cvi-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 30, 2023
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to .

Commission file number: 001-35120

CVR PARTNERS, LP

(Exact name of registrant as specified in its charter)

Delaware

56-2677689

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479

(Address of principal executive offices) (Zip Code)

(281) 207-3200

(Registrant’s telephone number, including area code)

_____________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common units representing limited partner interests	UAN	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

There were 10,569,637 common units representing limited partner interests of CVR Partners, LP (“common units”) outstanding at July 28, 2023.

Table of Contents

TABLE OF CONTENTS

CVR PARTNERS, LP - Quarterly Report on Form 10-Q

June 30, 2023

PART I. Financial Information

PART II. Other Information

Condensed Con solidate d Balance Sheets - June 30, 2023 and December 31, 2022 (unaudited)

Item 1A.

Risk Factors

Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2023 and 2022 (unaudited)

Item 5.

Other Information

Condensed Consolidated Statements of Partners’ Capital - Three and Six Months Ended June 30, 2023 and 2022 (unaudited)

Item 6.

Exhibits

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2023 and 2022 (unaudited)

Signatures

Notes to the Condensed Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

This Quarterly Report on Form 10-Q (including documents incorporated by reference herein) contains statements with respect to our expectations or beliefs as to future events. These types of statements are “forward-looking” and subject to uncertainties. See “Important Information Regarding Forward-Looking Statements” section of this filing.

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Important Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements including, but not limited to, those under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including without limitation, statements regarding future operations, financial position, estimated revenues and losses, growth, capital projects, unit repurchases, impacts of legal proceedings, projected costs, prospects, plans, and objectives of management are forward-looking statements. The words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar terms and phrases are intended to identify forward-looking statements.

Although we believe our assumptions concerning future events are reasonable, a number of risks, uncertainties and other factors could cause actual results and trends to differ materially from those projected or forward-looking. Forward-looking statements, as well as certain risks, contingencies, or uncertainties that may impact our forward-looking statements, include, but are not limited to, the following:

•our ability to generate distributable cash or make cash distributions on our common units, including reserves and future uses of cash;

•the ability of our general partner to modify or revoke our distribution policy at any time;

•the volatile nature of our business and the variable nature of our distributions;

•the effects of changes in market conditions and market volatility, fertilizer, natural gas, and other commodity prices, including inflation, and the impact of such changes on our operating results and financial condition;

•the cyclical and seasonal nature of our business;

•the impact of weather on our business, including our ability to produce, market, sell, transport or deliver fertilizer products profitably or at all, and on commodity supply and/or pricing;

•the dependence of our operations on a few third-party suppliers, including providers of feedstocks, transportation services, and equipment;

•our reliance on, or our ability to procure economically or at all, petroleum coke (“pet coke”) we purchase from CVR Energy, Inc. (together with its subsidiaries, but excluding the Partnership and its subsidiaries, “CVR Energy”) and other third-party suppliers;

•our reliance on the natural gas, electricity, oxygen, nitrogen, sulfur processing, compressed dry air and other products that we purchase from third parties;

•the supply, availability, and prices of essential raw materials and the effects of inflation thereupon;

•our production levels, including the risk of a material decline in those levels, including our ability to upgrade ammonia to UAN;

•product pricing, including contracted sales, the timing thereof, and our ability to realize market prices, in full or at all;

•accidents or other unscheduled shutdowns or interruptions affecting our facilities, machinery, or equipment, or those of our suppliers or customers;

•potential operating hazards from accidents, fire, severe weather, tornadoes, floods or other natural disasters;

•operational upsets or changes in laws that could impact the amount and receipt of credits (if any) under Section 45Q of the Internal Revenue Code of 1986, as amended;

•ability to meet certain carbon oxide capture and sequestration milestones;

•our ability to obtain, retain, or renew permits, licenses and authorizations to operate our business;

•competition in the nitrogen fertilizer business and foreign wheat and coarse grain production, including impacts thereof as a result of farm planting acreage, domestic and global supply and demand, and domestic or international duties tariffs or similar costs;

•capital expenditures;

•changes in our credit profile and the effects of higher interest rates;

•existing and future laws, rulings and regulations, including but not limited to those relating to the environment, climate change, and/or the transportation or production of hazardous chemicals, materials, or substances, like ammonia, including potential liabilities or capital requirements arising from such laws, rulings, or regulations;

