CVR ENERGY INC 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of CVR Energy, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of CVR Energy, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 23, 2021 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Petroleum Segment’s Inventory Finished Goods Valuation As described in Note 2 to the consolidated financial statements, the Company utilizes the ability-to-bear methodology to determine the valuation of its Petroleum Segment’s finished goods inventories, which was $123 million at December 31, 2020. Management makes certain estimates based on observable inputs, including monthly sales prices and current market prices to determine how much raw materials and production costs are capitalized into Inventories. Management then assesses if a lower of cost or net realizable value adjustment is required. Changes in these estimates could have a significant impact on the Company’s valuation of finished goods inventory. December 31, 2020 | 65 Table of Contents We identified the Company’s Petroleum Segment’s finished goods inventory valuation process as a critical audit matter. The principal consideration for our determination that the inventory valuation process is a critical audit matter is the degree of complexity and subjectivity inherent in determining management’s valuation estimates. Our audit procedures to evaluate the Company’s valuation of finished goods inventory, included the following procedures to test management’s process, among others: • We tested the design and operating effectiveness of management’s processes and controls for determining the valuation of finished goods inventory. • We obtained a sample of invoices to verify the accuracy of the production costs used in estimates. • We tested or evaluated the reasonableness of inputs including sales volumes, monthly sales prices and current market prices for each product by obtaining third-party market prices and a sample of sales transactions by product to verify the accuracy of the information used by management. • We tested management’s process of calculating the lower of cost or net realizable value including verifying the reasonableness of the methodology used and accuracy of the inputs such as selling prices for refined fuels and market pricing. Nitrogen Fertilizer Segment’s Goodwill Impairment Assessment As described in Note 2 to the consolidated financial statements, annually or as facts or circumstances may dictate, management performs a valuation of the Coffeyville reporting unit to determine if a goodwill impairment exists. During the second quarter of 2020 following the completion of the spring planting season and observation of certain market and other conditions described in Note 2, the Company’s Nitrogen Fertilizer Segment’s Coffeyville Fertilizer Facility reporting unit concluded a triggering event occurred and performed an interim quantitative impairment assessment. The identification of a triggering event and the determination of the fair value of the reporting unit required management to make significant estimates and develop assumptions related to cash flow forecasts using estimates of future nitrogen fertilizer product pricing, volumes to be sold, costs to be incurred for key process inputs and other operating expenses as well as estimating appropriate discount rates and growth rates for future periods. Changes in these assumptions could have had a significant impact on the identification of a triggering event as well as the reporting unit’s estimated fair value. As a result of the quantitative impairment assessment, a full goodwill impairment of $41 million was recorded during the year ended December 31, 2020. We identified the goodwill impairment assessment of the Nitrogen Fertilizer Segment’s Coffeyville Fertilizer Facility reporting unit as a critical audit matter. The principal consideration for our determination that the goodwill impairment assessment is a critical audit matter was the degree of complexity and subjectivity inherent in determining management’s estimates. Our audit procedures related to the Nitrogen Fertilizer Segment’s Coffeyville Fertilizer Facility reporting unit’s goodwill impairment assessment included the following, among others: • We tested the design and operating effectiveness of management’s processes and controls over the identification of a triggering event and the fair value assessment of the Coffeyville reporting unit. • We evaluated the reasonableness of a triggering event by considering the current market conditions following the completion of the spring planting season as well as the economic uncertainty surrounding the COVID-19 pandemic. • We evaluated the reasonableness of future nitrogen fertilizer pricing assumptions by comparing the prices used by management to current industry and economic trends considering the impacts of the COVID-19 pandemic as well as comparing those prices to the historical performance of the Coffeyville reporting unit, performed sensitivity analyses to evaluate the change in the fair value estimates that would result from changes in those price assumptions, and recalculated management’s estimates. • We compared forecasted sales volumes and expenses to historical operating results. • We utilized valuation professionals with specialized skills and knowledge to assist in evaluating the Nitrogen Fertilizer Segment’s Coffeyville Fertilizer Facility’s discounted cash flow model and guideline public company methods and certain significant assumptions, including the discount rate, terminal growth rate, and cost of capital. • We evaluated whether the assumptions used were consistent with evidence obtained in other areas of the audit. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2013. Houston, Texas February 23, 2021 December 31, 2020 | 66 Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of CVR Energy, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of CVR Energy, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control - Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 23, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Houston, Texas February 23, 2021 December 31, 2020 | 67 Table of Contents CVR Energy, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, (in millions) 2020 2019 ASSETS Current assets: Cash and cash equivalents (including $ 31 and $ 37 , respectively, of consolidated variable interest entities (VIEs)) $ 667 $ 652 Accounts receivable (including $ 37 and $ 34 , respectively, of VIEs) 178 182 Inventories (including $ 42 and $ 48 , respectively, of VIEs) 298 373 Prepaid expenses and other current assets (including $ 8 and $ 5 , respectively, of VIEs) 259 67 Total current assets 1,402 1,274 Property, plant and equipment, net (including $ 898 and $ 952 , respectively, of VIEs) 2,240 2,336 Other long-term assets (including $ 17 and $ 61 , respectively, of VIEs) 336 295 Total assets $ 3,978 $ 3,905 LIABILITIES AND EQUITY Current liabilities: Note payable and finance lease obligations (including $ 2 and $ 0 , respectively, of VIEs) $ 8 $ 5 Accounts payable (including $ 25 and $ 24 , respectively, of VIEs) 282 412 Other current liabilities (including $ 49 and $ 52 , respectively, of VIEs) 369 179 Total current liabilities 659 596 Long-term liabilities: Long-term debt and finance lease obligations, net of current portion (including $ 634 and $ 632 , respectively of VIEs) 1,683 1,190 Deferred income taxes 368 396 Other long-term liabilities (including $ 8 and $ 10 , respectively, of VIEs) 49 55 Total long-term liabilities 2,100 1,641 Commitments and contingencies (See Note 11) Equity: CVR stockholders’ equity: Common stock $ 0.01 par value per share, 350,000,000 shares authorized, 100,629,209 and 100,629,209 shares issued as of December 31, 2020 and 2019, respectively 1 1 Additional paid-in-capital 1,510 1,507 Retained deficit ( 490 ) ( 113 ) Treasury stock, 98,610 shares at cost ( 2 ) ( 2 ) Total CVR stockholders’ equity 1,019 1,393 Noncontrolling interest 200 275 Total equity 1,219 1,668 Total liabilities and equity $ 3,978 $ 3,905 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2020 | 68 Table of Contents CVR Energy, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, (in millions, except per share data) 2020 2019 2018 Net sales $ 3,930 $ 6,364 $ 7,124 Operating costs and expenses: Cost of materials and other 3,373 4,851 5,683 Direct operating expenses (exclusive of depreciation and amortization) 478 533 517 Depreciation and amortization 268 278 263 Cost of sales 4,119 5,662 6,463 Selling, general and administrative expenses (exclusive of depreciation and amortization) 86 117 112 Depreciation and amortization 10 9 11 Loss (gain) on asset disposals 7 ( 4 ) 6 Goodwill impairment 41 — — Operating (loss) income ( 333 ) 580 532 Other (expense) income: Interest expense, net ( 130 ) ( 102 ) ( 102 ) Investment income from marketable securities 41 — — Other income, net 7 13 15 (Loss) income before income taxes ( 415 ) 491 445 Income tax (benefit) expense ( 95 ) 129 79 Net (loss) income ( 320 ) 362 366 Less: Net (loss) income attributable to non-controlling interest ( 64 ) ( 18 ) 107 Net (loss) income attributable to CVR Energy stockholders $ ( 256 ) $ 380 $ 259 Basic and diluted (loss) earnings per share $ ( 2.54 ) $ 3.78 $ 2.80 Dividends declared per share $ 1.20 $ 3.05 $ 2.50 Weighted-average common shares outstanding: Basic and Diluted 100.5 100.5 92.5 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2020 | 69 Table of Contents CVR Energy, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Common Stockholders (in millions, except share data) Shares Issued Common Stock Additional Paid-In Capital Retained Deficit Treasury Stock Total CVR Stockholders’ Equity Noncontrolling Interest Total Equity Balance at December 31, 2017 86,929,660 $ 1 $ 1,197 $ ( 208 ) $ ( 2 ) $ 988 $ 835 $ 1,823 Exchange offer impact 13,699,549 — 276 — — 276 ( 192 ) 84 Dividends paid to CVR Energy stockholders — — — ( 238 ) — ( 238 ) — ( 238 ) Distributions from CVR Refining to public unitholders — — — — — — ( 93 ) ( 93 ) Other — — 1 — — 1 — 1 Net income — — — 259 — 259 107 366 Balance at December 31, 2018 100,629,209 1 1,474 ( 187 ) ( 2 ) 1,286 657 1,943 Dividends paid to CVR Energy stockholders — — — ( 306 ) — ( 306 ) — ( 306 ) Distributions from CVR Partners to public unitholders — — — — — — ( 30 ) ( 30 ) Acquisition of CVR Refining non-controlling interest — — ( 2 ) — — ( 2 ) ( 334 ) ( 336 ) Effect of turnaround accounting change — — 35 — — 35 — 35 Net income (loss) — — — 380 — 380 ( 18 ) 362 Balance at December 31, 2019 100,629,209 1 1,507 ( 113 ) ( 2 ) 1,393 275 1,668 Dividends paid to CVR Energy stockholders — — — ( 121 ) — ( 121 ) — ( 121 ) Changes in equity due to CVR Partners’ common unit repurchases — — 3 — — 3 ( 11 ) ( 8 ) Net loss — — — ( 256 ) — ( 256 ) ( 64 ) ( 320 ) Balance at December 31, 2020 100,629,209 $ 1 $ 1,510 $ ( 490 ) $ ( 2 ) $ 1,019 $ 200 $ 1,219 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2020 | 70 CVR Energy, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in millions) 2020 2019 2018 Cash flows from operating activities: Net (loss) income $ ( 320 ) $ 362 $ 366 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 278 287 274 Loss on lower of cost or net realizable value adjustments 59 — — Goodwill impairment 41 — — Deferred income taxes ( 30 ) 24 49 Unrealized gain on marketable securities ( 34 ) — — Loss (gain) on asset disposals 7 ( 4 ) 6 Share-based compensation 4 17 16 Other non-cash items 10 6 3 Changes in assets and liabilities: Accounts receivable 31 ( 40 ) 56 Inventories 9 ( 10 ) ( 9 ) Prepaid expenses and other current assets ( 28 ) 16 ( 29 ) Due to parent — 4 2 Accounts payable ( 121 ) 94 ( 21 ) Deferred revenue ( 2 ) ( 15 ) 11 Other current liabilities 188 9 ( 104 ) Other long-term assets and liabilities ( 2 ) ( 3 ) 8 Net cash provided by operating activities 90 747 628 Cash flows from investing activities: Capital expenditures ( 124 ) ( 121 ) ( 102 ) Turnaround expenditures ( 159 ) ( 38 ) ( 8 ) Proceeds from sale of assets 1 37 1 Investment in marketable securities ( 140 ) — — Other investing activities ( 1 ) 1 1 Net cash used in investing activities ( 423 ) ( 121 ) ( 108 ) Cash flows from financing activities: Proceeds from issuance of senior secured notes 1,000 — — Principal payments on senior secured notes ( 500 ) — — Call premium on extinguishment of debt ( 5 ) — — Repurchase of CVR Partners common units ( 7 ) — — Acquisition of CVR Refining common units — ( 301 ) — Dividends to CVR Energy’s stockholders ( 121 ) ( 306 ) ( 238 ) Distributions to CVR Refining’s noncontrolling interest holders — — ( 93 ) Distributions to CVR Partners’ noncontrolling interest holders — ( 30 ) — Other financing activities ( 12 ) ( 5 ) ( 3 ) Net cash provided by (used in) financing activities 355 ( 642 ) ( 334 ) Net increase (decrease) in cash and cash equivalents and restricted cash 22 ( 16 ) 186 Cash and cash equivalents and restricted cash, beginning of period 652 668 482 Cash and cash equivalents and restricted cash, end of period $ 674 $ 652 $ 668 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2020 | 71 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization and Nature of Business Organization CVR Energy, Inc. (“CVR Energy,” “CVR,” “we,” “us,” “our,” or the “Company”) is a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries through its holdings in CVR Refining, LP (the “Petroleum Segment” or “CVR Refining”) and CVR Partners, LP (the “Nitrogen Fertilizer Segment” or “CVR Partners”). CVR Refining