CVR PARTNERS, LP 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition, results of operations and cash flow should be read in conjunction with our consolidated financial statements and related notes and with the statistical information and financial data included elsewhere in this Report. References to CVR Partners, the Partnership, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners or one or both of the facilities, as the context may require. This discussion and analysis covers the years ended December 31, 2020 and 2019 and discusses year-to-year comparisons between such periods. The discussions of the year ended December 31, 2018 and year-to-year comparisons between the years ended December 31, 2019 and 2018 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed on February 20, 2020, and such discussions are incorporated by reference into this Report. Reflected in this discussion and analysis is how management views the Partnership’s current financial condition and results of operations along with key external variables and management actions that may impact the Partnership. Understanding significant external variables, such as market conditions, weather, and seasonal trends, among others, and management actions taken to manage the Partnership, address external variables, among others, which will increase users’ understanding of the Partnership, its financial condition and results of operations. This discussion may contain forward looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Report. Strategy and Goals Mission and Core Values Our Mission is to be a top tier North American nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core Values: • Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it’s not safe, then we don’t do it. • Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it’s our duty to protect it. • Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way—the right way with integrity. • Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it’s a privilege we can’t take for granted. We seek to make a positive economic and social impact through our financial donations and the contributions of time, knowledge and talent of our employees to the places where we live and work. • Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork, diversity and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization. Our core Values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives. December 31, 2020 | 29 Table of Contents Strategic Objectives We have outlined the following strategic objectives to drive the accomplishment of our mission: Safety - We aim to achieve continuous improvement in all environmental, health, and safety areas through ensuring our people’s commitment to environmental, health and safety comes first, the refinement of existing policies, continuous training, and enhanced monitoring procedures. Reliability - Our goal is to achieve industry-leading utilization rates at both of our Facilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level. Market Capture - We continuously evaluate opportunities to improve the facilities’ realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities. Financial Discipline - We strive to be efficient as possible by maintaining low operating costs and disciplined deployment of capital. Achievements We successfully executed a number of achievements in support of our strategic objectives shown below through the date of this filing despite the challenges experienced by the industry during 2020 as a result of the COVID-19 pandemic: Safety Reliability Market Capture Financial Discipline Operated all facilities and corporate offices safely and reliably and maintained financial discipline amid COVID-19 pandemic. ü ü ü Maintained high asset reliability and a combined utilization rate of 98% at both facilities through the fourth quarter of 2020. ü ü ü Achieved record shipments of ammonia from the East Dubuque Facility during April 2020. ü ü Reduced lost profit opportunities by approximately $13.7 million compared to 2019. ü ü ü Generated first carbon offset credits related to N 2 O abatement and continued sequestration of CO 2 for enhanced crude oil recovery at the Coffeyville Facility. ü ü Reduced operating and SG&A expenses by over 12% in 2020 as compared to 2019. ü Reduced capital spending by $9 million compared to initial spending plans. ü Amended and extended the ABL Credit Agreement during the third quarter of 2020. ü Completed Messer contract renewal with favorable conditions including new backup oxygen tank. ü Repurchased $7.1 million of CVR Partners common units during 2020. ü Industry Factors and Market Conditions Within the nitrogen fertilizer business, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, utilization, and operating costs and expenses, including pet coke and natural gas feedstock costs. December 31, 2020 | 30 Table of Contents The price at which nitrogen fertilizer products are ultimately sold depends on numerous factors, including the global supply and demand for nitrogen fertilizer products which, in turn, depends on, among other factors, world grain demand and production levels, changes in world population, the cost and availability of fertilizer transportation infrastructure, weather conditions, the availability of imports, and the extent of government intervention in agriculture markets. Nitrogen fertilizer prices are also affected by local factors, including local market conditions and the operating levels of competing facilities. An expansion or upgrade of competitors’ facilities, new facility development, political and economic developments, and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products. General Business Environment In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The COVID-19 pandemic and actions taken by governments and others in response thereto has and continues to negatively impact the worldwide