NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and History of the Company
Organization
The "Company" or "CVR" may be used to refer to CVR Energy, Inc. and, unless the context otherwise requires, its subsidiaries. Any references to the "Company" as of a date prior to October 16, 2007 (the date of the restructuring as further discussed in this Note) and subsequent to June 24, 2005 are to Coffeyville Acquisition LLC ("CALLC") and its subsidiaries.
CVR is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through its holdings in CVR Refining, LP ("CVR Refining" or the "Refining Partnership") and CVR Partners, LP ("CVR Partners" or the "Nitrogen Fertilizer Partnership"). The Refining Partnership is an independent petroleum refiner and marketer of high value transportation fuels. The Nitrogen Fertilizer Partnership produces and markets nitrogen fertilizers in the form of UAN and ammonia. The Company's operations include
two
business segments: the petroleum segment and the nitrogen fertilizer segment.
CALLC formed CVR Energy, Inc. as a wholly-owned subsidiary, incorporated in Delaware in September 2006, in order to effect an initial public offering. The initial public offering of CVR was consummated on October 26, 2007. In conjunction with the initial public offering, a restructuring occurred in which CVR became a direct or indirect owner of all of the subsidiaries of CALLC. Additionally, in connection with the initial public offering, CALLC was split into
two
entities: CALLC and Coffeyville Acquisition II LLC ("CALLC II").
CVR's common stock is listed on the NYSE under the symbol "CVI." As of December 31, 2010, approximately
40%
of its outstanding shares were beneficially owned by GS Capital Partners V, L.P. and related entities ("GS" or "Goldman Sachs Funds") and Kelso Investment Associates VII, L.P. and related entities ("Kelso" or "Kelso Funds"). On February 8, 2011, GS and Kelso completed a registered public offering, whereby GS sold into the public market its remaining ownership interests in CVR and Kelso substantially reduced its interest in the Company. On May 26, 2011, Kelso completed a registered public offering, whereby Kelso sold into the public market its remaining ownership interest in CVR Energy. On May 7, 2012, IEP Energy LLC and certain of its affiliates (collectively, "IEP") announced that they had acquired control of CVR pursuant to a tender offer for all of the Company's common stock (the "IEP Acquisition"). As of
December 31, 2013
, IEP owned approximately
82%
of all outstanding shares. Prior to the IEP Acquisition, the Company was owned
100%
by the public. See further discussion in
Note 3 ("Change of Control")
.
On December 15, 2011, CVR acquired all of the issued and outstanding shares of Gary-Williams Energy Corporation (subsequently converted to "WEC"). Assets acquired include a
70,000
bpcd rated capacity refinery in Wynnewood, Oklahoma and approximately
2.0 million
barrels of company-owned storage tanks. See
Note 4 ("Wynnewood Acquisition")
for additional information regarding the Wynnewood Acquisition.
CVR Partners, LP
In conjunction with the consummation of CVR's initial public offering in 2007, CVR transferred Coffeyville Resources Nitrogen Fertilizers, LLC ("CRNF"), its nitrogen fertilizer business, to CVR Partners, which at the time was a newly created limited partnership, in exchange for a managing general partner interest ("managing GP interest"), a special general partner interest ("special GP interest," represented by special GP units) and a de minimis limited partner interest ("LP interest," represented by special LP units). CVR concurrently sold the managing GP interest, including the associated incentive distribution rights ("IDRs"), to Coffeyville Acquisition III LLC ("CALLC III"), an entity owned by its then controlling stockholders and senior management, for
$10.6 million
. On April 13, 2011, the Nitrogen Fertilizer Partnership completed its initial public offering of
22,080,000
common units (the "Nitrogen Fertilizer Partnership IPO") priced at
$16.00
per unit. The common units, which are listed on the NYSE, began trading on April 8, 2011 under the symbol "UAN". In connection with the Nitrogen Fertilizer Partnership IPO, the IDRs were purchased by the Nitrogen Fertilizer Partnership for
$26.0 million
and subsequently extinguished. In addition, the noncontrolling interest representing the managing GP interest was purchased by Coffeyville Resources, LLC ("CRLLC"), a subsidiary of CVR, for a nominal amount. The consideration for the IDRs was paid to the owners of CALLC III, which included the Goldman Sachs Funds, the Kelso Funds and members of CVR's senior management. In connection with the Nitrogen Fertilizer Partnership IPO and through May 27, 2013, the Company recorded a noncontrolling interest for the common units sold into the public market which represented approximately a
30%
interest in the Nitrogen Fertilizer Partnership.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The gross proceeds to the Nitrogen Fertilizer Partnership from the Nitrogen Fertilizer Partnership IPO were approximately
$353.3 million
, before giving effect to underwriting discounts and commissions and offering expenses. In connection with the Nitrogen Fertilizer Partnership IPO, the Nitrogen Fertilizer Partnership paid approximately
$24.7 million
in underwriting fees and incurred approximately
$4.4 million
of other offering costs. Approximately
$5.7 million
of the underwriting fee was paid to an affiliate of GS, which was acting as a joint book-running manager for the Nitrogen Fertilizer Partnership IPO. Until completion of CVR's February 2011 secondary offering, an affiliate of GS was a stockholder and related party of the Company.
In connection with the Nitrogen Fertilizer Partnership IPO, the Nitrogen Fertilizer Partnership's limited partner interests were converted into common units, the Nitrogen Fertilizer Partnership's special general partner interests were converted into common units, and the Nitrogen Fertilizer Partnership's special general partner was merged with and into CRLLC, with CRLLC continuing as the surviving entity. In addition, as discussed above, the managing general partner sold its IDRs to the Nitrogen Fertilizer Partnership for
$26.0 million
, these interests were extinguished, and CALLC III sold the managing general partner to CRLLC for a nominal amount. As a result of the Nitrogen Fertilizer Partnership IPO, the Nitrogen Fertilizer Partnership has
two
types of partnership interests outstanding:
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|
•
|
common units representing limited partner interests; and
|
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|
•
|
a general partner interest, which is not entitled to any distributions, and which is held by the Nitrogen Fertilizer Partnership's general partner.
|
The proceeds from the Nitrogen Fertilizer Partnership IPO were utilized as follows:
|
|
•
|
approximately
$18.4 million
was distributed to CRLLC to satisfy the Nitrogen Fertilizer Partnership's obligation to reimburse it for certain capital expenditures made on behalf of the nitrogen fertilizer business prior to October 24, 2007;
|
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•
|
approximately
$117.1 million
was distributed to CRLLC through a special distribution in order to, among other things, fund the offer to purchase CRLLC's Old Notes required upon the consummation of the Nitrogen Fertilizer Partnership IPO;
|
|
|
•
|
$26.0 million
was used by the Nitrogen Fertilizer Partnership to purchase and extinguish the IDRs owned by the general partner;
|
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|
•
|
approximately
$4.8 million
was used to pay financing fees and associated legal and professional fees resulting from the Nitrogen Fertilizer Partnership's credit facility; and
|
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•
|
the balance of the proceeds were utilized by the Nitrogen Fertilizer Partnership for general partnership purposes, including the funding of the UAN expansion that was completed in February 2013 at a cost of approximately
$130.0 million
, excluding capitalized interest.
|
On May 28, 2013, CRLLC completed a registered public offering (the "Secondary Offering") whereby it sold
12,000,000
Nitrogen Fertilizer Partnership common units to the public at a price of
$25.15
per unit. The net proceeds to CRLLC from the Secondary Offering were approximately
$292.6 million
, after deducting approximately
$9.2 million
in underwriting discounts and commissions. The Nitrogen Fertilizer Partnership did not receive any of the proceeds from the sale of common units by CRLLC. In connection with the Secondary Offering, the Nitrogen Fertilizer Partnership incurred approximately
$0.5 million
in offering costs.
Subsequent to the closing of the Secondary Offering and as of
December 31, 2013
, public security holders held approximately
47%
of the total outstanding Nitrogen Fertilizer Partnership common units, and CRLLC held approximately
53%
of the total Nitrogen Fertilizer Partnership common units. In addition, CRLLC owns
100%
of the Nitrogen Fertilizer Partnership’s general partner, CVR GP, LLC, which only holds a non-economic general partner interest. The noncontrolling interest reflected on the Consolidated Balance Sheets of CVR is impacted by the net income of, and distributions from, the Nitrogen Fertilizer Partnership.
The Nitrogen Fertilizer Partnership has adopted a policy pursuant to which the Nitrogen Fertilizer Partnership will distribute all of the available cash it generates each quarter. The available cash for each quarter will be determined by the board of directors of the Nitrogen Fertilizer Partnership's general partner following the end of such quarter. The partnership agreement does not require that the Nitrogen Fertilizer Partnership make cash distributions on a quarterly basis or at all, and the board of directors of the general partner of the Nitrogen Fertilizer Partnership can change the Nitrogen Fertilizer Partnership's distribution policy at any time.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Nitrogen Fertilizer Partnership is operated by CVR's senior management (together with other officers of the general partner) pursuant to a services agreement among CVR, the general partner and the Nitrogen Fertilizer Partnership. The Nitrogen Fertilizer Partnership's general partner, CVR GP, LLC, manages the operations and activities of the Nitrogen Fertilizer Partnership, subject to the terms and conditions specified in the partnership agreement. The operations of the general partner in its capacity as general partner are managed by its board of directors. Actions by the general partner that are made in its individual capacity are made by CRLLC as the sole member of the general partner and not by the board of directors of the general partner. The general partner is not elected by the common unitholders and is not subject to re-election on a regular basis. The officers of the general partner manage the day-to-day affairs of the business of the Nitrogen Fertilizer Partnership. CVR, the Nitrogen Fertilizer Partnership, their respective subsidiaries and the general partner are parties to a number of agreements to regulate certain business relations between them. Certain of these agreements were amended in connection with the Nitrogen Fertilizer Partnership IPO.
CVR Refining, LP
In contemplation of an initial public offering, in September 2012, CRLLC formed CVR Refining Holdings, LLC ("CVR Refining Holdings"), which in turn formed CVR Refining GP, LLC. CVR Refining Holdings and CVR Refining GP, LLC formed the Refining Partnership, which issued them a
100%
limited partnership interest and a non-economic general partner interest, respectively. CVR Refining Holdings formed CVR Refining, LLC ("Refining LLC") and CRLLC contributed its petroleum and logistics subsidiaries, as well as its equity interests in Coffeyville Finance Inc. ("Coffeyville Finance"), to Refining LLC in October 2012. CVR Refining Holdings contributed Refining LLC to the Refining Partnership on December 31, 2012.
On January 23, 2013, the Refining Partnership completed the initial public offering of its common units representing limited partner interests (the “Refining Partnership IPO”). The Refining Partnership sold
24,000,000
common units to the public at a price of
$25.00
per unit, resulting in gross proceeds of
$600.0 million
, before giving effect to underwriting discounts and other offering expenses. Of the common units issued,
4,000,000
units were purchased by an affiliate of Icahn Enterprises. Additionally, on January 30, 2013, the Refining Partnership sold an additional
3,600,000
common units to the public at a price of
$25.00
per common unit in connection with the underwriters’ exercise of their option to purchase additional common units, resulting in gross proceeds of
$90.0 million
, before giving effect to underwriting discounts and other offering costs. The common units, which are listed on the NYSE, began trading on January 17, 2013 under the symbol “CVRR.” In connection with the Refining Partnership IPO, the Refining Partnership paid approximately
$32.5 million
in underwriting fees and incurred approximately
$3.9 million
of other offering costs.
Upon consummation of the Refining Partnership IPO, CVR indirectly owned the Refining Partnership's general partner and limited partnership interests in the form of common units. Following the offering, the Refining Partnership has
two
types of partnership interests outstanding:
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•
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common units representing limited partner interests; and
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•
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a general partner interest, which is not entitled to any distributions, and which is held by the Refining Partnership's general partner.
|
The net proceeds from the Refining Partnership IPO of approximately
$653.6 million
, after deducting underwriting discounts and commissions and offering expenses, have been, or will be, utilized as follows:
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•
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approximately
$253.0 million
was used to repurchase the
10.875%
senior secured notes due 2017 (including accrued interest);
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•
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approximately
$160.0 million
will be used to fund certain maintenance and environmental capital expenditures through 2014;
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•
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approximately
$54.0 million
was used to fund the turnaround expenses at the Wynnewood refinery that were incurred during the fourth quarter of 2012;
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•
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approximately
$85.1 million
was distributed to CRLLC; and
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•
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the balance of the proceeds of approximately
$101.5 million
has been allocated to be utilized by the Refining Partnership for general partnership purposes.
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CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In connection with the Refining Partnership IPO and through May 19, 2013, the Company recorded a noncontrolling interest for the common units sold into the public market which represented an approximate
19%
interest in the Refining Partnership. Prior to the Refining Partnership IPO, CVR owned
100%
of the Refining Partnership and net income earned during this period was fully attributable to the Company.
On May 20, 2013, the Refining Partnership completed an underwritten offering (the “Underwritten Offering”) by selling
12,000,000
common units to the public at a price of
$30.75
per unit. American Entertainment Properties Corporation (“AEPC”), an affiliate of Icahn Enterprises LP, also purchased an additional
2,000,000
common units at the public offering price in a privately negotiated transaction with a subsidiary of CVR Energy, which was completed on May 29, 2013. In connection with the Underwritten Offering, on June 10, 2013, the Refining Partnership sold an additional
1,209,236
common units to the public at a price of
$30.75
per unit in connection with a partial exercise by the underwriters of their option to purchase additional common units. The transactions described in this paragraph are collectively referred to as the “Transactions.” In connection with the Transactions, the Refining Partnership paid approximately
$12.2 million
in underwriting fees and approximately
$0.4 million
in offering costs.
The Refining Partnership utilized proceeds of approximately
$394.0 million
from the Underwritten Offering (including the underwriters' option) to redeem
13,209,236
common units from CVR Refining Holdings, an indirect wholly-owned subsidiary of CVR Energy. The net proceeds to a subsidiary of CVR Energy from the sale of
2,000,000
common units to AEPC were approximately
$61.5 million
. The Refining Partnership did not receive any of the proceeds from the sale of common units by CVR Energy to AEPC.
Subsequent to the closing of the Transactions and as of
December 31, 2013
, public security holders held approximately
29%
of the total Refining Partnership common units (including units owned by affiliates of Icahn Enterprises representing
4%
of the total Refining Partnership common units), and CVR Refining Holdings held approximately
71%
of the total Refining Partnership common units. In addition, CVR Refining Holdings, an indirect wholly-owned subsidiary of CVR Energy, owns
100%
of the Refining Partnership’s general partner, CVR Refining GP, LLC, which holds a non-economic general partner interest. The noncontrolling interest reflected on the Consolidated Balance Sheets of CVR is impacted by the net income of, and distributions from, the Refining Partnership.
The Refining Partnership’s general partner, CVR Refining GP, LLC, manages the Refining Partnership’s activities subject to the terms and conditions specified in the Refining Partnership’s partnership agreement. The Refining Partnership’s general partner is owned by CVR Refining Holdings. The operations of its general partner, in its capacity as general partner, are managed by its board of directors. Actions by its general partner that are made in its individual capacity are made by CVR Refining Holdings as the sole member of the Refining Partnership’s general partner and not by the board of directors of its general partner. The members of the board of directors of the Refining Partnership’s general partner are not elected by the Refining Partnership’s unitholders and are not subject to re-election on a regular basis. The officers of the general partner manage the day-to-day affairs of the business of the Refining Partnership.
The Refining Partnership has adopted a policy pursuant to which it will distribute all of the available cash it generates each quarter. The available cash for each quarter will be determined by the board of directors of the Refining Partnership’s general partner following the end of such quarter. The partnership agreement does not require that the Refining Partnership make cash distributions on a quarterly basis or at all, and the board of directors of the general partner of the Refining Partnership can change the distribution policy at any time.
The Refining Partnership entered into a services agreement on December 31, 2012, pursuant to which the Refining Partnership and its general partner obtain certain management and other services from CVR Energy. In addition, by virtue of the fact that the Refining Partnership is a controlled affiliate of CVR Energy, the Refining Partnership is bound by an omnibus agreement entered into by CVR Energy, CVR Partners and the general partner of CVR Partners, pursuant to which the Refining Partnership may not engage in, whether by acquisition or otherwise, the production, transportation or distribution, on a wholesale basis, of fertilizer in the contiguous United States, or a fertilizer restricted business, for so long as CVR Energy and certain of its affiliates continue to own at least
50%
of the Nitrogen Fertilizer Partnership’s outstanding units.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying CVR consolidated financial statements include the accounts of CVR Energy, Inc. and its majority-owned direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The ownership interests of noncontrolling investors in its subsidiaries are recorded as noncontrolling interests.
Prior to the Nitrogen Fertilizer Partnership IPO, management had determined that the Nitrogen Fertilizer Partnership was a variable interest entity ("VIE") and as such evaluated the qualitative criteria under Accounting Standards Codification ("ASC") Topic 810-10 —
Consolidations-Variable Interest Entities
("ASC 810-10"), to make a determination whether the Nitrogen Fertilizer Partnership should be consolidated on the Company's financial statements. ASC 810-10 requires the primary beneficiary of a variable interest entity's activities to consolidate the VIE. The primary beneficiary is identified as the enterprise that has a) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. The standard requires an ongoing analysis to determine whether the variable interest gives rise to a controlling financial interest in the VIE. Based upon that evaluation, CVR's management had determined to consolidate the Nitrogen Fertilizer Partnership in CVR's consolidated financial statements for the periods presented prior to the Nitrogen Fertilizer Partnership IPO. Subsequent to the Nitrogen Fertilizer Partnership IPO, the Nitrogen Fertilizer Partnership is no longer considered a VIE.
The Nitrogen Fertilizer Partnership and the Refining Partnership are both consolidated based upon the fact that their general partners are owned by CVR and, therefore, CVR has the ability to control their activities. The Nitrogen Fertilizer Partnership's and the Refining Partnership's general partners manage their respective operations and activities subject to the terms and conditions specified in their respective partnership agreements. The operations of each general partner in its capacity as general partner are managed by its board of directors. The limited rights of the common unitholders of the Nitrogen Fertilizer Partnership and the Refining Partnership are demonstrated by the fact that the common unitholders have no right to elect either general partner or either general partner's directors on an annual or other continuing basis. Each general partner can only be removed by a vote of the holders of at least
66 2/3%
of the outstanding common units, including any common units owned by the general partner and its affiliates (including CVR) voting together as a single class. Actions by the general partner that are made in its individual capacity are made by the CVR subsidiary that serves as the sole member of the general partner and not by the board of directors of the general partner. The officers of the general partner manage the day-to-day affairs of the business. The majority of the officers of both general partners are also officers of CVR. Based upon the general partner's role and rights as afforded by the partnership agreements and the limited rights afforded to the limited partners, the consolidated financial statements of CVR will include the assets, liabilities, cash flows, revenues and expenses of the Nitrogen Fertilizer Partnership and the Refining Partnership.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, CVR considers all highly liquid money market accounts and debt instruments with original maturities of three months or less to be cash equivalents. Under the Company's cash management system, checks issued but not presented to banks frequently result in book overdraft balances for accounting purposes and are classified as accounts payable in the Consolidated Balance Sheets. The change in book overdrafts are reported in the Consolidated Statements of Cash Flows as a component of operating cash flow for accounts payable as they do not represent bank overdrafts. The amount of these checks included in accounts payable as of
December 31, 2013
and
2012
was
$13.2 million
and
$21.3 million
, respectively.