is an independent petroleum refiner and marketer of high value transportation fuels. CVR Partners produces and markets nitrogen fertilizers in the form of urea ammonium nitrate (“UAN”) and ammonia. CVR’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “CVI.” Icahn Enterprises L.P. and its affiliates (“IEP”) owned approximately 71 % of the Company’s outstanding common shares as of December 31, 2020. Stock Repurchase Program On October 23, 2019, the Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”). The Stock Repurchase Program enables the Company to repurchase up to $ 300 million of the Company’s common stock. Repurchases under the Stock Repurchase Program may be made from time-to-time through open market transactions, block trades, privately negotiated transactions or otherwise in accordance with applicable securities laws. The timing, price and amount of repurchases (if any) will be made at the discretion of management and are subject to market conditions as well as corporate, regulatory and other considerations. While the Stock Repurchase Program currently has a duration of four years , it does not obligate the Company to acquire any stock and may be terminated by the Board of Directors at any time. We did no t repurchase any of our common stock during the year ended December 31, 2020. CVR Refining, LP On January 17, 2019, the general partner of CVR Refining assigned to the Company its right to purchase all of the issued and outstanding CVR Refining common units not already owned by CVR Refining’s general partner or its affiliates. On January 29, 2019, the Company purchased all remaining CVR Refining common units not already owned by the Company or its affiliates for a cash purchase price of $ 10.50 per unit (the “Call Price”), or approximately $ 241 million in the aggregate (the “Public Unit Purchase”). In conjunction with the exercise of its call right for all CVR Refining common units not already owned by the Company or its affiliates, the Company entered into a purchase agreement with American Entertainment Properties Corporation (“AEP”) and IEP, pursuant to which, on January 29, 2019, all of the Common Units held by AEP and IEP were purchased by the Company for a cash price per unit equal to the Call Price, or approximately $ 60 million in the aggregate (the “Affiliate Unit Purchase” together with the Public Unit Purchase, the “CVRR Unit Purchase”). The total purchase price of $ 301 million was funded with approximately $ 105 million in borrowings under a new credit agreement entered into by the Company on January 29, 2019, with the remaining amount being funded from the Company’s cash on hand. Amounts drawn under the new credit agreement were fully repaid in February 2019. See Note 6 (“Long-Term Debt and Finance Lease Obligations”) for further information on the credit agreement. The consolidated results of operations and financial position of CVR Refining are reflected as CVR’s Petroleum Segment. Following this transaction, CVR Refining became a wholly-owned subsidiary of the Company and, therefore, is no longer accounted for as a variable interest entity (“VIE”). Effective February 8, 2019, CVR Refining’s reporting obligations under the Exchange Act were suspended. CVR Partners, LP Interest Holders - As of December 31, 2020, public common unitholders held approximately 64 % of CVR Partners’ outstanding common units, and CVR Services, LLC (“CVR Services”) (formerly Coffeyville Resources, LLC), a wholly-owned subsidiary of CVR Energy, held approximately 36 % of CVR Partners’ outstanding common units. In addition, CVR Services held 100 % of CVR Partners’ general partner, CVR GP, LLC (“CVR GP”), which held a non-economic general partner interest in CVR Partners as of December 31, 2020. Following the acquisition of the non-controlling interest in CVR Refining in January 2019, the non-controlling interest reflected on the consolidated balance sheets of CVR is only impacted by the net income of, and distributions from, CVR Partners. December 31, 2020 | 72 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NYSE Listing Requirements and Reverse Split - On April 20, 2020, the average closing price of CVR Partners’ common units over a 30 consecutive trading-day period fell below $1.00 per common unit, resulting in noncompliance with the continued listing compliance standards in Section 802.01C of the NYSE Listed Company Manual. CVR Partners received written notification of this noncompliance from the NYSE on April 22, 2020, and had until January 1, 2021 to regain compliance or be subject to the NYSE’s suspension and delisting procedures. See the Form 8-K filed by CVR Partners with the SEC on April 24, 2020 for further discussion. On November 2, 2020, CVR Partners announced that the board of directors of its general partner (the "UAN GP Board") approved a 1-for-10 reverse split of CVR Partners’ common units that was completed on November 23, 2020, pursuant to which each ten common units of CVR Partners would be converted into one common unit of the CVR Partners (the “Reverse Unit Split”). In accordance with CVR Partners’ Agreement of Limited Partnership, as amended, following the Reverse Unit Split, any fractional units of record holders were rounded up or down, as applicable, to the nearest whole common unit, with any fraction equal to or above 0.5 common units rounding up to the next higher common unit. Following the Reverse Unit Split, the number of CVR Partners common units outstanding decreased from approximately 111 million common units to approximately 11 million common units, with proportionate adjustments to the common units under CVR Partners’ long-term incentive plan and outstanding awards thereunder. CVR Partners’ common units began trading on a split-adjusted basis when markets opened on November 24, 2020, under the symbol “UAN” and a new CUSIP number. The reverse split enabled the Partnership to regain compliance with NYSE listing requirements on November 30, 2020, in advance of the January 1, 2021 deadline. Unit Repurchase Program - On May 6, 2020, the UAN GP Board, on behalf of CVR Partners, authorized a unit repurchase program (the “Unit Repurchase Program”). The Unit Repurchase Program enables CVR Partners to repurchase up to $ 10 million of its common units. During the year ended December 31, 2020, CVR Partners repurchased 623,177 common units, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Exchange Act, which was terminated on August 6, 2020, at a cost of $ 7 million, inclusive of transaction costs, or an average price of $ 11.35 per common unit. At December 31, 2020, CVR Partners had $ 3 million in authority remaining under the Unit Repurchase Program. On February 22, 2021, the UAN GP Board authorized an additional $ 10 million for the Unit Repurchase Program. This Unit Repurchase Program does not obligate CVR Partners to acquire any common units and may be cancelled or terminated by the UAN GP Board at any time. As a result of these repurchases, and the resulting change in CVR Energy’s ownership of CVR Partners while maintaining control, CVR Energy recognized an increase of $ 3 million to additional paid-in capital from the non-cash reduction of non-controlling interests totaling $ 4 million and the recognition of a deferred tax liability totaling $ 1 million from changes in its book versus tax basis in CVR Partners. 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. Where applicable, the notes to these consolidated financial statements have been updated to discuss all significant subsequent events which have occurred. (2) Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements, prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), include the accounts of the Company and its majority-owned direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated. The ownership interests of noncontrolling investors in the Company’s subsidiaries are recorded as noncontrolling interests. CVR Energy has no t recognized any other comprehensive income for the periods ended December 31, 2020, 2019, and 2018. CVR Partners is considered a VIE. As the 100% owner of the general partner of CVR Partners, the Company has the sole ability to direct the activities that most significantly impact the economic performance of the partnership and is considered to be December 31, 2020 | 73 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the primary beneficiary. In January 2019, following the CVRR Unit Purchase, CVR Refining was no longer considered a VIE and is accounted for as a wholly-owned subsidiary. Investments in entities over which the Company has significant influence, but not control, are accounted for using the equity method of accounting. Income from equity method investments represents CVR Energy’s proportionate share of net income generated by the equity method investees and is recorded in Other income, net on the Company’s Consolidated Statements of Operations. Reclassifications Certain reclassifications have been made within the consolidated financial statements for the years ended December 31, 2019 and 2018 to conform with current presentation. Catalyst inventory with a value of $ 17 million as of December 31, 2019 was reclassified in the first quarter of 2020 to Other long-term assets to conform to current presentation. Use of Estimates The consolidated financial statements are prepared in conformity with GAAP, which requires management to make 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. Estimates are reviewed on an ongoing basis, based on currently available information. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and on deposit, investments in highly liquid money market accounts, and debt instruments with original maturities of three months or less. Restricted Cash Restricted cash consists of cash that must be maintained in a commercial escrow account pending resolution of certain litigation matters and is discussed further in Note 11 (“Commitments and Contingencies”). Accounts Receivable, net Accounts receivable, net primarily consist of customer accounts receivable recorded at the invoiced amounts and generally do not bear interest. Also included within accounts receivable of the Nitrogen Fertilizer Segment are unbilled fixed price contracts which is discussed further within Note 7 (“Revenue”). Allowances for doubtful accounts are generally recorded when it becomes probable the receivable will not be collected and is booked to bad debt expense. The largest concentration of credit for any one customer was approximately 11 % and 11 % of the net accounts receivable balance at December 31, 2020 and 2019, respectively. During the years ended December 31, 2020 and 2019, the Company had no minal bad debt expense, and during the year ended December 31, 2018, a recovery was recognized of $ 1 million related to bad debt expense previously written off. 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. All inventories are valued at the lower of GAAP First-In, First-Out (“FIFO”) cost, or net realizable value. The Petroleum Segment’s unfinished and finished products inventory values were determined using the ability-to-bear methodology. Other inventories in the Petroleum and Nitrogen Fertilizer Segments, including other raw materials, spare parts, and supplies, are valued at the lower of moving-average cost, which approximates FIFO, or net realizable value. The cost of inventories includes inbound freight costs. December 31, 2020 | 74 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The carrying amounts of the Petroleum Segment’s inventories exceeded their net realizable value (market value) by $ 58 million resulting in the recognition of a lower of cost or net realizable value adjustment as of March 31, 2020. The $ 58 million loss represents the difference between the carrying value of the Petroleum Segment’s inventories accounted for using the FIFO method and selling prices for refined products subsequent to March 31, 2020. No adjustment was necessary as of December 31, 2020 or December 31, 2019. Inventories consisted of the following: December 31, (in millions) 2020 2019 Finished goods $ 133 $ 177 Raw materials 83 112 In-process inventories 16 18 Parts and supplies 66 66 Total Inventories $ 298 $ 373 At December 31, 2020 and 2019, inventories related to the Nitrogen Fertilizer Segment included depreciation of approximately $ 2 million and $ 5 million, respectively. Property, Plant and Equipment, net Additions to property, plant and equipment, including capitalized interest and certain costs allocable to construction and property purchases, are recorded at cost. Expenditures for improvements that increase economic benefit or returns and/or extend useful life are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for significant asset classes are as follows: Asset Range of Useful Lives, in Years Land and improvements 10 to 30 Buildings and improvements 1 to 30 Machinery and equipment 2 to 30 Furniture and fixtures 3 to 10 Right-of-use (“ROU”) finance leases 3 to 18 Other 5 to 30 Property, plant and equipment, net consisted of the following: December 31, (in millions) 2020 2019 Machinery and equipment $ 3,881 $ 3,805 Buildings and improvements 88 87 ROU finance leases 80 81 Land and improvements 47 46 Furniture and fixtures 38 35 Construction in progress 100 95 Other 15 14 4,249 4,163 Less: Accumulated depreciation 2,009 1,827 Total Property, plant and equipment, net $ 2,240 $ 2,336 Leasehold improvements and assets held under finance 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 December 31, 2020 | 75 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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. On May 21, 2019, a subsidiary of CVR Energy sold its crude oil storage terminal located in Cushing, Oklahoma and related assets (the "Terminal"). As part of this transaction, the Company received cash consideration of $ 43 million for the Terminal and related crude oil inventories resulting in a recognition of a gain on sale of $ 10 million. The carrying value of the inventory sold as part of this transaction has been presented on a net basis, with the proceeds on sale, within the net cash used in investing section of the Consolidated Statements of Cash Flows. As of December 31, 2020, the Company had not identified the existence of an impairment indicator for its long-lived asset groups as outlined under Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment . Leases At inception, the Company determines whether an arrangement is a lease and the appropriate lease classification. Operating leases are included as operating lease ROU assets within Other long-term assets and lease liabilities within Other current liabilities and Other long-term liabilities on our Consolidated Balance Sheets. Finance leases are included as ROU finance leases within Property, plant, and equipment, net, and finance lease liabilities within Note payable and finance lease obligations and Long-term debt and finance lease obligations, net of current portion on our Consolidated Balance Sheets. Leases with an initial expected term of 12 months or less are considered short-term and are not recorded on our Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the expected lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of minimum lease payments over the lease term. The lease term is modified to reflect options to extend or terminate the lease when it is reasonably certain we will exercise such option. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise, in which case the depreciation policy in the “Property, Plant and Equipment, net” section above is applicable. The periodic lease payments are treated as payments of the lease obligation and interest is recorded as interest expense. Deferred Financing Costs Lender and other third-party costs associated with debt issuances are deferred and amortized to interest expense and other financing costs using the effective-interest method over the life of the debt. Deferred financing costs related to line-of-credit arrangements are amortized using the straight-line method through the maturity date of the facility. The deferred financing costs are included net within Long-term debt and finance lease obligations, net of current portion and in Other long-term liabilities for the line-of-credit arrangements where no debt balance exists. Impairment of Long-Lived Assets and Goodwill Long-lived assets (excluding goodwill, intangible assets with indefinite lives, and deferred tax assets) are reviewed 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 asset 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. 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, while 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. The Company uses November 1 of each year as its annual valuation date for its goodwill impairment test. December 31, 2020 | 76 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) One of the reporting units associated with our Nitrogen Fertilizer Segment’s Coffeyville, Kansas facility (the “Coffeyville Facility”) had a goodwill balance of $ 41 million at December 31, 2019. During the second quarter of 2020, following the completion of the spring planting season, the market pricing for ammonia and UAN, the Nitrogen Fertilizer Segment’s two primary products, experienced significant pricing declines driven by updated market expectations around supply and demand fundamentals which were expected to continue into the second half of 2020. Additionally, significant uncertainty remained as to the nature and extent of impacts to be seen on the overall demand for corn and soybean given reduced ethanol production and broader economic conditions which may negatively impact demand. Therefore in connection with the preparation of the financial statements for the three months ended June 30, 2020, given the pricing declines experienced in the second quarter of 2020, further muting of our near-term economic recovery assumptions, and market price performance of CVR Partners’ common units, the Company concluded an impairment indicator was present and a triggering event under ASC Topic 350, Intangibles-Goodwill and Other , had occurred as of June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the interim quantitative analysis, it was determined that the estimated fair value of the Coffeyville Facility reporting unit did not exceed its carrying value. As a result, the Company recorded a full, non-cash impairment charge of $ 41 million during the year ended December 31, 2020. As there is no goodwill balance at December 31, 2020, no annual impairment review was performed. The Company performed its annual impairment review of goodwill for 2019 and 2018 associated with CVR Partners’ Coffeyville, Kansas Nitrogen Fertilizer (the “Coffeyville Fertilizer Facility”) reporting unit and concluded there were no impairments. For the period ended December 31, 2019, no events or circumstances were identified which would trigger the performance of a quantitative analysis after reviewing all qualitative factors impacting the reporting unit including improved market conditions, financial results, and financial forecasts from those used in the fair value analysis at December 31, 2018. For the period ended December 31, 2018, the fair value of the Coffeyville Fertilizer Facility exceeded its carrying value by approximately 36 % based upon the results of the reporting unit’s goodwill impairment test. Loss Contingencies In the ordinary course of business, the Company 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 Company accrues liabilities for these matters if the Company has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. Environmental, Health & Safety (“EHS”) Matters The Petroleum and Nitrogen Fertilizer Segments are subject to various federal, state, and local environmental, health, and safety rules and regulations. 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. Management periodically reviews and, as appropriate, revises its environmental accruals. Environmental expenditures for capital assets are capitalized at the time of the expenditure when such costs provide future economic benefits. Revenue Recognition The Company recognizes revenue based on consideration specified in contracts or agreements with customers when performance obligations are satisfied by transferring control over products or services to a customer. The Company’s revenue recognition patterns are described below by reportable segment. • Petroleum Segment - The vast majority of Petroleum Segment contracts contain pricing that is based on the market price for the product at the time of delivery. Obligations to deliver product volumes are typically satisfied and revenue is recognized when control of the product transfers to customers. Concurrent with the transfer of control, the right to payment for the delivered product is received, the customer accepts the product, and the customer has significant risks and rewards of ownership of the product. Payment terms require customers to pay shortly after delivery and do not contain significant financing components. Any pass-through finished goods delivery costs reimbursed by customers are reported in Net sales, while an offsetting expense is included in Cost of materials and other. Non-monetary product December 31, 2020 | 77 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) exchanges and certain buy/sell transactions which are entered into in the normal course of business are included on a net cost basis in Cost of materials and other on the Consolidated Statements of Operations. • Nitrogen Fertilizer Segment - Revenue is recognized based on consideration specified in contracts or agreements with customers when performance obligations are satisfied by transferring control over products or services to a customer. The adoption of ASC Topic 606, Revenue from Contracts with Customers , resulted in the recognition of deferred revenue and related receivables, on a gross basis, associated with contracts that guarantee a price and supply of nitrogen fertilizer products in quantities expected to be delivered in the normal course of business. Other considerations - For both segments, excise and other taxes collected from customers and remitted to governmental authorities are excluded from reported revenues. Cost Classifications Cost of materials and other includes cost of crude oil, other feedstocks, blendstocks, purchased refined products, purchased ammonia, purchased hydrogen, pet coke expenses, Renewable Identification Number (“RIN”) expenses, derivative gains or losses, and freight and distribution costs. Direct operating expenses (exclusive of depreciation and amortization) consist primarily of energy and other utility costs, direct costs of labor, including applicable share-based compensation expense, property taxes, plant-related maintenance services, including turnaround, and environmental and safety compliance costs, as well as catalyst and chemical costs. Selling, general and administrative expenses (exclusive of depreciation and amortization) consist primarily of labor and other direct expenses associated with the Company’s corporate activities, including accounting, finance, information technology, human resources, legal, and other related administrative functions. For the Company’s Nitrogen Fertilizer Segment, each of these financial statement line items are also impacted by changes in inventory balances. Derivatives and Fair Value of Financial Instruments The Petroleum Segment uses futures contracts, swaps, and forward contracts primarily to reduce exposure to changes in crude oil and finished goods product prices to provide economic hedges of inventory positions. These derivative instruments do not qualify as hedges for hedge accounting purposes under ASC Topic 815, Derivatives and Hedging , and accordingly are recorded at fair value at the end of each reporting period based on quoted market prices. The Nitrogen Fertilizer Segment may enter into forward contracts with fixed delivery prices to purchase portions of its natural gas requirements. These natural gas contracts are not treated as derivatives under normal purchase and normal sale exclusions. Accordingly, the fair value of these contracts are not recorded at the end of each reporting period. Refer to Note 8 (“Derivative Financial Instruments, Investments and Fair Value Measurements”) for further discussion of the Company’s derivative activity. Other financial instruments consisting of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. Refer to Note 8 (“Derivative Financial Instruments, Investments and Fair Value Measurements”) for further fair value disclosures. Turnaround Expenses Turnarounds represent major maintenance activities that require the shutdown of significant parts of a plant to perform necessary inspection, cleaning, repairs, and replacements of assets. Costs incurred for routine repairs and maintenance or unplanned outages at our facilities are expensed as incurred. Planned turnaround activities for the Petroleum Segment vary in frequency dependent on refinery units, but generally occur every four to five years , while the frequency of turnarounds in the Nitrogen Fertilizer Segment is every two to three years . Further details of each segment’s turnaround expensing method are discussed below. Petroleum Segment - Effective January 1, 2019, the Company revised its accounting policy method for the costs of planned major maintenance activities (turnarounds) specific to the Petroleum Segment from being expensed as incurred (the direct-expense method) to the deferral method. Under the deferral method, the costs of turnarounds are deferred and amortized on a straight-line basis over a four-year period of time, which represents the estimated time until the next turnaround occurs. The new method of accounting for turnarounds is considered preferable as it is more consistent with the accounting policy of our peer companies and better reflects the economic substance of the benefits earned from turnaround expenditures. The related Consolidated Statements of Operations, Consolidated Statements of Changes in Equity, and Consolidated Statements of Cash Flows for the year ended December 31, 2018 have been recast to reflect our new accounting policy. Turnaround costs, and related accumulated amortization, are included in the Consolidated Balance Sheets as Other long-term assets. The amortization December 31, 2020 | 78 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) expense related to turnaround costs is included in Depreciation and amortization in the Consolidated Statements of Operations. During the years ended December 31, 2020, 2019, and 2018, the Petroleum Segment capitalized $ 155 million, $ 38 million, and $ 8 million, respectively. Nitrogen Fertilizer Segment - The Nitrogen Fertilizer Segment follows the direct-expense method of accounting for turnaround activities. Costs associated with these turnaround activities were included in Direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations. During the