•erosion of demand for our products due to increasing focus on climate change and environmental, social and governance (“ESG”) initiatives;

•ESG including but not limited to compliance with ESG-related recommendations or directives and risks or impacts relating thereto, whether from regulators, rating agencies, lenders, investors, litigants, customers, vendors, the public or others;

•alternative energy or fuel sources and impacts on corn prices (ethanol), and the end-use and application of fertilizers;

•risks of terrorism, cybersecurity attacks, the security of chemical manufacturing facilities and other matters beyond our control;

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•political disturbances, geopolitical instability and tensions, and associated changes in global trade policies and economic sanctions, including, but not limited to, in connection with Russia’s invasion of Ukraine in February 2022 and any ongoing conflicts in the region;

•our lack of asset diversification;

•our dependence on significant customers and the creditworthiness and performance by counterparties;

•our potential loss of transportation cost advantage over our competitors;

•risks associated with third party operation of or control over important facilities necessary for operation of our nitrogen fertilizer facilities;

•the volatile nature of ammonia, potential liability for accidents involving ammonia including damage or injury to persons, property, the environment or human health and increased costs related to the transport or production of ammonia;

•our potential inability to successfully implement our business strategies, including the completion of significant capital programs or projects;

•our reliance on CVR Energy’s management team and conflicts of interest they may face operating each of CVR Partners and CVR Energy;

•control of our general partner by CVR Energy and control of CVR Energy by its controlling shareholder;

•our ability to continue to license the technology used in our operations;

•the potential inability to successfully implement our business strategies at all or on time and within our anticipated budgets, including significant capital programs or projects and turnarounds at our fertilizer facilities;

•restrictions in our debt agreements;

•asset useful lives and impairments and impacts thereof;

•realizable inventory value;

•the number of investors willing to hold or acquire our common units;

•our ability to issue securities or obtain financing at favorable rates or at all;

•bank failures or other events affecting financial institutions;

•changes in tax and other law, regulations and policies;

•ability to qualify for and receive the benefit of 45Q tax credits;

•changes in our treatment as a partnership for U.S. federal income or state tax purposes;

•rulings, judgments or settlements in litigation, tax or other legal or regulatory matters;

•instability and volatility in the capital, credit and commodities markets and in the global economy, including due to the ongoing Russia-Ukraine conflict;

•risks related to the conclusion of a potential spin-off of the general and limited partner interests in the Partnership owned by CVR Energy or potential future reconsideration thereof;

•competition, transactions, and/or conflicts with CVR Energy and its affiliates, including CVR Energy’s controlling shareholder;

•the value of payouts under our equity and non-equity incentive plans; and

•the cost and/or availability of insurance and our ability to recover under our insurance policies for damages or losses in full or at all; and

•the factors described in greater detail under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings with the U.S. Securities and Exchange Commission (the “SEC”).

All forward-looking statements included in this Report are based on information available to us on the date of this Report. Except as required by law, we undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Information About Us

Investors should note that we make available, free of charge on our website at www.CVRPartners.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investor Relations section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


(in thousands)	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	68,699	$	86,339
Accounts receivable	33,925		90,448
Inventories	78,874		77,518
Prepaid expenses and other current assets	6,825		11,399
Total current assets	188,323		265,704
Property, plant, and equipment, net	783,561		810,994


Other long-term assets	47,106		23,704
Total assets	$	1,018,990	$	1,100,402

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	28,069	$	45,522
Accounts payable to affiliates	5,896		5,302
Deferred revenue	6,666		47,516
Other current liabilities	27,683		27,717
Total current liabilities	68,314		126,057
Long-term liabilities:
Long-term debt, net	547,050		546,800
Long-term deferred revenue	36,483		—
Other long-term liabilities	14,827		15,734
Total long-term liabilities	598,360		562,534
Commitments and contingencies (See Note 11)
Partners’ capital:
Common unitholders, 10,569,637 and 10,569,637 units issued and outstanding at June 30, 2023 and December 31, 2022, respectively	352,315		411,810
General partner interest	1		1
Total partners’ capital	352,316		411,811
Total liabilities and partners’ capital	$	1,018,990	$	1,100,402