Accounts Receivable, net
CVR grants credit to its customers. Credit is extended based on an evaluation of a customer's financial condition; generally, collateral is not required. Accounts receivable are due on negotiated terms and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding for longer than their contractual payment terms are considered past due. CVR determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts are past due, the customer's ability to pay its obligations to CVR, and the condition of the general economy and the industry as a whole. CVR writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Amounts collected on accounts receivable are included in net cash provided by operating activities in the Consolidated Statements of Cash Flows. As of
December 31, 2013
,
one
customer individually represented greater than 10% of the total accounts receivable balance. As of December 31, 2012,
no
customers individually represented greater than 10% of the total accounts receivable balance. The largest concentration of
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
credit for any one customer at
December 31, 2013
and
2012
was approximately
12.2%
and
9.8%
, respectively, of the accounts receivable balance.
Inventories
Inventories consist primarily of domestic and foreign crude oil, blending stock and components, work-in-progress, fertilizer products, and refined fuels and by-products. Inventories are valued at the lower of the first-in, first-out ("FIFO") cost, or market for fertilizer products, refined fuels and by-products for all periods presented. Refinery unfinished and finished products inventory values were determined using the ability-to-bear process, whereby raw materials and production costs are allocated to work-in-process and finished products based on their relative fair values. Other inventories, including other raw materials, spare parts, and supplies, are valued at the lower of moving-average cost, which approximates FIFO, or market. The cost of inventories includes inbound freight costs.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of prepayments for crude oil deliveries to CVR's refineries for which title had not transferred, non-trade accounts receivable, current portions of prepaid insurance, deferred financing costs, derivative agreements and other general current assets.
Property, Plant, and Equipment
Additions to property, plant and equipment, including capitalized interest and certain costs allocable to construction and property purchases, are recorded at cost. Capitalized interest is added to any capital project over
$1.0 million
in cost which is expected to take more than
six months
to complete. Depreciation is computed using principally the straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for such assets are as follows:
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Asset
|
Range of Useful
Lives, in Years
|
Improvements to land
|
15 to 30
|
Buildings
|
20 to 30
|
Machinery and equipment
|
5 to 30
|
Automotive equipment
|
5 to 15
|
Furniture and fixtures
|
3 to 10
|
Aircraft
|
20
|
Railcars
|
25 to 40
|
Leasehold improvements and assets held under capital leases are depreciated or amortized on the straight-line method over the shorter of the contractual lease term or the estimated useful life of the asset. Expenditures for routine maintenance and repair costs are expensed when incurred. Such expenses are reported in direct operating expenses (exclusive of depreciation and amortization) in the Company's Consolidated Statements of Operations.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired less liabilities assumed. Intangible assets are assets that lack physical substance (excluding financial assets). Goodwill acquired in a business combination and intangible assets with indefinite useful lives are not amortized, and intangible assets with finite useful lives are amortized. Goodwill and intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. CVR uses November 1 of each year as its annual valuation date for its goodwill impairment test. The Company performed its annual impairment review of goodwill for
2013
,
2012
and
2011
, which is attributable entirely to the nitrogen fertilizer segment and concluded there were no impairments. See
Note 8 ("Goodwill")
for further discussion.
Deferred Financing Costs, Underwriting and Original Issue Discount
Deferred financing costs associated with debt issuances are amortized to interest expense and other financing costs using the effective-interest method over the life of the debt. Additionally, the underwriting and original issue discount and premium related to debt issuances have been amortized to interest expense and other financing costs using the effective-interest method
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
over the life of the debt. Deferred financing costs related to the Amended and Restated ABL Credit Facility and CRNF credit facility are amortized to interest expense and other financing costs using the straight-line method through the termination date of the respective facility.
Planned Major Maintenance Costs
The direct-expense method of accounting is used for planned major maintenance activities. Maintenance costs are recognized as expense when maintenance services are performed. Planned major maintenance activities for the nitrogen plant generally occur every
two
to
three years
. The required frequency of the maintenance varies by unit for the refineries, but generally is every
four
to
five years
.
The Coffeyville refinery completed the second phase of a
two
-phase turnaround project during the first quarter of 2012. The first phase was completed during the fourth quarter of 2011. Costs of approximately
$21.2 million
and
$66.4 million
associated with the Coffeyville refinery's 2011/2012 turnaround were included in direct operating expenses (exclusive of depreciation and amortization) for the years ended
December 31, 2012
and
2011
, respectively. The Wynnewood refinery completed a turnaround in the fourth quarter of 2012. Costs of approximately
$102.5 million
were included in direct operating expenses (exclusive of depreciation and amortization) for the year ended
December 31, 2012
. During the year ended
December 31, 2012
, the nitrogen fertilizer plant completed a scheduled major turnaround. Costs of approximately
$4.8 million
associated with the nitrogen fertilizer plant's turnaround were included in direct operating expenses (exclusive of depreciation and amortization) for the year ended
December 31, 2012
.
Cost Classifications
Cost of product sold (exclusive of depreciation and amortization) includes cost of crude oil, other feedstocks, blendstocks, pet coke expense, renewable identification numbers ("RINs") expense and freight and distribution expenses. Cost of product sold excludes depreciation and amortization of approximately
$5.0 million
,
$3.7 million
and
$2.5 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively.
Direct operating expenses (exclusive of depreciation and amortization) includes direct costs of labor, maintenance and services, energy and utility costs, property taxes, environmental compliance costs as well as chemicals and catalysts and other direct operating expenses. Direct operating expenses exclude depreciation and amortization of approximately
$134.5 million
,
$124.1 million
and
$86.0 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively.
Selling, general and administrative expenses (exclusive of depreciation and amortization) consist primarily of legal expenses, treasury, accounting, marketing, human resources and maintaining the corporate and administrative office in Texas and the administrative offices in Kansas and Oklahoma. Selling, general and administrative expenses exclude depreciation and amortization of approximately
$3.3 million
,
$2.2 million
and
$1.8 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively.
Income Taxes
CVR accounts for income taxes utilizing the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See
Note 10 ("Income Taxes")
for further discussion.
Impairment of Long-Lived Assets
CVR accounts for long-lived assets in accordance with accounting standards issued by the Financial Accounting Standards Board ("FASB") regarding the treatment of the impairment or disposal of long-lived assets. As required by these standards, CVR reviews long-lived assets (excluding goodwill, intangible assets with indefinite lives, and deferred tax assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less cost to sell.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue Recognition
Revenues for products sold are recorded upon delivery of the products to customers, which is the point at which title is transferred, the customer has the assumed risk of loss, and payment has been received or collection is reasonably assured. Deferred revenue represents customer prepayments under contracts to guarantee a price and supply of nitrogen fertilizer in quantities expected to be delivered in the next
12 months
in the normal course of business. Excise and other taxes collected from customers and remitted to governmental authorities are not included in reported revenues.
Nonmonetary product exchanges and certain buy/sell crude oil transactions which are entered into in the normal course of business are included on a net cost basis in operating expenses on the Consolidated Statement of Operations.
The Company also engages in trading activities, whereby the Company enters into agreements to purchase and sell refined products with third parties. The Company acts as a principal in these transactions, taking title to the products in purchases from counterparties, and accepting the risks and rewards of ownership. The Company records revenue for the gross amount of the sales transactions, and records costs of purchases as an operating expense in the accompanying consolidated financial statements.
Shipping Costs
Pass-through finished goods delivery costs reimbursed by customers are reported in net sales, while an offsetting expense is included in cost of product sold (exclusive of depreciation and amortization).
Derivative Instruments and Fair Value of Financial Instruments
The petroleum business uses futures contracts, options, and forward contracts primarily to reduce exposure to changes in crude oil prices, finished goods product prices and interest rates to provide economic hedges of inventory positions and anticipated interest payments on long-term debt. Although management considers these derivatives economic hedges, these derivative instruments do not qualify as hedges for hedge accounting purposes under ASC Topic 815,
Derivatives and Hedging
("ASC 815"), and accordingly are recorded at fair value in the balance sheet. Changes in the fair value of these derivative instruments are recorded into earnings as a component of other income (expense) in the period of change. The estimated fair values of forward and swap contracts are based on quoted market prices and assumptions for the estimated forward yield curves of related commodities in periods when quoted market prices are unavailable.
The nitrogen fertilizer business uses forward swap contracts primarily to reduce the exposure to changes in interest rates on its debt and to provide a cash flow hedge. These derivative instruments have been designated as hedges for accounting purposes. Accordingly, these instruments are recorded at fair value in the Consolidated Balance Sheets, at each reporting period end. The actual measurement of the cash flow hedge ineffectiveness is recognized in earnings, if applicable. The effective portion of the gain or loss on the swaps is reported in accumulated other comprehensive income (loss) ("AOCI"), in accordance with ASC 815. See
Note 17 ("Derivative Financial Instruments")
for further discussion.
Other financial instruments consisting of cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. See
Note 11 ("Long-Term Debt")
for further discussion of the fair value of the debt instruments.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with ASC Topic 718,
Compensation — Stock Compensation
("ASC 718"). ASC 718 requires that compensation costs relating to share-based payment transactions be recognized in a company's financial statements. ASC 718 applies to transactions in which an entity exchanges its equity instruments for goods or services and also may apply to liabilities an entity incurs for goods or services that are based on the fair value of those equity instruments. See
Note 5 ("Share-Based Compensation")
for further discussion.
Treasury Stock
The Company accounts for its treasury stock under the cost method. To date, all treasury stock purchased was for the purpose of satisfying minimum statutory tax withholdings due at the vesting of non-vested stock awards.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Environmental Matters
Liabilities related to future remediation costs of past environmental contamination of properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, internal and third party assessments of contamination, available remediation technology, site-specific costs, and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change and such accruals can take into account the legal liability of other parties. Environmental expenditures are capitalized at the time of the expenditure when such costs provide future economic benefits.
Use of Estimates
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, using management's best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments.
Subsequent Events
The Company evaluated subsequent events, if any, that would require an adjustment to the Company's consolidated financial statements or require disclosure in the notes to the consolidated financial statements through the date of issuance of the consolidated financial statements. See
Note 22 ("Subsequent Events")
for further discussion.
New Accounting Pronouncements
In December 2011, the FASB issued Accounting Standard Update ("ASU") No. 2011-11, "
Disclosures about Offsetting Assets and Liabilities
" ("ASU 2011-11"). ASU 2011-11 retains the existing offsetting requirements and enhances the disclosure requirements to allow investors to better compare financial statements prepared under GAAP with those prepared under IFRS. On January 31, 2013, the FASB issued ASU No. 2013-01, "
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
" ("ASU 2013-01"). ASU 2013-01 limits the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreements and securities lending transactions. Both standards are effective for interim and annual periods beginning January 1, 2013 and are to be applied retrospectively. The Company adopted these standards as of January 1, 2013. The adoption of these standards expanded the Company's consolidated financial statement footnote disclosures.
In February 2013, the FASB issued ASU No. 2013-02, "
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income"
("ASU 2013-02"). ASU 2013-02 requires the Company to present information about reclassification adjustments from accumulated other comprehensive income in the financial statements in a single footnote or parenthetically on the face of the financial statements based on the source and the income statement line items affected by the reclassification. The standard is effective for interim and annual periods beginning January 1, 2013 and is to be applied prospectively. The Company adopted this standard as of January 1, 2013. The adoption of this standard did not materially expand the Company's consolidated financial statement footnote disclosures.
In July 2013, the FASB issued ASU No. 2013-11,
“Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”
(“ASU 2013-11”). ASU 2013-11 requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. The standard is effective for interim and annual periods beginning after December 15, 2013 and is to be applied prospectively with optional retrospective adoption permitted. The adoption of this standard is effective on January 1, 2014. The Company is currently evaluating the standard but does not expect it to materially impact the consolidated financial statements and footnote disclosures.
(3) Change of Control
On April 18, 2012, IEP entered into a Transaction Agreement (the "Transaction Agreement") with CVR, with respect to IEP's tender offer (the "Offer") to purchase all of the issued and outstanding shares of CVR's common stock for a price of
$30.00
per share in cash, without interest, less any applicable withholding taxes, plus
one
CCP, which represented the contractual right to receive an additional cash payment per share if a definitive agreement for the sale of CVR was executed on or prior to August 18, 2013 and such transaction closed. As no sale of the Company was executed by the date outlined in the Transaction Agreement, the CCPs expired on August 19, 2013.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In May 2012, IEP announced that a majority of CVR's common stock had been acquired through the Offer. As of
December 31, 2013
, IEP owned approximately
82%
of CVR's outstanding common stock. Pursuant to the Transaction Agreement, the settlement terms of all employee restricted share awards were modified. See further discussion at
Note 5 ("Share-Based Compensation")
.
(4) Wynnewood Acquisition
On December 15, 2011, the Company completed the acquisition of all the issued and outstanding shares of WEC, including its
two
wholly-owned subsidiaries (the "Wynnewood Acquisition"), for a preliminary purchase price of
$592.3 million
from The Gary-Williams Company, Inc. (the "Seller"). This consisted of
$525.0 million
in cash, plus approximately
$65.8 million
for working capital and approximately
$1.5 million
for a capital expenditure adjustment. The Wynnewood Acquisition was partially funded by proceeds received from the issuance of Additional First Lien Notes. See
Note 11 ("Long-Term Debt")
for further discussion of the issuance. The Wynnewood Acquisition was accounted for under the purchase method of accounting and, as such, the Company's results of operations on the Consolidated Statement of Operations for the year ended December 31, 2011 include WEC's revenues and loss before taxes of approximately
$115.7 million
and
$2.3 million
, respectively, for the period from December 16, 2011 through December 31, 2011.
WEC owned a
70,000
bpcd rated capacity refinery in Wynnewood, Oklahoma that includes approximately
2.0 million
barrels of company-owned storage tanks. Located in the PADD II Group 3 distribution area, the Wynnewood refinery is a dual crude oil unit facility that processes a variety of crudes and produces high-value fuel products (including gasoline, ultra-low sulfur diesel, jet fuel and solvent) as well as liquefied petroleum gas and a variety of asphalts.
Purchase Price Allocation
Under the purchase method of accounting, the total preliminary purchase price was allocated to WEC's net tangible assets based on their fair values as of December 15, 2011. An independent appraisal of the net assets acquired was completed. The purchase price included a preliminary net working capital amount, which was finalized in the first quarter of 2012. At December 31, 2011, this difference was estimated at approximately
$15.8 million
and was recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets.
In accordance with the Stock Purchase and Sale Agreement (the "Purchase Agreement"), the Company provided a Post-Closing Statement to the Seller on February 13, 2012, which reflected the difference between the cash paid at closing for the estimated working capital as compared to the actual net working capital acquired. In March 2012, the preliminary purchase price was increased by
$1.1 million
, following settlement of the estimated cash paid for working capital in excess of actual working capital.
The following table, set forth below, displays the total final purchase price allocated to WEC's net tangible assets based on their fair values as of December 15, 2011 (in millions):
|
|
|
|
|
Cash and cash equivalents
|
$
|
6.3
|
|
Accounts receivable
|
159.0
|
|
Inventories
|
213.5
|
|
Prepaid expenses and other current assets
|
6.0
|
|
Property, plant and equipment
|
577.0
|
|
Accounts payable and accrued liabilities
|
(316.1
|
)
|
Long-term debt
|
(52.3
|
)
|
Total fair values of net assets acquired
|
593.4
|
|
Less: cash acquired
|
6.3
|
|
Total consideration transferred, net of cash acquired
|
$
|
587.1
|
|
Unaudited Pro Forma Financial Information
The summary pro forma condensed consolidated financial information presented below for the year ended
December 31, 2011
gives effect to the Wynnewood Acquisition as if it had occurred at the beginning of the period presented. The pro forma adjustments are based upon available information and certain assumptions that CVR believes are reasonable. The pro forma net
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
income has been adjusted to reflect amortization and depreciation expense, interest expense, income tax expense and other accounting policy election differences, such as turnaround costs, as if those adjustments had been applied on January 1, 2011. The summary pro forma condensed consolidated financial information is for informational purposes only and does not purport to represent what the Company's consolidated results of operation actually would have been if the Wynnewood Acquisition had occurred at any date, and such data does not purport to project CVR's results of operations for any future period.
|
|
|
|
|
|
Year Ended
December 31, 2011
|
|
(in millions)
|
|
(unaudited)
|
Net sales
|
$
|
7,674.5
|
|
Net income
|
468.8
|
|
Acquisition Costs
For the years ended
December 31, 2012
and
2011
, CVR recognized approximately
$11.0 million
and
$5.2 million
, respectively, in transaction fees and integration expenses that are included in selling, general and administrative expense in the Consolidated Statement of Operations. In
2012
, these costs primarily relate to accounting and other professional consulting fees incurred associated with post-closing transaction matters and continued integration of various processes, policies, technologies and systems of WEC. In
2011
, these costs primarily relate to legal, accounting, initial purchaser discounts and commissions, and other professional fees incurred since the announcement of the Wynnewood Acquisition in November 2011. In addition, the Company entered into a commitment letter for a senior secured
one year
bridge loan to ensure that financing would be available for the Wynnewood Acquisition in the event that the additional offering of First Lien Notes was not closed by the date of the Wynnewood Acquisition. The bridge loan commitment letter subsequently expired by its terms. A commitment fee and other third-party costs totaling
$3.9 million
are included in selling, general and administrative expenses associated with the bridge loan commitment. The Company did not incur such expenses for the year ended
December 31, 2013
as the Wynnewood refinery’s operations were fully integrated.
(5) Share-Based Compensation
CALLC Override Units
Prior to CVR's initial public offering, CVR's subsidiaries were held and operated by CALLC, a limited liability company. Management of CVR held an equity interest in CALLC. CALLC issued non-voting override units to certain management members who held common units of CALLC. There were no required capital contributions for the override operating units. In connection with CVR's initial public offering in October 2007, CALLC was split into
two
entities: CALLC and CALLC II. In connection with this split, management's equity interest in CALLC, including both their common units and non-voting override units, was split so that half of management's equity interest was in CALLC and half was in CALLC II. In addition, in connection with the transfer of the managing general partner of the Nitrogen Fertilizer Partnership to CALLC III in October 2007, CALLC III issued non-voting override units to certain management members of CALLC III.
For the year ended December 31, 2011, CVR, CALLC, CALLC II accounted for share-based compensation in accordance with standards issued by the FASB regarding the treatment of share-based compensation, as well as guidance regarding the accounting for share-based compensation granted to employees of an equity method investee. CVR was allocated non-cash share-based compensation expense from CALLC, CALLC II and CALLC III.
In February 2011, CALLC and CALLC II sold
11,759,023
shares and
15,113,254
shares, respectively, of CVR's common stock, pursuant to an underwritten registered public offering. In May 2011, CALLC sold its remaining shares of CVR's common stock, pursuant to an underwritten registered public offering.
As a result, CALLC and CALLC II ceased to be stockholders of the Company. Subsequent to CALLC II's divestiture of its ownership interest in the Company in February 2011 and CALLC's divestiture of its ownership interest in the Company in May 2011, no additional share-based compensation expense was incurred with respect to override units and phantom units. The final fair values of the override units of CALLC and CALLC II were derived based upon the values resulting from the proceeds received associated with each entity's respective divestiture of its ownership in CVR. These values were utilized to determine the related compensation expense for the unvested units.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The final fair value of the CALLC III override units was derived based upon the proceeds received by CVR GP, LLC upon the purchase of the IDR's by the Nitrogen Fertilizer Partnership. These proceeds were subsequently distributed to the owners of CALLC III, which included the override unitholders. This value was utilized to determine the related compensation expense for the unvested units. No additional share-based compensation was incurred with respect to override units of CALLC III subsequent to June 30, 2011 due to the complete distribution of the value prior to July 1, 2011.
