CVR ENERGY, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onFebruary 23, 2021 (the "2020 Form 10-K"), and the unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report. Results of operations for the three and nine months endedSeptember 30, 2021 and cash flows for the nine months endedSeptember 30, 2021 are not necessarily indicative of results to be attained for any other period. See "Important Information Regarding Forward-Looking Statements." Reflected in this discussion and analysis is how management views the Company's current financial condition and results of operations, along with key external variables and management's actions that may impact the Company. Understanding significant external variables, such as market conditions, weather, and seasonal trends, among others, and management actions taken to manage the Company, address external variables, among others, will increase users' understanding of the Company, its financial condition and results of operations. This discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Report. Company OverviewCVR Energy, Inc. ("CVR Energy ," "CVR," "we," "us," "our," or the "Company") is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through our holdings inCVR Refining andCVR Partners , respectively. CVR Refining is a refiner that does not have crude oil exploration or production operations (an "independent petroleum refiner") and is a marketer of high value transportation fuels.CVR Partners produces nitrogen fertilizers in the form of ammonia and urea ammonium nitrate ("UAN"). Ammonia is a direct application fertilizer and is primarily used as a building block for other nitrogen products for industrial applications and finished fertilizer products. UAN is an aqueous solution of urea and ammonium nitrate. AtSeptember 30, 2021 , we owned the general partner and approximately 36% of the outstanding common units representing limited partner interests inCVR Partners . As ofSeptember 30, 2021 , Icahn Enterprises L.P. and its affiliates ("IEP") owned approximately 71% of our outstanding common stock. We operate under two business segments: petroleum and nitrogen fertilizer, which are referred to in this document as our "Petroleum Segment" and our "Nitrogen Fertilizer Segment," respectively.
Strategy and Goals
The Company has adopted Mission and Values, which articulate the Company's expectations for how it and its employees do business each and every day.
Mission and Core Values
Our Mission is to be a top tier North American petroleum refining and nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core Values:
•Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it's not safe, then we don't do it.
•Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it's our duty to protect it.
•Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way-the right way with integrity.
•Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it's a privilege we can't take for granted. We seek to make a positive economic and social impact through
September 30, 2021 | 23 -------------------------------------------------------------------------------- Table of Contents our financial donations and the contributions of time, knowledge and talent of our employees to the places where we live and work. •Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.
Our core values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.
Strategic Objectives
We have outlined the following strategic objectives to drive the accomplishment of our mission:
Reliability - Our goal is to achieve industry-leading utilization rates at our facilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level.
Market Capture - We continuously evaluate opportunities to improve the facilities' realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities.
Financial Discipline - We strive to be as efficient as possible by maintaining low operating costs and disciplined deployment of capital.
Achievements
During the first nine months of 2021, we successfully executed a number of
achievements in support of our strategic objectives shown below through the date
of this filing despite the challenges experienced by the industry as a result of
the COVID-19 pandemic:
Safety Reliability Market Capture Financial Discipline Achieved reductions in environmental events, project safety management tier 1 incidents and total recordable incident rate of 43%, 33% and 10%,
ü
respectively, compared to the first nine months of 2020 Announced and paid a special dividend equivalent to
ü
ü
and recognized gains from the initial investment of
over $100 million
Petroleum Segment:
Operated our refineries safely and reliably and at ü ü ü
high utilization rates Achieved reductions in environmental events and total recordable incident rate of 27% and 22%,
ü
respectively, compared to the first nine months of
2020
Received Board approval to complete process design
for a Renewable Diesel project at
ü ü
complete design and ordering of long-lead equipment
for a pretreater at Wynnewood
Completed the acquisition of
ü ü
pipeline in February 2021
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Safety Reliability Market Capture Financial Discipline Nitrogen Fertilizer Segment: Operated both facilities safely and reliably and at ü
ü ü
high utilization rates
Achieved reductions in environmental events and
project safety management tier 1 incidents of 75% ü
and 73%, respectively, compared to the first nine
months of 2020
Achieved record truck shipments and total shipments
from the Coffeyville Fertilizer Facility in March ü ü
2021
Achieved record ammonia production at the ü ü
Coffeyville Fertilizer Facility in
ü ü ü
Facility, enabling the deferral of the planned
turnaround from Fall 2021 to Summer 2022
Reduced CVR Partners' annual cash interest expense
by over 31% through refinancing a substantial
portion of the 2023 UAN Notes and subsequently ü
redeeming $15 million of the remaining balance of
the 2023 UAN Notes
Declared total cash distributions of $4.65 per ü
common unit related to the first nine months of 2021
Industry Factors and Market Indicators
General Business Environment
Throughout 2020, the COVID-19 pandemic and actions taken by governments and others in response thereto negatively impacted the worldwide economy, financial markets, and the energy and fertilizer industries. The COVID-19 pandemic also resulted in significant business and operational disruptions, including business closures, liquidity strains, destruction of non-essential demand, as well as supply chain challenges, travel restrictions, stay-at-home orders, and limitations on the availability of the workforce. However, actions taken by theU.S. government to provide stimulus to individuals and businesses have helped mitigate the impacts of the downturn caused by COVID-19. Vaccination efforts underway domestically and internationally also provide promise for a sustained, near-term economic recovery with approximately 66% of the totalU.S. population receiving at least one dose of the vaccine and 57% considered fully vaccinated, as ofOctober 22, 2021 , according to theU.S. Centers for Disease Control and Prevention . As more businesses resume operations and governmental restrictions are being lifted, there is cautious optimism that the economy will continue to recover in 2021, but it is unknown if or when the economy will return to pre-COVID-19 levels. In addition, the spread of variants of COVID-19 could cause restrictions to continue or be reinstated, which could reverse any recent improvements.
Petroleum Segment
The earnings and cash flows of the Petroleum Segment are primarily affected by
the relationship between refined product prices and the prices for crude oil and
other feedstocks that are processed and blended into refined products together
with the escalated cost of refinery compliance. The cost to acquire crude oil
and other feedstocks, which is beyond our control, and the price for which
refined products are ultimately sold depends on factors beyond the Petroleum
Segment's control, including the supply of, and demand for crude oil, as well as
gasoline and other refined products which, in turn, depend on, among other
factors, changes in domestic and foreign economies, driving habits, weather
conditions, domestic and foreign political affairs, production levels, the
availability of imports, the marketing of competitive fuels, and the extent of
government regulation. Because the Petroleum Segment applies first-in first-out
accounting to value its inventory, crude oil price movements may impact net
income because of changes in the value of its unhedged inventory. The effect of
changes in crude oil prices on the Petroleum Segment results of operations is
partially influenced by the rate at which the process of refined products adjust
to reflect these changes.
The prices of crude oil and other feedstocks and refined products are also
affected by other factors, such as product pipeline capacity, system inventory,
local market conditions, and the operating levels of other refineries. Crude oil
costs and the prices of refined products have historically been subject to wide
fluctuations. Widespread expansion or upgrades of competitors'
September 30, 2021 | 25
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facilities, price volatility, international political and economic developments,
and other factors are likely to continue to play an important role in refining
industry economics. These factors can impact, among other things, the level of
inventories in the market, resulting in price volatility and a reduction in
product margins. Moreover, the refining industry typically experiences seasonal
fluctuations in demand for refined products, such as increases in the demand for
gasoline during the summer driving season and for volatile seasonal exports of
diesel from the United States Gulf Coast markets.