economy, financial markets, and the agricultural industry. The COVID-19 pandemic has resulted in significant business and operational disruptions, including business closures in the restaurant and food supply industries, among others, liquidity strains, demand destruction, as well as supply chain challenges, travel restrictions, stay-at-home orders, and limitations on the availability of the workforce, including farmers in the agricultural industry. As a result, the global demand for liquid transportation fuels, including ethanol (the production of which is a significant driver of demand for fertilizer), has declined, causing many refineries and plants to reduce production or idle, evidenced by a decline in the fourth quarter 2020 average ethanol production of 10% compared to the fourth quarter of 2019 . Given recent market conditions, the processing of sweet crude oil, including at the crude oil refinery owned and operated by Coffeyville Resources Refining & Marketing, LLC (“CRRM”), an indirect, wholly-owned subsidiary of CVR Energy, has increased compared to 2019 resulting in lower sour crude oil being processed and pet coke being produced. As a result, increased costs may continue to be incurred by the Partnership in future periods to source feedstocks, such as pet coke. Concerns over the negative effects of the COVID-19 pandemic on economic and business prospects across the world have contributed to increased market and grain price volatility, and uncertainty in food supply demands, and have diminished expectations for the global economy. These factors may precipitate a prolonged economic slowdown and recession, which may lead to some decline in demand for the Partnership’s products in the first quarter of 2021 and beyond. The Partnership believes the general business environment in which it operates will continue to remain volatile during 2021, driven by uncertainty around the availability and prices of its feedstocks and the demand for its products. As a result, the Partnership anticipates its future operating results and current and long-term financial condition may be negatively impacted. Due to the rapidly evolving situation, the uncertainty of its duration, and the timing of recovery, the Partnership is not able at this time to predict the extent to which these events may have a material, or any, effect on its financial or operational results in future periods. Goodwill and Long-Lived Assets As of December 31, 2019, the Partnership had a goodwill balance of $41.0 million associated with our Coffeyville Facility reporting unit for which the estimated fair value had been in excess of carrying value based on our 2018 and 2019 assessments. As a result of lower expectations for market conditions in the fertilizer industry, the market performance of the Partnership’s common units, a qualitative analysis, and additional risks associated with the business, the Partnership concluded a triggering event had occurred that required an interim quantitative impairment assessment of goodwill for this reporting unit during the second quarter of 2020. The results of the impairment test indicated that the carrying amount of the Coffeyville Facility reporting unit exceeded the estimated fair value of the reporting unit, and a full impairment of the asset was required. Significant assumptions inherent in the valuation methodologies for goodwill include, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. To evaluate the sensitivity of the fair value calculations for the reporting unit, the Partnership applied a hypothetical 1% favorable change in the weighted average cost of capital, and separately, increased the revenue projections by 10%, holding gross margins steady. The results of these sensitivity analyses confirmed the need to record a non-cash impairment charge of $41.0 million during 2020. There is no goodwill remaining as of December 31, 2020. With the adverse economic impacts discussed above and the uncertainty surrounding the COVID-19 pandemic, there is a heightened risk that amounts recognized, including other long-lived assets, may not be recoverable. While our assessment in 2020 did not identify the existence of an impairment indicator for our long-lived asset groups, we continue to monitor the December 31, 2020 | 31 Table of Contents current environment, including the duration and breadth of the impacts that the pandemic will have on demand for our fertilizer products, to assess whether qualitative factors indicate a quantitative assessment is required. If a quantitative test is performed, the extent to which the recoverability of our long-lived assets could be impaired is unknown. Such impairment could have a significant adverse impact on our results of operations; however, an impairment would have no impact on our financial condition or liquidity. Market Conditions While there is risk of shorter-term volatility given the inherent nature of the commodity cycle and the impacts of the global COVID-19 pandemic, the Partnership believes the long-term fundamentals for the U.S. nitrogen fertilizer industry remain intact. The Partnership views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn as feedstock for the domestic production of ethanol, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers in the U.S. over the longer term. While weather conditions in 2020 exhibited normal patterns, weather significantly impacted the timing of the planting season for corn and soybeans in 2019. Due to excessive wet conditions, crops were planted later than normal in the spring which led to a late harvest of these crops in the fall of 2019. As a result, the ammonia application season in the fall of 2019 was shortened. This created a surplus of ammonia inventory in the market during the winter of 2019 leading into 2020. UAN continues to be impacted by the imposition of import duties on UAN product by the European Union (the “EU”). This has resulted