The following table provides key information for the share-based compensation plans related to the override units of CALLC, CALLC II, and CALLC III.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark
Value
(per Unit)
|
|
Original
Awards
Issued
|
|
|
|
*Compensation
Expense
for the
Year Ended
December 31,
|
Award Type
|
Grant Date
|
|
2011
|
|
|
|
|
|
|
|
(in millions)
|
Override Value Units
|
$
|
11.31
|
|
|
1,839,265
|
|
|
June 2005
|
|
$
|
5.0
|
|
Override Value Units
|
$
|
34.72
|
|
|
144,966
|
|
|
December 2006
|
|
0.4
|
|
Override Units
|
$
|
10.00
|
|
|
642,219
|
|
|
February 2008
|
|
0.2
|
|
|
|
|
|
|
Total
|
|
$
|
5.6
|
|
_______________________________________
|
|
*
|
As CVR Energy's common stock price increased or decreased, compensation expense associated with the unvested CALLC and CALLC II override units increased or was reversed in correlation with the calculation of the fair value under the probability-weighted expected return method.
|
Due to the divestiture of all ownership in CVR by CALLC and CALLC II and due to the purchase of IDRs from the general partner and the distribution to CALLC III, there was
no
associated unrecognized compensation expense as of
December 31, 2013
,
2012
and
2011
.
Phantom Unit Plans
CVR, through CRLLC, had
two
Phantom Unit Appreciation Plans (the "Phantom Unit Plans") whereby directors, employees, and service providers were eligible to be awarded phantom points at the discretion of CVR's board of directors or its compensation committee. Holders of service phantom points received distributions when holders of CALLC and CALLC II override operating units received distributions. Holders of performance phantom points received distributions when CALLC and CALLC II holders of override value units received distributions. In November 2010, CALLC and CALLC II sold common stock of CVR in an underwritten registered public offering. As a result of this offering, the Company made a payment to phantom unit holders totaling approximately
$3.6 million
. As described above, in February 2011, CALLC and CALLC II completed a sale of CVR common stock pursuant to an underwritten registered public offering. As a result of this offering, the Company made a payment to phantom unitholders of approximately
$20.1 million
in the first quarter of 2011. As described above, in May 2011, CALLC completed an additional sale of CVR common stock pursuant to an underwritten registered public offering. As a result of this offering, the Company made a payment to phantom unitholders of approximately
$9.2 million
in the second quarter of 2011.
There was no compensation expense for the years ended
December 31, 2013
and
2012
related to the Phantom Unit Plans. Compensation expense for the year ended December 31, 2011 related to the Phantom Unit Plans was approximately
$10.6 million
. The Phantom Unit Plans were terminated in December 2012. Due to the divestiture of all ownership of CVR by CALLC and CALLC II and the associated payments to the holders of service and phantom performance points, there was no unrecognized compensation expense at
December 31, 2013
,
2012
and
2011
.
Long-Term Incentive Plan — CVR Energy
CVR has a Long-Term Incentive Plan ("LTIP"), which permits the grant of options, stock appreciation rights, restricted shares, restricted stock units, dividend equivalent rights, share awards and performance awards (including performance share units, performance units and performance-based restricted stock). As of
December 31, 2013
, only restricted shares of CVR common stock, restricted stock units, performance units and stock options had been granted under the LTIP. Individuals who
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
are eligible to receive awards and grants under the LTIP include the Company's employees, officers, consultants, advisors and directors. A summary of the principal features of the LTIP is provided below.
Shares Available for Issuance.
The LTIP authorizes a share pool of
7,500,000
shares of the Company's common stock,
1,000,000
of which may be issued in respect of incentive stock options. Whenever any outstanding award granted under the LTIP expires, is canceled, is settled in cash or is otherwise terminated for any reason without having been exercised or payment having been made in respect of the entire award, the number of shares available for issuance under the LTIP is increased by the number of shares previously allocable to the expired, canceled, settled or otherwise terminated portion of the award. As of
December 31, 2013
,
6,787,341
shares of common stock were available for issuance under the LTIP.
Restricted Shares
A summary of restricted stock and restricted stock units (collectively "restricted shares") grant activity and changes during the years ended
December 31, 2013
,
2012
and
2011
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Shares
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
(in millions)
|
Non-vested at December 31, 2010
|
1,369,182
|
|
|
$
|
10.94
|
|
|
$
|
20.8
|
|
Granted
|
826,959
|
|
|
18.79
|
|
|
|
|
Vested
|
(557,355
|
)
|
|
11.83
|
|
|
|
|
Forfeited
|
(4,632
|
)
|
|
8.67
|
|
|
|
|
Non-vested at December 31, 2011
|
1,634,154
|
|
|
$
|
14.61
|
|
|
$
|
30.6
|
|
Granted
|
318,508
|
|
|
43.66
|
|
|
|
|
Vested
|
(740,811
|
)
|
|
13.59
|
|
|
|
|
Forfeited
|
(66,240
|
)
|
|
16.54
|
|
|
|
|
Non-vested at December 31, 2012
|
1,145,611
|
|
|
$
|
23.24
|
|
|
$
|
55.9
|
|
Granted
|
2,600
|
|
|
54.75
|
|
|
|
|
Vested
|
(709,959
|
)
|
|
18.73
|
|
|
|
|
Forfeited
|
(78,700
|
)
|
|
42.80
|
|
|
|
|
Non-vested at December 31, 2013
|
359,552
|
|
|
$
|
28.09
|
|
|
$
|
15.6
|
|
Through the LTIP, restricted shares have been granted to employees of the Company. Prior to the change of control as discussed in
Note 3 ("Change of Control")
, the restricted shares, when granted, were historically valued at the closing market price of CVR's common stock on the date of issuance and amortized to compensation expense on a straight-line basis over the vesting period of the stock. These restricted shares generally vest over a
three
-year period.
The change of control and related Transaction Agreement discussed in
Note 3 ("Change of Control")
triggered a modification to outstanding awards under the LTIP. Pursuant to the Transaction Agreement, all restricted shares scheduled to vest in 2012 were converted to restricted stock units whereby the recipient received cash settlement of the offer price of
$30.00
per share in cash plus
one
CCP upon vesting. The CCPs expired on August 19, 2013. Restricted shares scheduled to vest in 2013, 2014 and 2015 were converted to restricted stock units whereby the awards will be settled in cash upon vesting in an amount equal to the lesser of the offer price or the fair market value of the Company's common stock as determined at the most recent valuation date of December 31 of each year. Additional share-based compensation of approximately
$12.4 million
was incurred to revalue the awards upon modification for the year ended
December 31, 2012
. For awards vesting subsequent to 2012, the awards will be remeasured at each subsequent reporting date until they vest. As a result of the modification of the awards, the classification changed from equity-classified awards to liability-classified awards.
In December 2012 and during 2013, awards of restricted stock units and dividend equivalent rights were granted to certain employees of CVR. The awards are expected to vest over
three years
with
one-third
of the award vesting each year with the exception of awards granted to certain executive officers scheduled to vest over
one
year. Awards granted in December 2012 to Mr. Lipinski, the Company's Chief Executive Officer and President, were canceled in connection with the issuance of certain performance unit awards as discussed further below. Each restricted stock unit and dividend equivalent right represents the right
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to receive, upon vesting, a cash payment equal to (a) the fair market value of
one
share of the Company's common stock, plus (b) the cash value of all dividends declared and paid by the Company per share of the Company's common stock from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
As of
December 31, 2013
, there was approximately
$4.9 million
of total unrecognized compensation cost related to non-vested restricted stock units and associated dividends to be recognized over a weighted-average period of approximately
1.2 years
. Total compensation expense for the years ended
December 31, 2013
,
2012
and
2011
was approximately
$13.2 million
,
$36.9 million
and
$9.8 million
, respectively, related to the restricted stock unit awards.
As of
December 31, 2013
and
2012
, the Company had a liability of
$8.9 million
and
$19.5 million
, respectively, for non-vested restricted stock unit awards and associated dividends, which is recorded in personnel accruals on the Consolidated Balance Sheets. For the years ended
December 31, 2013
and
2012
, the Company paid cash of
$23.8 million
and
$22.2 million
, respectively, to settle liability-classified restricted stock unit awards upon vesting. No cash was paid to settle restricted share awards in
2011
.
Performance Unit Awards
In December 2013, the Company entered into Performance Unit Award Agreements with Mr. Lipinski. Certain of the Performance Unit Awards were entered into in connection with the cancellation of Mr. Lipinski's December 2012 restricted stock unit award, as discussed above. In accordance with accounting guidance related to the modification of share-based and other compensatory award arrangements, the Company concluded that the cancellation and concurrent issuance of the performance awards created a substantive service period from the original grant date of the December 2012 restricted stock unit award through the end of the performance period for the related performance awards. Compensation cost for the related awards is being recognized over the substantive service period. Total compensation expense for the year ended
December 31, 2013
related to the performance unit awards was
$3.9 million
.
Stock Options
Activity and price information regarding CVR's stock options granted are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
Outstanding, December 31, 2010
|
22,900
|
|
|
$
|
18.03
|
|
|
8.35
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
Outstanding, December 31, 2011
|
22,900
|
|
|
$
|
18.03
|
|
|
7.35
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
Exercised
|
(22,900
|
)
|
|
—
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
Outstanding, December 31, 2012
|
—
|
|
|
$
|
—
|
|
|
—
|
|
There were no grants of stock options in
2013
,
2012
or
2011
. In May 2012, all outstanding stock options equaling an equivalent of
22,900
common shares were exercised. Total compensation expense for the year ended
December 31, 2011
related to the stock options was
$8,000
.
No
compensation expense related to stock options was recognized for the years ended
December 31, 2013
and
2012
.
Long-Term Incentive Plan — CVR Partners
In April 2011, the board of directors of the Nitrogen Fertilizer Partnership's general partner adopted the CVR Partners, LP Long-Term Incentive Plan ("CVR Partners LTIP"). Individuals who are eligible to receive awards under the CVR Partners LTIP
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
include (1) employees of the Nitrogen Fertilizer Partnership and its subsidiaries, (2) employees of its general partner, (3) members of the board of directors of its general partner and (4) employees, consultants and directors of CVR Energy. The CVR Partners LTIP provides for the grant of options, unit appreciation rights, distribution equivalent rights, restricted units, phantom units and other unit-based awards, each in respect of common units. The maximum number of common units issuable under the CVR Partners' LTIP is
5,000,000
. As of
December 31, 2013
, there were
4,745,233
common units available for issuance under the CVR Partners LTIP.
Through the CVR Partners LTIP, phantom and common units have been awarded to employees of the Nitrogen Fertilizer Partnership and its general partner and to members of the board of directors of its general partner. In December 2012, the board of directors of the general partner of the Nitrogen Fertilizer Partnership approved an amendment to modify the terms of certain phantom unit awards previously granted to employees of the Nitrogen Fertilizer Partnership and its subsidiaries. Prior to the amendment, the phantom units, when granted, were valued at the closing market price of the Nitrogen Fertilizer Partnership's common units on the date of issuance and amortized to compensation expense on a straight-line basis over the vesting period of the units. These units generally vest over a
three
-year period.
The amendment triggered a modification to the awards by providing that the phantom units would be settled in cash rather than common units of the Nitrogen Fertilizer Partnership. Additional share-based compensation incurred to revalue the unvested units upon modification was not material for the year ended December 31, 2012. For awards vesting subsequent to the amendment, the awards will be remeasured at each subsequent reporting date until they vest. As a result of the modification of the awards to employees of the Nitrogen Fertilizer Partnership, the classification of the awards changed from an equity-classified award to a liability-classified award.
In December 2013, awards of phantom units and distribution equivalent rights were granted to certain employees of the Nitrogen Fertilizer Partnership and its subsidiaries and its general partner. The awards are expected to vest over
three years
with
one-third
of the award vesting each year. Each phantom unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (a) the average fair market value of
one
unit of the Nitrogen Fertilizer Partnership's common units for the first
ten
trading days in the month of vesting, plus (b) the per unit cash value of all distributions declared and paid by the Nitrogen Fertilizer Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
A summary of common units and phantom units (collectively "units") activity and changes under the CVR Partners LTIP during the years ended
December 31, 2013
,
2012
and
2011
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
(in millions)
|
Non-vested at April 13, 2011
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted
|
200,647
|
|
|
22.34
|
|
|
|
Vested
|
(36,076
|
)
|
|
19.36
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
Non-vested at December 31, 2011
|
164,571
|
|
|
$
|
22.99
|
|
|
$
|
4.1
|
|
Granted
|
95,370
|
|
|
24.53
|
|
|
|
Vested
|
(58,129
|
)
|
|
23.08
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
Non-vested at December 31, 2012
|
201,812
|
|
|
$
|
23.70
|
|
|
$
|
5.1
|
|
Granted
|
58,536
|
|
|
16.13
|
|
|
|
Vested
|
(89,229
|
)
|
|
23.24
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
Non-vested at December 31, 2013
|
171,119
|
|
|
$
|
21.34
|
|
|
$
|
2.8
|
|
As of
December 31, 2013
, there was approximately
$1.4 million
of total unrecognized compensation cost related to the awards under the CVR Partners LTIP to be recognized over a weighted-average period of
1.6 years
. Total compensation
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expense recorded for the years ended
December 31, 2013
,
2012
and
2011
related to the awards under the CVR Partners LTIP was approximately
$1.3 million
,
$2.2 million
and
$1.2 million
, respectively.
At both
December 31, 2013
and
2012
, the Nitrogen Fertilizer Partnership had a liability of
$0.2 million
for cash-settled non-vested phantom unit awards, which is recorded in personnel accruals on the Consolidated Balance Sheets. For the years ended
December 31, 2013
and
2012
, the Nitrogen Fertilizer Partnership paid cash of
$0.2 million
and
$0.3 million
, respectively, to settle liability-classified awards upon vesting.
No
cash was paid to settle phantom unit awards in
2011
.
Long-Term Incentive Plan – CVR Refining
In connection with the Refining Partnership IPO, on January 16, 2013, the board of directors of the general partner of the Refining Partnership adopted the CVR Refining, LP Long-Term Incentive Plan (the "CVR Refining LTIP"). Individuals who are eligible to receive awards under the CVR Refining LTIP include (1) employees of the Refining Partnership and its subsidiaries, (2) employees of the general partner, (3) members of the board of directors of the general partner and (4) certain employees, consultants and directors of CRLLC and CVR Energy who perform services solely for the benefit of the Refining Partnership. The CVR Refining LTIP provides for the grant of options, unit appreciation rights, restricted units, phantom units, unit awards, substitute awards, other-unit based awards, cash awards, performance awards, and distribution equivalent rights, each in respect of common units. The maximum number of common units issuable under the CVR Refining LTIP is
11,070,000
. On August 14, 2013, the Refining Partnership filed a Form S-8 to register the common units.
In December 2013, awards of phantom units and distribution equivalent rights were granted to employees of the Refining Partnership and its subsidiaries, its general partner and certain employees of CRLLC and CVR Energy who perform services solely for the benefit of the Refining Partnership. The awards are expected to vest over
three years
with
one-third
of the award vesting each year. Each phantom unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (a) the average fair market value of
one
unit of the Refining Partnership's common units for the first
ten
trading days in the month of vesting, plus (b) the per unit cash value of all distributions declared and paid by the Refining Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
A summary of phantom unit activity and changes under the CVR Refining LTIP during the year ended
December 31, 2013
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
(in millions)
|
Non-vested at January 16, 2013
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted
|
187,177
|
|
|
21.55
|
|
|
|
Vested
|
—
|
|
|
—
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
Non-vested at December 31, 2013
|
187,177
|
|
|
$
|
21.55
|
|
|
$
|
4.2
|
|
As of
December 31, 2013
, there was approximately
$4.2 million
of total unrecognized compensation cost related to the awards under the CVR Refining LTIP to be recognized over a weighted-average period of
2.0 years
. Total compensation expense recorded for the year ended
December 31, 2013
related to the awards under the CVR Refining LTIP was not material. As the phantom unit awards discussed above are cash-settled awards, they did not reduce the number of common units available for issuance under the plan. As of
December 31, 2013
, there were
11,070,000
common units available for issuance under the CVR Refining LTIP.
Incentive Unit Awards
In December 2013, the Company granted awards of incentive units and distribution equivalent rights to certain employees of CRLLC and CVR Energy. The awards are expected to vest over
three years
with
one-third
of the award vesting each year. Each incentive unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (a) the average fair market value of
one
unit of the Refining Partnership's common units for the first
ten
trading days in the month of vesting, plus (b) the per unit cash value of all distributions declared and paid by the Refining Partnership from the
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
A summary of incentive unit grant activity and changes during the year ended
December 31, 2013
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
(in millions)
|
Non-vested at December 31, 2012
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted
|
251,431
|
|
|
22.62
|
|
|
|
Vested
|
—
|
|
|
—
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
Non-vested at December 31, 2013
|
251,431
|
|
|
$
|
22.62
|
|
|
$
|
5.7
|
|
As of
December 31, 2013
, there was approximately
$5.7 million
of total unrecognized compensation cost related to non-vested incentive units to be recognized over a weighted-average period of approximately
2.0 years
. Total compensation expense for the year ended
December 31, 2013
related to the incentive units was not material.
(6) Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2013
|
|
2012
|
|
(in millions)
|
Finished goods
|
$
|
268.2
|
|
|
$
|
275.2
|
|
Raw materials and precious metals
|
177.0
|
|
|
164.3
|
|
In-process inventories
|
36.9
|
|
|
42.8
|
|
Parts and supplies
|
44.5
|
|
|
45.8
|
|
|
$
|
526.6
|
|
|
$
|
528.1
|
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(7) Property, Plant and Equipment
A summary of costs for property, plant, and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2013
|
|
2012
|
|
(in millions)
|
Land and improvements
|
$
|
36.1
|
|
|
$
|
31.0
|
|
Buildings
|
42.6
|
|
|
40.6
|
|
Machinery and equipment
|
2,312.5
|
|
|
2,089.5
|
|
Automotive equipment
|
19.2
|
|
|
15.0
|
|
Furniture and fixtures
|
18.3
|
|
|
13.7
|
|
Leasehold improvements
|
2.5
|
|
|
2.5
|
|
Aircraft
|
2.3
|
|
|
—
|
|
Railcars
|
7.9
|
|
|
2.5
|
|
Construction in progress
|
164.9
|
|
|
189.2
|
|
|
2,606.3
|
|
|
2,384.0
|
|
Accumulated depreciation
|
741.9
|
|
|
601.1
|
|
|
$
|
1,864.4
|
|
|
$
|
1,782.9
|
|
Capitalized interest recognized as a reduction in interest expense for the years ended
December 31, 2013
,
2012
and
2011
totaled approximately
$3.6 million
,
$10.8 million
and
$3.9 million
, respectively. Land, building and equipment that are under a capital lease obligation had an original carrying value of approximately
$24.8 million
and
$25.1 million
as of
December 31, 2013
and
2012
, respectively. Amortization of assets held under capital leases is included in depreciation expense.
(8) Goodwill
Goodwill and other intangible assets accounting standards provide that goodwill and other intangible assets with indefinite lives are not amortized but instead are tested for impairment on an annual basis. In accordance with these standards, CVR completes its annual test for impairment of goodwill as of
November 1
each year. CVR's annual review is performed only at the nitrogen fertilizer segment, as this is the only reporting unit that has goodwill recorded. For the years ended
December 31, 2013
,
2012
and
2011
, the annual test of impairment indicated that the goodwill, attributable to the nitrogen fertilizer segment, was not impaired. As of
December 31, 2013
and
2012
, goodwill included on the Consolidated Balance Sheets totaled approximately
$41.0 million
.
In testing goodwill for impairment, the Company applied the guidance in ASU 2011-08, "
Testing Goodwill for Impairment,
" which allows an alternative in certain situations that simplifies the impairment testing of goodwill. This guidance allows an entity the option to first perform a qualitative evaluation to determine whether it is necessary to perform the quantitative two-step goodwill impairment analysis.
The nitrogen fertilizer segment began the qualitative assessment by analyzing the key drivers and other external factors that impact the business in an attempt to determine if any significant events, transactions or other factors had occurred, or were expected to occur, that would impair earnings or competitiveness, thereby impairing the fair value of the nitrogen fertilizer segment. The key drivers that were considered in the evaluation of the nitrogen fertilizer segment's fair value included:
|
|
•
|
general economic conditions;
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
After assessing the totality of events and circumstances, it was determined that it was not more likely than not that the fair value of the nitrogen fertilizer segment was less than the carrying value, and so it was not necessary to perform the two-step goodwill impairment analysis.