As a result of government actions taken to curb the spread of COVID-19 and
significant business interruptions, the demand for gasoline and diesel in the
regions in which our Petroleum Segment operates declined substantially beginning
at the end of the first quarter of 2020. However, building on recovery signs
observed in late 2020, the U.S. market for refined products continued to show
signs of recovery during the third quarter of 2021 through increased average
monthly gasoline and diesel demand of approximately 16.9% and 14.3%,
respectively, from December 2020 to September 2021 . Gasoline demand increased
due to easing travel restrictions and some companies returning their workforce
to the office, which is the main driver for highway travel, while the increase
in diesel demand is generally a result of the opening of coastal states such as
California , New York , New Jersey , and Florida to global shipping and commerce.
Further, Winter Storm Uri and Hurricane Ida caused unprecedented disruptions in
refinery operations, which further reduced excess inventories and began to
balance supply and demand for the first nine months of 2021 as seen by the
decline in average monthly inventories of diesel of approximately 22.3 million
barrels from December 2020 to September 2021 . The combination of improving
demand and declining inventories led to an increase in refined products prices
and crack spreads during the third quarter of 2021. The U.S. Energy Information
Administration ("EIA") outlook for the remainder of 2021 anticipates that U.S.
demand for and consumption of gasoline will be higher than the first half of
2021. Additionally, the U.S. demand for jet fuels has begun to recover, albeit
at a slower pace than gasoline and diesel, as international and domestic
business and leisure air travel increases. Jet fuel demand is up 40.1% and 54.4%
from the fourth quarter of 2020 and third quarter of 2020, respectively. From a
global perspective, the EIA expects oil inventories to fall by approximately
65 million barrels in the fourth quarter of 2021 and expects a rise of
approximately 145 million barrels in 2022. However, these projections depend on
the production decisions of OPEC , U.S. oil production, and the pace of oil
demand growth. In the fourth quarter of 2021, the EIA currently expects global
oil production, largely from OPEC and partner nonmember countries ("OPEC+"),
will increase by more than global oil consumption. This rising production is
expected to reduce the global inventory draws and keep prices similar to current
levels, averaging $72 per barrel of Brent crude oil during the fourth quarter of
2021. In 2022, OPEC+ is expected to continue this production growth, which may
contribute to declining oil prices. While the refining market is showing signs
of recovery, refinery fleet utilization is still operating at lower rates and
there remains uncertainty as to whether another wave of COVID-19 cases may spur
additional governmental restrictions and lock-downs in the future which could
decrease the recovery efforts seen thus far in 2021.
In addition to current market conditions discussed above, we continue to be
impacted by significant volatility related to compliance requirements under the
Renewable Fuel Standard ("RFS"), proposed climate change laws, and regulations.
The petroleum business is subject to the RFS, which, each year, requires
blending "renewable fuels" with transportation fuels or purchasing renewable
identification numbers ("RINs"), in lieu of blending, or otherwise be subject to
penalties. Our cost to comply with the RFS is dependent upon a variety of
factors, which include the availability of ethanol for blending at our
refineries and downstream terminals or RINs for purchase, the price at which
RINs can be purchased, transportation fuel production levels, and the mix of our
products, all of which can vary significantly from period to period, as well as
certain waivers or exemptions to which we may be entitled. Additionally, our
costs to comply with the RFS depend on the consistent and timely application of
the program by the Environmental Protection Agency ("EPA "), such as timely
establishment of the annual renewable volume obligation ("RVO"). Due to the
EPA 's failure to establish the 2021 RVO by the November 30, 2020 statutory
deadline, and the influence exerted and climate change initiatives announced by
the new Biden administration, the price of RINs has increased significantly from
the beginning of 2020. The price of RINs has also been impacted by the depletion
of the carryover RIN bank, as demand destruction during the pandemic resulted in
reduced ethanol blending and RIN generation did not keep pace with mandated
volumes, requiring carryover RINs from the RIN bank to be used to settle
blending obligations. As a result, our costs to comply with RFS (based on the
Company's 2020 RVO since the EPA has not yet set the 2021 RVO and excludes the
impacts of any exemptions or waivers to which the Petroleum Segment may be
entitled) increased significantly throughout 2020 and remain significant through
the third quarter of 2021. Additionally, the EPA 's failure to establish the 2021
RVO has made it difficult for regulators to forecast the demand for gasoline,
diesel, and jet fuel consumption, which may drive a decrease in the availability
and increase the cost of RINs. While RIN prices weakened following the June 2021
decision by the Supreme Court holding small refineries need not have
continuously received an SRE in all previous years to be eligible for future
SREs, RINs have risen and remain highly volatile. The EPA 's actions, and failure
to act, as well as the outcome of numerous pending lawsuits relating to the RFS,
could materially impact the price of RINs and
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existing waiver applications. As a result, we continue to expect significant
volatility in the price of RINs during 2021 and such volatility could have
material impacts on the Company's results of operations, financial condition and
cash flows.
In December 2020 , CVR Energy's board of directors (the "Board") approved the
renewable diesel project at our Wynnewood Refinery , which would convert the
Wynnewood Refinery's hydrocracker to a renewable diesel unit expected to be
capable of producing up to 100 million gallons of renewable diesel per year (the
"RDU") and approximately 170 to 180 million RINs annually. Currently, total
estimated cost for the project is $150 million . Mechanical completion and
startup of the RDU is expected to occur in the second quarter of 2022. The
production of renewable diesel is expected to significantly reduce our net
exposure to the RFS. Further, the RDU should enable us to capture additional
benefits associated with the existing blenders' tax credit currently set to
expire at the end of 2022 and growing low carbon fuel standard programs across
the country, with programs in place in California and Oregon and new programs
anticipated to be implemented over the next few years. In May 2021 , the Board
approved $10 million to complete the process design and ordering of certain
long-lead equipment relating to a potential project to add pretreating
capabilities for the RDU at Wynnewood and to complete process design to
potentially convert an existing hydrotreater at our refinery in Coffeyville,
Kansas (the "Coffeyville Refinery ") to renewable diesel service. In November
2021 , the Board approved the pretreater project at the Wynnewood Refinery , which
is expected to be completed in the fourth quarter of 2022 at an estimated cost
of $60 million . The pretreatment unit should enable us to process a wider
variety of renewable diesel feedstocks at the Wynnewood Refinery , most of which
have a lower carbon intensity than soybean oil and generate additional low
carbon fuel standard credits. If fully approved and completed, these collective
renewable diesel efforts could effectively mitigate a substantial majority, if
not all, of our RFS exposure. However, impacts from recent climate change
initiatives under the new Biden administration, actions taken by the Supreme
Court , resulting administration actions under the RFS, and market conditions
could significantly impact the amount by which our renewable diesel business
mitigates our costs to comply with the RFS, if at all. Along with impacts from
recent regulatory changes, and in response to escalation in renewable feedstock
prices, the Company may continue to choose to operate the Wynnewood Refinery in
conventional hydrocracking mode instead of renewable diesel mode as to which is
most favorable economically.