years ended December 31, 2020, 2019, and 2018, the Nitrogen Fertilizer Segment incurred turnaround expenses of $ 1 million, $ 10 million, and $ 6 million, respectively. The following presents the financial statement line items impacted by the Petroleum Segment turnaround accounting change for each of the periods presented within these consolidated financial statements. Effect of Turnaround Accounting on Consolidated Statement of Operations and Consolidated Statement of Cash Flows for the Year Ended December 31, 2018 Year Ended December 31, 2018 (in millions) As Previously Reported Effect of Turnaround Accounting Change As Stated Consolidated Statement of Operations Direct operating expenses $ 523 $ ( 6 ) $ 517 Depreciation and amortization 202 61 263 Income tax expense (benefit) 89 ( 10 ) 79 Net income (loss) $ 411 $ ( 45 ) $ 366 Less: Net income (loss) attributable to noncontrolling interest 122 ( 15 ) 107 Net income (loss) attributable to CVR Energy stockholders $ 289 $ ( 30 ) $ 259 Consolidated Statement of Cash Flows Net cash provided by operating activities $ 620 $ 8 $ 628 Net cash used by investing activities $ ( 100 ) $ ( 8 ) $ ( 108 ) Share-Based Compensation The Company accounts for share-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). Currently, all of the Company’s share-based compensation awards, including those issued by CVR Refining and CVR Partners, are liability-classified and are measured at fair value at the end of each reporting period based on the applicable closing unit price. Compensation expense will fluctuate based on changes in the applicable share or unit prices and expense reversals resulting from employee terminations prior to award vesting. Additionally, the Company has issued certain performance unit awards. The fair value of these performance unit awards is recognized as compensation expense only if the attainment of the performance conditions is considered probable. Uncertainties involved in this estimate include continued employment requirements and whether or not the performance conditions will be attained. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and, therefore, are considered reasonably possible of being achieved. If this assumption proves not to be true and the awards do not vest, compensation expense recognized during the performance cycle will be reversed. See Note 9 (“Share-Based Compensation”) for further discussion. December 31, 2020 | 79 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Income Taxes Income taxes are accounted for 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. In assessing the realizability of the deferred income tax assets, including net operating loss and state tax 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 income 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 income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Further, the Company recognizes interest expense (income) and penalties on uncertain tax positions and income tax deficiencies (refunds) in Income tax (benefit) expense. Earnings Per Share There were no dilutive awards outstanding during the years ended December 31, 2020, 2019, and 2018. Recent Accounting Pronouncements - Adoption of Credit Losses Standard In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). The ASU replaces the incurred loss model with a current expected credit loss model for more timely recognition of expected impairment losses for most financial assets and certain other instruments that are not measured at fair value through net income. Effective January 1, 2020, we adopted this ASU with no material impact on the Company’s consolidated financial position or results of operations. Recent Accounting Pronouncements - Adoption of Fair Value Measurement Standard In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU eliminates such disclosures as the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. Effective January 1, 2020, we adopted this ASU with no material impact on the Company’s disclosures. Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and modifies other areas of the topic to clarify the application of GAAP. Certain amendments within the standard are required to be applied on a retrospective basis and others on a prospective basis. This standard is effective for the Company beginning January 1, 2021, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance on its consolidated financial statements, but does not currently expect adoption will have a material impact on the Company’s consolidated financial position or results of operations. The Company does not intend to early adopt this ASU. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This ASU was issued because, by the end of 2021, banks will no longer be required to report information that is used to determine London Interbank Offered Rate (“LIBOR”), which is used globally by all types of entities. As a result, LIBOR could be discontinued, as well as other interest rates used globally. ASU 2020-04 provides companies with optional expedients for contract modifications under Topics 310, 470, 842, and 815-15, excluded components of certain hedging relationships, fair value hedges, and cash flow hedges, as well as certain exceptions, which are intended to help ease the potential accounting burden associated with transitioning away from these reference rates. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the impact that adopting this new accounting standard will have on its consolidated financial statements and related disclosures. or results of operations. In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The ASU amends various sections of the codification in the Boards ongoing efforts to simplify and improve guidance. This standard is effective for the Company December 31, 2020 | 80 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) beginning January 1, 2021, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance on its consolidated financial statements, but does not currently expect adoption will have a material impact on the Company’s consolidated financial position or results of operations. The Company does not intend to early adopt this ASU. (3) Equity Method Investments For each of the following investments, CVR Refining has the ability to exercise influence through its participation in the management committees, which make all significant decisions. However, since CVR Refining has equal or proportionate influence over each committee as a joint partner without regard to its economic interest and does not serve as the day-to-day operator, we have determined that these entities should not be consolidated and have applied the equity method of accounting. • Enable South Central Pipeline, LLC (“Enable JV”, formerly Velocity Pipeline Partners, LLC) - CVR Refining owns a 40 % interest in Enable JV, which operates a 12-inch 26 -mile crude oil pipeline with a capacity of approximately 115,000 barrels per day that is connected to the Wynnewood Refinery. The remaining interest in Enable JV is owned by Enable Midstream Partners, LP. • Midway Pipeline, LLC (“Midway JV”) - CVR Refining owns a 50 % interest in Midway JV, which operates a 16-inch 100 -mile crude oil pipeline with a capacity of approximately 150,000 barrels per day which connects the Coffeyville Refinery to the Cushing Oklahoma oil hub. (in millions) Enable JV Midway JV Total Balance at December 31, 2018 6 78 84 Cash Distributions ( 4 ) ( 9 ) ( 13 ) Equity income 4 6 10 Balance at December 31, 2019 6 75 81 Cash Distributions ( 4 ) ( 6 ) ( 10 ) Equity income 4 5 9 Balance at December 31, 2020 $ 6 $ 74 $ 80 (4) Leases Lease Overview We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer, and corporate operations. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. 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. Additionally, we do not have any material lessor or sub-leasing arrangements. December 31, 2020 | 81 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Balance Sheet Summary as of December 31, 2020 and 2019 The following tables summarize the right of use asset and lease liability balances for the Company’s operating and finance leases at December 31, 2020 and 2019: December 31, (in millions) 2020 2019 Operating Leases: ROU asset, net Pipeline and storage $ 15 $ 20 Railcars 8 12 Real estate and other 14 16 Lease liability Pipelines and storage $ 16 $ 22 Railcars 8 12 Real estate and other 14 14 December 31, (in millions) 2020 2019 Finance Leases: ROU asset, net Pipeline and storage $ 26 $ 29 Real estate and other 21 24 Lease liability Pipelines and storage $ 38 $ 40 Real estate and other 22 25 Lease Expense Summary for the Year Ended December 31, 2020 and 2019 We recognize lease expense on a straight-line basis over the lease term. For the year ended December 31, 2020 and 2019, we recognized lease expense comprised of the following components: Year Ended December 31, (in millions) 2020 2019 Operating lease expense $ 17 $ 12 Finance lease expense: Amortization of ROU asset $ 6 $ 7 Interest expense on lease liability 6 6 Short-term lease expense, recognized within Direct operating expenses (exclusive of depreciation and amortization), was $ 8 million and $ 8 million for the year ended December 31, 2020 and 2019, respectively. December 31, 2020 | 82 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Lease Terms and Discount Rates The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and liabilities: December 31, 2020 2019 Weighted-average remaining lease term (years) Operating Leases 3.1 3.7 Finance Leases 8.1 9.0 Weighted-average discount rate Operating Leases 5.5 % 5.6 % Finance Leases 9.0 % 8.9 % Maturities of Lease Liabilities The following summarizes the remaining minimum lease payments through maturity of the Company’s right-of-use assets and liabilities at December 31, 2020: (in millions) Operating Leases Finance Leases 2021 $ 16 $ 11 2022 12 11 2023 8 10 2024 5 10 2025 — 10 Thereafter — 33 Total lease payments 41 85 Less: imputed interest ( 3 ) ( 25 ) Total lease liability $ 38 $ 60 On July 31, 2020, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”), a subsidiary of CVR Partners, and Messer LLC (“Messer”) entered into an On-Site Product Supply Agreement (the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for, oxygen, nitrogen, and compressed dry air from Messer’s facility. This arrangement for CRNF’s purchase of oxygen, nitrogen, and dry air 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 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 and related equipment to be used solely by the Coffeyville Facility. This arrangement for the use of the oxygen storage vessel and related equipment 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 Company expects the lease of the oxygen storage vessel to be classified as a financing lease with an amount between $ 20 and $ 25 million being capitalized upon lease commencement when the oxygen storage vessel is placed in service. December 31, 2020 | 83 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (5) Other Current Liabilities Other current liabilities were as follows: December 31, (in millions) 2020 2019 Accrued Renewable Fuel Standards (“RFS”) obligation $ 214 $ 7 Accrued taxes other than income taxes 32 28 Deferred revenue 31 28 Personnel accruals 23 47 Accrued interest 25 9 Accrued derivatives 17 7 Operating lease liabilities 14 14 Share-based compensation 4 6 Accrued income taxes — 24 Other accrued expenses and liabilities 9 9 Total other current liabilities $ 369 $ 179 (6) Long-Term Debt and Finance Lease Obligations December 31, (in millions) 2020 2019 CVR Partners: 9.25 % Senior Secured Notes, due June 2023 $ 645 $ 645 6.50 % Senior Notes, due April 2021, net of current portion (1) — 2 Unamortized discount and debt issuance costs ( 11 ) ( 15 ) Total CVR Partners debt $ 634 $ 632 CVR Refining: 6.50 % Senior Notes, due November 2022 (2) $ — $ 500 Finance lease obligations, net of current portion (3) 55 61 Unamortized debt issuance cost — ( 3 ) Total CVR Refining debt 55 558 CVR Energy: 5.250 % Senior Notes, due February 2025 $ 600 $ — 5.750 % Senior Notes, due February 2028 400 — Unamortized debt issuance cost ( 6 ) — Total CVR Energy debt 994 — Total long-term debt and finance lease obligations $ 1,683 $ 1,190 Current portion of long-term debt and finance lease obligations (1)(3) 8 5 Total long-term debt and finance lease obligations, including current portion $ 1,691 $ 1,195 (1) The 6.50 % Senior Notes, due April 2021, mature within 12 months, and, therefore, the outstanding balance of $ 2 million has been classified as short-term as of December 31, 2020. (2) On January 27, 2020, the Company redeemed all of the 6.50 % Senior Notes, due November 2022 (the “2022 Notes”) for a redemption price equal to 101.083 %, plus accrued and unpaid interest on the redeemed notes. (3) Current portion of finance lease obligations was approximately $ 6 million and $ 5 million as of December 31, 2020 and 2019, respectively. December 31, 2020 | 84 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Credit Agreements (in millions) Total Capacity Amount Borrowed as of December 31, 2020 Outstanding Letters of Credit Available Capacity as of December 31, 2020 Maturity Date CVR Partners: Asset Based (“Nitrogen Fertilizer ABL”) Credit Agreement (1)(2) $ 20 $ — $ — $ 20 September 30, 2022 CVR Refining: Amended and Restated Asset Based (“Petroleum ABL”) Credit Agreement (3) $ 400 $ — $ 35 $ 365 November 14, 2022 (1) Through December 31, 2020, loans under the Nitrogen Fertilizer ABL bear