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per unit data)	2023		2022		2023		2022
Net sales	$	183,005	$	244,000	$	409,266	$	466,874
Operating costs and expenses:
Cost of materials and other	33,410		40,984		69,989		71,230
Direct operating expenses (exclusive of depreciation and amortization)	55,759		48,767		113,303		109,084
Depreciation and amortization	19,755		21,220		34,965		40,686
Cost of sales	108,924		110,971		218,257		221,000
Selling, general and administrative expenses	7,291		7,008		14,675		15,752
Loss on asset disposal	64		93		256		267

Operating income	66,726		125,928		176,078		229,855
Other (expense) income:
Interest expense, net	(6,919)		(8,308)		(14,093)		(18,343)

Other income (expense), net	52		81		(212)		108
Income before income tax expense	59,859		117,701		161,773		211,620
Income tax expense	2		119		46		377
Net income	$	59,857	$	117,582	$	161,727	$	211,243

Basic and diluted earnings per common unit	$	5.66	$	11.12	$	15.30	$	19.90


Weighted-average common units outstanding:
Basic and Diluted	10,570		10,570		10,570		10,617

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(unaudited)


	Common Units			General Partner Interest		Total Partners’ Capital
(in thousands, except unit data)	Issued	Amount
Balance at December 31, 2022	10,569,637	$	411,810	$	1	$	411,811
Net income	—	101,870		—		101,870

Cash distributions to common unitholders - Affiliates	—	(40,866)		—		(40,866)
Cash distributions to common unitholders - Non-affiliates	—	(70,115)		—		(70,115)

Balance at March 31, 2023	10,569,637	402,699		1		402,700
Net income	—	59,857		—		59,857

Cash distributions to common unitholders - Affiliates	—	(40,594)		—		(40,594)
Cash distributions to common unitholders - Non-affiliates	—	(69,647)		—		(69,647)
Balance at June 30, 2023	10,569,637	$	352,315	$	1	$	352,316


	Common Units			General Partner Interest		Total Partners’ Capital
(in thousands, except unit data)	Issued	Amount
Balance at December 31, 2021	10,681,332	$	342,197	$	1	$	342,198
Net income	—	93,661		—		93,661
Repurchase of common units	(111,695)	(12,398)		—		(12,398)
Cash distributions to common unitholders - Affiliates	—	(20,394)		—		(20,394)
Cash distributions to common unitholders - Non-affiliates	—	(35,576)		—		(35,576)
Balance at March 31, 2022	10,569,637	367,490		1		367,491
Net income	—	117,582		—		117,582

Cash distributions to common unitholders - Affiliates	—	(8,796)		—		(8,796)
Cash distributions to common unitholders - Non-affiliates	—	(15,091)		—		(15,091)
Balance at June 30, 2022	10,569,637	$	461,185	$	1	$	461,186

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended June 30,
(in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	161,727	$	211,243
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	34,965		40,686

Share-based compensation	4,136		11,353
Loss on extinguishment of debt	—		628
Other adjustments	752		958
Change in assets and liabilities:
Current assets and liabilities	(10,704)		(48,892)
Non-current assets and liabilities	411		(365)
Net cash provided by operating activities	191,287		215,611
Cash flows from investing activities:
Capital expenditures	(7,591)		(13,771)
Proceeds from sale of assets	—		41
Return of equity method investment	19,885		—
Net cash provided by (used in) investing activities	12,294		(13,730)
Cash flows from financing activities:
Repurchase of common units	—		(12,398)

Principal payments on senior secured notes	—		(65,000)

Cash distributions to common unitholders - Affiliates	(81,460)		(29,190)
Cash distributions to common unitholders - Non-affiliates	(139,762)		(50,667)
Payment of deferred financing costs	—		(830)
Other financing activities	1		—
Net cash used in financing activities	(221,221)		(158,085)
Net (decrease) increase in cash and cash equivalents	(17,640)		43,796
Cash and cash equivalents, beginning of period	86,339		112,516
Cash and cash equivalents, end of period	$	68,699	$	156,312

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Organization and Nature of Business

