CVR Partners, LP — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. CVR Partners produces and sells nitrogen fertilizers, primarily UAN and ammonia, from facilities in Coffeyville, Kansas, and East Dubuque, Illinois.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $350.0 million | $404.2 million |
| Operating income (loss) | $(34.9) million | $27.4 million |
| Net income (loss) | $(98.2) million | $(35.0) million |
| Net loss per common unit | $(8.77) | $(3.09) |
| Net cash from operating activities | $19.7 million | $39.2 million |
| Capital expenditures | $18.6 million | $18.7 million |
| Cash and cash equivalents at year-end | $30.6 million | $37.0 million |
| Total debt, including current portion | $636.2 million | $632.4 million |
- Net sales fell $54.2 million, or about 13%, as approximately $99.0 million of unfavorable pricing more than offset a $45.8 million benefit from higher volumes. UAN and ammonia prices were pressured by market competition, lower feedstock and crop prices, and shifting trade flows.
- Operating results included a $41.0 million non-cash goodwill impairment at Coffeyville. Excluding that charge, the filing reports EBITDA of $41.4 million, down from $107.5 million in 2019; EBITDA is a non-GAAP measure.
- Cost reductions partly offset weaker pricing: direct operating expenses declined $15.7 million and selling, general and administrative expenses declined about $10.4 million. The 2019 East Dubuque turnaround also made year-over-year costs less comparable.
- Production volumes increased: gross ammonia production was 852,000 tons versus 766,000; UAN production was 1.303 million tons versus 1.255 million. Combined fourth-quarter facility utilization was reported at 98%.
- Year-end liquidity was $50.7 million, comprising $30.6 million of cash (including $7.6 million of customer advances) and $20.1 million of availability under the ABL facility. Operating cash flow was below capital expenditures.
- The principal debt was $645 million of 9.25% senior secured notes due June 2023; $2.2 million of 6.50% notes was classified as current and due April 2021. The ABL facility was amended and extended to September 2022; no borrowings were outstanding at year-end. The Partnership reported compliance with debt covenants.
- No distributions were paid or declared for 2020. The Partnership reported negative full-year available cash for distribution of $11.8 million, a non-GAAP measure. It repurchased $7.1 million of units during the year.
Material changes, outlook and risks
- COVID-19 and markets: Management said the pandemic, reduced transportation-fuel and ethanol demand, and uncertainty in agricultural markets could affect product demand, feedstock availability, liquidity and results. Management expected volatility to continue in 2021 and said it could not predict the future impact. It noted fertilizer pricing had begun to trend upward in late 2020, with an expected uptrend into early 2021; this was not quantified earnings guidance.
- Operations and capital: Management deferred the Coffeyville turnaround to 2021 and the East Dubuque turnaround to 2022. Estimated 2021 capital expenditures were $23–$26 million, including $18–$20 million for maintenance; the Coffeyville turnaround was estimated at $7–$9 million. Estimates may change.
- Feedstock exposure: Coffeyville received about 33% of its pet coke from CVR Energy’s refinery in 2020, down from an average of just under 60% over the prior five years. Third-party supply contracts covered about 275,000 tons through December 2021. East Dubuque depends on natural gas and third-party pipeline service.
- Distribution and capital actions: The board retains discretion to modify or suspend distributions. The Partnership completed a 1-for-10 reverse unit split in November 2020 to regain NYSE minimum-price compliance. In February 2021, the board authorized an additional $10 million for unit repurchases.
- Environmental and other matters: The filing describes extensive environmental, safety and permitting obligations, possible remediation and accident exposures, and risks from climate-related regulation. No loss contingencies requiring recognition or disclosure were reported at year-end; management said the described legal matters were not expected to materially affect liquidity, financial position or results.
- Carbon initiatives: The Partnership reported its first carbon offset credits from Coffeyville nitrous-oxide abatement and said it intended to pursue Section 45Q tax credits for CO2 sequestration beginning in 2021. Qualification and realization of those credits were not assured.
Most important facts for investors to verify
- Whether fertilizer pricing, demand and product margins recover, and whether higher natural-gas prices affect production economics.
- Whether the Partnership generates enough operating cash to fund capital spending, debt service and liquidity needs, particularly around planned turnarounds.
- Availability and cost of pet coke, natural gas, oxygen and transportation, including the status of supply arrangements expiring or changing in 2021–2022.
- Debt maturity and refinancing plans, covenant headroom, and the actual borrowing availability under the ABL facility.
- Progress on Section 45Q credit eligibility and carbon-offset monetization, and any material changes in environmental compliance or remediation exposure.
The independent auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The goodwill impairment assessment was identified as a critical audit matter.