interest at an annual rate equal to (i) 1.00 % plus a base rate. Thereafter, loans will bear interest (i) at such rates if our quarterly excess availability is greater than 50% and (ii) 1.50 % plus a base rate, otherwise. (2) The Nitrogen Fertilizer ABL was amended on September 29, 2020, to, among other things, reduce the commitments thereunder to $ 35 million and extended the maturity date to September 30, 2022. Deferred financing costs of less than $ 1 million were capitalized related to this amendment and will be amortized from Prepaid expenses and other current assets and Other long-term assets over the remaining term of Nitrogen Fertilizer ABL. (3) Loans under the Petroleum ABL bear interest at an annual rate equal to (i) 0.50 % plus a base rate, if our quarterly excess availability is greater than 50% and (ii) 0.75 % plus a base rate, otherwise. The Company is in compliance with all covenants of the Nitrogen Fertilizer ABL, Petroleum ABL, and the senior notes as of December 31, 2020. CVR Partners 2023 Notes - On June 10, 2016, CVR Partners and CVR Nitrogen Finance Corporation (“CVR Nitrogen Finance”), an indirect wholly-owned subsidiary of CVR Partners (together the “2023 Notes Issuers”), certain subsidiary guarantors named therein and Wilmington Trust, National Association, as trustee and as collateral trustee, completed a private offering of $ 645 million aggregate principal amount of 9.25 % Senior Secured Notes due 2023 (the “2023 Notes”). The 2023 Notes mature on June 15, 2023, unless earlier redeemed or repurchased by the issuers. Interest on the 2023 Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The 2023 Notes are guaranteed on a senior secured basis by all of the Nitrogen Fertilizer Partnership’s existing subsidiaries. On or after June 15, 2019, the 2023 Notes Issuers may on any one or more occasions, redeem all or part of the 2023 Notes at the redemption prices set forth below expressed as a percentage of the principal amount of the 2023 Notes plus accrued and unpaid interest to the applicable redemption date. 12-month period beginning June 15, Percentage 2020 102.313 % 2021 and thereafter 100.000 % The 2023 Notes contain customary covenants for a financing of this type that, among other things, restrict CVR Partners’ ability and the ability of certain of its subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Nitrogen Fertilizer Partnership’s units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from the CVR Partners’ restricted subsidiaries to CVR Partners; (vii) consolidate, merge or transfer all or substantially all of the CVR Partners’ assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. In addition, the indenture contains customary events of default, the occurrence of which would result in or permit the trustee or the holders of at least 25 % of the 2023 Notes to cause the acceleration of the 2023 Notes, in addition to the pursuit of other available remedies. Nitrogen Fertilizer ABL - On September 29, 2020, CVR Partners entered into Amendment No. 1 to the Nitrogen Fertilizer ABL with a group of lenders and UBS AG, Stamford Branch (“UBS”), as administrative agent and collateral agent. The Nitrogen Fertilizer ABL reduced its aggregate principal amount of availability from $ 50 million to $ 35 million, and extended December 31, 2020 | 85 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the scheduled maturity to September 30, 2022. The amendment also removed from the borrowing base calculation the restricted cash and cash equivalent component and increased the advance rate for certain eligible inventory. CVR Refining 2022 Notes - On October 23, 2012, CVR Refining, LLC (“Refining LLC”) and Coffeyville Finance Inc. (“Coffeyville Finance”) completed a private offering of $ 500 million aggregate principal amount of 6.50 % Second Lien Senior Notes due 2022 (the “2022 Notes”). 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 are unsecured and fully and unconditionally guaranteed by CVI, CVR Refining and each of Refining LLC’s existing domestic subsidiaries (other than the co-issuer, Coffeyville Finance) 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. On January 29, 2019, the Company, and certain of the Company’s subsidiaries, executed a full and unconditional guarantee of the 2022 Notes. On January 27, 2020, the Company redeemed all of the outstanding 2022 Notes and settled accrued interest of approximately $ 8 million through the date of redemption. The redeemed notes were repurchased for approximately $ 505 million, or 101.083 % of par value. Previously deferred financing charges related to the 2022 Notes totaled approximately $ 3 million. As a result of this transaction, the Company will recognize a $ 8 million loss on extinguishment of debt in the first quarter of 2020, which includes the total premiums paid of $ 5 million and the write-off of previously deferred financing charges of $ 3 million. Petroleum ABL - On November 14, 2017, CVR Services, CVR Refining, its wholly-owned subsidiary, CVR Refining, LLC (“Refining LLC”) and each of the operating subsidiaries of Refining LLC (collectively, the “Credit Parties”) entered into Amendment No. 1 to the Amended and Restated ABL Credit Agreement (the “Amendment”) with a group of lenders and Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent and collateral agent. The Amended and Restated ABL is a $ 400 million asset-based revolving credit facility, with sub-limits for letters of credit and swingline loans of $ 60 million and $ 40 million, respectively. The Amended and Restated ABL also includes a $ 200 million uncommitted incremental facility. CVR Energy 2025 Notes and 2028 Notes - On January 27, 2020, CVR Energy completed a private offering of $ 600 million aggregate principal amount of 5.25 % Senior Unsecured Notes due 2025 (the “2025 Notes”) and $ 400 million aggregate principal amount of 5.75 % Senior Unsecured Notes due 2028 (the “2028 Notes” and, collectively with the 2025 Notes, the “Notes”). Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 each year, commencing on August 15, 2020. The 2025 Notes mature on February 15, 2025, unless earlier redeemed or repurchased by the issuers. The 2028 Notes mature on February 15, 2028, unless earlier redeemed or repurchased by the issuers. The Notes are jointly and severally guaranteed on a senior unsecured basis by the wholly-owned subsidiaries of CVR Energy with the exception of CVR Partners and its subsidiaries and certain immaterial wholly-owned subsidiaries of CVR Energy. In relation to the issuance of the Notes, the Company received $ 993 million of net cash proceeds, net of underwriting fees and other third-party fees and expenses associated with the offering. The debt issuance costs of the Notes totaled approximately $ 7 million and are being amortized over the terms of the respective notes as interest expense using the effective-interest amortization method. On or after February 15, 2022 and February 15, 2023, we may on any one or more occasions, redeem all or part of the 2025 Notes and 2028 Notes, respectively, at the redemption prices set forth below expressed as a percentage of the principal amount of the respective notes, plus accrued and unpaid interest to the applicable redemption date. 2025 Notes 2028 Notes 12-month period beginning February 15, Percentage 12-month period beginning February 15, Percentage 2022 102.625 % 2023 102.875 % 2023 101.313 % 2024 101.917 % 2024 and thereafter 100.000 % 2025 100.958 % 2026 and thereafter 100.000 % December 31, 2020 | 86 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The indenture governing the Notes imposes covenants that will, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional indebtedness or issue certain disqualified equity; (ii) create liens on certain assets to secure debt; (iii) pay dividends or make other equity distributions; (iv) purchase or redeem capital stock; (v) make certain investments; (vi) sell assets; (vii) agree to certain restrictions on the ability of restricted subsidiaries to make distributions, loans, or other asset transfers to us; (viii) consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; (ix) engage in transactions with affiliates; and (x) designate our restricted subsidiaries as unrestricted subsidiaries. In addition, the indenture contains customary events of default, the occurrence of which would result in or permit the trustee or the holders of at least 25 % of the 2025 Notes and 2028 Notes to cause, amongst other available remedies, the acceleration of the respective notes. Credit Agreement - On January 29, 2019, the Company entered into a credit agreement (the “Credit Agreement”) with Jefferies Finance LLC to provide a term loan credit facility with a maturity date of March 10, 2019. The borrowings under the Credit Agreement of $ 105 million were used to fund a portion of the CVRR Unit Purchase. All amounts were repaid on February 11, 2019. As the original maturity was less than three months from the issuance date, the borrowings and repayments under the credit agreement qualified for net reporting on the Consolidated Statements of Cash Flows. (7) Revenue The following tables present the Company’s revenue disaggregated by major product, which include a reconciliation of the disaggregated revenue by product and other revenue components for the Company’s reportable segments. Year Ended December 31, 2020 (in millions) Petroleum Nitrogen Fertilizer Other / Eliminations Consolidated Gasoline $ 1,882 $ — $ — $ 1,882 Distillates (1) 1,543 — — 1,543 Ammonia — 94 — 94 UAN — 198 — 198 Other urea products — 15 — 15 Freight revenue 18 33 — 51 Other (2) 79 10 ( 6 ) 83 Revenue from product sales 3,522 350 ( 6 ) 3,866 Crude oil sales 63 — — 63 Other revenue (2) 1 — — 1 Total revenue $ 3,586 $ 350 $ ( 6 ) $ 3,930 December 31, 2020 | 87 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Year Ended December 31, 2019 (in millions) Petroleum Nitrogen Fertilizer Other / Eliminations Consolidated Gasoline $ 3,050 $ — $ — $ 3,050 Distillates (1) 2,705 — — 2,705 Ammonia — 94 — 94 UAN — 251 — 251 Other urea products — 18 — 18 Freight revenue 23 33 — 56 Other (2) 129 8 ( 8 ) 129 Revenue from product sales 5,907 404 ( 8 ) 6,303 Crude oil sales 58 — — 58 Other revenue (2) 3 — — 3 Total revenue $ 5,968 $ 404 $ ( 8 ) $ 6,364 Year Ended December 31, 2018 (in millions) Petroleum Nitrogen Fertilizer Other / Eliminations Consolidated Gasoline $ 3,383 $ — $ — $ 3,383 Distillates (1) 3,083 — — 3,083 Ammonia — 66 — 66 UAN — 222 — 222 Other urea products — 21 — 21 Freight revenue 23 34 — 57 Other (2) 190 8 ( 7 ) 191 Revenue from product sales 6,679 351 ( 7 ) 7,023 Crude oil sales 96 — — 96 Other revenue (2) 5 — — 5 Total revenue $ 6,780 $ 351 $ ( 7 ) $ 7,124 (1) Distillates consist primarily of diesel fuel, kerosene, and jet fuel. (2) Other revenue consists primarily of feedstock and asphalt sales and Cushing, OK storage tank lease revenue. See Note 2 (“Summary of Significant Accounting Policies”) for further discussion on the Cushing, OK storage tanks. Petroleum Segment The Petroleum Segment’s revenue from product sales is recorded upon delivery to customers, which is the point at which title is transferred and the customer has assumed the risk of loss. This generally takes place as product passes into the pipeline, as a product transfer order occurs within a pipeline system, or as product enters equipment or locations supplied or designated by the customer. Qualifying excise and other taxes collected from the Petroleum Segment’s customers and remitted to governmental authorities are not included in reported revenues. Many of the Petroleum Segment’s contracts have index-based pricing which is considered variable consideration that should be estimated in determining the transaction price. The Petroleum Segment determined that it does not need to estimate the variable consideration because the uncertainty related to the consideration is resolved on the pricing date or the date when the product is delivered. December 31, 2020 | 88 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Petroleum Segment may incur broker commissions or transportation costs prior to product transfer on some of its sales. The Petroleum Segment expenses these broker costs, since the contract durations are less than a year. Transportation costs are accounted for as fulfillment costs and are expensed as incurred since they do not meet the requirement for capitalization. The Petroleum Segment’s contracts with its customers state the terms of the sale, including the description, quantity, and price of each product sold. Depending on the product sold, payment from customers is generally due in full within 2 to 32 days of product delivery or invoice date. The Petroleum Segment generally provides no warranty other than the implicit promise that goods delivered are free of liens and encumbrances and meet the agreed upon specification. The Petroleum Segment has determined that product returns or refunds are very rare and will account for them as they occur. Freight revenue recognized by the Petroleum Segment is primarily tariff and line loss charges rebilled to customers to reimburse the Petroleum Segment for expenses incurred from a pipeline operator. An offsetting expense is included in Cost of materials and other. Nitrogen Fertilizer Segment The Nitrogen Fertilizer Segment sells its products on a wholesale basis under a contract or by purchase order. The Nitrogen Fertilizer Segment’s contracts with customers generally contain fixed pricing and most have terms of