As of September 30, 2021 , based on the Company's 2020 RVO since the EPA (despite
being nearly a year late) has not yet set the 2021 RVO, we have an estimated
open position (excluding the impacts of any exemptions or waivers to which we
may be entitled) under the RFS for both 2020 and 2021 of approximately
338 million RINs, excluding approximately 33 million of open, fixed-price
commitments to purchase RINs, resulting in a liability of $442 million . The
Company's open RFS position, which does not consider open commitments expected
to settle in future periods, is marked-to-market each period and thus
significant market volatility, as experienced in late 2020 and in 2021 to date,
results in significant volatility in our RFS expense from period to period. We
recognized a benefit of approximately $16 million and an expense $36 million for
the three months ended September 30, 2021 and 2020, respectively, and expense of
$335 million and $71 million for the nine months ended September 30, 2021 and
2020, respectively, for the Petroleum Segment's compliance with the RFS. The
increase in 2021 compared to 2020 was driven by the significant increases in
RINs pricing through the third quarter of 2021 and our open position with
respect to both the 2020 and 2021 obligations (excluding the impacts of any
exemptions or waivers to which we may be entitled). Of the benefit and expense
recognized during the three and nine months ended September 30, 2021 , a benefit
of $115 million and an expense of $54 million relates to the revaluation of our
net RVO position as of September 30, 2021 , respectively. The revaluation
represents the summation of the prior period obligation and current period
commercial activities, marked at the period end market price. Based upon recent
market prices of RINs in October 2021 , current estimates related to other
variable factors, including our anticipated blending and purchasing activities,
and the impact of the open RFS positions and resolution thereof, our estimated
consolidated cost to comply with the RFS (without regard to any SREs we may
receive) is $460 to $465 million for 2021.
Market Indicators
NYMEX WTI crude oil is an industry wide benchmark that is utilized in the market
pricing of a barrel of crude oil. The pricing differences between other crudes
and WTI, known as differentials, show how the market for other crude oils such
as WCS, White Cliffs ("Condensate"), Brent Crude ("Brent"), and Midland WTI
("Midland") are trending. Due to the COVID-19 pandemic, actions taken by
governments and others in response thereto, refined product prices have
experienced extreme volatility. As a result of the current environment, refining
margins have been and could continue to be significantly reduced.
As a performance benchmark and a comparison with other industry participants, we
utilize NYMEX and Group 3 crack spreads. These crack spreads are a measure of
the difference between market prices for crude oil and refined products and are
a commonly used proxy within the industry to estimate or identify trends in
refining margins. Crack spreads can fluctuate significantly over time as a
result of market conditions and supply and demand balances. The NYMEX 2-1-1
crack spread is
September 30, 2021 | 27
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calculated using two barrels of WTI producing one barrel of NYMEX RBOB Gasoline
("RBOB") and one barrel of NYMEX NY Harbor ULSD ("HO"). The Group 3 2-1-1 crack
spread is calculated using two barrels of WTI crude oil producing one barrel of
Group 3 sub-octane gasoline and one barrel of Group 3 ultra-low sulfur diesel.
Both NYMEX 2-1-1 and Group 3 2-2-1 crack spreads increased during the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020 . The NYMEX 2-1-1 crack spread averaged $19.05 per barrel during the nine
months ended September 30, 2021 compared to $12.37 per barrel in the nine months
ended September 30, 2020 . The Group 3 2-1-1 crack spread averaged $18.58 per
barrel during the nine months ended September 30, 2021 compared to $9.75 per
barrel during the nine months ended September 30, 2020 .
Average monthly prices for RINs increased 177.2% during the third quarter of
2021 compared to the same period of 2020. On a blended barrel basis (calculated
using applicable RVO percentages), RINs approximated $7.31 per barrel during the
third quarter of 2021 compared to $2.64 per barrel during the third quarter of
2020.
The tables below are presented, on a per barrel basis, by month through
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[[Image Removed: cvi-20210930_g3.jpg]]
September 30, 2021 | 28--------------------------------------------------------------------------------
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[[Image Removed: cvi-20210930_g4.jpg]][[Image Removed: cvi-20210930_g5.jpg]]
(1)The table below shows the change over time in NYMEX - WTI, as reflected in the graph above.
Average 2019 Average Average 2020 Average Average 2021 Average
(in $/bbl) December 2019 December 2020 September 2021
WTI $ 57.03 $ 61.06 $ 39.34 $ 47.07 $ 65.04 $ 71.54 (2)Information used within these charts was obtained from reputable market
sources, including the
Nitrogen Fertilizer Segment
Within the Nitrogen Fertilizer Segment, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, utilization, and operating costs and expenses, including pet coke and natural gas feedstock costs. The price at which nitrogen fertilizer products are ultimately sold depends on numerous factors, including the global supply and demand for nitrogen fertilizer products, world grain demand and production levels, changes in world population, the cost and availability of fertilizer transportation infrastructure, local market conditions, operating levels of competing facilities, weather conditions, the availability of imports, impacts of foreign imports and foreign subsidies thereof, and the extent of government intervention in agriculture markets. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products. As a result of the overall decline in global demand for liquid transportation fuels driven by the broader impacts of the COVID-19 pandemic and actions taken by the government to mitigate its spread, ethanol production, which is a significant driver of demand for corn and therefore fertilizer, declined during 2020. However, as restrictions eased during 2021, demand for ethanol for fuels blending has largely recovered to pre-COVID-19 levels, although an increase in outbreaks of any variant of COVID-19 could reverse this recovery.
Market Indicators
While there is risk of shorter-term volatility given the inherent nature of the commodity cycle, the Company believes the long-term fundamentals for theU.S. nitrogen fertilizer industry remain intact. The Nitrogen Fertilizer Segment views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn as feedstock for the domestic production of ethanol, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers in theU.S. over the longer term.September 30, 2021 | 29 --------------------------------------------------------------------------------
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Corn and soybeans are two major crops planted by farmers inNorth America . Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of their own nitrogen through a process known as "N fixation." As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as evident through the chart presented below for 2021 and 2020. The relationship between the total acres planted for both corn and soybean has a direct impact on the overall demand for nitrogen products, as the market and demand for nitrogen increases with increased corn acres and decreases with increased soybean acres. Additionally, an estimated 8 billion pounds of soybean oil is expected to be used in producing cleaner biodiesel in marketing year 2020/2021. Multiple refiners have announced biodiesel expansion projects for 2021 and beyond, which will only increase the demand and capacity for soybeans. Due to the uncertainty of how these factors will truly affect the soybean market, it is not yet known how the nitrogen business will be impacted. The 2021United States Department of Agriculture ("USDA") reports on corn and soybean acres planted indicated farmers' intentions to plant 93.3 million acres of corn, representing a slight increase of 2.9% in corn acres planted as compared to 90.7 million corn acres in 2020. Planted soybean acres are estimated to be 87.2 million acres, representing a 4.7% increase in soybean acres planted as compared to 83.4 million soybean acres in 2020. The combined corn and soybean planted acres of 180.5 million is the highest in history, and based on expected yields and crop prices, farm economics have been very attractive in 2021. Further, while natural gas prices, the primary input for nitrogen fertilizer production, were at historical lows across the world in 2020, they have recovered significantly since the summer of 2020, reducing the incentive to maximize production at nitrogen fertilizer production facilities. Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 35% of theU.S. corn crop, so demand for corn generally rises and falls with ethanol demand. There has been a decline in the ethanol market due to decreased demand for transportation fuels as a result of the COVID-19 pandemic. However, the lower ethanol demand did not alter the spring 2021 or 2020 planting decisions by farmers, as evidenced through the charts below.