(9) Insurance Claims
Coffeyville Refinery Incident
On December 28, 2010 the Coffeyville crude oil refinery experienced an equipment malfunction and small fire in connection with its fluid catalytic cracking unit ("FCCU"), which led to reduced crude oil throughput. The refinery returned to full operations on January 26, 2011. This interruption adversely impacted the production of refined products for the petroleum business in the first quarter of 2011. Total gross repair and other costs recorded related to the incident as of December 31, 2011 were approximately
$8.0 million
. No costs were recorded in 2013 or 2012.
The Company maintains property damage insurance policies which have an associated deductible of
$2.5 million
. During 2011, the Company received
$4.0 million
in insurance proceeds and recorded an insurance receivable related to the incident of approximately
$1.3 million
, which is included in other current assets in the Consolidated Balance Sheet as of December 31, 2012. The recording of the insurance proceeds and receivable resulted in a reduction of direct operating expenses (exclusive of depreciation and amortization). In February 2013, all insurance claims associated with the FCCU incident were fully settled and closed. Substantially all repair costs incurred in excess of the associated
$2.5 million
deductible were recovered by insurance.
(10) Income Taxes
On May 19, 2012, CVR became a member of the consolidated federal tax group of AEPC, a wholly-owned subsidiary of Icahn Enterprises, and subsequently entered into a tax allocation agreement with AEPC (the "Tax Allocation Agreement"). The Tax Allocation Agreement provides that AEPC will pay all consolidated federal income taxes on behalf of the consolidated tax group. CVR is required to make payments to AEPC in an amount equal to the tax liability, if any, that it would have paid if it were to file as a consolidated group separate and apart from AEPC.
As of
December 31, 2013
, the Company recorded a liability of
$0.1 million
for federal income taxes due to AEPC under the Tax Allocation Agreement. As of
December 31, 2012
, the Company recorded an overpayment of approximately
$9.2 million
, which was applied as a credit against the Company's estimated tax paid to AEPC during the first quarter of 2013. These amounts are recorded as due to parent and due from parent, respectively, in the Consolidated Balance Sheet. During the years ended
December 31, 2013
and
2012
, the Company paid
$260.0 million
and
$150.7 million
, respectively, to AEPC under the Tax Allocation Agreement.
Income tax expense (benefit) is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
|
(in millions)
|
Current
|
|
|
|
|
|
Federal
|
$
|
265.8
|
|
|
$
|
237.3
|
|
|
$
|
141.3
|
|
State
|
21.5
|
|
|
25.4
|
|
|
8.0
|
|
Total current
|
287.3
|
|
|
262.7
|
|
|
149.3
|
|
Deferred
|
|
|
|
|
|
Federal
|
(93.5
|
)
|
|
(39.8
|
)
|
|
40.3
|
|
State
|
(10.1
|
)
|
|
2.7
|
|
|
19.9
|
|
Total deferred
|
(103.6
|
)
|
|
(37.1
|
)
|
|
60.2
|
|
Total income tax expense
|
$
|
183.7
|
|
|
$
|
225.6
|
|
|
$
|
209.5
|
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a reconciliation of total income tax expense (benefit) to income tax expense (benefit) computed by applying the statutory federal income tax rate (
35%
) to pretax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
|
(in millions)
|
Tax computed at federal statutory rate
|
$
|
247.0
|
|
|
$
|
223.4
|
|
|
$
|
205.8
|
|
State income taxes, net of federal tax benefit
|
16.5
|
|
|
23.9
|
|
|
20.6
|
|
State tax incentives, net of federal tax expense
|
(9.0
|
)
|
|
(5.4
|
)
|
|
(3.2
|
)
|
Domestic production activities deduction
|
(18.5
|
)
|
|
(16.5
|
)
|
|
(10.6
|
)
|
Non-deductible share-based compensation
|
1.5
|
|
|
7.3
|
|
|
2.0
|
|
Non-deductible transaction costs
|
—
|
|
|
4.2
|
|
|
—
|
|
IRS interest expense, net
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Noncontrolling interest
|
(53.0
|
)
|
|
(11.9
|
)
|
|
(11.5
|
)
|
Partnership basis adjustment
|
—
|
|
|
—
|
|
|
4.2
|
|
Other, net
|
(0.8
|
)
|
|
0.5
|
|
|
2.1
|
|
Total income tax expense
|
$
|
183.7
|
|
|
$
|
225.6
|
|
|
$
|
209.5
|
|
The Company earns Kansas High Performance Incentive Program ("HPIP") credits for qualified business facility investment within the state of Kansas. CVR recognized a net income tax benefit of approximately
$7.8 million
,
$4.5 million
and
$3.2 million
on a credit of approximately
$12.0 million
,
$6.9 million
and
$4.9 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively. The Company earns Oklahoma Investment credits for qualified manufacturing facility investment within the state of Oklahoma. CVR recognized a net income tax benefit of approximately
$1.2 million
and
$0.9 million
on a credit of approximately
$1.8 million
and
$1.3 million
for the years ended
December 31, 2013
and
2012
, respectively.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The income tax effect of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at
December 31, 2013
and
2012
are as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
(in millions)
|
Deferred income tax assets:
|
|
|
|
Allowance for doubtful accounts
|
$
|
—
|
|
|
$
|
0.8
|
|
Personnel accruals
|
8.8
|
|
|
12.9
|
|
Inventories
|
—
|
|
|
3.6
|
|
Unrealized derivative losses, net
|
—
|
|
|
26.2
|
|
Accrued expenses
|
—
|
|
|
2.1
|
|
State tax credit carryforward, net of federal expense
|
19.6
|
|
|
14.4
|
|
Contingent liabilities
|
10.3
|
|
|
10.8
|
|
Other
|
—
|
|
|
2.1
|
|
Total gross deferred income tax assets
|
38.7
|
|
|
72.9
|
|
Deferred income tax liabilities:
|
|
|
|
Property, plant, and equipment
|
(2.0
|
)
|
|
(282.2
|
)
|
Investment in CVR Partners
|
(87.6
|
)
|
|
(109.7
|
)
|
Investment in CVR Refining
|
(522.1
|
)
|
|
—
|
|
Deferred financing
|
—
|
|
|
(1.1
|
)
|
Prepaid expenses
|
(0.4
|
)
|
|
(9.4
|
)
|
Other
|
(0.5
|
)
|
|
—
|
|
Total gross deferred income tax liabilities
|
(612.6
|
)
|
|
(402.4
|
)
|
Net deferred income tax liabilities
|
$
|
(573.9
|
)
|
|
$
|
(329.5
|
)
|
At
December 31, 2013
, CVR has Kansas state income tax credits of approximately
$5.3 million
, which are available to reduce future Kansas state regular income taxes. These credits, if not used, will expire in 2029. Additionally, CVR has Oklahoma state income tax credits of approximately
$8.9 million
which are available to reduce future Oklahoma state regular income taxes. These credits have an indefinite life.
In assessing the realizability of deferred tax assets including credit carryforwards, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Although realization is not assured, management believes that it is more likely than not that all of the deferred tax assets will be realized and thus, no valuation allowance was provided as of
December 31, 2013
and
2012
.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A reconciliation of the unrecognized tax benefits for the years ended
December 31, 2013
,
2012
and
2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
|
(in millions)
|
Balance beginning of year
|
$
|
36.9
|
|
|
$
|
17.7
|
|
|
$
|
0.2
|
|
Increase based on prior year tax positions
|
—
|
|
|
4.8
|
|
|
—
|
|
Decrease based on prior year tax positions
|
(6.4
|
)
|
|
(0.1
|
)
|
|
—
|
|
Increases in current year tax positions
|
14.7
|
|
|
14.7
|
|
|
17.5
|
|
Settlements
|
—
|
|
|
—
|
|
|
—
|
|
Reductions related to expirations of statute of limitations
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
Balance end of year
|
$
|
45.2
|
|
|
$
|
36.9
|
|
|
$
|
17.7
|
|
Included in the balance of unrecognized tax benefits as of
December 31, 2013
and
2012
are
$19.1 million
and
$10.4 million
, respectively, of tax benefits that, if recognized, would affect the effective tax rate. The balance of unrecognized tax benefits as of
December 31, 2011
include no amounts that, if recognized, would affect the effective tax rate.
CVR recognizes interest expense (income) and penalties on uncertain tax positions and income tax deficiencies (refunds) in income tax expense. CVR recognized interest expense of approximately
$2.2 million
during
2013
.
No
penalties were recognized during 2013. As of
December 31, 2013
, CVR has recognized a liability for interest of approximately
$2.6 million
.
No
liability was recognized for penalties in 2013. In
2012
, CVR recognized interest expense of approximately
$0.5 million
and penalties of approximately
$0.2 million
and in total, as of
December 31, 2012
, had recognized a liability for interest of approximately
$0.5 million
and penalties of
$0.2 million
. In
2011
, CVR recognized approximately
$0.1 million
of federal and state interest expense and penalties, and in total as of
December 31, 2011
, had
no
liability for interest or penalties.
At
December 31, 2013
, the Company's tax filings are generally open to examination in the United States for the tax years ended
December 31, 2010
through
December 31, 2012
and in various individual states for the tax years ended
December 31, 2009
through
December 31, 2012
.
(11) Long-Term Debt
Long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2013
|
|
2012
|
|
(in millions)
|
10.875% Second Lien Senior Secured Notes, due 2017, net of unamortized discount of $1.8 million as of December 31, 2012
|
$
|
—
|
|
|
$
|
220.9
|
|
6.5% Second Lien Senior Secured Notes, due 2022
|
500.0
|
|
|
500.0
|
|
CRNF credit facility
|
125.0
|
|
|
125.0
|
|
Capital lease obligations
|
49.9
|
|
|
51.2
|
|
Long-term debt
|
$
|
674.9
|
|
|
$
|
897.1
|
|
Senior Secured Notes
On April 6, 2010, CRLLC and its then wholly-owned subsidiary, Coffeyville Finance, completed a private offering of
$275.0 million
aggregate principal amount of
9.0%
First Lien Senior Secured Notes due 2015 (the "First Lien Notes") and
$225.0 million
aggregate principal amount of
10.875%
Second Lien Senior Secured Notes due 2017 (the "Second Lien Notes" and, together with the First Lien Notes, the "Old Notes"). The First Lien Notes were issued at
99.511%
of their principal amount and the Second Lien Notes were issued at
98.811%
of their principal amount. The associated original issue discount of the Old Notes was amortized to interest expense and other financing costs over the respective terms of the Old Notes.
On December 30, 2010, CRLLC made a voluntary unscheduled principal payment of approximately
$27.5 million
on the First Lien Notes that resulted in a premium payment of
3.0%
and a partial write-off of previously deferred financing costs and
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unamortized original issue discount totaling approximately
$1.6 million
in 2010. On May 16, 2011, CRLLC repurchased
$2.7 million
of the Old Notes at a purchase price of
103.0%
of the outstanding principal amount. In connection with the repurchase, CRLLC wrote off a portion of previously deferred financing costs and unamortized original issue discount of approximately
$89,000
which is recorded as a loss on extinguishment of debt for the year ended December 31, 2011. CRLLC also recorded additional losses on extinguishment of debt of
$81,000
in connection with premiums paid for the repurchase.
On December 15, 2011, CRLLC and Coffeyville Finance issued an additional
$200.0 million
aggregate principal amount of
9.0%
First Lien Senior Secured Notes due 2015 ("Additional First Lien Notes" and together with the First Lien Notes issued in 2010, the "First Lien Notes"). The Additional First Lien Notes were sold at an issue price of
105.0%
, plus accrued interest from October 1, 2011 of
$3.7 million
. The associated original issue premium of
$10.0 million
for the Additional First Lien Notes was amortized to interest expense and other financing costs over the term of the Additional First Lien Notes. The Additional First Lien Notes were offered in connection with CRLLC's acquisition of WEC. Proceeds of the Additional First Lien Notes were used to partially fund the Wynnewood Acquisition. On November 2, 2011, CRLLC entered into a commitment letter with certain lenders regarding a senior secured
one
year bridge loan ("the bridge loan"). CRLLC entered into the commitment letter in order to ensure that financing would be available for the Wynnewood Acquisition in the event that the offering of the Additional First Lien Notes was not closed by the date of closing of the Wynnewood Acquisition. Due to the closing of the issuance of the Additional First Lien Notes, the bridge loan commitment expired by its terms. At the closing of the issuance of the Additional First Lien Notes and the Wynnewood Acquisition, a commitment fee was paid to the lenders who provided the commitment. Other third-party costs were incurred. All costs associated with the undrawn bridge loan were fully expensed. In conjunction with the issuance of the Additional First Lien Notes, CRLLC expanded the then existing ABL credit facility (see "ABL Credit Facility" below for further discussion of the expansion and associated accounting treatment) and incurred a commitment fee and other third-party costs associated with the expansion.
CRLLC received total net proceeds from the offering of approximately
$202.8 million
, net of an underwriting discount of
$4.0 million
, bridge loan commitment and other associated fees of
$3.3 million
, an ABL commitment fee of
$2.6 million
, an Additional First Lien Notes structuring fee of
$0.2 million
, and certain third-party fees of
$0.8 million
. The related original issue premium and other debt issuance costs related to the Additional First Lien Notes were amortized over the remaining term of the First Lien Notes. Fees and third-party costs totaling
$3.9 million
related to the bridge loan commitment were expensed for the year ended December 31, 2011 and are included in selling, general and administrative expenses (exclusive of depreciation and amortization) on the Consolidated Statements of Operations. Fees and third-party costs associated with the ABL credit facility expansion were amortized over the remaining term of the facility.
The First Lien Notes were scheduled to mature on April 1, 2015, unless earlier redeemed or repurchased by the Issuers. See further discussion below related to the tender offer for and redemption of all the outstanding First Lien Notes in the fourth quarter of 2012. The Second Lien Notes were scheduled to mature on April 1, 2017, unless earlier redeemed or repurchased by the issuers. On January 23, 2013,
$253.0 million
of the proceeds from the Refining Partnership’s IPO were utilized to satisfy and discharge the indenture governing the Second Lien Notes. The amounts were used to (i) repay the face amount of all
$222.8 million
aggregate principal amount of Second Lien Notes then outstanding, (ii) pay the redemption premium of approximately
$20.6 million
and (iii) settle accrued interest with respect thereto in an amount of approximately
$9.5 million
. The repurchase of the Second Lien Notes resulted in a loss on extinguishment of debt of approximately
$26.1 million
for the year ended December 31, 2013 which includes the write-off of previously deferred financing fees of
$3.7 million
and unamortized original issue discount of
$1.8 million
.
Old Notes Tender Offer
The completion of the initial public offering of the Nitrogen Fertilizer Partnership in April 2011 triggered a Fertilizer Business Event (as defined in the indentures governing the Old Notes). As a result, the issuers were required to offer to purchase a portion of the Old Notes from holders at a purchase price equal to
103.0%
of the principal amount plus accrued and unpaid interest. A Fertilizer Business Event Offer was made on April 14, 2011 to purchase up to
$100.0 million
of the First Lien Notes and the Second Lien Notes in the second quarter of 2011. Approximately
$2.7 million
of the Old Notes were repurchased, including approximately
$0.5 million
of First Lien Notes and
$2.2 million
of Second Lien Notes.
The change of control discussed in
Note 3 ("Change of Control")
required CVR to make an offer to repurchase all of the Issuers' outstanding Old Notes. On June 4, 2012, the Issuers offered to purchase all or any part of the Old Notes, at a cash purchase price of
101%
of the aggregate principal amount of the Old Notes, plus accrued and unpaid interest, if any. The offer expired on July 5, 2012 with none of the outstanding Old Notes tendered.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2022 Senior Secured Notes
On October 23, 2012, Refining LLC and Coffeyville Finance completed a private offering of
$500.0 million
aggregate principal amount of
6.5%
Second Lien Senior Secured Notes due 2022 (the "2022 Notes"). The 2022 Notes were issued at par. Refining LLC received approximately
$492.5 million
of cash proceeds, net of the underwriting fees, but before deducting other third-party fees and expenses associated with the offering. The 2022 Notes were secured by substantially the same assets that secured the outstanding Second Lien Notes, subject to exceptions, until such time that the outstanding Second Lien Notes were satisfied and discharged in full, which occurred on January 23, 2013. Accordingly, the 2022 Notes are no longer secured. The 2022 Notes are fully and unconditionally guaranteed by CVR Refining and each of Refining LLC’s existing domestic subsidiaries on a joint and several basis. CVR Refining has
no
independent assets or operations and Refining LLC is a
100%
owned finance subsidiary of CVR Refining. Prior to the satisfaction and discharge of the Second Lien Notes, which occurred on January 23, 2013, the 2022 Notes were also guaranteed by CRLLC. CVR Energy, the Nitrogen Fertilizer Partnership and CRNF, a wholly owned subsidiary of the Nitrogen Fertilizer Partnership, are not guarantors.
A portion of the net proceeds from the offering of the 2022 Notes approximating
$348.1 million
were used to purchase approximately
$323.0 million
of the First Lien Notes pursuant to a tender offer and to settle accrued interest of approximately
$1.8 million
through October 23, 2012 and to pay related fees and expenses. Tendered notes were purchased at a premium of approximately
$23.2 million
in aggregate amount. CRLLC used the remaining proceeds from the offering to fund a completed and settled redemption of the remaining
$124.1 million
of outstanding First Lien Notes and to settle accrued interest of approximately
$1.6 million
through November 23, 2012. Redeemed notes were purchased at a premium of approximately
$8.4 million
in aggregate amount.
Previously deferred financing charges and unamortized original issuance premium related to the First Lien Notes totaled approximately
$8.1 million
and
$6.3 million
, respectively. As a result of these transactions, a loss on extinguishment of debt of
$33.4 million
was recorded in the Consolidated Statement of Operations in the fourth quarter of 2012, which includes the total premiums paid of
$31.6 million
and the write-of off previously deferred financing charges of
$8.1 million
, partially offset by the write-off of the unamortized original issuance premium of
$6.3 million
.
The debt issuance costs of the 2022 Notes totaled approximately
$8.7 million
and are being amortized over the term of the 2022 Notes as interest expense using the effective-interest amortization method. On September 17, 2013, Refining LLC and Coffeyville Finance consummated a registered exchange offer, whereby all
$500.0 million
of the outstanding 2022 Notes were exchanged for an equal principal amount of notes with identical terms that were registered under the Securities Act of 1933. The exchange offer fulfilled the Refining Partnership's obligations contained in the registration rights agreement entered into in connection with the issuance of the 2022 Notes. The Refining Partnership incurred approximately
$0.4 million
of debt registration costs related to the registration and exchange offer during the year ended
December 31, 2013
, which are being amortized over the term of the 2022 Notes as interest expense using the effective-interest amortization method.
The 2022 Notes mature on November 1, 2022, unless earlier redeemed or repurchased by the issuers. Interest is payable on the 2022 Notes semi-annually on May 1 and November 1 of each year, commencing on May 1, 2013.
The 2022 Notes contain customary covenants for a financing of this type that limit, subject to certain exceptions, the incurrence of additional indebtedness or guarantees, the creation of liens on assets, the ability to dispose of assets, the ability to make certain payments on contractually subordinated debt, the ability to merge, consolidate with or into another entity and the ability to enter into certain affiliate transactions. The 2022 Notes provide that the Refining Partnership can make distributions to holders of its common units provided, among other things, it has a minimum fixed charge coverage ratio and there is no default or event of default under the 2022 Notes. As of
December 31, 2013
, the Refining Partnership was in compliance with the covenants contained in the 2022 Notes.