less than one year. The Nitrogen Fertilizer Segment recognizes revenue at the point in time at which the customer obtains control of the product, which is generally upon delivery and acceptance by the customer. The customer acceptance point is stated in the contract and may be at one of the Nitrogen Fertilizer Segment’s manufacturing facilities, at one of the Nitrogen Fertilizer Segment’s off-site loading facilities, or at the customer’s designated facility. Freight revenue recognized by the Nitrogen Fertilizer Segment 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. Qualifying excise and other taxes collected from the Nitrogen Fertilizer Segment’s customers and remitted to governmental authorities are not included in reported revenues. Depending on the product sold and the type of contract, payments from customers are generally either due prior to delivery or within 15 to 30 days of product delivery. The Nitrogen Fertilizer Segment generally provides no warranty other than the implicit promise that goods delivered are free of liens and encumbrances and meet the agreed upon specifications. Product returns are rare, and as such, the Nitrogen Fertilizer Segment does not record a specific warranty reserve or consider activities related to such warranty, if any, to be a separate performance obligation. The Nitrogen Fertilizer Segment has an immaterial amount of variable consideration for contracts with an original duration of less than a year. A small portion of the Nitrogen Fertilizer Segment’s revenue includes contracts extending beyond one year, some of which contain variable pricing in which the majority of the variability is attributed to the market-based pricing. The Nitrogen Fertilizer Segment’s contracts do not contain a significant financing component. The Nitrogen Fertilizer Segment has an immaterial amount of fee-based revenue, included in other revenue in the table above, that is recognized based on the net amount of the proceeds received, consistent with prior accounting practice. Remaining Performance Obligations As of December 31, 2020, the Nitrogen Fertilizer Segment had approximately $ 6 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Nitrogen Fertilizer Segment expects to recognize approximately $ 3 million of these performance obligations as revenue by the end of 2021, an additional $ 2 million by 2022, and the remaining balance thereafter. Contract Balances The Nitrogen Fertilizer Segment’s deferred revenue is a contract liability that primarily relates to nitrogen fertilizer sales contracts requiring customer prepayment prior to product delivery to guarantee a price and supply of nitrogen fertilizer. Deferred revenue is recorded at the point in time in which a prepaid contract is legally enforceable and the associated right to consideration is unconditional prior to transferring product to the customer. An associated receivable is recorded for uncollected December 31, 2020 | 89 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) prepaid contract amounts. Contracts requiring prepayment are generally short-term in nature and, as discussed above, revenue is recognized at the point in time in which the customer obtains control of the product. A summary of the Nitrogen Fertilizer Segment’s deferred revenue activity during the year ended December 31, 2020 is presented below: (in millions) Balance at December 31, 2019 $ 28 Add: New prepay contracts entered into during the period (1) 56 Less: Revenue recognized that was included in the contract liability balance at the beginning of the period ( 27 ) Revenue recognized related to contracts entered into during the period ( 26 ) Balance at December 31, 2020 $ 31 (1) Includes $ 33 million where the payment associated with prepaid contracts was collected. Major Customers Petroleum Segment - The Petroleum Segment has two customers who comprised 26 %, 25 %, and 25 % of petroleum net sales for the years ended December 31, 2020, 2019, and 2018, respectively. Nitrogen Fertilizer Segment - The Nitrogen Fertilizer Segment has two customers who comprised 26 %, 28 %, and 20 % of nitrogen fertilizer net sales for the years ended December 31, 2020, 2019, and 2018, respectively. (8) Derivative Financial Instruments, Investments and Fair Value Measurements Derivative Financial Instruments Our segments 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 Petroleum Segment from time to time enters into various commodity derivative transactions. On a regular basis, the Company enters into commodity contracts with counterparties for the purchases or sale of crude oil, blendstocks, various finished products, and RINs. The contracts usually qualify for the normal purchase normal sale exception and follow the accrual method of accounting. All other derivative instruments are recorded at fair value using mark-to-market accounting on a periodic basis utilizing third-party pricing. The Petroleum Segment holds derivative instruments, such as exchange-traded crude oil futures and over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges under GAAP. There are no premiums paid or received at inception of the derivative contracts or upon settlement. The Petroleum Segment may enter into forward purchase or sale contracts associated with RINs. As of December 31, 2020, the Petroleum Segment had open fixed-price commitments to purchase a net 13 million RINs. Commodity derivatives include commodity swaps and forward purchase and sale commitments. There were 7 million outstanding commodity swap positions as of December 31, 2020 and no open commodity swaps in 2019. There were approximately 4 million and 3 million in forward purchase commitments as of December 31, 2020 and 2019, respectively, and 2 million and 1 million in forward sale commitments as of December 31, 2020 and 2019, respectively. December 31, 2020 | 90 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following outlines the gains (losses) recognized on the Company’s derivative activities, all of which are recorded in Cost of materials and other on the Consolidated Statements of Operations: Gain (Loss) on Derivatives Year Ended December 31, (in millions) 2020 2019 2018 Forward purchases and sales contracts, net $ 53 $ 20 $ 103 Commodity swap instruments ( 8 ) — 44 Futures contracts 10 ( 1 ) ( 1 ) Total gain (loss) on derivatives, net $ 55 $ 19 $ 146 Offsetting Assets and Liabilities The Company elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty. These amounts are recognized as current assets and current liabilities within the Prepaid expenses and other current assets and Other current liabilities financial statement line items, respectively, in the Consolidated Balance Sheets as follows: Derivative Assets Derivative Liabilities December 31, December 31, (in millions) 2020 2019 2020 2019 Commodity derivatives $ 1 $ 3 $ ( 5 ) $ ( 11 ) Less: Counterparty netting ( 1 ) ( 3 ) 1 3 Total net fair value of derivatives $ — $ — $ ( 4 ) $ ( 8 ) Investments Investments consist of equity securities, which are reported at fair value in our Consolidated Balance Sheets. These investments are considered trading securities. Investment income from marketable securities consists of the following: Year Ended December 31, (in millions) 2020 2019 2018 Dividend income $ 7 $ — $ — Unrealized gain 34 — — Investment income from marketable securities $ 41 $ — $ — Fair Value Measurements In accordance with FASB ASC Topic 820 — Fair Value Measurements and Disclosures (“Topic 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets or liabilities, such as a business. Topic 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 or 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) December 31, 2020 | 91 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table sets forth the assets and liabilities measured or disclosed at fair value on a recurring basis, by input level, as of December 31, 2020 and 2019: December 31, 2020 (in millions) Level 1 Level 2 Level 3 Total Location and Description Prepaid expenses and other current assets (investments) $ 173 $ — $ — $ 173 Total Assets $ 173 $ — $ — $ 173 Current portion of long-term debt $ — $ ( 2 ) $ — $ ( 2 ) Other current liabilities (commodity derivatives) — ( 17 ) — ( 17 ) Other current liabilities (RFS obligation) — ( 214 ) — ( 214 ) Long-term debt and finance lease obligations, net of current portion — ( 1,604 ) — ( 1,604 ) Total Liabilities $ — $ ( 1,837 ) $ — $ ( 1,837 ) December 31, 2019 (in millions) Level 1 Level 2 Level 3 Total Location and Description Other current liabilities (commodity derivatives) $ — $ ( 8 ) $ — $ ( 8 ) Other current liabilities (RFS obligation) — ( 7 ) — ( 7 ) Long-term debt and finance lease obligations, net of current portion — ( 1,180 ) — ( 1,180 ) Total Liabilities $ — $ ( 1,195 ) $ — $ ( 1,195 ) As of December 31, 2020 and 2019, the only financial assets and liabilities that are measured at fair value on a recurring basis are the Company’s investments, derivative instruments, long-term debt, and the RFS obligation. The estimated fair value of cash equivalents, included amounts invested in short-term money market funds, and restricted cash approximate their carrying amounts. The Petroleum Segment’s commodity derivative contracts and RFS obligation, which use fair value measurements and are valued using broker quoted market prices of similar instruments, are considered Level 2 inputs. The Company had no transfers of assets or liabilities between any of the above levels during the year ended December 31, 2020. (9) Share-Based Compensation Overview CVR Energy, CVR Refining, and CVR Partners all have Long-Term Incentive Plans (collectively, the “LTIPs”) which permit the granting of options, stock and unit appreciation rights, restricted shares, restricted stock units, phantom units, unit awards, substitute awards, other unit-based awards, cash awards, dividend and distribution equivalent rights, share awards, and performance awards (including performance share units, performance units, and performance-based restricted stock). Individuals who are eligible to receive awards and grants under the LTIPs include the employees, officers, and directors of the Company, CVR Refining, and CVR Partners. The Company had 6.8 million shares or units, as applicable, available for future grants under our plans at December 31, 2020. Incentive and Phantom Unit Awards Incentive and phantom unit awards have been granted to officers, employees, and directors (collectively, the “Share-Based Awards”) under the LTIPs. As a result, Share-Based Awards that reflect the value and dividend or distributions of CVR Energy, CVR Refining, or CVR Partners, as applicable, have been granted and remain outstanding as of December 31, 2020. Each Share-Based Award and the related dividend or distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one share or unit, as applicable, in accordance with the award agreement, plus (ii) the per share or unit cash value of all dividends or distributions declared and paid, as applicable, from the grant date through the vesting date. The Share-Based Awards are generally graded-vesting awards, which vest over three years with one- December 31, 2020 | 92 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) third of the award vesting each year the grantee remains employed by the Company or its subsidiaries. Compensation expense is recognized ratably, based on service provided to the Company and its subsidiaries, with the amount recognized fluctuating as a result of the Share-Based Awards being re-measured to fair value at the end of each reporting period due to their liability-award classification. A summary of activity for the Company’s Share-Based Awards for the year ended December 31, 2020 is presented below: Shares or Units Weighted-Average Grant-Date Fair Value (per share or unit) Aggregate Intrinsic Value (in millions) Non-vested at December 31, 2019 1,052,480 $ 32.55 $ 36 Granted 2,036,383 15.12 Vested ( 508,031 ) 28.36 Forfeited ( 126,191 ) 31.65 Non-vested at December 31, 2020 2,454,641 $ 19.01 $ 37 Performance Unit Awards Pursuant to an employment agreement with the Company’s current chief executive officer, the Company entered into two performance award agreements on November 1, 2017. In connection with the performance period of January 1, 2018 to December 31, 2018, a performance award was granted with a target value of $ 1.5 million (the “2018 CEO Performance Award”). The payout of $ 1.9 million, paid in February 2019, under the 2018 CEO Performance Award was based on the Company’s performance against certain safety, operating, and financial measures. Additionally, the Company entered into a performance award agreement (the “CEO Performance Award”). The CEO Performance Award represents the right to receive upon vesting, a cash payment equal to $ 10 million if the average closing price of the Company’s common stock over the 30 -trading day period from January 4, 2022 to February 15, 2022 is equal to or greater than $ 60 per share. Compensation Expense A summary of total share based compensation expense and unrecognized compensation expense related to the Share-Based Awards and the Company’s performance awards, the amounts allocated to each of the Company’s segments, and the amounts that were not allocated to segments during the years ended December 31, 2020, 2019, and 2018 is presented below: Expenses Unrecognized Expense For the year ended December 31, At December 31, 2020 (in millions) 2020 2019 2018 Amount Weighted-Average Remaining Years Share based awards Incentive Units $ 3 $ 12 $ 4 $ 26 2.9 Phantom Units 1 5 8 7 2.8 Performance awards CEO Performance Award — — 2 7 1.0 2018 CEO Performance Award — — 2 — 0.0 Former CEO Performance Award — — — — 0.0 Total expense $ 4 $ 17 $ 16 $ 40 The total tax benefit recognized during the years ended December 31, 2020, 2019, and 2018 related to compensation expense was $ 1 million, $ 4 million and $ 4 million respectively. For the years ended December 31, 2020, 2019, and 2018, the Company paid cash of $ 8 million, $ 23 million, and $ 17 million, respectively, to settle liability-classified awards upon vesting. December 31, 2020 | 93 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Other Benefit Plans The Company sponsors and administers two defined-contribution 401(k) plans, the CVR Energy 401(k) Plan and the CVR Energy 401(k) Plan for Represented Employees (the “Plans”), in which the Company’s employees may participate. Participants in the Plans may elect to contribute a designated percentage of their eligible compensation in accordance with the Plans, subject to statutory limits. The Company provides a matching contribution of 100 % of the first 6 % of eligible compensation contributed by participants. Participants in both Plans are immediately vested in their individual contributions. The Plans provide for a three-year vesting schedule for the Company’s matching contributions and contain a provision to count service with predecessor organizations. The Company’s contributions under the Plans were approximately $ 10 million, $ 9 million, and $ 9 million for the years ended December 31, 2020, 2019, and 2018, respectively. Effective January 1, 2021, the matching contributions for the Plans have been suspended. (10) Income Taxes Tax Allocation Agreement In August 2018, CVR Energy completed an exchange offer whereby public unitholders tendered a total of 21,625,106 CVR Refining common units in exchange for a total of 13,699,549 shares of CVR Energy common stock (the “CVRR Unit Exchange”). Prior to the CVRR Unit Exchange, CVR Energy was a member of the consolidated federal tax group of AEP, an affiliate of IEP, and party to a tax allocation agreement with AEP (the “Tax Allocation Agreement”). The Tax Allocation Agreement provided that AEP would pay all consolidated federal income taxes on behalf of the consolidated tax group. As a result, CVR Energy was required to make payments to AEP in an amount equal to the tax liability, if any, that it would have had paid if it were to file as a consolidated group separate and apart from AEP. Following the CVRR Unit Exchange, IEP and affiliates’ ownership of CVR Energy was reduced below 80 % and, since that time, CVR Energy is no longer eligible to file as a member of the AEP consolidated federal income tax group. On August 2, 2018, CVR Energy became the parent of a new consolidated group for U.S. federal income tax purposes, filing and paying its federal income tax obligations directly to the IRS. Pursuant to the terms of the Tax Allocation Agreement, however, CVR Energy may be required to make payments in respect of taxes owed by AEP for periods prior to the exchange. Similar principles may apply for state or local income tax purposes where CVR Energy filed combined, consolidated or unitary tax returns with AEP. AEP’s federal income tax return for the periods ended December 31, 2017 and 2018 are currently under examination by the IRS. As of December 31, 2020 and 2019, the Company recognized a no minal payable for state income taxes due to AEP. The payable is recognized in Other current liabilities in the Consolidated Balance Sheets. As of December 31, 2020 and 2019, the Company’s Consolidated Balance Sheets reflected a receivable of $ 44 million from and a payable of $ 20 million to, respectively, the IRS and certain state jurisdictions. Income Tax (Benefit) Expense Income tax (benefit) expense is comprised of the following: Year Ended December 31, (in millions) 2020 2019 2018 Current: Federal $ ( 63 ) $ 96 $ 31 State ( 5 ) 5 ( 7 ) Total current ( 68 ) 101 24 Deferred: Federal ( 1 ) 3 39 State ( 26 ) 25 16 Total deferred ( 27 ) 28 55 Total income tax (benefit) expense $ ( 95 ) $ 129 $ 79 December 31, 2020 | 94 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following is a reconciliation of total income tax (benefit) expense to income tax (benefit) expense computed by applying the statutory federal income tax rate to pretax (loss) income: Year Ended December 31, (in millions) 2020 2019 2018 Tax computed at federal statutory rate $ ( 87 ) $ 103 $ 94 State income taxes, net of federal tax benefit ( 18 ) 29 12 State tax incentives, net of federal tax expense ( 7 ) ( 4 ) ( 4 ) Noncontrolling interest 13 4 ( 23 ) Goodwill impairment 3 — — Other, net 1 ( 3 ) — Total income tax (benefit) expense $ ( 95 ) $ 129 $ 79 Deferred Tax Assets and Liabilities The income tax effect of temporary differences that give rise to the Deferred income tax assets and Deferred income tax liabilities at December 31, 2020 and 2019 are as follows: December 31, (in millions) 2020 2019 Deferred income tax assets: Personnel accruals $ 2 $ — State tax credit carryforward, net 20 7 Net operating loss carryforward 9 — Total gross deferred income tax assets 31 7 Deferred income tax liabilities: Unrealized gain ( 9 ) — Investment in CVR Partners ( 67 ) ( 61 ) Investment in CVR Refining ( 320 ) ( 341 ) Other ( 3 ) ( 1 ) Total gross deferred income tax liabilities ( 399 ) ( 403 ) Net deferred income tax liabilities $ ( 368 ) $ ( 396 ) Although realization is not assured, management believes that it is more likely than not that all of the deferred income tax assets will be realized, and therefore, no valuation allowance was recognized as of December 31, 2020 and 2019. As of December 31, 2020, CVR Energy has state tax credits of approximately $ 30 million, which are available to reduce future state income taxes. These credits, if not used, will begin expiring in 2033. Uncertain Tax Positions A reconciliation of unrecognized tax benefits is as follows: Year Ended December 31, (in millions) 2020 2019 2018 Balance, beginning of year $ 22 $ 23 $ 29 Decrease based on prior year tax position ( 2 ) — — Increase in current year tax positions — 2 — Reductions related to expirations from statute of limitations ( 3 ) ( 3 ) ( 6 ) Balance, end of year $ 17 $ 22 $ 23 December 31, 2020 | 95 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Included in the balance of unrecognized tax benefits as of December 31, 2020, 2019, and 2018 are $ 13 million, $ 15 million, and $ 18 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Additionally, the Company reasonably believes that no unrecognized tax positions related to state income tax credits will be recognized by the end of 2021 as a result of the expiration of statute of limitations. Approximately $ 8 million and $ 10 million of unrecognized tax benefits were netted with Deferred income tax asset carryforwards as of December 31, 2020 and 2019, respectively. The remaining unrecognized tax benefits are included in Other long-term liabilities in the Consolidated Balance Sheets. CVR Energy recognized no minal interest expense and $ 1 million liability for interest as of December 31, 2020, no minal interest benefit and no minal liability for interest as of December 31, 2019, and interest benefit of approximately $ 1 million and no minal liability for interest as of December 31, 2018. No penalties were recognized during 2020, 2019, or 2018. At December 31, 2020, the Company’s tax filings are generally open to examination in the United States for the tax years ended December 31, 2017 through December 31, 2019 and in various individual states for the tax years ended December 31, 2016 through December 31, 2019. (11) Commitments and Contingencies Supply Commitments The minimum required payments for unconditional purchase obligations are as follows: Year Ended December 31, Unconditional Purchase Obligations (in millions) 2021 $ 127 2022 83 2023 81 2024 77 2025 73 Thereafter 325 $ 766 Supply Commitments - The Company is a party to various supply agreements with both related and third parties which commit the Company to purchase minimum volumes of crude oil, hydrogen, oxygen, nitrogen, pet coke, and natural gas to run its facilities’ operations. For the years ended December 31, 2020, 2019, and 2018, amounts purchased under these supply agreements totaled approximately $ 153 million, $ 167 million, and $ 214 million, respectively. Crude Oil Supply Agreement On August 31, 2012, an indirect, wholly-owned subsidiary of CVR Refining entered into an Amended and Restated Crude Oil Supply Agreement (as amended, the “Crude Oil Supply Agreement”) with Vitol Inc. (“Vitol”). Under the Crude Oil Supply Agreement, Vitol supplies the Petroleum Segment with crude oil and intermediation logistics helping to reduce the amount of inventory held at a certain locations and mitigate crude oil pricing risk. Volumes contracted under the Crude Oil Supply Agreement, as a percentage of the total crude oil purchases (in barrels), was approximately 33 %, 36 % and 42 % for the years ended December 31, 2020, 2019, and 2018, respectively. The Crude Oil Supply Agreement, which currently extends through December 31, 2021, automatically renews 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 any Renewal Term. Contingencies Call Option - In 2019, the Company, CVR Refining and its general partner, CVR Refining Holdings, IEP, and certain directors and affiliates were named in at least one of nine lawsuits filed in the Delaware Court of Chancery by purported former unitholders of CVR Refining, on behalf of themselves and an alleged class of similarly situated unitholders relating to the Company’s exercise of the call option (“Call Option”) under the CVR Refining Amended and Restated Agreement of Limited Partnership assigned to it by CVR Refining’s general partner (the “Delaware Lawsuits”). The Delaware Lawsuits primarily December 31, 2020 | 96 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) allege breach of contract, tortious interference, and breach of the implied covenant of good faith and fair dealing and seek monetary damages and attorneys’ fees, among other remedies. In January 2020, the court dismissed CVR Holdings and certain former directors of CVR Refining’s general partner from the Delaware Lawsuits, though permitted some or all of the claims to proceed against each remaining defendant. On April 6, 2020, a lawsuit was filed in the United States District Court for the Southern District of New York against the Company, CVR Refining and its general partner, CVR Refining Holdings, IEP, and the Company’s Chief Executive Officer by purported former unitholders of CVR Refining on behalf of themselves and an alleged class of similarly situated unitholders (the “New York Lawsuit” and together with the Delaware Lawsuits, the “Call Option Lawsuits”) primarily alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and seeking monetary damages and attorney’s fees, among other remedies. The Company believes the Call Option Lawsuits are without merit and intends to vigorously defend against them. Discovery is currently on-going. Accordingly, the Company cannot determine at this time the outcome of the Call Option Lawsuits, including whether such outcome would have a material impact on the Company’s financial position, results of operations, or cash flows. On January 27, 2021, a lawsuit was filed against the Company, CVR Refining and its general partner, CVR Refining Holdings, IEP, and certain directors and affiliates in the 434th Judicial District Court of Fort Bend County, Texas by their primary and excess insurers (the “Insurers”) seeking a declaratory judgement determining that they owe no indemnity coverage for the Call Option Lawsuits in relation to insurance policies that have coverage limits of $ 50 million. The Company believes this lawsuit is without merit and intends to vigorously defend the claims against them. The lawsuit is in the early stages of litigation. Accordingly, the Company cannot determine at this time the outcome of the litigation, including whether the outcome of this matter would have a material impact on the Company’s financial position, results of operations, or cash flows. Wynnewood Small Refinery Exemption - During 2019, WRC intervened in a lawsuit filed by four ethanol and biofuels trade associations against the Environmental Protection Agency (“EPA”), claiming the EPA exceeded its authority in granting WRC’s Wynnewood Refinery’s 2017 small refinery exemption (“SRE”) under the RFS program under the CAA, as well as the SREs of two other unrelated refineries. In January 2020, the 10th Circuit vacated the three SREs and remanded the matter to the EPA for further proceedings, holding, in part, that the “extension” language in the CAA requires a small refinery to have received an SRE continuously in every year since inception of the program to be eligible. After the 10th Circuit refused to rehear the case, WRC and others filed a petition for writ of certiorari in the Supreme Court of the United States (the “Supreme Court”) on September 4, 2020, which was granted by the Supreme Court on January 8, 2021. The case is currently expected to be argued in April 2021. As it is not yet clear how the Supreme Court will rule, or what steps the EPA will take with respect to SREs, we cannot currently estimate the outcome, impact, or timing of resolution of this matter. Environmental, Health, and Safety (“EHS”) Matters Clean Air Act Matter - On August 21, 2018, CRRM