs were $80–$100 million. The hydrocracker catalyst change-out incurred $12.9 million in Q1; total estimated cost was approximately $13.8 million.
- Key exposures include volatile refining margins and commodity prices, RIN availability and cost, seasonal and cyclical fertilizer markets, operating downtime, environmental requirements, and potential constraints on refinancing or distributions. The refining ABL maturity is a near-term financing milestone.
- Unconditional purchase obligations totaled $1,232.2 million, including approximately $720.7 million under long-term Keystone transportation agreements. Environmental accruals were $4.5 million.
- Because Icahn affiliates owned about 82% of CVR, the company may be liable as a controlled-group member for certain affiliate pension obligations. Two affiliate plans had an estimated combined $573.6 million underfunding on a voluntary-termination basis; CVR recorded no liability for this contingent exposure.
- Management reported no material changes to previously disclosed risk factors, no material new litigation developments, and no material change in internal control over financial reporting. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether the refining ABL facility was refinanced or replaced before its December 2017 maturity, and the resulting terms and availability.
- Actual RIN prices, compliance costs and obligation relative to management’s approximately $170 million 2017 estimate.
- Refining margins, crude-oil differentials and operating performance, separating market effects from throughput and turnaround timing.
- Fertilizer pricing, cash generation and distribution capacity, including the effects of the East Dubuque acquisition and debt covenants.
- Execution, timing and final cost of the Wynnewood turnaround and other planned capital spending.
- Developments in the affiliate pension exposure, environmental matters and the availability of cash across CVR’s separately financed entities.