Included in other current liabilities on the Consolidated Balance Sheets is accrued interest payable totaling approximately
$5.4 million
and
$12.2 million
, respectively, for the years ended
December 31, 2013
and
2012
related to the Old Notes and 2022 Notes. At
December 31, 2013
, the estimated fair value of the 2022 Notes was approximately
$491.3 million
. This estimate of fair value is Level 2 as it was determined by quotations obtained from a broker-dealer who makes a market in these and similar securities.
Asset-Backed (ABL) Credit Facility
On February 22, 2011, CRLLC entered into a
$250.0 million
asset-backed revolving credit agreement ("ABL credit facility") with a group of lenders including Deutsche Bank Trust Company Americas as collateral and administrative agent. This ABL credit facility, which was scheduled to mature in August 2015, replaced the
$150.0 million
first priority credit facility
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
which was terminated. The ABL credit facility was used to finance ongoing working capital, capital expenditures, letters of credit issuance and general needs of the Company and includes, among other things, a letter of credit sublimit equal to
90%
of the total facility commitment and a feature which permits an increase in borrowings of up to
$250.0 million
(in the aggregate), subject to additional lender commitments. On December 15, 2011, CRLLC entered into an incremental commitment agreement to increase the borrowings under the ABL credit facility to
$400.0 million
in the aggregate in connection with the Additional First Lien Notes issuance as discussed above. Terms of the ABL credit facility did not change as a result of the additional availability. On December 20, 2012, the ABL credit facility was amended and restated as further discussed below.
In connection with the ABL credit facility, CRLLC incurred lender and other third-party costs of approximately
$9.1 million
for the year ended December 31, 2011. These costs were deferred and amortized to interest expense and other financing costs using a straight-line method over the term of the facility. In connection with termination of the first priority credit facility, a portion of the unamortized deferred financing costs associated with this facility, totaling approximately
$1.9 million
, were written off in the first quarter of 2011. In accordance with guidance provided by the FASB regarding the modification of revolving debt arrangements, the remaining approximately
$0.8 million
of unamortized deferred financing costs associated with the first priority credit facility were amortized over the term of the ABL credit facility.
In connection with the closing of the Nitrogen Fertilizer Partnership's initial public offering in April 2011, the Nitrogen Fertilizer Partnership and CRNF were released as guarantors of the ABL credit facility.
In connection with the change in control described in
Note 3 ("Change of Control")
above, CRLLC, Deutsche Bank Trust Company Americas, as Administrative Agent and Collateral Agent, the lenders and the other parties thereto, entered into a First Amendment to Credit Agreement effective as of May 7, 2012 (the "ABL First Amendment"), pursuant to which the parties agreed to exclude IEP's acquisition of common stock from the definition of change of control as provided in the ABL credit facility.
Amended and Restated Asset Backed (ABL) Credit Facility
On December 20, 2012, CRLLC, CVR Refining, Refining LLC and each of the operating subsidiaries of Refining LLC (collectively, the "Credit Parties") entered into an amended and restated ABL credit agreement (the "Amended and Restated ABL Credit Facility") with a group of lenders and Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent and collateral agent. The Amended and Restated ABL Credit Facility replaced the ABL credit facility described above and is scheduled to mature on December 20, 2017. Under the amended and restated facility, the Refining Partnership assumed the Company's position as borrower and the Company's obligations under the facility upon the closing of the Refining Partnership's IPO on January 23, 2013, as further discussed in
Note 1 ("Organization and History of the Company")
.
The Amended and Restated ABL Credit Facility is a senior secured asset based revolving credit facility in an aggregate principal amount of up to
$400.0 million
with an incremental facility, which permits an increase in borrowings of up to
$200.0 million
subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for capital expenditures and working capital and general corporate purposes of the Credit Parties and their subsidiaries. The Amended and Restated ABL Credit Facility provides for loans and letters of credit in an amount up to the aggregate availability under the facility, subject to meeting certain borrowing base conditions, with sub-limits of
10%
of the total facility commitment for swingline loans and
90%
of the total facility commitment for letters of credit.
Borrowings under the Amended and Restated ABL Credit Facility bear interest at either a base rate or LIBOR plus an applicable margin. The applicable margin is (i) (a)
1.75%
for
LIBOR
borrowings and (b)
0.75%
for
prime rate
borrowings, in each case if quarterly average excess availability exceeds
50%
of the lesser of the borrowing base and the total commitments and (ii) (a)
2.00%
for
LIBOR
borrowings and (b)
1.00%
for
prime rate
borrowings, in each case if quarterly average excess availability is less than or equal to
50%
of the lesser of the borrowing base and the total commitments. The Amended and Restated ABL Credit Facility also requires the payment of customary fees, including an unused line fee of (i)
0.40%
if the daily average amount of loans and letters of credit outstanding is less than
50%
of the lesser of the borrowing base and the total commitments and (ii)
0.30%
if the daily average amount of loans and letters of credit outstanding is equal to or greater than
50%
of the lesser of the borrowing base and the total commitments. The Refining Partnership is also required to pay customary letter of credit fees equal to, for standby letters of credit, the applicable margin on LIBOR loans on the maximum amount available to be drawn under and for commercial letters of credit, the applicable margin on LIBOR loans less
0.50%
on the maximum amount available to be drawn under, and customary facing fees equal to
0.125%
of the face amount of, each letter of credit.
The Amended and Restated ABL Credit Facility also contains customary covenants for a financing of this type that limit the ability of the Credit Parties and their respective subsidiaries to, among other things, incur liens, engage in a consolidation,
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investment and loans, enter into affiliate transactions, issue equity interests, or create subsidiaries and unrestricted subsidiaries. The amended and restated facility also contains a fixed charge coverage ratio financial covenant, as defined under the facility. The Credit Parties were in compliance with the covenants of the Amended and Restated ABL Credit Facility as of
December 31, 2013
.
In connection with the Amended and Restated ABL Credit Facility, CRLLC and its subsidiaries incurred lender and other third-party costs of approximately
$2.1 million
for the year ended December 31, 2012. These costs are being deferred and amortized to interest expense and other financing costs using a straight-line method over the term of the amended facility. In connection with amendment of the ABL credit facility, a portion of the unamortized deferred financing costs associated with the ABL Credit Facility, totaling approximately
$4.1 million
, were written off in the fourth quarter of 2012. This expense is reflected on the Consolidated Statement of Operations as a loss on extinguishment of debt for the year ended December 31, 2012. In accordance with guidance provided by the FASB regarding the modification of revolving debt arrangements, the remaining approximately
$2.8 million
of unamortized deferred financing costs associated with the ABL credit facility will continue to be amortized over the term of the Amended and Restated ABL Credit Facility.
As of
December 31, 2013
, the Refining Partnership and its subsidiaries had availability under the Amended and Restated ABL Credit Facility of
$372.9 million
and had letters of credit outstanding of approximately
$27.1 million
. There were
no
borrowings outstanding under the Amended and Restated ABL Credit Facility as of
December 31, 2013
.
Nitrogen Fertilizer Partnership Credit Facility
On April 13, 2011, CRNF, as borrower, and the Nitrogen Fertilizer Partnership, as guarantor, entered into a new credit facility with a group of lenders including Goldman Sachs Lending Partners LLC, as administrative and collateral agent. The credit facility includes a term loan facility of
$125.0 million
and a revolving credit facility of
$25.0 million
with an uncommitted incremental facility of up to
$50.0 million
.
No
amounts were outstanding under the revolving credit facility at
December 31, 2013
. There is no scheduled amortization of the credit facility, which matures in April 2016. The carrying value of the Nitrogen Fertilizer Partnership's debt approximates fair value. The Nitrogen Fertilizer Partnership, upon the closing of the credit facility, made a special distribution of approximately
$87.2 million
to CRLLC, in order to, among other things, fund the offer to purchase CRLLC's senior secured notes required upon consummation of the Nitrogen Fertilizer Partnership IPO. The credit facility is used to finance on-going working capital, capital expenditures, letters of credit issuances and general needs of CRNF.
Borrowings under the credit facility bear interest based on a pricing grid determined by the trailing four quarter leverage ratio. The initial pricing for Eurodollar rate loans under the credit facility is the
Eurodollar
rate plus a margin of
3.50%
or, for base rate loans, the
prime rate
plus
2.50%
. Under its terms, the lenders under the credit facility were granted a perfected, first priority security interest (subject to certain customary exceptions) in substantially all of the assets of CRNF and the Nitrogen Fertilizer Partnership.
The credit facility requires the Nitrogen Fertilizer Partnership to maintain a minimum interest coverage ratio and a maximum leverage ratio and contains customary covenants for a financing of this type that limit, subject to certain exceptions, the incurrence of additional indebtedness or guarantees, the creation of liens on assets, the ability to dispose of assets, the ability to make restricted payments, investments and acquisitions, sale-leaseback transactions and affiliate transactions. The credit facility provides that the Nitrogen Fertilizer Partnership can make distributions to holders of its common units provided, among other things, it is in compliance with the leverage ratio and interest coverage ratio on a pro forma basis after giving effect to any distribution and there is no default or event of default under the credit facility. As of
December 31, 2013
, CRNF was in compliance with the covenants of the credit facility and there were no borrowings outstanding under the credit facility.
In connection with the credit facility, the Nitrogen Fertilizer Partnership incurred lender and other third-party costs of approximately
$4.8 million
for the year ended December 31, 2011. The costs associated with the credit facility have been deferred and are being amortized over the term of the credit facility as interest expense using the effective-interest amortization method for the term loan facility and the straight-line method for the revolving credit facility.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Financing Costs
For the years ended
December 31, 2013
,
2012
and
2011
, amortization of deferred financing costs reported as interest expense and other financing costs totaled approximately
$2.9 million
,
$5.0 million
and
$4.9 million
, respectively.
Estimated amortization of deferred financing costs is as follows:
|
|
|
|
|
|
|
Year Ending December 31,
|
Deferred
Financing
|
|
(in millions)
|
2014
|
$
|
2.8
|
|
2015
|
2.8
|
|
2016
|
2.2
|
|
2017
|
1.9
|
|
2018
|
0.9
|
|
Thereafter
|
3.5
|
|
|
$
|
14.1
|
|
Capital Lease Obligations
As a result of the Wynnewood Acquisition, the Company acquired certain lease assets and assumed related capital lease obligations related to the Magellan Pipeline Terminals, L.P. and Excel Pipeline LLC. The underlying assets and related depreciation were included in property, plant and equipment. The capital lease relates to a sales-lease back agreement with Sunoco Pipeline, L.P. for its membership interest in the Excel Pipeline. The lease has
190 months
remaining through September 2029. The financing agreement relates to the Magellan Pipeline terminals, bulk terminal and loading facility. The lease has
189 months
remaining and will expire in September 2029. As of
December 31, 2013
, the outstanding obligation associated with these arrangements totaled approximately
$51.2 million
, of which
$49.9 million
is included in long-term liabilities and
$1.3 million
is included in current liabilities in the Consolidated Balance Sheets.
Future payments required under capital lease at
December 31, 2013
are as follows:
|
|
|
|
|
Year Ending December 31,
|
Capital Lease
|
|
(in millions)
|
2014
|
$
|
6.3
|
|
2015
|
6.4
|
|
2016
|
6.4
|
|
2017
|
6.4
|
|
2018
|
6.5
|
|
2019 and thereafter
|
70.3
|
|
Total future payments
|
102.3
|
|
Less: amount representing interest
|
51.1
|
|
Present value of future minimum payments
|
51.2
|
|
Less: current portion
|
1.3
|
|
Long-term portion
|
$
|
49.9
|
|
(12) Dividends
On January 24, 2013, the board of directors of the Company adopted a quarterly cash dividend policy. Subject to declaration by its board of directors, CVR Energy’s quarterly dividend is expected to be
$0.75
per share, or
$3.00
per share on an annualized basis, which the Company began paying in the second quarter of 2013. Additionally, the Company declared and paid
two
special cash dividends during the year ended
December 31, 2013
.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of the quarterly and special dividends paid to stockholders during the year ended
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 19, 2013
|
|
May 17, 2013
|
|
June 10, 2013
|
|
August 19, 2013
|
|
November 18, 2013
|
|
Total Dividends
Paid in 2013
|
|
(in millions, except per share amounts)
|
Dividend type
|
Special
|
|
|
Quarterly
|
|
|
Special
|
|
|
Quarterly
|
|
|
Quarterly
|
|
|
|
Amount paid to IEP
|
$
|
391.6
|
|
|
$
|
53.4
|
|
|
$
|
462.8
|
|
|
$
|
53.4
|
|
|
$
|
53.4
|
|
|
$
|
1,014.6
|
|
Amounts paid to public stockholders
|
86.0
|
|
|
11.7
|
|
|
101.6
|
|
|
11.7
|
|
|
11.7
|
|
|
222.7
|
|
Total amount paid
|
$
|
477.6
|
|
|
$
|
65.1
|
|
|
$
|
564.4
|
|
|
$
|
65.1
|
|
|
$
|
65.1
|
|
|
$
|
1,237.3
|
|
Per common share
|
$
|
5.50
|
|
|
$
|
0.75
|
|
|
$
|
6.50
|
|
|
$
|
0.75
|
|
|
$
|
0.75
|
|
|
$
|
14.25
|
|
Shares outstanding
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
|
|
(13) Earnings Per Share
The computations of the basic and diluted earnings per share for the years ended
December 31, 2013
,
2012
and
2011
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
|
(in millions, except per share data)
|
Net income attributable to CVR Energy stockholders
|
$
|
370.7
|
|
|
$
|
378.6
|
|
|
$
|
345.8
|
|
Weighted-average number of shares of common stock outstanding
|
86.8
|
|
|
86.8
|
|
|
86.5
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Non-vested restricted shares
|
—
|
|
|
0.6
|
|
|
1.3
|
|
Weighted-average number of shares of common stock outstanding assuming dilution
|
86.8
|
|
|
87.4
|
|
|
87.8
|
|
Basic earnings per share
|
$
|
4.27
|
|
|
$
|
4.36
|
|
|
$
|
4.00
|
|
Diluted earnings per share
|
$
|
4.27
|
|
|
$
|
4.33
|
|
|
$
|
3.94
|
|
Outstanding stock options totaling
18,533
common shares were excluded from the diluted earnings per share calculation for the year ended December 31, 2011, as they were antidilutive. All outstanding stock options totaling
22,900
were exercised in May 2012. There were
no
dilutive awards outstanding during the year-ended
December 31, 2013
, as all unvested awards under the LTIP were liability-classified awards. See
Note 5 ("Share-Based Compensation")
.
(14) Benefit Plans
As of
December 31, 2013
, CVR sponsored
two
defined-contribution 401(k) plans (the "Plans") for all employees. Participants in the Plans may elect to contribute up to
50%
of their annual salaries and up to
100%
of their annual income sharing. CVR matches up to
100%
of the first
6%
of the participant's contribution for the nonunion and union plans. All Plans are administered by CVR and contributions for the union plan were determined in accordance with provisions of negotiated labor contracts. Participants in both Plans are immediately vested in their individual contributions. Both Plans have a
three
-year vesting schedule for CVR's matching funds and contain a provision to count service with any predecessor organization. CVR's contributions under the Plans were approximately
$6.1 million
,
$4.5 million
and
$2.3 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(15) Commitments and Contingencies
The minimum required payments for CVR's operating lease agreements and unconditional purchase obligations are as follows:
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating
Leases
|
|
Unconditional
Purchase
Obligations(1)
|
|
(in millions)
|
2014
|
$
|
9.5
|
|
|
$
|
121.4
|
|
2015
|
7.9
|
|
|
109.5
|
|
2016
|
6.9
|
|
|
102.4
|
|
2017
|
4.2
|
|
|
101.2
|
|
2018
|
3.0
|
|
|
101.2
|
|
Thereafter
|
5.2
|
|
|
882.7
|
|
|
$
|
36.7
|
|
|
$
|
1,418.4
|
|
_______________________________________
|
|
(1)
|
This amount includes approximately
$973.0 million
payable ratably over
seventeen
years pursuant to petroleum transportation service agreements between CRRM and TransCanada Keystone Pipeline, LP ("TransCanada"). Under the agreements, CRRM receives transportation of at least
25,000
barrels per day of crude oil with a delivery point at Cushing, Oklahoma for a term of
twenty
years on TransCanada's Keystone pipeline system. CRRM began receiving crude oil under the agreements in the first quarter of 2011.
|
CVR leases various equipment, including railcars, and real properties under long-term operating leases expiring at various dates. For the years ended
December 31, 2013
,
2012
and
2011
, lease expense totaled approximately
$9.4 million
,
$7.7 million
and
$5.1 million
, respectively. The lease agreements have various remaining terms. Some agreements are renewable, at CVR's option, for additional periods. It is expected, in the ordinary course of business, that leases will be renewed or replaced as they expire.
Additionally, in the normal course of business, the Company has long-term commitments to purchase oxygen, nitrogen, electricity, storage capacity and pipeline transportation services. For the years ended
December 31, 2013
,
2012
and
2011
, total expense of
$126.1 million
,
$116.7 million
and
$87.6 million
, respectively was incurred related to long-term commitments.
Crude Oil Supply Agreement
On August 31, 2012, CRRM, and Vitol Inc. ("Vitol"), entered into an Amended and Restated Crude Oil Supply Agreement (the "Vitol Agreement"). Under the Vitol Agreement, Vitol supplies the petroleum business with crude oil and intermediation logistics, which helps to reduce the Refining Partnership's inventory position and mitigate crude oil pricing risk.
The Vitol Agreement has an initial term commencing on August 31, 2012 and extending through December 31, 2014 (the "Initial Term"). Following the Initial Term, the Vitol Agreement will automatically renew for successive
one
-year terms (each such term, a "Renewal Term") unless either party provides the other with notice of nonrenewal at least
180
days prior to expiration of the Initial Term or any Renewal Term.
Litigation
From time to time, the Company is involved in various lawsuits arising in the normal course of business, including matters such as those described below under, "Environmental, Health, and Safety ("EHS") Matters." Liabilities related to such litigation are recognized when the related costs are probable and can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. It is possible that management's estimates of the outcomes will change within the next year due to uncertainties inherent in litigation and settlement negotiations. In the opinion of management, the ultimate resolution of any other litigation matters is not expected to have a material adverse effect on the accompanying consolidated financial statements. There can be no assurance that management's beliefs or opinions with respect to liability for potential litigation matters are accurate.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Samson Resources Company, Samson Lone Star, LLC and Samson Contour Energy E&P, LLC (together, "Samson") filed
fifteen
lawsuits in federal and state courts in Oklahoma and
two
lawsuits in state courts in New Mexico against CRRM and other defendants between March 2009 and July 2009. In addition, in May 2010, separate groups of plaintiffs (the "Anstine and Arrow cases") filed
two
lawsuits against CRRM and other defendants in state court in Oklahoma and Kansas. All of the lawsuits filed in state court were removed to federal court. All of the lawsuits (except for the New Mexico suits, which remained in federal court in New Mexico) were then transferred to the Bankruptcy Court for the United States District Court for the District of Delaware, where the SemGroup bankruptcy resides. In March 2011, CRRM was dismissed without prejudice from the New Mexico suits. All of the lawsuits alleged that Samson or other respective plaintiffs sold crude oil to a group of companies, which generally are known as SemCrude or SemGroup (collectively, "Sem"), which later declared bankruptcy and that Sem did not pay such plaintiffs for all of the crude oil purchased from Sem. The Samson lawsuits further alleged that Sem sold some of the crude oil purchased from Samson to J. Aron & Company ("J. Aron") and that J. Aron sold some of this crude oil to CRRM. All of the lawsuits sought the same remedy, the imposition of a trust, an accounting and the return of crude oil or the proceeds therefrom. The amount of the plaintiffs' alleged claims is unknown since the price and amount of crude oil sold by the plaintiffs and eventually received by CRRM through Sem and J. Aron, if any, is unknown. CRRM timely paid for all crude oil purchased from J. Aron. On January 26, 2011, CRRM and J. Aron entered into an agreement whereby J. Aron agreed to indemnify and defend CRRM from any damage, out-of-pocket expense or loss in connection with any crude oil involved in the lawsuits which CRRM purchased through J. Aron, and J. Aron agreed to reimburse CRRM's prior attorney fees and out-of-pocket expenses in connection with the lawsuits. The indemnification agreement does not provide reimbursement for any damages that CRRM may be liable for in connection with any purchases it made directly from Sem. Samson and CRRM entered a stipulation of dismissal with respect to all of the Samson cases and the Samson cases were dismissed with prejudice on February 8, 2012. In February 2013, CRRM agreed to a settlement in the Anstine and Arrow cases, which was finalized with the plaintiffs in June 2013, and CRRM was dismissed with prejudice. The settlement did not have a material adverse effect on the consolidated financial statements.