[[Image Removed: cvi-20210930_g6.jpg]][[Image Removed: cvi-20210930_g7.jpg]]
(1)Information used within this chart was obtained from the EIA.
(2)Information used within this chart was obtained from the
Weather continues to be a critical variable for crop production. The unusual derecho storm in the Midwest inAugust 2020 damaged a significant number of corn acres, lowering harvested corn yields. Coupled with higher demand for corn and soybean starting in the second half of 2020, grain prices increased leading into 2021. These higher prices increased planted corn and soybean acres for the spring of 2021 and led to higher demand for nitrogen fertilizer, as well as other crop inputs. Fertilizer prices have risen significantly sinceJanuary 1, 2021 due to strong grain prices, the strong spring 2021 planting season, lower fertilizer supply due to nitrogen fertilizer production outages during Winter Storm Uri and Hurricane Ida and significant escalation in global feedstock costs for nitrogen fertilizer production, and other factors discussed above.September 30, 2021 | 30 --------------------------------------------------------------------------------
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OnJune 30, 2021 ,CF Industries Nitrogen, L.L.C. ,Terra Nitrogen, Limited Partnership , andTerra International (Oklahoma) LLC filed petitions with theU.S. Department of Commerce and theU.S. International Trade Commission (the "ITC") requesting the initiation of antidumping and countervailing duty investigations on imports of UAN fromRussia andTrinidad and Tobago ("Trinidad"). InAugust 2021 , theU.S. Department of Commerce decided to pursue an investigation to determine the extent of dumping and unfair subsidies associated with imports fromRussia andTrinidad , and the ITC initiated a concurrent investigation to determine whether such imports materially injure theU.S. industry. We believe it is too early to determine how the investigations might affectCVR Partners and the nitrogen fertilizer industry in theU.S. in general.
The tables below show relevant market indicators for the Nitrogen Fertilizer
Segment by month through
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(1)Information used within these charts was obtained from various third-party
sources, including Green Markets (a
Results of Operations
Consolidated
Our consolidated results of operations include certain other unallocated corporate activities and the elimination of intercompany transactions and, therefore, do not equal the sum of the operating results of the Petroleum Segment and Nitrogen Fertilizer Segment.
September 30, 2021 | 31 -------------------------------------------------------------------------------- Table of Contents Consolidated Financial Highlights (Three and Nine Months EndedSeptember 30, 2021 versusSeptember 30, 2020 )
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(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Three and Nine Months Ended
Overview - For the three months endedSeptember 30, 2021 , the Company's operating income increased$221 million to$175 million , as compared to the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , the Company's operating income increased$252 million to$46 million , as compared to the nine months endedSeptember 30, 2020 . Refer to our discussion of each segment's results of operations below for further information. Investment (Loss) Income onMarketable Securities - OnJune 10, 2021 , the Company distributed substantially all of its holdings in Delek, of which the Company was the largest stockholder holding approximately 14.3% of Delek's outstanding common stock, as part of a special dividend. As ofSeptember 30, 2021 , the Company continues to hold other marketable securities of Delek. Prior to the special dividend, we received no dividend income for the three and nine months endedSeptember 30, 2021 , compared to$3 million and$7 million received for the three and nine months endedSeptember 30, 2020 . The Company recognized an unrealized loss based on market pricing for the three months endedSeptember 30, 2021 of$1 million and a gain of$82 million for the nine months endedSeptember 30, 2021 , compared to an unrealized loss based on market pricing onSeptember 30, 2020 of$68 million and$20 million for the three and nine months endedSeptember 30, 2020 , respectively. Income Tax Expense (Benefit) - Income tax expense for the three months endedSeptember 30, 2021 was$47 million , or 30.8% of income before income tax, as compared to an income tax benefit of$31 million , or 22.2% of loss before income tax,September 30, 2021 | 32
-------------------------------------------------------------------------------- Table of Contents for the three months endedSeptember 30, 2020 . Income tax benefit for the nine months endedSeptember 30, 2021 was$1 million , or 2.1% of income before income tax, as compared to an income tax benefit of$73 million , or 23.1% of loss before income tax for the nine months endedSeptember 30, 2020 . The fluctuations in income tax were due primarily to changes in pretax earnings, earnings attributable to noncontrolling interest and decreases in state income tax rates from the three and nine months endedSeptember 30, 2020 to the three and nine months endedSeptember 30, 2021 . The decrease in effective income tax rate was due primarily to the relationship between pretax results, earnings attributable to noncontrolling interest and a discrete tax benefit recorded during the three months endedJune 30, 2021 for decreases in state income tax rates.
Petroleum Segment
The Petroleum Segment utilizes certain inputs within its refining operations. These inputs include crude oil, butanes, natural gasoline, ethanol, and bio-diesel (these are also known as "throughputs").
Refining Throughput and Production Data by Refinery
Three Months Ended Nine Months Ended
Throughput Data September 30, September 30,
(in bpd) 2021 2020 2021 2020
Coffeyville
Regional crude 27,259 35,769 27,865 36,277
WTI 63,779 58,744 62,388 42,793
WTL 1,547 - 522 -
Midland WTI 1,633 - 550 -
Condensate 5,532 13,885 8,659 8,502
Heavy Canadian 4,823 22 2,860 1,362
Other crude oil 18,535 9,702 16,270 3,258
Other feedstocks and blendstocks 10,656 8,203 9,796 7,001
Wynnewood
Regional crude 62,091 57,920 59,321 53,057
WTL 2,809 8,657 4,586 6,994
Midland WTI 4,312 - 1,453 1,573
Condensate 4,736 5,330 7,260 7,175
Other feedstocks and blendstocks 3,231 2,936 3,115 3,468
Total throughput 210,943 201,168 204,645 171,460
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Three Months Ended Nine Months Ended
Production Data September 30, September 30,
(in bpd) 2021 2020 2021 2020
Coffeyville
Gasoline 70,729 68,572 68,310 53,241
Distillate 53,946 49,407 52,231 38,976
Other liquid products 4,971 5,246 4,947 4,328
Solids 4,355 3,382 4,138 2,836
Wynnewood
Gasoline 39,647 37,119 39,319 37,333
Distillate 32,410 32,514 31,026 29,864
Other liquid products 2,524 2,712 2,826 2,532
Solids 16 23 19 25
Total production 208,598 198,975 202,816 169,135
Light product yield (as % of crude
throughput) (1) 99.8 % 98.7 % 99.6 % 99.0 %
Liquid volume yield (as % of total
throughput) (2) 96.8 % 97.2 % 97.1 % 97.0 %
Distillate yield (as % of crude throughput)
(3) 43.8 % 43.1 % 43.4 % 42.8 %
(1)Total Gasoline and Distillate divided by total Regional crude, WTI, WTL, Midland WTI, Condensate, and Heavy Canadian throughput. (2)Total Gasoline, Distillate, and Other liquid products divided by total throughput. (3)Total Distillate divided by total Regional crude, WTI, WTL, Midland WTI, Condensate, and Heavy Canadian throughput.