CVR Partners, LP (“CVR Partners” or the “Partnership”) is a Delaware limited partnership formed by CVR Energy, Inc. (together with its subsidiaries, but excluding the Partnership and its subsidiaries, “CVR Energy”) to own, operate and grow its nitrogen fertilizer business. The Partnership produces nitrogen fertilizer products at two manufacturing facilities, one located in Coffeyville, Kansas operated by our wholly owned subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”) (the “Coffeyville Facility”) and one located in East Dubuque, Illinois operated by our wholly owned subsidiary, East Dubuque Nitrogen Fertilizers, LLC (“EDNF”) (the “East Dubuque Facility”). Both facilities manufacture ammonia and are able to further upgrade such ammonia to other nitrogen fertilizer products, principally urea ammonium nitrate (“UAN”). Nitrogen fertilizer is used by farmers to improve the yield and quality of their crops, primarily corn and wheat. The Partnership’s products are sold on a wholesale basis in the United States of America. As used in these financial statements, references to CVR Partners, the Partnership, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners or one or both of the facilities, as the context may require.

Interest Holders

As of June 30, 2023, public common unitholders held approximately 63% of the Partnership’s outstanding limited partner interests; CVR Services, LLC (“CVR Services”), a wholly-owned subsidiary of CVR Energy, held the remaining approximately 37% of the Partnership’s outstanding limited partner interests; and CVR GP, LLC (“CVR GP” or the “general partner”), a wholly-owned subsidiary of CVR Energy, held 100% of the Partnership’s general partner interest. As of June 30, 2023, Icahn Enterprises L.P. (“IEP”) and its affiliates owned approximately 71% of the common stock of CVR Energy.

Unit Repurchase Program

On May 6, 2020, the board of directors of the Partnership’s general partner (the “Board”), on behalf of the Partnership, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized the Partnership to repurchase up to $20 million of the Partnership’s common units. During the three and six months ended June 30, 2023 and the three months ended June 30, 2022, the Partnership did not repurchase any common units. During the six months ended June 30, 2022, the Partnership repurchased 111,695 common units on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $12.4 million, exclusive of transaction costs, or an average price of $110.98 per common unit. As of June 30, 2023, the Partnership, considering all repurchases made since inception of the Unit Repurchase Program, had a nominal amount in authority remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to purchase any common units and may be cancelled, modified, or terminated by the Board at any time.

Management and Operations

The Partnership, including CVR GP, is managed by a combination of the Board, the general partner’s executive officers, CVR Services (as sole member of the general partner), and certain officers of CVR Energy and its subsidiaries, pursuant to the Partnership Agreement, as well as a number of agreements among the Partnership, CVR GP, CVR Energy, and certain of their respective subsidiaries, including a services agreement. See Part II, Item 8 of CVR Partners’ Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) for further discussion. Common unitholders have limited voting rights on matters affecting the Partnership and have no right to elect the general partner’s directors or officers, whether on an annual or continuing basis or otherwise.

Section 45Q Transaction

Certain carbon oxide capture and sequestration activities conducted at or in connection with the Coffeyville Facility qualify under the Internal Revenue Service (“IRS”) safe harbor described in Revenue Procedure 2020-12 for certain tax credits available to joint ventures under Section 45Q of the Internal Revenue Code of 1986, as amended (“Section 45Q Credits”). In January 2023, CVR Partners and its subsidiary, CRNF, entered into a series of agreements with CapturePoint LLC, an unaffiliated Texas limited liability company, and certain unaffiliated third-party investors intended to qualify under the IRS safe harbor, described in Revenue Procedure 2020-12, for certain joint ventures that are eligible to claim Section 45Q Credits and allow us to monetize Section 45Q Credits we expect to generate from January 6, 2023 until March 31, 2030 (the “45Q Transaction”). Among other items, the 45Q Transaction resulted in the creation of CVR-CapturePoint Parent LLC (“CVRP

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

JV”), which was accounted for by the Partnership as an equity-method investment. See Note 5 (“Equity Method Investment”) for further discussion. In January 2023, we received an initial distribution, net of expenses, of approximately $18.1 million and could receive up to an additional $60.0 million in payments through March 31, 2030, if certain carbon oxide capture and sequestration milestones are met, subject to the terms of the applicable agreements. The foregoing description of the applicable agreements does not purport to be complete and is qualified in its entirety by the terms of the relevant agreements, which were filed with the Partnership’s quarterly report on Form 10-Q for the period ended March 31, 2023.