in shifts in UAN trade flows for product that had previously been shipped to the EU. In 2020, natural gas prices across the world declined significantly as compared to 2019; however, since the summer of 2020, forward market prices indicate significantly higher prices for 2021 versus historically low prices in 2020. Natural gas is the primary feedstock for production of nitrogen fertilizers. As a result of these factors, in the fourth quarter of 2020, the Partnership has started to see an uptrend in pricing related to these products, with the expectation that product prices will continue to see an uptrend into the first quarter of 2021. Corn and soybean are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen and ammonia within the soil in which it is grown, which in turn, results in the need for these nutrients to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain their own nitrogen through a process known as “N fixation.” As such, upon harvesting of soybeans, the soil retains a certain amount of nitrogen which results in lower demand for nitrogen fertilizer for the following corn planting cycle. Due to these factors, nitrogen fertilizer consumers generally operate a balanced corn-soybean rotational planting cycle as evident through the chart presented below for 2020, 2019 and 2018. The relationship between the total acres planted for both corn and soybean has a direct impact on the overall demand for nitrogen products. As the number of corn acres increases, the market and demand for nitrogen also increases. Correspondingly, as the number of soybean acres increases, the market and demand for nitrogen decreases. Additionally, an estimated 8 billion pounds of soybean oil is expected to go towards producing cleaner biodiesel in 2020 and 2021. Multiple refiners have announced biodiesel expansion projects for 2021 and beyond, which will only increase the demand and capacity for soybeans. Due to the uncertainty of how these factors will truly affect the soybean market, it is not yet known how the nitrogen business will be impacted. Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Ethanol production has historically consumed approximately 35% of the U.S. corn crop, so demand for corn generally rises and falls with ethanol demand. There has been a decline in ethanol demand in 2020 due to decreased demand for transportation fuels as a result of the COVID-19 pandemic. However, the lower ethanol demand did not alter the spring 2020 planting decisions by farmers as evidenced in the charts below. December 31, 2020 | 32 Table of Contents (1) Information used within this chart was obtained from the U.S. Energy Information Administration (“EIA”). (2) Information used within this chart was obtained from the United States Department of Agriculture (“USDA”), National Agricultural Statistics Services. The 2020 USDA reports on corn and soybean acres planted indicated farmers planted approximately 91.0 million acres of corn, representing an increase of 1.4% in corn acres planted as compared to 89.7 million corn acres in 2019. Planted soybean acres are estimated to be 83.1 million acres, representing a 9.2% increase in soybean acres planted as compared to 76.1 million soybean acres in 2019. Since the summer of 2020, adverse weather conditions in parts of the Midwest caused the USDA to lower estimated crop yields, particularly for corn. Further, higher demand for soybeans and corn and lower grain inventories have led to a rally in crop prices for 2020 and 2021 and significantly improved farmer economics. As a result, we experienced strong demand for ammonia for fall application and fertilizer crop inputs for the spring of 2021. Prices for natural gas, the primary input for nitrogen fertilizer production, rose in the fourth quarter of 2020 in the U.S. and rose even more significantly in international markets. The increase in natural gas prices in the U.S. has been more than offset by higher product pricing, and the competitiveness of U.S. nitrogen producers has improved considerably. The tables below show relevant market indicators by month through December 31, 2020: (1) Information used within these charts was obtained from various third-party sources including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly, and the EIA, amongst others. December 31, 2020 | 33 Table of Contents Results of Operations The following should be read in conjunction with the information outlined within the previous sections of this Part II, Item 7, the financial statements, and related notes thereto in Part II, Item 8 of this Report. The charts presented below summarize our ammonia utilization rates on a consolidated basis and at each of our Facilities. Utilization is an important measure used by management to assess operational output at each of the Partnership’s facilities. Utilization is calculated as actual tons produced divided by capacity adjusted for planned maintenance and turnarounds. The presentation of our utilization is on a two-year rolling average which takes into account the impact of our planned and unplanned outages on any specific period. We believe the two-year rolling average is a more useful presentation of the long-term utilization performance of our Facilities. Utilization is presented solely on ammonia production rather than each nitrogen product as it provides a comparative baseline against industry peers and eliminates the disparity of facility configurations for upgrade of ammonia into other nitrogen products. With efforts primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how well we operate. On a consolidated basis, utilization increased 2% to 95% for the two years ended December 31, 2020 compared to the two years ended December 31, 2019. This increase was primarily a result of ammonia storage capacity constraints at the East Dubuque Facility in the first quarter of 2019 due to inclement weather impacting customers’ ability to apply ammonia and the turnaround at the East Dubuque Facility in the fourth quarter of 2019. Sales and Pricing per Ton - Two of our key operating metrics are total sales for ammonia and UAN along with the product pricing per ton realized at the gate. Total sales for ammonia and UAN were favorable due to strong demand during the spring application coupled with heavy fill orders from the summer through year end caused by higher crop prices increasing farmer demand. Additionally, higher total utilization for 2020 increased the total products available for sale for ammonia and UAN. This increase in production is coupled with an increased draw of ammonia and UAN inventory for 2020. Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure comparable across the fertilizer industry. December 31, 2020 | 34 Table of Contents Production Volumes - Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced, that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products. The table below presents these metrics for the years ended December 31, 2020, 2019, and 2018. Year Ended December 31, (in thousands of tons) 2020 2019 2018 Ammonia (gross produced) 852 766 794 Ammonia (net available for sale) 303 223 246 UAN 1,303 1,255 1,276 Feedstock - Our Coffeyville Facility utilizes a pet coke gasification process to produce nitrogen fertilizer. Our East Dubuque Facility uses natural gas in its production of ammonia. The table below presents these feedstocks for both facilities for the years ended December 31, 2020, 2019, and 2018. Year Ended December 31, 2020 2019 2018 Pet coke used in production (thousand tons) 523 535 463 Pet coke (dollars per ton) $ 35.25 $ 37.47 $ 28.41 Natural gas used in production (thousands of MMBtu) (1) 8,611 6,856 7,933 Natural gas used in production (dollars per MMBtu) (1) $ 2.31 $ 2.88 $ 3.28 Natural gas in cost of materials and other (thousands of MMBtu) (1) 9,349 6,961 7,122 Natural gas in cost of materials and other (dollars per MMBtu) (1) $ 2.35 $ 3.08 $ 3.15 (1) The feedstock natural gas shown above does not include natural gas used for fuel. The cost of natural gas used for fuel is included in Direct operating expenses (exclusive of depreciation and amortization). Financial Highlights Overview - For the year ended December 31, 2020, the Partnership’s operating loss and net loss were $34.9 million and $98.2 million, respectively, a $62.3 million decrease in operating income and a $63.2 million increase in net loss, respectively, compared to the year ended December 31, 2019 driven primarily by lower net sales and the recognition of a non-cash impairment charge of $41.0 million driven primarily by the lower pricing environment observed in 2020. These impacts were offset by higher sales volumes and reductions to operating expense. December 31, 2020 | 35 Table of Contents (1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above. Net Sales - Net sales decreased by $54.2 million to $350.0 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily due to unfavorable pricing conditions which contributed $99.0 million in lower revenues offset with increased sales volumes contributing $45.8 million as compared to the year ended December 31, 2019. For the years ended December 31, 2020 and 2019, net sales included $33.3 million and $33.4 million in freight revenue, respectively, and $10.1 million and $7.6 million in other revenue, respectively. The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales, excluding urea products, freight, and other revenue, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. (in thousands) Price Variance Volume Variance UAN $ (63,047) $ 10,109 Ammonia (35,999) 35,649 The decrease in UAN and ammonia sales pricing for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributable to competitive pricing pressures seen throughout the domestic and international markets. For UAN, a softening natural gas market, which is the typical feedstock for nitrogen plants, shifting trade flows in UAN due to the imposition of import duties on UAN in the EU contributed to lower prices. Additionally, lower corn prices due to decreased demand for corn for ethanol blending further contributed to lower UAN prices. For ammonia, lower natural gas and corn prices and reduced demand for industrial uses of ammonia contributed to lower prices. The increase in UAN and ammonia sales volumes for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributable to strong demand during the 2020 spring application period coupled with heavy fill orders beginning in the summer December 31, 2020 | 36 Table of Contents of 2020 through year end. Additionally, higher crop prices in the second half of 2020 led to greater farmer demand, which was also aided by favorable weather conditions for application. (1) Exclusive of depreciation and amortization expense. Cost of Materials and Other - Cost of materials and other for the year ended December 31, 2020 was $91.1 million, compared to $94.1 million for the year ended December 31, 2019. The $3.0 million decrease was comprised primarily of a $1.6 million decrease in pet coke costs at our Coffeyville Facility due to lower purchases of pet coke from the Coffeyville Refinery, a decrease in freight expenses and distribution costs of $1.4 million due to higher 2019 freight charges on sales agreements, a decrease in other feedstocks purchases of $1.2 million due to lower purchases of hydrogen and nitrogen, and a decrease related to a draw in our ammonia and UAN inventories contributing $0.6 million driven by higher crop prices leading to greater farmer demand coupled with favorable weather for application through year end, offset by an increase in purchases of third-party ammonia at the Coffeyville Facility contributing $1.8 million. Direct Operating Expenses (exclusive of depreciation and amortization) - For the year ended December 31, 2020, direct operating expenses (exclusive of depreciation and