Petroleum Segment Financial Highlights (Three and Nine Months Ended
Overview - For the three months endedSeptember 30, 2021 , the Petroleum Segment's operating income and net income were$135 million and$146 million , respectively, compared to operating loss and net loss of$39 million and$33 million , respectively, for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , the Petroleum Segment's operating loss and net income were$1 million and$23 million , respectively, compared to operating loss and net loss of$161 million and$156 million , respectively, for the nine months endedSeptember 30, 2020 . The improvements in operating income and net income during the three months endedSeptember 30, 2021 were primarily due to a revaluation benefit on the current RIN obligation and improved crack spreads. This was partially offset by derivative losses and an inventory valuation loss during the current period. The improvements in operating loss and net income during the nine months endedSeptember 30, 2021 were primarily a result of improved crack spreads and sales volumes. This was partially offset by increased RFS compliance costs and derivative losses. [[Image Removed: cvi-20210930_g14.jpg]] [[Image Removed: cvi-20210930_g15.jpg]]September 30, 2021 | 34
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(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three and nine months endedSeptember 30, 2021 , net sales for the Petroleum Segment increased by$815 million and$2.2 billion , respectively, compared to the three and nine months endedSeptember 30, 2020 . The increases in sales were due to regional inventory draws which are driven by increased demand and, as a result, increased market pricing, as Group 3 2-1-1 crack spreads improved$11.81 and$8.83 per barrel during the three and nine months endedSeptember 30, 2021 , respectively, compared to the three and nine months endedSeptember 30, 2020 . Further, the nine months endedSeptember 30, 2020 was impacted by a full planned turnaround at theCoffeyville Refinery which began inFebruary 2020 , as well as reduced utilization of theWynnewood Refinery during the same quarter given the significant gasoline demand reductions experienced late in the first quarter of 2020 as a result of the COVID-19 pandemic. [[Image Removed: cvi-20210930_g18.jpg]][[Image Removed: cvi-20210930_g19.jpg]]September 30, 2021 | 35
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(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown below.
Refining Margin - For the three months endedSeptember 30, 2021 , refining margin was$292 million , or$15.03 per throughput barrel, as compared to$101 million , or$5.47 per throughput barrel, for the three months endedSeptember 30, 2020 . The increase in refining margin of$191 million was in part due to a favorable RINs revaluation impact of$115 million , or$5.94 per total throughput barrel, in the current period compared to an unfavorable RINs revaluation impact of$2 million , or$0.06 per total throughput barrel, for the three months endedSeptember 30, 2020 . Throughput volumes improved by 9,775 bpd and crack spreads rose due to market improvements in 2021, compared to declines in market pricing for crude oil and refined products experienced in 2020 caused by the COVID-19 pandemic. Offsetting these impacts, the Company recognized costs to comply with RFS, excluding the RINs revaluation impact, of$100 million , or$5.14 per throughput barrel, and$35 million , or$1.89 per throughput barrel, for the three months endedSeptember 30, 2021 and 2020, respectively. The significant increase in 2021 was primarily related to significantly higher RINs prices during the three months endedSeptember 30, 2021 caused by price volatility for RINs. We also recognized a net loss on derivatives of$12 million during the three months endedSeptember 30, 2021 compared to a gain of$5 million during the three months endedSeptember 30, 2020 . Our derivative activity was primarily a result of crack spread swaps. For the nine months endedSeptember 30, 2021 , refining margin was$475 million , or$8.51 per throughput barrel, as compared$271 million , or$5.77 per throughput barrel, for the nine months endedSeptember 30, 2020 . The increase in refining margin of$204 million was in part due to a favorable inventory valuation impact of$109 million , or$1.96 per total throughput barrel, from the crude oil price change during the nine months endedSeptember 30, 2021 , compared to a$74 million , or$1.57 per total throughput barrel, unfavorable impact for the nine months endedSeptember 30, 2020 , which includes an unfavorable lower of cost or net realizable value adjustment of$58 million , based on the difference between the carrying value of inventories accounted for using the first-in-first-out method and selling prices for our refined products experienced subsequent toMarch 2020 . Throughput volumes improved by 33,185 bpd and crack spreads rose due to market improvements in 2021, compared to declines in market pricing for crude oil and refined products experienced in 2020 caused by the COVID-19 pandemic. Throughput volumes were also negatively impacted by the full planned turnaround at theCoffeyville Refinery in the first quarter of 2020. Offsetting these impacts, the Company recognized costs to comply with RFS, including the RINs revaluation impact, of$335 million , or$6.00 per throughput barrel, and$71 million , or$1.51 per throughput barrel, for the nine months endedSeptember 30, 2021 and 2020, respectively. The substantial increase in 2021 is primarily related to significantly higher RINs prices during the nine months endedSeptember 30, 2021 caused by price volatility for RINs, including significant increases in market prices during the first quarter of 2021, and our open mark-to-market position for both the 2020 and 2021 compliance years of approximately 338 million RINs as ofSeptember 30, 2021 . We also recognized a net loss on derivatives of$46 million during the nine months endedSeptember 30, 2021 compared to a gain of$70 million during the nine months endedSeptember 30, 2020 . Our derivative activity was primarily a result of crack spread swaps.September 30, 2021 | 36
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[[Image Removed: cvi-20210930_g22.jpg]][[Image Removed: cvi-20210930_g23.jpg]]
(1)Exclusive of depreciation and amortization expense.
Direct Operating Expenses (Exclusive of Depreciation and Amortization) - For the three and nine months endedSeptember 30, 2021 , direct operating expenses (exclusive of depreciation and amortization) were$88 million and$270 million , respectively, as compared to$77 million and$239 million for the three and nine months endedSeptember 30, 2020 , respectively. The increases in the current period were primarily due to increased natural gas costs, environmental costs, repairs and maintenance expense, and share-based compensation. On a total throughput barrel basis, direct operating expenses decreased to$4.83 per barrel from$5.09 per barrel for the nine months endedSeptember 30, 2021 as a function of the increased expense in 2021 offset by the increase in total throughput in 2021 compared to 2020. Impacts of COVID-19 related factors and theCoffeyville Refinery's full, planned turnaround which began the last week ofFebruary 2020 and extended intomid-April 2020 significantly decreased throughput in the 2020 period.