(2) Basis of Presentation

The accompanying condensed consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), include the accounts of CVR Partners and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Certain notes and other information have been condensed or omitted from these condensed consolidated financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the December 31, 2022 audited consolidated financial statements and notes thereto included in the 2022 Form 10-K.

In the opinion of the Partnership’s management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary for fair presentation of the financial position and results of operations of the Partnership for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

The condensed consolidated financial statements are prepared in conformity with GAAP, which requires management to make certain estimates and assumptions that affect the reported amounts and disclosure of 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 from those estimates. Results of operations and cash flows for the interim periods presented are not necessarily indicative of the results that will be realized for the year ending December 31, 2023 or any other interim or annual period.

(3) Inventories

Inventories consisted of the following:


(in thousands)	June 30, 2023		December 31, 2022
Finished goods	$	29,511	$	28,630
Raw materials	2,025		3,116
Parts, supplies and other	47,338		45,772
Total inventories	$	78,874	$	77,518

(4) Property, Plant and Equipment

Property, plant and equipment consisted of the following:


(in thousands)	June 30, 2023		December 31, 2022
Machinery and equipment	$	1,449,208	$	1,432,875
Buildings and improvements	18,021		17,461
Automotive equipment	16,377		16,377
Land and improvements	14,736		14,604


Construction in progress	11,870		7,858
Other	2,799		3,035
	1,513,011		1,492,210
Less: Accumulated depreciation and amortization	(729,450)		(681,216)
Total property, plant and equipment, net	$	783,561	$	810,994

During the six months ended June 30, 2023, the Partnership did not identify the existence of an impairment indicator for our long-lived asset groups as outlined under the FASB Accounting Standards Codification (“ASC”) Topic 360, Property,

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Plant, and Equipment. Depreciation and amortization expense related to property, plant and equipment was $19.6 million and $34.6 million for the three and six months ended June 30, 2023, respectively, and $21.0 million and $40.3 million for the three and six months ended June 30, 2022, respectively.

(5) Equity Method Investment

As part of the 45Q Transaction, the Partnership received a 50% ownership interest in CVRP JV in connection with a modification to a carbon oxide contract (“CO Contract”) with a customer. The Partnership applied the variable interest entity (“VIE”) model under FASB ASC Topic 810, Consolidation, to its variable interest in CVRP JV and determined that CVRP JV is a VIE. While the Partnership concluded it is not the primary beneficiary of CVRP JV, it does have significant influence over CVRP JV’s operating and financial policies and, therefore, applied the equity method of accounting for its investment in CVRP JV.

The Partnership valued the equity interest received using a combination of the market approach and the discounted cash flow methodology with key inputs including the discount rate, contractual and expected future cash flows, and market multiples. The Partnership determined the estimated fair value of the consideration received to be $46.0 million, which was a non-recurring Level 3 measurement, as defined by FASB ASC Topic 820, Fair Value Measurements, based on the use of the Partnership’s own assumptions described above. There were no transfers into or out of Level 3 during the three and six months ended June 30, 2023.

The Partnership deferred the recognition of the noncash consideration received and expects to recognize such revenue as the performance obligation associated with the CO Contract is satisfied. Refer to Note 9 (“Revenue”) for further discussion. The Partnership has elected to record its share of the earnings or loss of CVRP JV one quarter in arrears. Distributions received from CVRP JV will reduce the Partnership’s equity method investment and will be recorded in the period they are received. The investment in CVRP JV is presented within Other long-term assets on our condensed consolidated financial statements.


(in thousands)	CVRP JV
Balance at inception	$	46,000
Cash distributions (1)	(19,000)
Cash contributions	2

Balance at March 31, 2023	27,002
Cash distributions	(885)
Equity loss	(2)
Balance at June 30, 2023	$	26,115

(1)Of this amount, approximately $0.9 million related to incremental costs associated with obtaining the CO contract were capitalized and included in Prepaid expenses and other current assets and Other long-term assets in our condensed consolidated financial statements.