amortization) were $157.9 million as compared to $173.6 million for the year ended December 31, 2019. The $15.7 million decrease was primarily due to decreased turnaround costs of $9.1 million relating to the 2019 turnaround for our East Dubuque Facility and a decrease in $1.3 million of repairs and maintenance cost for brick replacement at our Coffeyville Facility with no similar activity in 2020. Utility costs decreased by $3.0 million due to the lower cost of natural gas resulting from favorable market conditions and lower electricity costs at our Coffeyville Facility due to rate reductions achieved in 2020. Other reductions to operating expense in 2020 reflect the impact of cost reduction efforts put in place to address the general business environment. Depreciation and Amortization Expense - Depreciation and amortization expense decreased $3.7 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, as a result of accelerated depreciation of certain assets that December 31, 2020 | 37 Table of Contents were removed following the 2019 turnaround at the East Dubuque Facility, coupled with additions to property, plant, and equipment during the current year. Selling, General, and Administrative Expenses, and Other - Selling, general and administrative expenses and other decreased approximately $10.4 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease was primarily related to a reduced amount of asset write offs in 2020 compared to 2019 contributing $2.8 million, coupled with decreased personnel costs and management fees of $7.2 million driven by lower allocated expense from CVR Energy, including stock-based compensation expense as a result of lower market prices for CVR Energy share and Partnership units during 2020. Non-GAAP Measures Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below. Effective January 1, 2020, the Partnership no longer presents the non-GAAP performance measure of Adjusted EBITDA, as management no longer relies on this financial measure when evaluating the Partnership’s performance and does not believe it enhances the users understanding of its financial statements in a useful manner. The following are non-GAAP measures we present for the year ended December 31, 2020: EBITDA - Net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense. Reconciliation of Net Cash Provided By Operating Activities to EBITDA - Net cash provided by operating activities reduced by (i) interest expense, net, (ii) income tax expense (benefit), (iii) change in working capital, and (iv) other non-cash adjustments. Available Cash for Distribution - EBITDA for the quarter excluding non-cash income or expense items (if any), for which adjustment is deemed necessary or appropriate by the board of directors (the “Board”) of our general partner in its sole discretion, less (i) reserves for maintenance capital expenditures, debt service and other contractual obligations, and (ii) reserves for future operating or capital needs (if any), in each case, that the Board deems necessary or appropriate in its sole discretion. Available cash for distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the Board. We present these measures because we believe they may help investors, analysts, lenders, and ratings agencies analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including, but not limited to, our operating performance as compared to other publicly traded companies in the fertilizer industry, without regard to historical cost basis or financing methods, and our ability to incur and service debt and fund capital expenditures. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. Refer to the “ Non-GAAP Reconciliations ” included herein for reconciliation of these amounts. Due to rounding, numbers presented within this section may not add or equal to numbers or totals presented elsewhere within this document. Factors Affecting Comparability of Our Financial Results Our historical results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future for the reasons discussed below. Major Scheduled Turnaround Activities Overall, our results are negatively impacted by lost production during downtime that results in lost sales and certain reduced variable expenses included in Cost of materials and other and Direct operating expenses (exclusive of depreciation and amortization). The year ended December 31, 2020 had no planned turnarounds. The effects of the planned, full facility December 31, 2020 | 38 Table of Contents turnarounds completed during the years ended December 31, 2019 and 2018, exclusive of the impacts due to lost production during the turnaround downtime, are shown below: Facility Related Period Turnaround Downtime Turnaround Expense (in thousands) Estimated Lost Production (in tons of Ammonia) East Dubuque 2019 - 3rd/4th Quarter 32 days 9,842 33,706 Coffeyville 2018 - 2nd Quarter 15 days 6,399 21,450 Goodwill Impairment As of December 31, 2019, the Partnership had a goodwill balance of $41.0 million associated with our Coffeyville Facility reporting unit for which the estimated fair value had been in excess of carrying value based on our 2018 and 2019 assessments. As a result of lower expectations for market conditions in the fertilizer industry, the market performance of the Partnership’s common units, a qualitative analysis, and additional risks associated with the business, the Partnership concluded a triggering event had occurred that required an interim quantitative impairment assessment of goodwill for this reporting unit as of June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill include, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. The results of the impairment test indicated that the carrying amount of the Coffeyville Facility reporting unit exceeded the estimated fair value of the reporting unit, and a full impairment of the asset was required. No such charge was recognized during 2019. Insurance Recovery