On June 21, 2012, Goldman, Sachs & Co. ("GS") filed suit against CVR in state court in New York, alleging that CVR failed to pay GS approximately
$18.5 million
in fees allegedly due to GS by CVR pursuant to an engagement letter dated March 21, 2012, which according to the allegations set forth in the complaint, provided that GS was engaged by CVR to assist CVR and the CVR board of directors in connection with a tender offer for CVR's stock, made by Carl C. Icahn and certain of his affiliates. CVR believes it has meritorious defenses and intends to vigorously defend against the suit. This amount has been fully accrued as of
December 31, 2013
and
2012
.
On August 10, 2012, Deutsche Bank ("DB") filed suit against CVR in state court in New York, alleging that CVR failed to pay DB approximately
$18.5 million
in fees allegedly due to DB by CVR pursuant to an engagement letter dated March 23, 2012, which according to the allegations set forth in the complaint, provided that DB was engaged by CVR to assist CVR and the CVR board of directors in connection with a tender offer for CVR's stock made by Carl C. Icahn and certain of his affiliates. CVR believes it has meritorious defenses and intends to vigorously defend against the suit. This amount has been fully accrued as of
December 31, 2013
and
2012
.
On December 17, 2012, Gary Community Investment Company, F/K/A The Gary-Williams Company and GWEC Holding Company, Inc. (referred to herein collectively as "Gary-Williams") filed a lawsuit in the Supreme Court of New York, New York County (Gary Community Investment Co. v. CVR Energy, Inc., No. 654401/12) against CVR and CRLLC (referred to collectively for purposes of this paragraph as "CVR"). The action arose out of claims relating to CVR's purchase of the Wynnewood, Oklahoma refinery pursuant to the Purchase and Sale Agreement entered into by the parties on November 2, 2011 (the "Purchase Agreement"). Specifically, CVR had provided notice to Gary-Williams that it sought indemnification for various breaches of the Purchase Agreement and had subsequently made a claim for payment of the entire escrow property pursuant to the Escrow Agreement by and among Gary-Williams, CRLLC, and the escrow agent, dated as of December 15, 2011. Gary-Williams, in its lawsuit, alleged that CVR breached the Purchase Agreement and the Escrow Agreement, and sought a declaratory judgment that CVR's claims are without any legal basis, damages in an unspecified amount, and release of the full amount of the escrow property to Gary-Williams.
In November 2013, each of the claims related to the Purchase Agreement and Escrow Agreement were settled by CVR and Gary-Williams, and the lawsuit was subsequently dismissed. Funds received by CVR from the Escrow Agreement under the settlement were not material and are included in other income in the Consolidated Statement of Operations for the year ended December 31, 2013.
CRNF received a
ten
year property tax abatement from Montgomery County, Kansas in connection with the construction of the nitrogen fertilizer plant that expired on December 31, 2007. In connection with the expiration of the abatement, the county reclassified and reassessed CRNF's nitrogen fertilizer plant for property tax purposes. The reclassification and reassessment
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
resulted in an increase in CRNF's annual property tax expense by an average of approximately
$10.7 million
per year for the years ended December 31, 2008 and December 31, 2009,
$11.7 million
for the year ended December 31, 2010,
$11.4 million
for the year ended December 31, 2011 and
$11.3 million
for the year ended December 31, 2012. CRNF protested the classification and resulting valuation for each of those years to the Kansas Court of Tax Appeals ("COTA"), followed by an appeal to the Kansas Court of Appeals. However, CRNF fully accrued and paid the property taxes the county claims are owed for the years ended December 31, 2008 through 2012. The Kansas Court of Appeals, in a memorandum opinion dated August 9, 2013, reversed the COTA decision in part and remanded the case to COTA, instructing COTA to classify each asset on an asset by asset basis instead of making a broad determination that the entire plant was real property as COTA did originally. CRNF believes that when that asset by asset determination is done, the majority of the plant will be classified as personal property which would result in significantly lower property taxes for CRNF for 2008 and for those years after the conclusion of the property tax settlement noted below as compared to the taxes paid by CRNF prior to the settlement. The County filed a motion for rehearing with the Kansas Court of Appeals seeking reconsideration of the Court’s August 9, 2013 decision and that motion was denied. The County also filed a petition for review with the Kansas Supreme Court and that petition is pending.
On February 25, 2013, Montgomery County and CRNF agreed to a settlement for tax years 2009 through 2012, which has lowered and will lower CRNF's property taxes by about
$10.7 million
per year (as compared to the 2012 tax year) for tax years 2013 to 2016 based on current mill levy rates. In addition, the settlement provides that Montgomery County will support CRNF's application before COTA for a
ten
-year tax exemption for the UAN expansion. Finally, the settlement provides that CRNF will continue its appeal of the 2008 reclassification and reassessment discussed above.
Flood, Crude Oil Discharge and Insurance
Crude oil was discharged from the Coffeyville refinery on July 1, 2007, due to the short amount of time available to shutdown and secure the refinery in preparation for the flood that occurred on June 30, 2007. In connection with the discharge, the Company received in May 2008, notices of claims from
sixteen
private claimants under the Oil Pollution Act ("OPA") in an aggregate amount of approximately
$4.4 million
(plus punitive damages). In August 2008, those claimants filed suit against the Company in the United States District Court for the District of Kansas in Wichita (the "Angleton Case"). In October 2009 and June 2010, companion cases to the Angleton Case were filed in the United States District Court for the District of Kansas in Wichita, seeking a total of approximately
$3.2 million
(plus punitive damages) for
three
additional plaintiffs as a result of the July 1, 2007 crude oil discharge. The Company has settled all of the claims with the plaintiffs from the Angleton Case and has settled all of the claims except for
one
of the plaintiffs from the companion cases. The settlements did not have a material adverse effect on the consolidated financial statements. The Company believes that the resolution of the remaining claim will not have a material adverse effect on the consolidated financial statements.
As a result of the crude oil discharge that occurred on July 1, 2007, the Company entered into an administrative order on consent (the "Consent Order") with the U.S. Environmental Protection Agency (the "EPA") on July 10, 2007. As set forth in the Consent Order, the EPA concluded that the discharge of crude oil from the Coffeyville refinery caused an imminent and substantial threat to the public health and welfare. Pursuant to the Consent Order, the Company agreed to perform specified remedial actions to respond to the discharge of crude oil from the refinery. The substantial majority of all required remedial actions were completed by January 31, 2009. The Company prepared and provided its final report to the EPA in January 2011 to satisfy the final requirement of the Consent Order. In April 2011, the EPA provided the Company with a notice of completion indicating that the Company has no continuing obligations under the Consent Order, while reserving its rights to recover oversight costs and penalties.
On October 25, 2010, the Company received a letter from the United States Coast Guard on behalf of the EPA seeking approximately
$1.8 million
in oversight cost reimbursement. The Company responded by asserting defenses to the Coast Guard's claim for oversight costs. On September 23, 2011, the United States Department of Justice ("DOJ"), acting on behalf of the EPA and the United States Coast Guard, filed suit against CRRM in the United States District Court for the District of Kansas seeking recovery from CRRM related to alleged non-compliance with the Clean Air Act's Risk Management Program ("RMP"), the Clean Water Act ("CWA") and the OPA. CRRM reached an agreement with the DOJ resolving its claims under CWA and OPA. The agreement is memorialized in a Consent Decree that was filed with and approved by the Court on February 12, 2013 and March 25, 2013, respectively (the "2013 Consent Decree"). On April 19, 2013, CRRM paid a civil penalty (including accrued interest) in the amount of
$0.6 million
related to the CWA claims and reimbursed the Coast Guard for oversight costs under OPA in the amount of
$1.7 million
. The 2013 Consent Decree also requires CRRM to make small capital upgrades to the Coffeyville refinery crude oil tank farm, develop flood procedures and provide employee training.
The parties also reached an agreement to settle DOJ’s claims related to alleged non-compliance with RMP. The agreement is memorialized in a separate consent decree that was filed with and approved by the Court on May 21, 2013 and July 2, 2013,
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
respectively, and provided for a civil penalty of
$0.3 million
. On July 29, 2013, CRRM paid the civil penalty related to the RMP claims. The RMP consent decree also requires CRRM to conduct several audits related to compliance with RMP requirements.
The Company is seeking insurance coverage for this release and for the ultimate costs for remediation and third-party property damage claims. On July 10, 2008, the Company filed a lawsuit in the United States District Court for the District of Kansas against certain of the Company's environmental insurance carriers requesting insurance coverage indemnification for the June/July 2007 flood and crude oil discharge losses. Each insurer reserved its rights under various policy exclusions and limitations and cited potential coverage defenses. Although the Court has now issued summary judgment opinions that eliminate the majority of the insurance defendants' reservations and defenses, the Company cannot be certain of the ultimate amount or timing of such recovery because of the difficulty inherent in projecting the ultimate resolution of the Company's claims. The Company has received
$25.0 million
of insurance proceeds under its primary environmental liability insurance policy which constitutes full payment to the Company of the primary pollution liability policy limit.
The lawsuit with the insurance carriers under the environmental policies remains the only unsettled lawsuit with the insurance carriers related to these events.
Environmental, Health, and Safety ("EHS") Matters
The petroleum and nitrogen fertilizer businesses are subject to various stringent federal, state, and local EHS rules and regulations. Liabilities related to EHS matters are recognized when the related costs are probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, existing technology, site-specific costs, and currently enacted laws and regulations. In reporting EHS liabilities, no offset is made for potential recoveries.
CRRM, CRNF, Coffeyville Resources Crude Transportation, LLC ("CRCT"), Wynnewood Refining Company, LLC ("WRC") and Coffeyville Resources Terminal (\"CRT") own and/or operate manufacturing and ancillary operations at various locations directly related to petroleum refining and distribution and nitrogen fertilizer manufacturing. Therefore, CRRM, CRNF, CRCT, WRC and CRT have exposure to potential EHS liabilities related to past and present EHS conditions at these locations. Under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), and related state laws, certain persons may be liable for the release or threatened release of hazardous substances. These persons include the current owner or operator of property where a release or threatened release occurred, any persons who owned or operated the property when the release occurred, and any persons who disposed of, or arranged for the transportation or disposal of, hazardous substances at a contaminated property. Liability under CERCLA is strict, and under certain circumstances, joint and several, so that any responsible party may be held liable for the entire cost of investigating and remediating the release of hazardous substances. Similarly, the OPA generally subjects owners and operators of facilities to strict, joint and several liability for all containment and clean-up costs, natural resource damages, and potential governmental oversight costs arising from oil spills into the waters of the United States, which has been broadly interpreted to include most water bodies including intermittent streams.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CRRM and CRT have agreed to perform corrective actions at the Coffeyville, Kansas refinery and the now-closed Phillipsburg, Kansas terminal facility, pursuant to Administrative Orders on Consent issued under RCRA to address historical contamination by the prior owners (RCRA Docket No. VII-94-H-20 and Docket No. VII-95-H-11, respectively). As of
December 31, 2013
and
2012
, environmental accruals of approximately
$1.5 million
and
$2.3 million
, respectively, were reflected in the Consolidated Balance Sheets for probable and estimated costs for remediation of environmental contamination under the RCRA Administrative Orders, for which approximately
$0.3 million
and
$0.7 million
, respectively, are included in other current liabilities. Accruals were determined based on an estimate of payment costs through 2031, for which the scope of remediation was arranged with the EPA, and were discounted at the appropriate risk free rates at
December 31, 2013
and
2012
, respectively. The accruals include estimated closure and post-closure costs of approximately
$0.7 million
and
$0.8 million
for
two
landfills at
December 31, 2013
and
2012
, respectively. The estimated future payments for these required obligations are as follows:
|
|
|
|
|
Year Ending December 31,
|
Amount
|
|
(in millions)
|
2014
|
$
|
0.3
|
|
2015
|
0.2
|
|
2016
|
0.1
|
|
2017
|
0.1
|
|
2018
|
0.1
|
|
Thereafter
|
1.0
|
|
Undiscounted total
|
1.8
|
|
Less amounts representing interest at 2.73%
|
0.3
|
|
Accrued environmental liabilities at December 31, 2013
|
$
|
1.5
|
|
Management periodically reviews and, as appropriate, revises its environmental accruals. Based on current information and regulatory requirements, management believes that the accruals established for environmental expenditures are adequate.
CRRM, CRNF, CRCT, WRC and CRT are subject to extensive and frequently changing federal, state and local, environmental and health and safety laws and regulations governing the emission and release of hazardous substances into the environment, the treatment and discharge of waste water, the storage, handling, use and transportation of petroleum and nitrogen products, and the characteristics and composition of gasoline and diesel fuels. The ultimate impact of complying with evolving laws and regulations is not always clearly known or determinable due in part to the fact that our operations may change over time and certain implementing regulations for laws, such as the federal Clean Air Act, have not yet been finalized, are under governmental or judicial review or are being revised. These laws and regulations could result in increased capital, operating and compliance costs.
In 2007, the EPA promulgated the Mobile Source Air Toxic II ("MSAT II") rule that requires the reduction of benzene in gasoline by 2011. CRRM and WRC are considered to be small refiners under the MSAT II rule and compliance with the rule is extended until 2015 for small refiners. However, the change in control resulting from the IEP acquisition in 2012 triggered the loss of small refiner status. Accordingly, the MSAT II projects have been accelerated by
three
months. Capital expenditures to comply with the rule are expected to be approximately
$63.0 million
for CRRM and
$105.0 million
for WRC. As of
December 31, 2013
,
$24.6 million
and
$52.2 million
have been spent related to these projects by CRRM and WRC, respectively.
The petroleum business is subject to the Renewable Fuel Standard ("RFS") which requires refiners to blend "renewable fuels" in with their transportation fuels or purchase renewable fuel credits, known as RINs in lieu of blending. Due to mandates in the RFS requiring increasing volumes of renewable fuels to replace petroleum products in the U.S. motor fuel market, there may be a decrease in demand for petroleum products. The EPA is required to determine and publish the applicable annual renewable fuel percentage standards for each compliance year by November 30 for the forthcoming year. The percentage standards represent the ratio of renewable fuel volume to gasoline and diesel volume. On August 6, 2013, the EPA announced that the final 2013 renewable fuel standard percentage would be
9.74%
. Beginning in 2011, the Coffeyville refinery was required to blend renewable fuels into its gasoline and diesel fuel or purchase RINs in lieu of blending, and in 2013, the Wynnewood refinery was subject to the RFS for the first time. However, because the cost of purchasing RINs has been extremely volatile and has significantly increased over the last year, the Wynnewood refinery has petitioned the EPA as a "small
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
refinery" for hardship relief from the RFS requirements in 2013 and 2014 based on the "disproportionate economic impact" on the Wynnewood refinery. From time to time, the petroleum business may purchase RINs on the open market or waiver credits for cellulosic biofuels from the EPA in order to comply with RFS. While the petroleum business cannot predict the future prices of RINs or waiver credits, the cost of purchasing RINs was extremely volatile in 2013, as the EPA's proposed 2013 renewable fuel volume mandates approached the "blend wall." The blend wall refers to the point at which refiners are required to blend more ethanol into the transportation supply than can be supported by the demand for E10 gasoline (gasoline containing 10 percent ethanol by volume). The EPA has published the proposed volume mandates for 2014, which acknowledge the blend wall and are generally lower than the volumes for 2013 and lower than statutory mandates. The price of RINs decreased significantly after the 2014 mandate was published; however, RIN prices have remained volatile and have increased in 2014. The cost of RINs for the years ended
December 31, 2013
,
2012
and
2011
was approximately
$180.5 million
,
$21.0 million
and
$19.0 million
, respectively. As of
December 31, 2013
and
2012
, the petroleum business’ biofuel blending obligation was approximately
$17.4 million
and
$1.1 million
, respectively, which is recorded in other current liabilities in the Consolidated Balance Sheets. The future cost of RINs for the petroleum business going forward is difficult to estimate. In particular, the cost of RINs is dependent upon a variety of factors, which include the availability of RINs for purchase, the price at which RINs can be purchased, transportation fuel production levels, the mix of the petroleum business’ petroleum products, as well as the fuel blending performed at its refineries, all of which can vary significantly from quarter to quarter.
In 2013, the EPA proposed "Tier 3" gasoline sulfur standards. Based on the proposed standards, CRRM anticipates it will incur less than
$20.0 million
of capital expenditures to install controls in order to meet the anticipated new standards. The project is expected to be completed during the Coffeyville refinery’s next scheduled turnaround in 2016. It is not anticipated that the Wynnewood refinery will require additional controls or capital expenditures to meet the anticipated new standard.
In March 2004, CRRM and CRT entered into a Consent Decree (the "2004 Consent Decree") with the EPA and the Kansas Department of Health and Environment (the "KDHE") to resolve air compliance concerns raised by the EPA and KDHE related to Farmland Industries Inc.'s prior ownership and operation of the Coffeyville crude oil refinery and the now-closed Phillipsburg terminal facilities. Under the 2004 Consent Decree, CRRM agreed to install controls to reduce emissions of sulfur dioxide, nitrogen oxides and particulate matter from its FCCU by January 1, 2011. In addition, pursuant to the 2004 Consent Decree, CRRM and CRT assumed clean-up obligations at the Coffeyville refinery and the now-closed Phillipsburg terminal facilities.
In March 2012, CRRM entered into a "Second Consent Decree" with the EPA, which replaces the 2004 Consent Decree, as amended (other than certain financial assurance provisions associated with corrective action at the refinery and terminal under RCRA). The Second Consent Decree was entered by the U.S. District Court for the District of Kansas on April 19, 2012. The Second Consent Decree gives CRRM more time to install the FCCU controls from the 2004 Consent Decree and expands the scope of the settlement so that it is now considered a "global settlement" under the EPA's "National Petroleum Refining Initiative." Under the National Petroleum Refining Initiative, the EPA alleged industry-wide non-compliance with
four
"marquee" issues under the Clean Air Act: New Source Review, Flaring, Leak Detection and Repair, and Benzene Waste Operations NESHAP. The National Petroleum Refining Initiative has resulted in most U.S. refineries (representing more than
90%
of the US refining capacity) entering into consent decrees requiring the payment of civil penalties and the installation of air pollution control equipment and enhanced operating procedures. Under the Second Consent Decree, the Company was required to pay a civil penalty of approximately
$0.7 million
and complete the installation of FCCU controls required under the 2004 Consent Decree, add controls to certain heaters and boilers and enhance certain work practices relating to wastewater and fugitive emissions. The remaining costs of complying with the Second Consent Decree are expected to be approximately
$40.0 million
. CRRM also agreed to complete a voluntary environmental project that will reduce air emissions and conserve water at an estimated cost of approximately
$1.2 million
. The incremental capital expenditures associated with the Second Consent Decree will not be material and will be limited primarily to the retrofit and replacement of heaters and boilers over a
five
to
seven
year timeframe.