(6) Leases

Lease Overview

We lease railcars and certain facilities to support the Partnership’s operations. Most of our leases include one or more renewal options to extend the lease term, which can be exercised at our sole discretion. Certain leases also include options to purchase the leased property. Additionally, certain of our lease agreements include rental payments, which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Furthermore, we do not have any material lessor or sub-leasing arrangements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Balance Sheet Summary as of June 30, 2023 and December 31, 2022

The following table summarizes the right-of-use (“ROU”) asset and lease liability balances for the Partnership’s operating leases at June 30, 2023 and December 31, 2022. There were no finance lease balances at June 30, 2023 and December 31, 2022.


(in thousands)	June 30, 2023		December 31, 2022
ROU asset, net

Railcars	$	8,915	$	10,449
Real estate and other	2,200		2,370
Lease liability

Railcars	8,915		10,449
Real estate and other	373		456

Lease Expense Summary for the Three and Six Months Ended June 30, 2023 and 2022

We recognize operating lease expense on a straight-line basis over the lease term within Direct operating expenses (exclusive of depreciation and amortization) and Cost of materials and other and finance lease expense on a straight-line basis over the lease term within Depreciation and amortization. For the three and six months ended June 30, 2023 and 2022, we recognized lease expense comprised of the following components:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Operating lease expense	$	1,143	$	1,098	$	2,366	$	2,157
Finance lease expense:
Amortization of ROU asset	—		8		—		34

Short-term lease expense	619		767		1,269		1,532

Lease Terms and Discount Rates

The following outlines the remaining lease terms and discount rates used in the measurement of the Partnership’s ROU assets and lease liabilities at June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
Weighted-average remaining lease term	3.9 years		4.3 years
Weighted-average discount rate	5.9	%	5.5	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum operating lease payments through maturity of the Partnership’s liabilities at June 30, 2023:


(in thousands)	Operating Leases
Remainder of 2023	$	1,582
2024	2,730
2025	2,302
2026	2,042
2027	1,756
Thereafter	—
Total lease payments	10,412
Less: imputed interest	(1,124)
Total lease liability	$	9,288

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Partnership has entered into lease commitments that have not yet commenced as follows:

•On February 21, 2022, CRNF entered into the First Amendment to the On-Site Product Supply Agreement with Messer LLC (“Messer”), which amended the July 31, 2020 On-Site Product Supply Agreement (as amended, the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply oxygen and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for oxygen from Messer’s facility. This arrangement for CRNF’s purchase of oxygen from Messer does not meet the definition of a lease under FASB ASC Topic 842, Leases (“Topic 842”), as CRNF does not expect to receive substantially all of the output, which includes oxygen, nitrogen, and compressed air, of Messer’s on-site production from its air separation unit over the life of the Messer Agreement. The Messer Agreement also obligates Messer to install a new oxygen storage vessel, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Facility. The arrangement for the use of the Oxygen Storage Vessel meets the definition of a lease under Topic 842, as CRNF will receive all output associated with the Vessel. Based on terms outlined in the Messer Agreement, the Partnership expects the lease of the Oxygen Storage Vessel to be classified as a financing lease with an estimated amount within the range of $20 million to $25 million being capitalized upon lease commencement when the Vessel is placed in service, which is currently expected to occur within the next 12 months.

(7) Other Current Liabilities

Other current liabilities consisted of the following:


(in thousands)	June 30, 2023		December 31, 2022
Share-based compensation	$	10,993	$	9,231
Personnel accruals	5,487		7,539
Sales incentives	3,139		1,772
Operating lease liabilities	2,519		2,931
Accrued insurance	1,626		2,283
Accrued taxes other than income taxes	1,437		1,789
Accrued interest	1,404		1,404
Other accrued expenses and liabilities	1,078		768
Total other current liabilities	$	27,683	$	27,717

(8) Long-Term Debt

Long-term debt consists of the following:


(in thousands)	June 30, 2023		December 31, 2022
6.125% Senior Secured Notes, due June 2028 (1)	$	550,000	$	550,000

Unamortized discount and debt issuance costs	(2,950)		(3,200)
Total long-term debt	$	547,050	$	546,800

(1)The estimated fair value of the 6.125% Senior Secured Notes, due June 2028 (the “2028 Notes”) was approximately $478.4 million and $493.3 million as of June 30, 2023 and December 31, 2022, respectively. These estimates of fair value are a Level 2 measurement, as defined by FASB ASC Topic 820, Fair Value Measurements, as they were determined by quotations obtained from a broker-dealer who makes a market in these and similar securities.