During the fourth quarter of 2018, the Partnership recognized a $6.1 million business interruption insurance recovery associated with an outage at the Coffeyville Facility during 2017. The recovery is recorded in Other income, net. No such income was recognized in 2020 or 2019. Non-GAAP Reconciliations Reconciliation of Net Loss to EBITDA Year Ended December 31, (in thousands) 2020 2019 2018 Net loss $ (98,181) $ (34,969) $ (50,027) Add: Interest expense, net 63,428 62,636 62,588 Income tax expense (benefit) 30 (18) (46) Depreciation and amortization 76,077 79,839 71,575 EBITDA $ 41,354 $ 107,488 $ 84,090 Reconciliation of Net Cash Provided By Operating Activities to EBITDA Year Ended December 31, (in thousands) 2020 2019 2018 Net cash provided by operating activities $ 19,740 $ 39,157 $ 32,234 Non-cash items: Goodwill impairment (40,969) — — Other (6,630) (10,503) (8,430) Adjustments: Interest expense, net 63,428 62,636 62,588 Income tax expense (benefit) 30 (18) (46) Change in assets and liabilities 5,755 16,216 (2,256) EBITDA $ 41,354 $ 107,488 $ 84,090 December 31, 2020 | 39 Table of Contents Reconciliation of EBITDA to Available Cash for Distribution Year Ended December 31, (in thousands) 2020 2019 2018 EBITDA $ 41,354 $ 107,488 $ 84,090 Non-cash items: Goodwill impairment 40,969 — — Current reserves for amounts related to: Debt service (59,995) (59,997) (59,372) Maintenance capital expenditures (11,649) (18,247) (14,870) Common units repurchased (7,076) — — Other (reserves for) / releases of amounts reserved for: Future turnarounds (4,500) — — Repayment of current portion of long-term debt (2,240) — — Recapture of prior negative available cash (5,917) — — Future operating needs (5,308) (28,000) — Major scheduled expenditures 2,567 — — Previously established cash reserves — 25,433 — Available cash for distribution (1) (2) $ (11,795) $ 26,677 $ 9,848 Common units outstanding 11,195 11,328 11,328 (1) Amount represents the cumulative available cash based on full year results. However, available cash for distribution is calculated quarterly, with distributions (if any) being paid in the period following declaration. (2) The Partnership paid no cash distributions for the fourth quarter of 2019 or the first three quarters of 2020. No distributions were declared for the fourth quarter of 2020. Liquidity and Capital Resources Our principal source of liquidity has historically been and continues to be cash from operations, which can include cash advances from customers resulting from prepay contracts. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying distributions to our unitholders, as further discussed below. The effects of the COVID-19 pandemic have resulted in a significant and swift reduction in U.S. economic activity. These effects have caused significant volatility and disruption of the financial markets, and we have observed adverse impacts to our business and financial performance, of which the nature and extent of such impacts remains uncertain. This period of extreme economic disruption, including business closures in the restaurant and food supply industries, idling of ethanol facilities, and limitations on the availability of the workforce, including farmers in the agricultural industry, may continue to have an impact on our business, results of operations, and access to sources of liquidity. In view of the uncertainty of the depth and extent of the contraction in the U.S. economy and potential impact on the demand for our fertilizer products, we took proactive actions in 2020 to address the impacts we may experience in our results of operations, liquidity, and financial condition, including the following: • The deferment of the Coffeyville Facility turnaround from the fall of 2020 to the summer of 2021, enabled by certain maintenance we proactively performed during the first quarter of 2020, and the East Dubuque Facility turnaround from 2021 to 2022; • A reduction in the amount of maintenance capital expenditures in 2020 to only include those projects which are a priority to support continuing safe and reliable operations, or which we consider are critical to support future activities; and • The amendment of the ABL Credit Agreement extending its term to September 30, 2022, optimizing the borrowing capacity and fee structure, and revising certain provisions to provide an improved credit facility for the Partnership. December 31, 2020 | 40 Table of Contents When paired with the actions outlined above and prudently managing our operating costs and capital expenditures in 2021, we believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, under the ABL Credit Agreement, formerly the AB Credit Facility, will be sufficient to satisfy anticipated cash requirements associated with our existing operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future performance, which is subject to general economic, political, financial, competitive, and other factors, some of which may be beyond our control. Depending on the needs of our business, contractual limitations, and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or otherwise refinance our existing debt. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all. We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC. Cash and Other Liquidity As of December 31, 2020, we had cash and cash equivalents of $30.6 million, including $7.6 million of customer advances. Combined with $20.1 million available under our ABL Credit Agreement, we had total liquidity of $50.7 million as of December 31, 2020. As of December 31, 2019, we had $37.0 million in cash and cash equivalents, including $9.1 million of customer advances. December 31, (in thousands) 2020 2019 9.25% Senior Notes, due June 2023 $ 645,000 $ 645,000 6.50% Senior Notes, due April 2021, net of current portion (1) — 2,240 Unamortized discount and debt issuance costs (11,058) (14,834) Total long-term debt 633,942 632,406 Current portion of long-term debt (1) 2,240 — Total long-term debt, including current portion $ 636,182 $ 632,406 (1) The 6.50% Notes, due April 2021, mature within 12 months, and, therefore, the outstanding balance of $2.2 million has been classified as short-term debt as of December 31, 2020. The Partnership and its subsidiaries were in compliance with all applicable covenants under their respective debt instruments as of December 31, 2020. Refer to Note 5 (“Long-Term Debt”) in Part II, Item 8 for further information. Capital Spending We divide capital spending needs into two categories: maintenance and growth. Maintenance capital spending includes non-discretionary maintenance projects and projects required to comply with environmental, health, and safety regulations. Growth capital projects generally involve an expansion of existing capacity and/or a reduction in direct operating expenses. We undertake growth capital spending based on the expected return on incremental capital employed. Our total capital expenditures for the years ended December 31, 2020 and 2019, along with our estimated expenditures for 2021 are as follows: Year Ended December 31, Estimated (in thousands) 2020 2019 2021 Maintenance capital $ 11,651 $ 18,247 $18,000 - 20,000 Growth capital 4,780 2,027 5,000 - 6,000 Total capital expenditures $ 16,431 $ 20,274 $23,000 - 26,000 December 31, 2020 | 41 Table of Contents In light of the changing environment and proactive maintenance performed during several outages at the third-party owned and operated air separation unit at our Coffeyville Facility during the first quarter of 2020, we moved our turnaround from the previously planned timeframe of the fall of 2020 to the fall of 2021, with an estimated cost of $7 to $9 million. We will continue to monitor market conditions and make adjustments, if needed, to our current capital spending or turnaround plans. Our estimated capital expenditures are subject to change due to unanticipated changes in the cost, scope, and completion time for capital projects. For example, we may experience unexpected changes in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of the nitrogen fertilizer facilities. We may also accelerate or defer some capital expenditures from time to time. Distributions to Unitholders The current policy of the Board is to distribute all Available Cash the Partnership generated on a quarterly basis. Available Cash for each quarter will be determined by the Board following the end of such quarter. Available Cash for each quarter is calculated as EBITDA for the quarter excluding non-cash income or expense items (if any), for which adjustment is deemed necessary or appropriate by the Board in its sole discretion, less (i) reserves for maintenance capital expenditures, debt service and other contractual obligations, and (ii) reserves for future operating or capital needs (if any), in each case, that the Board deems necessary or appropriate in its sole discretion. Available cash for distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the Board. The Partnership did not pay distributions for the year ended December 31, 2020 or December 31, 2018. During the year ended December 31, 2019, the Partnership paid distributions totaling $4.00 per common unit on a split-adjusted basis, or $45.3 million. Of these distributions, CVR Energy received $15.6 million. Capital Structure On May 6, 2020, the Board, on behalf of the Partnership, authorized a unit repurchase program (the “Unit Repurchase Program”). The Unit Repurchase Program enables the Partnership to repurchase up to $10 million of the Partnership’s common units. Repurchases under the Unit 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 of our general partner and are subject to market conditions, as well as corporate, regulatory, and other considerations. On November 2, 2020, the Partnership announced that the Board had approved a 1-for-10 reverse split of the Partnership’s common units that was completed on November 23, 2020, pursuant to which each ten common units of the Partnership were converted into one common unit of the Partnership (the “Reverse Unit Split”). In accordance with the Partnership’s Agreement of Limited Partnership, as amended (the “Partnership Agreement”), 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 common units outstanding decreased from approximately 111 million common units to approximately 11 million common units, with proportionate adjustments to the common units under the Partnership’s long-term incentive plan and outstanding awards thereunder. See Note 1 (“Organization and Nature of Business”) in Part II, Item 8 for a discussion regarding the delisting of the NYSE. During the year ended December 31, 2020, on a split-adjusted basis, the Partnership repurchased 623,177 common units on the open market in accordance with a unit repurchase agreement under Rules 10b5-1 and 10b-18 of the Exchange Act at a cost of $7.1 million, inclusive of transaction costs, or an average price of $11.35 per common unit. At December 31, 2020, the Partnership had $2.9 million in authority remaining under the Unit Repurchase Program. On February 22, 2021, the Board authorized an additional $10 million for the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to acquire any common units and may be cancelled, terminated, extended or increased by the Board at any time. December 31, 2020 | 42 Table of Contents Cash Flows The following table sets forth our cash flows for the periods indicated below: Year Ended December 31, (in thousands) 2020 2019 2018 Net cash provided by (used in): Operating activities $ 19,740 $ 39,157 $ 32,234 Investing activities (18,550) (18,529) (19,631) Financing activities (7,625) (45,410) — Net (decrease) increase in cash and cash equivalents $ (6,435) $ (24,782) $ 12,603 Operating Activities The change in net cash flows from operating activities for the year ended