WRC entered into a Consent Order with the Oklahoma Department of Environmental Quality ("ODEQ") in August 2011 (the "Wynnewood Consent Order"). The Wynnewood Consent Order addresses certain historic Clean Air Act compliance issues related to the operations of the prior owner. Under the Wynnewood Consent Order, WRC paid a civil penalty of
$950,000
, and agreed to install certain controls, enhance certain compliance programs, and undertake additional testing and auditing. A substantial portion of the costs of complying with the Wynnewood Consent Order were expended during the last turnaround. The remaining costs are expected to be
$3.0 million
. In consideration for entering into the Wynnewood Consent Order, WRC received a release from liability from ODEQ for matters described in the ODEQ order.
From time to time, ODEQ conducts air inspections of the Wynnewood refinery and pursues enforcement related to any alleged non-compliance seeking civil penalties and injunctive relief, which may necessitate the installation of controls. In
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
January 2014, ODEQ issued a full compliance evaluation report covering the period from December 2010 through June 2013, which covered periods of GWEC ownership and operation and, in some cases, continued into CVR Refining's ownership of the Wynnewood refinery. ODEQ has indicated that it will pursue enforcement related to the alleged non-compliance and that it expects to enter into a second consent order with WRC, which would necessitate the payment of a civil penalty and the implementation of injunctive relief to address the alleged non-compliance. The costs of any such enforcement action cannot be predicted at this time. However, based on its experience related to Clean Air Act enforcement and control requirements, the Company does not anticipate that the costs of any civil penalties, required additional controls or operational changes would be material.
WRC has entered into a series of Clean Water Act consent orders with ODEQ. The latest consent order (the "CWA Consent Order"), which supersedes other consent orders, became effective in September 2011. The CWA Consent Order addresses alleged non-compliance by WRC with its Oklahoma Pollutant Discharge Elimination System ("OPDES") permit limits. The CWA Consent Order requires WRC to take corrective action steps, including undertaking studies to determine whether the Wynnewood refinery's wastewater treatment plant capacity is sufficient. The Wynnewood refinery may need to install additional controls or make operational changes to satisfy the requirements of the CWA Consent Order. The cost of additional controls, if any, cannot be predicted at this time. However, based on its experience with wastewater treatment and controls, the Company does not anticipate that the costs of any required additional controls or operational changes would be material.
In January 2014, ODEQ issued a Notice of Violation to the Wynnewood refinery related to alleged violations of its OPDES permit. The costs of any related enforcement action cannot be predicted at this time. However, based on the Company's experience related to CWA enforcement, it does not anticipate that the costs of any civil penalties, required additional controls or operational changes would be material.
In January 2014, the EPA also issued an inspection report to the Wynnewood refinery related to a RCRA compliance evaluation inspection conducted in March 2013. The inspection report identified areas of concern for which the EPA may take enforcement action. The costs of any related enforcement action cannot be predicted at this time. However, based on the Company's experiences related to RCRA enforcement, it does not anticipate that the costs of any civil penalties, required additional controls or operational changes would be material.
From time to time, the EPA has conducted inspections and issued information requests to CRNF with respect to the Company's compliance with the RMP and the release reporting requirements under CERCLA and the EPCRA. These previous investigations have resulted in the issuance of preliminary findings regarding CRNF's compliance status. In the fourth quarter of 2010, following CRNF's reported release of ammonia from its cooling water system and the rupture of its UAN vessel (which released ammonia and other regulated substances), the EPA conducted its most recent inspection and issued an additional request for information to CRNF. The EPA has not made any formal claims against the Company and the Company has not accrued for any liability associated with the investigations or releases.
Environmental expenditures are capitalized when such expenditures are expected to result in future economic benefits. For the years ended
December 31, 2013
,
2012
and
2011
, capital expenditures were approximately
$111.3 million
,
$28.4 million
and
$7.6 million
, respectively, and were incurred to improve the environmental compliance and efficiency of the operations.
CRRM, CRNF, CRCT, WRC and CRT each believe it is in substantial compliance with existing EHS rules and regulations. There can be no assurance that the EHS matters described above or other EHS matters which may develop in the future will not have a material adverse effect on the business, financial condition, or results of operations.
Wynnewood Refinery Incident
On September 28, 2012, the Wynnewood refinery experienced an explosion in a boiler unit during startup after a short outage as part of the turnaround process.
Two
employees were fatally injured. Damage at the refinery was limited to the boiler. Additionally, there has been no evidence of environmental impact. The refinery was in the final stages of shutdown for turnaround maintenance at the time of the incident. The petroleum business completed an internal investigation of the incident and cooperated with OSHA in its investigation. OSHA also conducted a general inspection of the facility during the boiler incident investigation. In March 2013, OSHA completed its investigation and communicated its citations to WRC. OSHA also placed WRC in its Severe Violators Enforcement Program (“SVEP”). WRC is vigorously contesting the citations and OSHA’s placement of WRC in the SVEP. Any penalties associated with OSHA’s citations are not expected to have a material adverse effect on the consolidated financial statements. On September 25, 2013, WRC agreed to pay a small civil penalty to settle rather than defend claims alleged by the EPA under the Clean Air Act's general duty clause related to the boiler incident. In addition to the above, the spouses of the two employees fatally injured have filed a civil lawsuit against WRC, CVR Refining and CVR
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Energy in Fort Bend County, Texas. The civil suit is in its preliminary stages and it is currently too early to assess a potential outcome.
Affiliate Pension Obligations
Mr. Icahn, through certain affiliates, owns approximately
82%
of the Company’s capital stock. Applicable pension and tax laws make each member of a “controlled group” of entities, generally defined as entities in which there is at least an
80%
common ownership interest, jointly and severally liable for certain pension plan obligations of any member of the controlled group. These pension obligations include ongoing contributions to fund the plan, as well as liability for any unfunded liabilities that may exist at the time the plan is terminated. In addition, the failure to pay these pension obligations when due may result in the creation of liens in favor of the pension plan or the Pension Benefit Guaranty Corporation ("PBGC") against the assets of each member of the controlled group.
As a result of the more than
80%
ownership interest in CVR Energy by Mr. Icahn's affiliates, the Company is subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least
80%
.
Two
such entities, ACF Industries LLC (“ACF”) and Federal-Mogul, are the sponsors of several pension plans. All the minimum funding requirements of the Code and the Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006, for these plans have been met as of
December 31, 2013
. If the ACF and Federal-Mogul plans were voluntarily terminated, they would be collectively underfunded by approximately
$591.8 million
as of
December 31, 2013
. These results are based on the most recent information provided by Mr. Icahn's affiliates based on information from the plans' actuaries. These liabilities could increase or decrease, depending on a number of factors, including future changes in benefits, investment returns, and the assumptions used to calculate the liability. As members of the controlled group, CVR Energy would be liable for any failure of ACF and Federal-Mogul to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of their respective pension plans. In addition, other entities now or in the future within the controlled group that includes CVR Energy may have pension plan obligations that are, or may become, underfunded, and the Company would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of such plans. The current underfunded status of the ACF and Federal-Mogul pension plans requires such entities to notify the PBGC of certain “reportable events,” such as if CVR Energy were to cease to be a member of the controlled group, or if CVR Energy makes certain extraordinary dividends or stock redemptions. The obligation to report could cause the Company to seek to delay or reconsider the occurrence of such reportable events. Based on the contingent nature of potential exposure related to these affiliate pension obligations, no liability has been recorded in the consolidated financial statements.
(16) Fair Value Measurement
ASC Topic 820 —
Fair Value Measurements and Disclosures
("ASC 820") established a single authoritative definition of fair value when accounting rules require the use of fair value, set out a framework for measuring fair value and required additional disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount from the perspective of a market participant that holds the asset or owes the liability at the measurement date.
ASC 820 discusses valuation techniques, such as the market approach (prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets and liabilities such as a business), the income approach (techniques to convert future amounts to a single current amount based on market expectations about those future amounts including present value techniques and option pricing), and the cost approach (amount that would be required currently to replace the service capacity of an asset which is often referred to as a replacement cost). ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets and liabilities
|
|
|
•
|
Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)
|
|
|
•
|
Level 3 — Significant unobservable inputs (including the Company's own assumptions in determining the fair value)
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, as of
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in millions)
|
Location and Description
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
81.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81.0
|
|
Other current assets (other derivative agreements)
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Other long-term assets (other derivative agreements)
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Total Assets
|
$
|
81.0
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
82.0
|
|
Other current liabilities (other derivative agreements)
|
—
|
|
|
(15.3
|
)
|
|
—
|
|
|
(15.3
|
)
|
Other current liabilities (interest rate swap)
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
(0.9
|
)
|
Other current liabilities (biofuel blending obligations)
|
—
|
|
|
(16.2
|
)
|
|
—
|
|
|
(16.2
|
)
|
Other long-term liabilities (other derivative agreements)
|
—
|
|
|
(1.8
|
)
|
|
—
|
|
|
(1.8
|
)
|
Other long-term liabilities (interest rate swap)
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
(1.0
|
)
|
Total Liabilities
|
$
|
—
|
|
|
$
|
(35.2
|
)
|
|
$
|
—
|
|
|
$
|
(35.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in millions)
|
Location and Description
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
134.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
134.0
|
|
Other long-term assets (other derivative agreements)
|
—
|
|
|
0.9
|
|
|
—
|
|
|
0.9
|
|
Total Assets
|
$
|
134.0
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
134.9
|
|
Other current liabilities (other derivative agreements)
|
—
|
|
|
(67.7
|
)
|
|
—
|
|
|
(67.7
|
)
|
Other current liabilities (interest rate swap)
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
(0.9
|
)
|
Other current liabilities (biofuel blending obligations)
|
—
|
|
|
(1.1
|
)
|
|
—
|
|
|
(1.1
|
)
|
Other long-term liabilities (interest rate swap)
|
—
|
|
|
(1.9
|
)
|
|
—
|
|
|
(1.9
|
)
|
Total Liabilities
|
$
|
—
|
|
|
$
|
(71.6
|
)
|
|
$
|
—
|
|
|
$
|
(71.6
|
)
|
As of
December 31, 2013
and
2012
, the only financial assets and liabilities that are measured at fair value on a recurring basis are the Company’s cash equivalents, derivative instruments and the uncommitted biofuel blending obligation. Additionally, the fair value of the Company’s debt issuances is disclosed in
Note 11 ("Long-Term Debt")
. The Refining Partnership’s commodity derivative contracts and the uncommitted biofuel blending obligation, which use fair value measurements and are valued using broker quoted market prices of similar instruments, are considered Level 2 inputs. The Nitrogen Fertilizer Partnership has an interest rate swap that is measured at fair value on a recurring basis using Level 2 inputs. The fair value of these interest rate swap instruments are based on discounted cash flow models that incorporate the cash flows of the derivatives, as well as the current LIBOR rate and a forward LIBOR curve, along with other observable market inputs.
During the year ended
December 31, 2013
, the Company received proceeds of
$24.7 million
for the sale of its investments in marketable securities, which were previously classified as available-for-sale and reported at fair market value using quoted market prices. The aggregate cost basis for the available-for-sale securities sold was approximately
$18.6 million
. Upon the sale of the available-for-sale securities, the Company reclassified the unrealized gain of
$6.1 million
from accumulated other comprehensive income and recognized a realized gain in other income for the year ended
December 31, 2013
. As of
December 31, 2013
, the Company does not hold any further investments in available-for-sale securities. The Company had
no
transfers of assets or liabilities between any of the above levels during the year ended
December 31, 2013
.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(17) Derivative Financial Instruments
Gain (loss) on derivatives, net and current period settlements on derivative contracts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
|
(in millions)
|
Current period settlement on derivative contracts
|
$
|
6.4
|
|
|
$
|
(137.6
|
)
|
|
$
|
(7.2
|
)
|
Gain (loss) on derivatives, net
|
57.1
|
|
|
(285.6
|
)
|
|
78.1
|
|
The Refining Partnership and Nitrogen Fertilizer Partnership are subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, the Refining Partnership from time to time enters into various commodity derivative transactions.
The Refining Partnership has adopted accounting standards which impose extensive record-keeping requirements in order to designate a derivative financial instrument as a hedge. The Refining Partnership holds derivative instruments, such as exchange-traded crude oil futures and certain over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges for GAAP purposes. Gains or losses related to the change in fair value and periodic settlements of these derivative instruments are classified as gain (loss) on derivatives, net in the Consolidated Statements of Operations. There are no premiums paid or received at inception of the derivative contracts and upon settlement, there is no cost recovery associated with these contracts.
The Refining Partnership maintains a margin account to facilitate other commodity derivative activities. A portion of this account may include funds available for withdrawal. These funds are included in cash and cash equivalents within the Consolidated Balance Sheets. The maintenance margin balance is included within other current assets within the Consolidated Balance Sheets. Dependent upon the position of the open commodity derivatives, the amounts are accounted for as other current assets or other current liabilities within the Consolidated Balance Sheets. From time to time, the Refining Partnership may be required to deposit additional funds into this margin account. The fair value of the open commodity positions as of
December 31, 2013
was an immaterial net gain included in other current assets. For the years ended
December 31, 2013
,
2012
and
2011
, the Company recognized net losses of
$2.9 million
,
$11.7 million
and
$2.6 million
, respectively, which are recorded in gain (loss) on derivatives, net in the Consolidated Statement of Operations.
Commodity Swap
The Refining Partnership enters into commodity swap contracts in order to fix the margin on a portion of future production. The physical volumes are not exchanged and these contracts are net settled with cash. The contract fair value of the commodity swaps is reflected on the Consolidated Balance Sheets with changes in fair value currently recognized in the Consolidated Statements of Operations. Quoted prices for similar assets or liabilities in active markets (Level 2) are considered to determine the fair values for the purpose of marking to market the hedging instruments at each period end. At both
December 31, 2013
and
2012
, the Refining Partnership had open commodity hedging instruments consisting of
23.3 million
barrels of crack spreads primarily to fix the margin on a portion of its future gasoline and distillate production. The fair value of the outstanding contracts at
December 31, 2013
was a net
unrealized loss
of
$16.1 million
, of which
$0.9 million
is included in current assets,
$0.1 million
is included in other long-term assets,
$15.3 million
is included in current liabilities and
$1.8 million
is included in other long-term liabilities. The fair value of the outstanding contracts at
December 31, 2012
was a net
unrealized loss
of
$66.8 million
,
$67.7 million
of which is included in current liabilities and
$0.9 million
is included in other long-term assets. For the years ended
December 31, 2013
,
2012
and
2011
, the Refining Partnership recognized a net
gain
of
$60.1 million
, a net
loss
of
$273.9 million
and a net
gain
of
$80.4 million
, respectively, which are recorded in gain (loss) on derivatives, net in the Consolidated Statements of Operations.
Nitrogen Fertilizer Partnership Interest Rate Swap
On June 30 and July 1, 2011, CRNF entered into
two
floating-to-fixed interest rate swap agreements for the purpose of hedging the interest rate risk associated with a portion of the nitrogen fertilizer business'
$125.0 million
floating rate term debt which matures in April 2016. The aggregate notional amount covered under these agreements, which commenced on August 12, 2011 and expires on February 12, 2016, totals
$62.5 million
(split evenly between the
two
agreement dates). Under the terms of the interest rate swap agreement entered into on June 30, 2011, CRNF will receive a floating rate based on
three
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
month LIBOR
and pay a fixed rate of
1.94%
. Under the terms of the interest rate swap agreement entered into on July 1, 2011, CRNF will receive a floating rate based on
three month LIBOR
and pay a fixed rate of
1.975%
. Both swap agreements will be settled every
90
days. The effect of these swap agreements is to lock in a fixed rate of interest of approximately
1.96%
plus the applicable margin paid to lenders over three month LIBOR as governed by the CRNF credit agreement. At
December 31, 2013
, the effective rate was approximately
4.56%
. The agreements were designated as cash flow hedges at inception and accordingly, the effective portion of the gain or loss on the swap is reported as a component of AOCI, and will be reclassified into interest expense when the interest rate swap transaction affects earnings. Any ineffective portion of the gain or loss will be recognized immediately in interest expense on the Consolidated Statements of Operations.
The realized loss on the interest rate swap re-classed from AOCI into interest expense and other financing costs on the Consolidated Statements of Operations was
$1.1 million
,
$1.0 million
and
$0.3 million
, respectively, for the years ended
December 31, 2013
,
2012
and
2011
, respectively. For the years ended
December 31, 2013
,
2012
and
2011
, the Nitrogen Fertilizer Partnership recognized a decrease in the fair value of the interest rate swap agreements of
$0.2 million
,
$1.4 million
and
$3.1 million
, respectively, which was unrealized in AOCI.
Counterparty Credit Risk
The Refining Partnership’s exchange-traded crude oil futures and certain over-the-counter forward swap agreements are potentially exposed to concentrations of credit risk as a result of economic conditions and periods of uncertainty and illiquidity in the credit and capital markets. The Refining Partnership manages credit risk on its exchange-traded crude oil futures by completing trades with an exchange clearinghouse, which subjects the trades to mandatory margin requirements until the contract settles. The Refining Partnership also monitors the creditworthiness of its commodity swap counterparties and assesses the risk of nonperformance on a quarterly basis. Counterparty credit risk identified as a result of this assessment is recognized as a valuation adjustment to the fair value of the commodity swaps recorded in the Consolidated Balance Sheets. As of
December 31, 2013
, the counterparty credit risk adjustment was not material to the consolidated financial statements. Additionally, the Refining Partnership does not require any collateral to support commodity swaps into which it enters; however, it does have master netting arrangements that allow for the setoff of amounts receivable from and payable to the same party, which mitigates the risk associated with nonperformance.
Offsetting Assets and Liabilities
The commodity swaps and other commodity derivatives agreements discussed above include multiple derivative positions with a number of counterparties for which the Refining Partnership has entered into agreements governing the nature of the derivative transactions. Each of the counterparty agreements provides for the right to setoff each individual derivative position to arrive at the net receivable due from the counterparty or payable owed by the Refining Partnership. As a result of the right to setoff, the Refining Partnership’s recognized assets and liabilities associated with the outstanding derivative positions have been presented net in the Consolidated Balance Sheets. The interest rate swap agreements held by the Nitrogen Fertilizer Partnership also provide for the right to setoff. However, as the interest rate swaps are in a liability position, there are
no
amounts offset in the Consolidated Balance Sheets as of
December 31, 2013
and
2012
. In accordance with guidance issued by the FASB related to “
Disclosures about Offsetting Assets and Liabilities,”
the tables below outline the gross amounts of the recognized assets and liabilities and the gross amounts offset in the Consolidated Balance Sheets for the various types of open derivative positions at the Refining Partnership.