Credit Agreements



(in thousands)	Total Available Borrowing Capacity		Amount Borrowed as of June 30, 2023		Outstanding Letters of Credit		Available Capacity as of June 30, 2023		Maturity Date
ABL Credit Facility	$	35,000	$	—	$	—	$	35,000	September 30, 2024

June 30, 2023 | 13

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Covenant Compliance

The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of June 30, 2023.

(9) Revenue

The following table presents the Partnership’s revenue, disaggregated by major products:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Ammonia	$	56,032	$	60,942	$	93,532	$	102,953
UAN	103,773		159,399		268,115		319,006
Urea products	7,201		10,544		15,371		19,767
Net sales, exclusive of freight and other	167,006		230,885		377,018		441,726
Freight revenue (1)	10,910		9,856		21,846		19,071
Other revenue (2)	5,089		3,259		10,402		6,077
Total revenue	$	183,005	$	244,000	$	409,266	$	466,874

(1)Freight revenue recognized by the Partnership represents the pass-through finished goods delivery costs incurred prior to customer acceptance and is reimbursed by customers. An offsetting expense for freight is included in Cost of materials and other.

(2)Includes revenue from (i) nitric acid sales and (ii) carbon oxide sales, including sales in connection with the 45Q Transaction and the noncash consideration received, which is recognized as the performance obligation associated with the CO Contract is satisfied over its term of seven years, three months. Revenue from the CO Contract is recognized over time based on carbon oxide volumes measured at delivery.

Remaining Performance Obligations

We have spot and term contracts with customers and the transaction prices are either fixed or based on market indices (variable consideration). We do not disclose remaining performance obligations for contracts that have terms of one year or less and for contracts where the variable consideration was entirely allocated to an unsatisfied performance obligation.

As of June 30, 2023, the Partnership had approximately $2.4 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Partnership expects to recognize approximately $2.2 million of these performance obligations as revenue by the end of 2023 and the remaining balance during 2024.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Contract Balances

A summary of the deferred revenue activity for the six months ended June 30, 2023 is presented below:


(in thousands)
Balance at December 31, 2022	$	47,516
Add:
New prepay contracts entered into during the period	10,221
Noncash consideration received as part of the 45Q Transaction	46,000

Less:
Revenue recognized that was included in the contract liability balance at the beginning of the period	(46,215)
Revenue recognized related to contracts entered into during the period	(9,991)
Revenue recognized related to noncash consideration	(3,172)
Other changes	(1,210)
Total deferred revenue	43,149
Less: Current portion of deferred revenue	(6,666)
Total long-term deferred revenue	$	36,483

(10) Share-Based Compensation

A summary of compensation expense for the three and six months ended June 30, 2023 and 2022 is presented below:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Phantom Unit Awards	$	1,556	$	(2,259)	$	2,464	$	7,653
Other Awards (1)	647		1,538		1,672		3,700
Total share-based compensation expense	$	2,203	$	(721)	$	4,136	$	11,353

(1)Other awards include the allocations, pursuant to the Corporate Master Services Agreement effective January 1, 2020, as amended (the “Corporate MSA”) and the Partnership’s Second Amended and Restated Agreement of Limited Partnership, of compensation expense for certain employees of CVR Energy and its subsidiaries who perform services for the Partnership and participate in equity compensation plans of CVR Energy.

(11) Commitments and Contingencies

There have been no material changes in the Partnership’s commitments and contingencies to those disclosed in the 2022 Form 10-K. In the ordinary course of business, the Partnership may become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. The outcome of these matters cannot always be predicted accurately, but the Partnership accrues liabilities for these matters if the Partnership has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, the Partnership believes there would be no material impact to its consolidated financial statements.

The Partnership continues to monitor its contractual arrangements and customer, vendor, and supplier relationships to determine whether and to what extent, if any, the impacts of the Russia-Ukraine conflict, the current global and domestic economic environment, including increasing interest rates and inflation or a potential recession, or ongoing price volatility will impair or excuse the performance of the Partnership or its subsidiaries or their customers, vendors, or suppliers under existing agreements. As of June 30, 2023, the Partnership had not experienced a material financial impact from any actual or threatened impairment of or excuse in its or others’ performance under such agreements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

45Q Transaction

SEC Form 10-Q filed by CVR Partners LP