[[Image Removed: cvi-20210930_g24.jpg]][[Image Removed: cvi-20210930_g25.jpg]]
Selling, General, and Administrative Expenses, and Other - For the three and nine months endedSeptember 30, 2021 , selling, general and administrative expenses and other was$19 million and$54 million , respectively, compared to$12 million and$43 million for the three and nine months endedSeptember 30, 2020 , respectively. The increases were primarily a result of increased personnel costs driven primarily by higher share-based compensation and legal expenses in the 2021 periods as compared to the 2020 periods.
Nitrogen Fertilizer Segment
Utilization and Production Volumes - The following tables summarize the ammonia utilization at the Nitrogen Fertilizer Segment's facility inCoffeyville, Kansas (the "Coffeyville Fertilizer Facility") andEast Dubuque, Illinois facility (the "East Dubuque Fertilizer Facility"). Utilization is an important measure used by management to assess operational output at each ofSeptember 30, 2021 | 37 --------------------------------------------------------------------------------
Table of Contents the Nitrogen Fertilizer Segment's facilities. Utilization is calculated as actual tons of ammonia produced divided by capacity adjusted for planned maintenance and turnarounds.
Utilization is presented solely on ammonia production, rather than each nitrogen product, as it provides a comparative baseline against industry peers and eliminates the disparity of facility configurations for upgrade of ammonia into other nitrogen products. With efforts primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how well we operate. Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products. Production for the three and nine months endedSeptember 30, 2021 was impacted by downtime associated with the Messer air separation plant at the Coffeyville Fertilizer Facility experienced in January, June, and August of 2021 (the "Messer Outages"), as well as downtime at the Coffeyville Fertilizer Facility and East Dubuque Fertilizer Facility in July andSeptember 2021 , respectively, due to externally driven power outages (the "Power Outages"), compared to the same periods of 2020. The tables below present all of these Nitrogen Fertilizer Segment metrics for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Consolidated Ammonia Utilization 94 % 98 % 93 % 97 % Production Volumes (in thousands of tons) Ammonia (gross produced) 205 215 610 631 Ammonia (net available for sale) 65 71 205 228 UAN 314 330 920 968 On a consolidated basis for the three and nine months endedSeptember 30, 2021 and 2020, utilization decreased to 94% and 93%, respectively. The decreases during the three and nine months endedSeptember 30, 2021 were primarily due to the Messer Outages and the Power Outages, compared to the same periods of 2020. Sales and Pricing per Ton - Two of the Nitrogen Fertilizer Segment's key operating metrics are total sales volumes for ammonia and UAN, along with the product pricing per ton realized at the gate. Total product sales volumes were unfavorable, driven by lower production due to the Messer Outages and the Power Outages. For the three and nine months endedSeptember 30, 2021 , the low sales volumes were more than offset by price increases of 110% and 42%, respectively, for ammonia and 118% and 54%, respectively, for UAN. Ammonia and UAN sales prices were favorable primarily due to higher crop pricing coupled with lower fertilizer supply driven by production outages from Winter Storm Uri inFebruary 2021 and Hurricane Ida in August andSeptember 2021 , as well as increased industry turnaround activity. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure comparable across the fertilizer industry. Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Consolidated sales (thousand tons) Ammonia 52 54 164 218 UAN 322 365 931 986 Consolidated product pricing at gate (dollars per ton) Ammonia$ 507 $ 242 $ 416 $ 293 UAN 305 140 240 156 September 30, 2021 | 38
-------------------------------------------------------------------------------- Table of Contents Feedstock - The Coffeyville Fertilizer Facility utilizes a pet coke gasification process to produce nitrogen fertilizer, while the East Dubuque Fertilizer Facility uses natural gas in its production of ammonia. The table below presents these feedstocks for both facilities within the Nitrogen Fertilizer Segment for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Petroleum coke used in production (thousand 129 129 390 393
tons)
Petroleum coke (dollars per ton)$ 50.35 $ 35.11 $ 43.23 $ 36.77 Natural gas used in production (thousands of 2,043 2,136 6,079 6,408 MMBtu) (1) Natural gas used in production (dollars per$ 4.29 $ 2.10 $ 3.48 $ 2.15 MMBtu) (1) Natural gas cost of materials and other 1,786 2,026 5,436 6,660 (thousands of MMBtu) (1) Natural gas cost of materials and other (dollars$ 3.78 $ 2.01 $ 3.27 $ 2.25 per MMBtu) (1)
(1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in Direct operating expenses (exclusive of depreciation and amortization).
Nitrogen Fertilizer Segment Financial Highlights (Three and nine Months Ended
Overview - For the three months endedSeptember 30, 2021 , the Nitrogen Fertilizer Segment's operating income and net income were$46 million and$35 million , respectively, representing improvements of$49 million and$54 million , respectively, compared to the three months endedSeptember 30, 2020 . These increases were driven by the significantly higher pricing environment for ammonia and UAN products in 2021. For the nine months endedSeptember 30, 2021 , the Nitrogen Fertilizer Segment's operating income and net income were$63 million and$17 million , respectively, representing improvements of$97 million and$98 million in operating income and net income, respectively, compared to the nine months endedSeptember 30, 2020 . Beyond the goodwill impairment of$41 million negatively impacting the 2020 period, these improvements were driven primarily by higher ammonia and UAN sales prices in 2021 due to higher crop pricing combined with lower nitrogen fertilizer supply driven by production outages during Winter Storm Uri inFebruary 2021 , Hurricane Ida in August andSeptember 2021 , and an increase in turnaround activity across the industry that further reduced available supply. [[Image Removed: cvi-20210930_g26.jpg]][[Image Removed: cvi-20210930_g27.jpg]]September 30, 2021 | 39
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[[Image Removed: cvi-20210930_g28.jpg]][[Image Removed: cvi-20210930_g29.jpg]]
(1)See "Non-GAAP Reconciliations" section below for reconciliations of the non-GAAP measures shown above.
Net Sales - For the three months endedSeptember 30, 2021 , the Nitrogen Fertilizer Segment's net sales increased by$66 million to$145 million compared to the three months endedSeptember 30, 2020 . This increase was primarily due to favorable pricing conditions which contributed$67 million in higher revenues, partially offset by decreased sales volumes contributing$6 million in lower revenues, as compared to the three months endedSeptember 30, 2020 .
The following table demonstrates the impact of changes in sales volumes and
pricing for the primary components of net sales, excluding urea products,
freight, and other revenue, for the three months ended
Price Volume
(in millions) Variance Variance
UAN $ 53 $ (6)
Ammonia 14 -
The $265 and $165 per ton increases in ammonia and UAN sales pricing,
respectively, for the three months ended September 30, 2021 , as compared to the
three months ended September 30, 2020 , were primarily attributable to continued
improvement in market conditions as supplies of nitrogen fertilizer remained
tight following the production outages related to Winter Storm Uri, heightened
turnaround activity during the summer, and further production outages following
Hurricane Ida. The decrease in UAN sales volumes for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020 was
primarily attributable to lower production at both fertilizer facilities caused
by the Messer Outages and the Power Outages.