The offsetting assets and liabilities for the Refining Partnership’s derivatives as of
December 31, 2013
are recorded as current assets, non-current assets, current liabilities and non-current liabilities in prepaid expenses and other current assets, other long-term assets, other current liabilities and other long-term liabilities, respectively, in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
Description
|
Gross
Current Assets
|
|
Gross
Amounts
Offset
|
|
Net
Current Assets
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
4.3
|
|
|
$
|
(3.4
|
)
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
Total
|
$
|
4.3
|
|
|
$
|
(3.4
|
)
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
Description
|
Gross
Non-Current Assets
|
|
Gross
Amounts
Offset
|
|
Net
Non-Current Assets
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Total
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
Description
|
Gross
Current Liabilities
|
|
Gross
Amounts
Offset
|
|
Net
Current Liabilities
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
31.4
|
|
|
$
|
(16.1
|
)
|
|
$
|
15.3
|
|
|
$
|
—
|
|
|
$
|
15.3
|
|
Total
|
$
|
31.4
|
|
|
$
|
(16.1
|
)
|
|
$
|
15.3
|
|
|
$
|
—
|
|
|
$
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
Description
|
Gross
Non-Current Liabilities
|
|
Gross
Amounts
Offset
|
|
Net
Non-Current Liabilities
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
1.9
|
|
|
$
|
(0.1
|
)
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
Total
|
$
|
1.9
|
|
|
$
|
(0.1
|
)
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
The offsetting assets and liabilities for the Refining Partnership’s derivatives as of
December 31, 2012
are recorded as non-current assets in other long-term assets in the Consolidated Balance Sheets and as current liabilities in other current liabilities in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
Description
|
Gross
Non-Current Assets
|
|
Gross
Amounts
Offset
|
|
Net
Non-Current Assets
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
Total
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
Description
|
Gross
Current Liabilities
|
|
Gross
Amounts
Offset
|
|
Net
Current Liabilities
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
74.2
|
|
|
$
|
(6.5
|
)
|
|
$
|
67.7
|
|
|
$
|
—
|
|
|
$
|
67.7
|
|
Total
|
$
|
74.2
|
|
|
$
|
(6.5
|
)
|
|
$
|
67.7
|
|
|
$
|
—
|
|
|
$
|
67.7
|
|
(18) Related Party Transactions
In May 2012, IEP announced that it had acquired control of CVR pursuant to a tender offer to purchase all of the issued and outstanding shares of the Company's common stock. As of
December 31, 2013
, IEP owned approximately
82%
of all common shares outstanding. See
Note 3 ("Change of Control")
for additional discussion.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Until February 2011, the Goldman Sachs Funds and Kelso Funds owned approximately
40%
of CVR. On February 8, 2011, GS and Kelso completed a registered public offering, whereby GS sold into the public market its remaining ownership interest in CVR and Kelso substantially reduced its interest in the Company. On May 26, 2011, Kelso completed a registered public offering in which Kelso sold into the market its remaining ownership interest in CVR. As a result of these sales, the Goldman Sachs Funds and Kelso Funds are no longer stockholders of the Company.
Lease
From March 2009 until June 2013, the Company, through the Nitrogen Fertilizer Partnership, leased
199
railcars from American Railcar Leasing LLC, a company controlled by IEP, the Company's majority stockholder. The agreement was scheduled to expire on March 31, 2014. On June 13, 2013, the Nitrogen Fertilizer Partnership purchased the railcars under the lease from ARL for approximately
$5.0 million
. For the years ended
December 31, 2013
,
2012
and
2011
,
$0.4 million
,
$1.1 million
and
$1.1 million
, respectively, of rent expense was recorded related to this agreement and is included in cost of product sold (exclusive of depreciation and amortization) in the Consolidated Statements of Operations.
International Truck Purchase
During the year ended
December 31, 2013
, the Refining Partnership purchased
seven
trucks from a subsidiary of Navistar International Corporation ("Navistar") for approximately
$0.8 million
.
Tax Allocation Agreement
On May 19, 2012, CVR became a member of the consolidated federal tax group of AEPC, a wholly-owned subsidiary of Icahn Enterprises, and subsequently entered into a tax allocation agreement with AEPC (the "Tax Allocation Agreement"). The Tax Allocation Agreement provides that AEPC will pay all consolidated federal income taxes on behalf of the consolidated tax group. CVR is required to make payments to AEPC in an amount equal to the tax liability, if any, that it would have paid if it were to file as a consolidated group separate and apart from AEPC.
As of
December 31, 2013
, the Company recorded approximately
$0.1 million
for federal income taxes due to AEPC under the Tax Allocation Agreement. As of
December 31, 2012
, the Company recorded an overpayment of approximately
$9.2 million
, which was applied as a credit against the Company's estimated tax paid to AEPC during the first quarter of 2013. During the years ended
December 31, 2013
and
2012
, the Company paid
$260.0 million
and
$150.7 million
, respectively, to AEPC under the Tax Allocation Agreement.
Insight Portfolio Group (formerly Icahn Sourcing, LLC)
Insight Portfolio Group LLC is an entity formed and controlled by Mr. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. CVR Energy was a member of the buying group in 2012. In January 2013, CVR Energy acquired a minority equity interest in Insight Portfolio Group and agreed to pay a portion of Insight Portfolio Group’s operating expenses in 2013. The Company paid Insight Portfolio Group approximately
$0.1 million
during the year ended
December 31, 2013
. The Company did not pay Insight Portfolio Group any fees or other amounts with respect to the buying group arrangement in 2012. The Company may purchase a variety of goods and services as members of the buying group at prices and terms that management believes would be more favorable than those which would be achieved on a stand-alone basis.
Financing and Other
In connection with the Nitrogen Fertilizer Partnership IPO, an affiliate of GS received an underwriting fee of approximately
$5.7 million
for its role as a joint book-running manager. In April 2011, CRNF entered into a credit facility as discussed further in
Note 11 ("Long-Term Debt")
whereby an affiliate of GS was paid fees and expenses of approximately
$2.0 million
.
For the year ended
December 31, 2011
, the Company recognized approximately
$0.5 million
in expenses for the benefit of GS, Kelso and the president, chief executive officer and chairman of the Board of CVR, in connection with CVR's Registration Rights Agreement. These amounts included registration and filing fees, printing fees, external accounting fees and external legal fees.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(19) Business Segments
The Company measures segment profit as operating income for petroleum and nitrogen fertilizer, CVR's
two
reporting segments, based on the definitions provided in ASC Topic 280 —
Segment Reporting
. All operations of the segments are located within the United States.
Petroleum
Principal products of the petroleum segment are refined fuels, propane, and petroleum refining by-products, including pet coke. The petroleum segment's Coffeyville refinery sells pet coke to the Nitrogen Fertilizer Partnership for use in the manufacture of nitrogen fertilizer at the adjacent nitrogen fertilizer plant. For the petroleum segment, a per-ton transfer price is used to record intercompany sales on the part of the petroleum segment and corresponding intercompany cost of product sold (exclusive of depreciation and amortization) for the nitrogen fertilizer segment. The per ton transfer price paid, pursuant to the pet coke supply agreement that became effective October 24, 2007, is based on the lesser of a pet coke price derived from the price received by the nitrogen fertilizer segment for UAN (subject to a UAN based price ceiling and floor) and a pet coke price index for pet coke. The intercompany transactions are eliminated in the other segment. Intercompany sales included in petroleum net sales were approximately
$9.6 million
,
$9.9 million
and
$11.4 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively.
The petroleum segment recorded intercompany cost of product sold (exclusive of depreciation and amortization) for the hydrogen purchases described below under "Nitrogen Fertilizer" of approximately
$11.4 million
,
$6.1 million
and
$13.2 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively. The petroleum segment recorded intercompany revenue for hydrogen sales of approximately
$0.6 million
for the year ended
December 31, 2013
.
Nitrogen Fertilizer
The principal product of the nitrogen fertilizer segment is nitrogen fertilizer. Intercompany cost of product sold (exclusive of depreciation and amortization) for the pet coke transfer described above was approximately
$9.8 million
,
$10.2 million
and
$10.7 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively.
Pursuant to the feedstock agreement, the Company's segments have the right to transfer excess hydrogen between the Coffeyville refinery and nitrogen fertilizer plant. Sales of hydrogen to the petroleum segment have been reflected as net sales for the nitrogen fertilizer segment. Receipts of hydrogen from the petroleum segment have been reflected in cost of product sold (exclusive of depreciation and amortization) for the nitrogen fertilizer segment. For the years ended
December 31, 2013
,
2012
and
2011
, the net sales generated from intercompany hydrogen sales were
$11.4 million
,
$6.3 million
and
$14.2 million
, respectively. For the years ended
December 31, 2013
,
2012
and
2011
, the nitrogen fertilizer segment also recognized approximately
$0.6 million
,
$0.2 million
and
$1.0 million
, respectively, of cost of product sold related to the transfer of excess hydrogen. As these intercompany sales and cost of product sold are eliminated, there is no financial statement impact on the consolidated financial statements.
Other Segment
The other segment reflects intercompany eliminations, corporate cash and cash equivalents, income tax activities and other corporate activities that are not allocated to the operating segments.
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes certain operating results and capital expenditures information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
|
(in millions)
|
Net sales
|
|
|
|
|
|
Petroleum
|
$
|
8,683.5
|
|
|
$
|
8,281.5
|
|
|
$
|
4,751.8
|
|
Nitrogen Fertilizer
|
323.7
|
|
|
302.3
|
|
|
302.9
|
|
Intersegment elimination
|
(21.4
|
)
|
|
(16.5
|
)
|
|
(25.6
|
)
|
Total
|
$
|
8,985.8
|
|
|
$
|
8,567.3
|
|
|
$
|
5,029.1
|
|
Cost of product sold (exclusive of depreciation and amortization)
|
|
|
|
|
|
Petroleum
|
$
|
7,526.7
|
|
|
$
|
6,667.3
|
|
|
$
|
3,926.6
|
|
Nitrogen Fertilizer
|
58.1
|
|
|
46.1
|
|
|
42.5
|
|
Intersegment elimination
|
(21.6
|
)
|
|
(16.5
|
)
|
|
(25.6
|
)
|
Total
|
$
|
7,563.2
|
|
|
$
|
6,696.9
|
|
|
$
|
3,943.5
|
|
Direct operating expenses (exclusive of depreciation and amortization)
|
|
|
|
|
|
Petroleum
|
$
|
361.7
|
|
|
$
|
426.5
|
|
|
$
|
247.7
|
|
Nitrogen Fertilizer
|
94.1
|
|
|
95.6
|
|
|
86.5
|
|
Other
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
Total
|
$
|
455.8
|
|
|
$
|
522.1
|
|
|
$
|
334.1
|
|
Depreciation and amortization
|
|
|
|
|
|
Petroleum
|
$
|
114.3
|
|
|
$
|
107.6
|
|
|
$
|
69.9
|
|
Nitrogen Fertilizer
|
25.6
|
|
|
20.7
|
|
|
18.9
|
|
Other
|
2.9
|
|
|
1.7
|
|
|
1.5
|
|
Total
|
$
|
142.8
|
|
|
$
|
130.0
|
|
|
$
|
90.3
|
|
Operating income
|
|
|
|
|
|
Petroleum
|
$
|
603.0
|
|
|
$
|
1,012.5
|
|
|
$
|
465.7
|
|
Nitrogen Fertilizer
|
124.9
|
|
|
115.8
|
|
|
136.2
|
|
Other
|
(17.4
|
)
|
|
(93.4
|
)
|
|
(35.3
|
)
|
Total
|
$
|
710.5
|
|
|
$
|
1,034.9
|
|
|
$
|
566.6
|
|
Capital expenditures
|
|
|
|
|
|
Petroleum
|
$
|
204.5
|
|
|
$
|
120.0
|
|
|
$
|
68.6
|
|
Nitrogen fertilizer
|
43.8
|
|
|
82.2
|
|
|
19.1
|
|
Other
|
8.2
|
|
|
10.0
|
|
|
3.5
|
|
Total
|
$
|
256.5
|
|
|
$
|
212.2
|
|
|
$
|
91.2
|
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
|
(in millions)
|
Total assets
|
|
|
|
|
|
Petroleum
|
$
|
2,533.3
|
|
|
$
|
2,258.5
|
|
|
$
|
2,322.1
|
|
Nitrogen Fertilizer
|
593.5
|
|
|
623.0
|
|
|
659.3
|
|
Other
|
539.0
|
|
|
729.4
|
|
|
137.9
|
|
Total
|
$
|
3,665.8
|
|
|
$
|
3,610.9
|
|
|
$
|
3,119.3
|
|
Goodwill
|
|
|
|
|
|
Petroleum
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Nitrogen Fertilizer
|
41.0
|
|
|
41.0
|
|
|
41.0
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
41.0
|
|
|
$
|
41.0
|
|
|
$
|
41.0
|
|
(20) Major Customers and Suppliers
Sales to major customers as a percentage of the respective segment's sales were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Petroleum
|
|
|
|
|
|
Customer A
|
12
|
%
|
|
10
|
%
|
|
15
|
%
|
Customer B
|
9
|
%
|
|
9
|
%
|
|
12
|
%
|
|
21
|
%
|
|
19
|
%
|
|
27
|
%
|
Nitrogen Fertilizer
|
|
|
|
|
|
Customer C
|
15
|
%
|
|
10
|
%
|
|
17
|
%
|
Customer D
|
13
|
%
|
|
10
|
%
|
|
12
|
%
|
|
28
|
%
|
|
20
|
%
|
|
29
|
%
|
The petroleum segment obtained crude oil from
one
supplier under a long-term supply agreement during
2013
,
2012
and
2011
. The crude oil purchased from this supplier is governed by a long-term contract. Volume contracted as a percentage of the total crude oil purchases (in barrels) for each of the periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Petroleum
|
|
|
|
|
|
Supplier A
|
69
|
%
|
|
45
|
%
|
|
65
|
%
|
The nitrogen fertilizer segment maintains long-term contracts with
one
supplier. Purchases from this supplier as a percentage of direct operating expenses (exclusive of depreciation and amortization) were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Nitrogen Fertilizer
|
|
|
|
|
|
Supplier B
|
4
|
%
|
|
5
|
%
|
|
5
|
%
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(21) Selected Quarterly Financial Information (unaudited)
Summarized quarterly financial data for
December 31, 2013
and
2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
Quarter
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(in millions except per share data)
|
Net sales
|
$
|
2,352.4
|
|
|
$
|
2,220.3
|
|
|
$
|
1,977.1
|
|
|
$
|
2,436.0
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
Cost of product sold (exclusive of depreciation and amortization)
|
1,813.6
|
|
|
1,785.4
|
|
|
1,744.4
|
|
|
2,219.7
|
|
Direct operating expenses (exclusive of depreciation and amortization)
|
108.5
|
|
|
108.3
|
|
|
128.4
|
|
|
110.6
|
|
Selling, general and administrative (exclusive of depreciation and amortization)
|
28.4
|
|
|
28.9
|
|
|
27.7
|
|
|
28.6
|
|
Depreciation and amortization
|
34.2
|
|
|
35.0
|
|
|
36.2
|
|
|
37.4
|
|
Total operating costs and expenses
|
1,984.7
|
|
|
1,957.6
|
|
|
1,936.7
|
|
|
2,396.3
|
|
Operating income
|
367.7
|
|
|
262.7
|
|
|
40.4
|
|
|
39.7
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense and other financing costs
|
(15.4
|
)
|
|
(12.5
|
)
|
|
(11.7
|
)
|
|
(10.9
|
)
|
Interest income
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
Gain (loss) on derivatives, net
|
(20.0
|
)
|
|
120.5
|
|
|
72.5
|
|
|
(115.9
|
)
|
Loss on extinguishment of debt
|
(26.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Other income, net
|
—
|
|
|
0.2
|
|
|
6.2
|
|
|
7.1
|
|
Total other income (expense)
|
(61.2
|
)
|
|
108.5
|
|
|
67.3
|
|
|
(119.4
|
)
|
Income (loss) before income tax expense
|
306.5
|
|
|
371.2
|
|
|
107.7
|
|
|
(79.7
|
)
|
Income tax expense (benefit)
|
93.8
|
|
|
99.5
|
|
|
29.5
|
|
|
(39.1
|
)
|
Net income (loss)
|
212.7
|
|
|
271.7
|
|
|
78.2
|
|
|
(40.6
|
)
|
Less: Net income (loss) attributable to noncontrolling interest
|
47.7
|
|
|
88.3
|
|
|
34.2
|
|
|
(18.9
|
)
|
Net income (loss) attributable to CVR Energy stockholders
|
$
|
165.0
|
|
|
$
|
183.4
|
|
|
$
|
44.0
|
|
|
$
|
(21.7
|
)
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
|
|
|
|
|
|
Basic
|
$
|
1.90
|
|
|
$
|
2.11
|
|
|
$
|
0.51
|
|
|
$
|
(0.25
|
)
|
Diluted
|
$
|
1.90
|
|
|
$
|
2.11
|
|
|
$
|
0.51
|
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
Basic
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
Diluted
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
Quarter
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(in millions except per share data)
|
Net sales
|
$
|
1,968.6
|
|
|
$
|
2,308.3
|
|
|
$
|
2,409.6
|
|
|
$
|
1,880.8
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
Cost of product sold (exclusive of depreciation and amortization)
|
1,635.2
|
|
|
1,874.2
|
|
|
1,702.5
|
|
|
1,485.1
|
|
Direct operating expenses (exclusive of depreciation and amortization)
|
115.5
|
|
|
94.1
|
|
|
109.9
|
|
|
202.5
|
|
Selling, general and administrative (exclusive of depreciation and amortization)
|
45.3
|
|
|
72.0
|
|
|
30.4
|
|
|
35.7
|
|
Depreciation and amortization
|
32.1
|
|
|
32.2
|
|
|
33.1
|
|
|
32.6
|
|
Total operating costs and expenses
|
1,828.1
|
|
|
2,072.5
|
|
|
1,875.9
|
|
|
1,755.9
|
|
Operating income
|
140.5
|
|
|
235.8
|
|
|
533.7
|
|
|
124.9
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense and other financing costs
|
(19.2
|
)
|
|
(19.0
|
)
|
|
(18.9
|
)
|
|
(18.2
|
)
|
Interest income
|
—
|
|
|
0.2
|
|
|
0.3
|
|
|
0.3
|
|
Gain (loss) on derivatives, net
|
(147.2
|
)
|
|
38.8
|
|
|
(168.9
|
)
|
|
(8.2
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(37.5
|
)
|
Other income (expense), net
|
0.1
|
|
|
0.6
|
|
|
(0.1
|
)
|
|
0.2
|
|
Total other income (expense)
|
(166.3
|
)
|
|
20.6
|
|
|
(187.6
|
)
|
|
(63.4
|
)
|
Income (loss) before income tax expense
|
(25.8
|
)
|
|
256.4
|
|
|
346.1
|
|
|
61.5
|
|
Income tax expense (benefit)
|
(9.8
|
)
|
|
91.1
|
|
|
127.6
|
|
|
16.7
|
|
Net income (loss)
|
(16.0
|
)
|
|
165.3
|
|
|
218.5
|
|
|
44.8
|
|
Less: Net income attributable to noncontrolling interest
|
9.2
|
|
|
10.6
|
|
|
9.6
|
|
|
4.6
|
|
Net income (loss) attributable to CVR Energy stockholders
|
$
|
(25.2
|
)
|
|
$
|
154.7
|
|
|
$
|
208.9
|
|
|
$
|
40.2
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.29
|
)
|
|
$
|
1.78
|
|
|
$
|
2.41
|
|
|
$
|
0.46
|
|
Diluted
|
$
|
(0.29
|
)
|
|
$
|
1.75
|
|
|
$
|
2.41
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
Basic
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
|
86.8
|
|
Diluted
|
86.8
|
|
|
88.5
|
|
|
86.8
|
|
|
86.8
|
|
CVR Energy, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(22) Subsequent Events
Dividend
On
February 19, 2014
, the board of directors of the Company declared a cash dividend for the
fourth
quarter of
2013
to the Company’s stockholders of
$0.75
per share, or
$65.1 million
in aggregate. The dividend will be paid on
March 10, 2014
to stockholders of record at the close of business on
March 3, 2014
. IEP will receive
$53.4 million
in respect of its
82%
ownership interest in the Company’s shares.
Nitrogen Fertilizer Partnership Distribution
On
February 19, 2014
, the board of directors of the Nitrogen Fertilizer Partnership's general partner declared a cash distribution for the
fourth
quarter of
2013
to the Nitrogen Fertilizer Partnership's unitholders of
$0.43
per unit, or
$31.4 million
in aggregate. The cash distribution will be paid on
March 10, 2014
to unitholders of record at the close of business on
March 3, 2014
. The Company will receive
$16.7 million
in respect of our common units.
Refining Partnership Distribution
On
February 19, 2014
, the board of directors of the Refining Partnership’s general partner declared a cash distribution for the
fourth
quarter of
2013
to the Refining Partnership’s unitholders of
$0.45
per common unit, or
$66.4 million
in aggregate. The cash distribution will be paid on
March 10, 2014
to unitholders of record at the close of business on
March 3, 2014
. The Company will receive
$47.1 million
in respect of its Refining Partnership common units.