received a letter from the United States Department of Justice (“DOJ”) on behalf of the EPA and KDHE alleging violations of the CAA and a 2012 Consent Decree (the “CD”) between Coffeyville Resources Refining & Marketing, LLC (“CRRM”), the United States (on behalf of the EPA) and the Kansas Department of Health and Environment (“KDHE”) at CRRM’s Coffeyville refinery. In June 2020, a tolling agreement between the parties relating to such allegations expired, and the DOJ and KDHE sent demand letters relating to the allegations (the “Stipulated Claims”) and seeking stipulated penalties. In February 2021, the DOJ and KDHE sent CRRM a statement of position under the CD regarding its demand for Stipulated Claims. As CRRM disputes most claims asserted by the government, in accordance with the CD, CRRM deposited funds into a commercial escrow account pending resolution of disputed claims. The escrowed funds are legally restricted for use and are included within Prepaid expenses and other current assets on the consolidated balance sheets. In December 2020, the DOJ and KDHE filed a supplement complaint in the United States District Court for the District of Kansas (“D. Kan”) asserting nine counts for alleged violations of the Clean Air Act, the Kansas State Implementation Plan and Kansas law (“the Statutory Claims”) and seeking civil penalties, injunctive and related relief. Negotiations relating to the Stipulated Claims and the Statutory Claims are ongoing and the Company cannot determine at this time the outcome of these matters, including whether such outcome, or any subsequent enforcement or litigation relating thereto would have a material impact on the Company’s financial position, results of operations, or cash flows. Renewable Fuel Standards - The Company’s Petroleum Segment is subject to the RFS of the EPA that require refiners to either blend renewable fuels in with their transportation fuels or purchase renewable fuel credits, known as RINs, in lieu of blending. The Petroleum Segment is not able to blend the substantial majority of its transportation fuels and has to purchase RINs on the open market, and may have to obtain waiver credits for cellulosic biofuels from the EPA, in order to comply with the RFS. December 31, 2020 | 97 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company recognized an expense of approximately $ 190 million, $ 43 million, and $ 60 million for the years ended December 31, 2020, 2019, and 2018, respectively, for the Petroleum Segment’s compliance with the RFS. The recognized amounts are included within Cost of materials and other in the Consolidated Statements of Operations and represent costs to comply with the RFS obligation through purchasing of RINs not otherwise reduced by blending of ethanol or biodiesel. At each reporting period, to the extent RINs purchased or generated through blending are less than the RFS obligation, the remaining obligation is marked-to-market using RIN market prices at period end. As of December 31, 2020 and 2019, the Petroleum Segment’s RFS obligation was approximately $ 214 million and $ 7 million, respectively, which is recorded in Other current liabilities in the Consolidated Balance Sheets. Environmental Remediation - As of December 31, 2020 and 2019, environmental accruals representing estimated costs for future remediation efforts at certain Petroleum Segment sites totaled approximately $ 11 million and $ 6 million, respectively. These amounts are reflected in Other current liabilities or Other long-term liabilities depending on when the Company expects to expend such amounts. Wynnewood Refinery Incident - In October 2020, the 10 th Circuit affirmed a 2019 decision of the Occupational Safety and Health Review Commission which (a) upheld citations issued by the Occupational Safety and Health Administration (“OSHA”) to WRC in 2013 for violations of the OSHA arising from a September 2012 explosion in a boiler unit at the Wynnewood Refinery, but (b) found that such violations were not “repeat violations” under the OSHA. As a result of the decision, WRC is obligated to pay a penalty by March 2021, the amount of which is not material. In addition, WRC has been removed from the OSHA Severe Violators Enforcement Program. (12) Business Segments The Company has two operating segments: Petroleum and Nitrogen Fertilizer. These operating segments are also the Company’s reportable segments. As discussed in Note 1 (“Organization and Nature of Business”), the Petroleum Segment is comprised entirely of the consolidated operations of CVR Refining and its subsidiaries, while the Nitrogen Fertilizer Segment is comprised entirely of the consolidated operations of CVR Partners and its subsidiaries. The other amounts reflect intercompany eliminations, corporate cash and cash equivalents, income tax activities, and other corporate activities that are not allocated to the operating segments. All operations of the segments are located within the United States. December 31, 2020 | 98 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following tables summarize operating results, capital expenditures, and total asset information by segment: Year Ended December 31, (in millions) 2020 2019 2018 Net sales Petroleum $ 3,586 $ 5,968 $ 6,780 Nitrogen Fertilizer 350 404 351 Other ( 6 ) ( 8 ) ( 7 ) Total $ 3,930 $ 6,364 $ 7,124 Operating (loss) income Petroleum $ ( 281 ) $ 574 $ 544 Nitrogen Fertilizer ( 35 ) 27 6 Other ( 17 ) ( 21 ) ( 18 ) Total ( 333 ) 580 532 Interest expense, net ( 130 ) ( 102 ) ( 102 ) Investment income from marketable securities 41 — — Other income, net 7 13 15 (Loss) income before income taxes $ ( 415 ) $ 491 $ 445 Depreciation and amortization Petroleum $ 202 $ 202 $ 196 Nitrogen Fertilizer 76 80 72 Other — 5 6 Total $ 278 $ 287 $ 274 Capital expenditures (1) Petroleum $ 90 $ 89 $ 89 Nitrogen fertilizer 16 20 19 Other 15 5 3 Total $ 121 $ 114 $ 111 The following table summarizes total assets by segment: December 31, (in millions) 2020 2019 Petroleum $ 2,991 $ 3,187 Nitrogen Fertilizer 1,033 1,138 Other (2) ( 46 ) ( 420 ) Total assets $ 3,978 $ 3,905 (1) Capital expenditures are shown exclusive of capitalized turnaround expenditures. (2) Includes elimination of intercompany assets and net cash proceeds from the Notes issued during the year ended December 31, 2020 . December 31, 2020 | 99 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (13) Supplemental Cash Flow Information Cash flows related to income taxes, interest, leases, and capital expenditures included in accounts payable were as follows: Year Ended December 31, (in millions) 2020 2019 2018 Supplemental disclosures: Cash (received for income taxes, net of payments) paid for income taxes, net of refunds $ ( 2 ) $ 69 $ 31 Cash paid for interest 113 104 103 Cash paid for amounts included in the measurement of lease liabilities (1): Operating cash flows from operating leases 17 16 Operating cash flows from finance leases 6 6 Financing cash flows from finance leases 5 5 Non-cash investing and financing activities: Change in construction in progress included in accounts payable (2) ( 3 ) ( 7 ) 9 (1) The lease standard was adopted on January 1, 2019 on a prospective basis. Therefore, only 2020 and 2019 disclosures are applicable to be included within the table above. (2) Capital expenditures are shown exclusive of capitalized turnaround expenditures. Cash, cash equivalents and restricted cash consisted of the following: December 31, (in millions) 2020 2019 Cash and cash equivalents $ 667 $ 652 Restricted cash (3) 7 — Cash, cash equivalents and restricted cash $ 674 $ 652 (3) The restricted cash balance is included within Prepaid expenses and other current assets on the consolidated balance sheets. December 31, 2020 | 100 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (14) Related Party Transactions Activity associated with the Company’s related party arrangements for the years ended December 31, 2020, 2019, and 2018 is summarized below: Expenses with related parties Year Ended December 31, (in millions) 2020 2019 2018 Cost of materials and other Joint Venture Transportation Agreement: Enable $ 11 $ 12 $ 8 Payments (received) made Dividends (1) 85 218 179 Tax Allocation Agreement: AEP — ( 3 ) 12 (1) See below for a summary of the dividends paid to IEP for the years ended December 31, 2020, 2019, and 2018 . Enable Joint Venture Agreement CVR Refining is party to a transportation agreement as part of the Enable JV for an initial term of 20 years under which Enable provides transportation services for crude oil purchased within a defined geographic area. Additionally, CVR Refining entered into a terminalling services agreement with Enable JV under which it receives access to Enable JV’s terminal in Lawrence, Oklahoma to unload and pump crude oil into Enable JV’s pipeline for an initial term of 20 years. Midway Joint Venture For the years ended December 31, 2020, 2019, and 2018, CRRM incurred costs of $ 17 million, $ 21 million, and $ 18 million, respectively, from crude oil transportation services incurred on the Midway JV through Vitol as the intermediary purchasing agent. Agency Arrangement with IEP On February 4, 2020, CVR Energy and Icahn Enterprises Holdings LP (“IEH”), a subsidiary of IEP, entered into an agency arrangement wherein IEH would act as the agent for CVR Energy. Under this arrangement, the Company invested approximately $ 140 million in certain marketable securities of Delek US Holdings, Inc. (“Delek”) (NYSE ticker symbol: DK) and could make additional investments in Delek or invest in other public companies in the future under this arrangement. The Company reimbursed IEH for all costs associated with the initial purchase and did not incur any additional fees as part of this transaction. Property Exchange On October 18, 2019, the Conflicts Committee of the UAN GP Board and on October 22, 2019, the audit committee of the Board of Directors, each agreed to authorize the exchange of certain parcels of property owned by CRRM with an equal number of parcels owned by CRNF, all located in Coffeyville, Kansas (the “Property Exchange”). On February 19, 2020, CRRM and CRNF executed the Property Exchange agreement. This Property Exchange will enable each such subsidiary to create a more usable, contiguous parcel of land near its own operating footprint. This transaction resulted in no net impact on the Company’s condensed consolidated financial statements. December 31, 2020 | 101 Table of Contents CVR Energy, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Dividends to CVR Energy Stockholders Dividends, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the Board of Directors. IEP, through its ownership of the Company’s common shares, is entitled to receive dividends that are declared and paid by the Company based on the number of shares held at each record date. The following presents dividends paid to the Company's stockholders, including IEP, during the year ended December 31, 2020 (amounts presented in tables below may not add to totals presented due to rounding). Dividends Paid (in millions) Related Period Date Paid Dividend Per Share Stockholders IEP Total 2019 - 4th Quarter March 9, 2020 $ 0.80 $ 23 $ 57 $ 80 2020 - 1st Quarter May 26, 2020 0.40 12 28 40 Total $ 1.20 $ 35 $ 85 $ 121 No dividends were declared for the second, third and fourth quarters of 2020. During the years ended December 31, 2019 and 2018, the Company paid dividends totaling $ 3.05 and $ 2.50 per common share, or $ 306 million and $ 238 million, respectively. Of these dividends, IEP received $ 218 million and $ 179 million, respectively, for the same periods. Distributions to CVR Partners ’ Unitholders Distributions, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the UAN GP Board. There were no distributions declared or paid by CVR Partners during the year ended December 31, 2020 related to the fourth quarter of 2019 or the first, second, and third quarters of 2020, and no distributions were declared for the fourth quarter of 2020. During the year ended December 31, 2019, the Partnership paid distributions totaling $ 4.00 per common unit on a split-adjusted basis, or $ 45 million. Of these distributions, CVR Energy received $ 16 million for the year ended December 31, 2019. The Partnership did no t pay distributions during the year ended December 31, 2018. Affiliate Pension Obligations Prior to the exchange offer discussed in Note 1 (“Organization and Nature of Business”), Mr. Carl C. Icahn, through certain affiliates, owned 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. As a result of the historical ownership interest in CVR Energy by Mr. Icahn’s affiliates (prior to the exchange offer), the Company was subject to the pension liabilities of all entities in which Mr. Icahn had 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. 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. The unfunded plan balances for these sponsors was $ 435 million as of June 30, 2018. These results are based on the information provided by Mr. Icahn’s affiliates based on information from the plans’ actuaries. As of December 31, 2020 and 2019, and following the exchange offer, Mr. Icahn’s affiliates owned approximately 71 % of the Company’s capital stock, and therefore, the Company is no longer considered to be liable for the aforementioned pension obligations of the controlled group. On October 1, 2018, Federal-Mogul was sold by Mr. Icahn’s affiliates to a third-party. December 31, 2020 | 102 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.