For the nine months ended September 30, 2021 , the Nitrogen Fertilizer Segment's
net sales increased by $84 million to $344 million compared to the nine months
ended September 30, 2020 . This increase was primarily due to favorable sales
pricing contributing $99 million in higher revenue, partially offset by
decreased sales volumes which contributed $24 million in lower revenues, as
compared to the nine months ended September 30, 2020 .
The following table demonstrates the impact of changes in sales volumes and
pricing for the primary components of net sales, excluding urea products,
freight, and other revenue, for the nine months ended
Price Volume
(in millions) Variance Variance
UAN $ 79 $ (8)
Ammonia 20 (16)
The $123 and $84 per ton increases in ammonia and UAN sales pricing,
respectively, for the nine months ended September 30, 2021 as compared to the
nine months ended September 30, 2020 were primarily attributable to favorable
market conditions in the second quarter of 2021 compared to difficult market
conditions in the second quarter of 2020, as well as higher crop
September 30, 2021 | 40
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pricing coupled with sustained lower fertilizer supply initially caused by
nitrogen fertilizer production outages during Winter Storm Uri which continued
with Hurricane Ida. The decrease in ammonia and UAN sales volumes for the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020 was primarily attributable to lower production due to the Messer Outages
and production and shipping impacts from Winter Storm Uri.
Cost of Materials and Other - For the three and nine months ended September 30,
2021 , cost of materials and other was $26 million and $70 million , respectively,
as compared to $22 million and $68 million for the three and nine months ended
September 30, 2020 , respectively. For the three and nine months ended September
30, 2021 , increased costs were primarily due to increased feedstock costs for
coke, natural gas, and hydrogen of $7 million and $11 million , respectively,
offset by lower distribution costs of $2 million and $5 million , respectively.
Further, during the nine months ended September 30, 2021 , there were lower
purchases of third-party ammonia of $3 million as compared to the nine months
ended September 30, 2020 which offset the increased feedstock costs.
Non-GAAP Measures
Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the future to supplement our financial information presented in accordance withU.S. GAAP. These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below. As a result of volatile market conditions related to the RFS during the first half of 2021 and the impacts certain significant non-cash items have on the evaluation of our operations, the Company began disclosing Adjusted EBITDA, as defined below, in the second quarter of 2021. We believe the presentation of this non-GAAP measure is meaningful to compare our operating results between periods and peer companies. All prior periods presented have been conformed to the definition below. The following are non-GAAP measures we present for the period endedSeptember 30, 2021 :
EBITDA - Consolidated net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense.
Petroleum EBITDA and Nitrogen Fertilizer EBITDA - Segment net income (loss) before segment (i) interest expense, net, (ii) income tax expense (benefit), and (iii) depreciation and amortization.
Refining Margin - The difference between our Petroleum Segment net sales and cost of materials and other.
Refining Margin, adjusted for Inventory Valuation Impacts - Refining Margin
adjusted to exclude the impact of current period market price and volume
fluctuations on crude oil and refined product inventories purchased in prior
periods and lower of cost or net realizable value adjustments, if applicable. We
record our commodity inventories on the first-in-first-out basis. As a result,
significant current period fluctuations in market prices and the volumes we hold
in inventory can have favorable or unfavorable impacts on our refining margins
as compared to similar metrics used by other publicly-traded companies in the
refining industry.
Refining Margin and Refining Margin adjusted for Inventory Valuation Impacts,
per Throughput Barrel - Refining Margin and Refining Margin adjusted for
Inventory Valuation Impacts divided by the total throughput barrels during the
period, which is calculated as total throughput barrels per day times the number
of days in the period.
Direct Operating Expenses per Throughput Barrel - Direct operating expenses for
our Petroleum Segment divided by total throughput barrels for the period, which
is calculated as total throughput barrels per day times the number of days in
the period.
Adjusted EBITDA, Adjusted Petroleum EBITDA and Adjusted Nitrogen Fertilizer
EBITDA - EBITDA, Petroleum EBITDA and Nitrogen Fertilizer EBITDA adjusted for
certain significant non-cash items and items that management believes are not
attributable to or indicative of our on-going operations or that may obscure our
underlying results and trends.
Adjusted Earnings (Loss) per Share - Earnings (loss) per share adjusted for
certain significant non-cash items and items that management believes are not
attributable to or indicative of our on-going operations or that may obscure our
underlying results and trends.
September 30, 2021 | 41
--------------------------------------------------------------------------------Table of Contents Free Cash Flow - Net cash provided by (used in) operating activities less capital expenditures and capitalized turnaround expenditures.
Net Debt and Finance Lease Obligations - Net debt and finance lease obligations is total debt and finance lease obligations reduced for cash and cash equivalents.
Total Debt and Net Debt and Finance Lease Obligations to EBITDA Exclusive of Nitrogen Fertilizer - Total debt and net debt and finance lease obligations is calculated as the consolidated debt and net debt and finance lease obligations less the Nitrogen Fertilizer Segment's debt and net debt and finance lease obligations as of the most recent period ended divided by EBITDA exclusive of the Nitrogen Fertilizer Segment for the most recent twelve-month period. We present these measures because we believe they may help investors, analysts, lenders and ratings agencies analyze our results of operations and liquidity in conjunction with ourU.S. GAAP results, including but not limited to our operating performance as compared to other publicly-traded companies in the refining and fertilizer industries, without regard to historical cost basis or financing methods and our ability to incur and service debt and fund capital expenditures. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparableU.S. GAAP financial measures. See "Non-GAAP Reconciliations" included herein for reconciliation of these amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document.
Factors Affecting Comparability of Our Financial Results
Our historical results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future for the reasons discussed below.
Petroleum Segment
Goodwill Impairment
As a result of lower expectations for market conditions in the fertilizer industry during 2020, the market performance ofCVR Partners' common units, a qualitative analysis, and additional risks associated with the business, the Company performed an interim quantitative impairment assessment of goodwill for the Coffeyville Fertilizer Facility's reporting unit as ofJune 30, 2020 . The results of the impairment test indicated the carrying amount of this reporting unit exceeded the estimated fair value, and a full, non-cash impairment charge of$41 million was required. Refer to Part II, Item 8 of our 2020 Form 10-K for further discussion.September 30, 2021 | 42
-------------------------------------------------------------------------------- Table of Contents Non-GAAP Reconciliations
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2021 2020 2021 2020
Net income (loss) $ 106 $ (108) $ 49 $ (241)
Interest expense, net 23 31 92 98
Income tax expense (benefit) 47 (31) (1) (73)
Depreciation and amortization 67 69 205 208
EBITDA $ 243 $ (39) $ 345 $ (8)
Adjustments:
Revaluation of RFS liability (115) 2 54 (6)
(Gain) loss on marketable securities 1 68 (82) 20
Unrealized gain on derivatives (22) (1) (16) (14)
Inventory valuation impacts, (favorable)
unfavorable (8) (16) (109) 74
Goodwill impairment - - - 41
Adjusted EBITDA $ 99 $ 14 $ 192 $ 107
Reconciliation of Basic and Diluted Earnings (Loss) per Share to Adjusted Loss
per Share
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Basic and diluted earnings (loss) per share $ 0.83 $ (0.96) $ 0.38 $ (1.87)
Adjustments (1):
Revaluation of RFS liability (0.85) 0.01 0.40 (0.05)
(Gain) loss on marketable securities 0.01 0.50 (0.60) 0.15
Unrealized gain on derivatives (0.17) (0.01) (0.12) (0.10)
Inventory valuation impacts, (favorable)
unfavorable (0.06) (0.11) (0.81) 0.54
Goodwill impairment (2) - - - 0.07
Adjusted loss per share $ (0.24) $ (0.57) $ (0.75) $ (1.26)
(1)Amounts are shown after-tax, using the Company's marginal tax rate, and are
presented on a per share basis using the weighted average shares outstanding for
each period.