December 31, 2020 as compared to the year ended December 31, 2019 is primarily due to unfavorable changes in operating results, excluding non-cash items, of $29.9 million, partially offset by favorable changes in working capital of $10.7 million, and unfavorable changes in non-current assets and liabilities of $0.2 million. Investing Activities The change in net cash used in investing activities for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributed to the increase in capital expenditures of $0.2 million, related to growth spending on the Coffeyville Facility’s urea capacity upgrade project in the current period and maintenance spending on the East Dubuque Facility’s reactor conversion revamp in the prior period, partially offset by a decrease in cash outflows of $0.3 million from the purchase of land during the year ended December 31, 2019 with no corresponding amounts paid in 2020, and a decrease in cash inflows of $0.1 million from proceeds on the sale of assets. Financing Activities The change in net cash used in financing activities for the year ended December 31, 2020 compared to the year ended December 31, 2019 was the result of cash distributions paid to unitholders of $45.3 million during 2019 compared to cash used for repurchase of common units of $7.1 million and payment of deferred financing costs of $0.4 million related to the ABL Credit Agreement amendment entered into during 2020. Recent Accounting Pronouncements Refer to Note 2 (“Summary of Significant Accounting Policies”) in Part II, Item 8 for a discussion of recent accounting pronouncements applicable to the Partnership. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP requiring management to make judgments, assumptions, and estimates based on the best available information at the time. Accounting estimates are considered to be critical if (1) the nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and (2) the impact of the estimates and assumptions on financial condition or operating performance is material. Actual results could differ from the estimates and assumptions used. Inventory Valuation The cost of our fertilizer product inventories is determined under the first-in, first-out (FIFO) method. Our FIFO inventories are carried at the lower of cost or net realizable value. We compare the estimated realizable value of inventories to their cost by product at each of our facilities. Depending on inventory levels, the per-ton realizable value of our fertilizer products is estimated using pricing on in-transit orders, pricing for open, fixed-price orders that have not shipped, and, if December 31, 2020 | 43 Table of Contents volumes remain unaccounted for, current management pricing estimates for fertilizer products. Management’s estimate for current pricing reflects up-to-date pricing in each facility’s market as of the end of each reporting period. Reductions to selling prices for unreimbursed freight costs are included to arrive at net realizable value, as applicable. During the year ended December 31, 2020, we recognized a loss on inventory to reflect net realizable value of $0.7 million. For the years ended December 31, 2019 and 2018, there was no adjustment. Due to the amount and variability in volume of fertilizer product inventories maintained, changes in production costs, and the volatility of market pricing for fertilizer products, losses recognized to reflect fertilizer product inventories at the lower of cost or net realizable value could have a material impact on the Partnership’s results of operations. Impairment of Long-lived Assets and Goodwill Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future expected cash flows. If the sum of the undiscounted expected future cash flows of an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to its estimated fair value. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets (for example, at a fertilizer facility level). The Partnership tests goodwill for impairment annually on November 1 of each year, or more frequently if events or changes in circumstances indicate the asset might be impaired. One of our reporting units, the Coffeyville Facility, had a goodwill balance of $41.0 million at December 31, 2019. During the second quarter of 2020, following completion of the spring planting season, the market pricing for ammonia and UAN, which are the facility’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 had negatively impacted 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, including management’s revised forecasts for product pricing in 2020 and beyond, and market price performance of our common units, we concluded an impairment indicator was present and a triggering event under Accounting Standards Codification (“ASC”) Topic 350, Intangibles-Goodwill and Other , had occurred as of June 30, 2020 and an interim quantitative impairment assessment was performed. Significant assumptions inherent in the valuation methodologies for goodwill included, 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, we recorded a non-cash impairment charge of $41.0 million during 2020. There is no goodwill remaining as of December 31, 2020. We performed our annual impairment reviews of goodwill for 2019 and 2018, on November 1 of each such year and concluded no impairments. For the period ended December 31, 2019, we performed a qualitative assessment and concluded there were no events or circumstances which would trigger the performance of a quantitative analysis after reviewing all factors impacting the Coffeyville Facility reporting unit, including improved market conditions and financial results in 2019 as compared to the financial forecasts from those used in the fair value analysis at December 31, 2018, where the estimated fair value of the Coffeyville Facility reporting unit exceeded its carrying value by approximately 36% based upon the results of our quantitative goodwill impairment test.