(2)Amount is shown exclusive of noncontrolling interests.
Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net cash provided by operating activities
$ 382 $ 62
Less:
Capital expenditures (62) (24) (188) (101) Capitalized turnaround expenditures (1) (11) (3) (158) Free cash flow$ 76 $ 76 $ 191 $ (197) September 30, 2021 | 43
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Reconciliation of Petroleum Segment Net Income (Loss) to EBITDA and Adjusted
EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2021 2020 2021 2020
Petroleum net income (loss) $ 146 $ (33) $ 23 $ (156)
Interest (income) expense, net (8) (3) (16) (2)
Depreciation and amortization 50 51 152 150
Petroleum EBITDA 188 15 159 (8)
Adjustments:
Revaluation of RFS liability (115) 2 54 (6) Unrealized gain on derivatives (22) (1) (16) (14) Inventory valuation impacts, (favorable) unfavorable (1) (2) (8) (16) (109) 74 Petroleum Adjusted EBITDA$ 43 $ -$ 88 $ 46
Reconciliation of Petroleum Segment Gross Profit (Loss) to Refining Margin and Refining Margin Adjusted for Inventory Valuation Impact
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2021 2020 2021 2020
Net sales $ 1,742 $ 927 $ 4,793 $ 2,556
Cost of materials and other 1,450 826 4,318 2,285
Direct operating expenses (exclusive of
depreciation and amortization) 88 77 270 239
Depreciation and amortization 50 51 152 150
Gross (loss) profit 154 (27) 53 (118)
Add:
Direct operating expenses (exclusive of
depreciation and amortization) 88 77 270 239
Depreciation and amortization 50 51 152 150
Refining margin 292 101 475 271
Inventory valuation impacts, (favorable)
unfavorable (1) (2) (8) (16) (109) 74
Refining margin adjusted for inventory
valuation impact $ 284 $ 85 $ 366 $ 345
(1)The Petroleum Segment's basis for determining inventory value under GAAP is
First-In, First-Out ("FIFO"). Changes in crude oil prices can cause fluctuations
in the inventory valuation of crude oil, work in process and finished goods,
thereby resulting in a favorable inventory valuation impact when crude oil
prices increase and an unfavorable inventory valuation impact when crude oil
prices decrease. The inventory valuation impact is calculated based upon
inventory values at the beginning of the accounting period and at the end of the
accounting period. In order to derive the inventory valuation impact per total
throughput barrel, we utilize the total dollar figures for the inventory
valuation impact and divide by the number of total throughput barrels for the
period.
(2)Includes an inventory valuation charge of $58 million recorded in the first
quarter of 2020, as inventories were reflected at the lower of cost or net
realizable value. No adjustment was necessary for any other period of 2020 or
2021.
Reconciliation of Petroleum Segment Total Throughput Barrels
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Total throughput barrels per day 210,943 201,168 204,645 171,460
Days in the period 92 92 273 274
Total throughput barrels 19,406,776 18,507,431 55,868,087 46,980,133
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Reconciliation of Petroleum Segment Refining Margin per Total Throughput Barrel
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions, except per total throughput
barrel) 2021 2020 2021 2020
Refining margin $ 292 $ 101 $ 475 $ 271
Divided by: total throughput barrels 19 19 56 47
Refining margin per total throughput barrel $ 15.03 $ 5.47 $ 8.51 $ 5.77 Reconciliation of Petroleum Segment Refining Margin Adjusted for Inventory Valuation Impact per Total Throughput Barrel
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions, except per total throughput
barrel) 2021 2020 2021 2020
Refining margin adjusted for inventory
valuation impact $ 284 $ 85 $ 366 $ 345
Divided by: total throughput barrels 19 19 56 47
Refining margin adjusted for inventory
valuation impact per total throughput barrel $ 14.62 $ 4.61 $ 6.55 $ 7.34
Reconciliation of Petroleum Segment Direct Operating Expenses per Total
Throughput Barrel
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions, except per total throughput
barrel) 2021 2020 2021 2020
Direct operating expenses (exclusive of
depreciation and amortization) $ 88 $ 77 $ 270 $ 239
Divided by: total throughput barrels 19 19 56 47
Direct operating expenses per total throughput
barrel $ 4.52 $ 4.17 $ 4.83 $ 5.09 Reconciliation of Nitrogen Fertilizer Segment Net Income (Loss) to EBITDA and Adjusted EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2021 2020 2021 2020
Nitrogen Fertilizer net income (loss)
$ 17 $ (81) Interest expense, net 11 16 51 47 Depreciation and amortization 18 18 53 57 Nitrogen Fertilizer EBITDA$ 64 $ 15 $ 120 $ 23 Adjustments: Goodwill impairment - - - 41 Adjusted Nitrogen Fertilizer EBITDA$ 64 $ 15 $ 120 $ 64 September 30, 2021 | 45
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Reconciliation of Total Debt and Net Debt and Finance Lease Obligations to
EBITDA Exclusive of Nitrogen FertilizerTwelve Months Ended
September 30, 2021
Total debt and finance lease obligations (1) $ 1,676
Less:
Nitrogen Fertilizer debt and finance lease obligations (1) $ 625
Total debt and finance lease obligations exclusive of Nitrogen Fertilizer
1,051
EBITDA exclusive of Nitrogen Fertilizer $ 208
Total debt and finance lease obligations to EBITDA exclusive of Nitrogen Fertilizer
5.05
Consolidated cash and cash equivalents $ 566
Less:
Nitrogen Fertilizer cash and cash equivalents 101 Cash and cash equivalents exclusive of Nitrogen Fertilizer 465
Net debt and finance lease obligations exclusive of Nitrogen Fertilizer (2)
$ 586
Net debt and finance lease obligations to EBITDA exclusive of Nitrogen
Fertilizer (2) 2.82
(1)Amounts are shown inclusive of the current portion of long-term debt and
finance lease obligations.
(2)Net debt represents total debt and finance lease obligations exclusive of
cash and cash equivalents.
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