CVR PARTNERS, LP 10-K

Item 8. Financial Statements and Supplementary Data CVR PARTNERS, LP AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 52 Consolidated Balance Sheets as of December 31, 2022 and 2021 54 Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020 55 Consolidated Statements of Partners’ Capital for the Years Ended December 31, 2022, 2021 and 2020 56 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 57 Notes to the Consolidated Financial Statements 58 December 31, 2022 | 51 Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors of CVR GP, LLC The Unitholders of CVR Partners, LP The General Partner of CVR Partners, LP: Opinion on the financial statements We have audited the accompanying consolidated balance sheets of CVR Partners, LP (a Delaware limited partnership) and subsidiaries (the “Partnership”) as of December 31, 2022 and 2021, the related consolidated statements of operations, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2022, 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 Partnership as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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 Partnership’s internal control over financial reporting as of December 31, 2022, 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 22, 2023 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’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 Partnership 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 Critical audit matters 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. We determined that there are no critical audit matters. /s/ GRANT THORNTON LLP We have served as the Partnership’s auditor since 2013. Dallas, Texas February 22, 2023 December 31, 2022 | 52 Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors of CVR GP, LLC The Unitholders of CVR Partners, LP The General Partner of CVR Partners, LP: Opinion on internal control over financial reporting We have audited the internal control over financial reporting of CVR Partners, LP (a Delaware limited partnership) and subsidiaries (the “Partnership”) as of December 31, 2022, 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 Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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 Partnership as of and for the year ended December 31, 2022, and our report dated February 22, 2023 expressed an unqualified opinion on those financial statements. Basis for opinion The Partnership’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 Partnership’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 Partnership 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 Dallas, Texas February 22, 2023 December 31, 2022 | 53 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, (in thousands) 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 86,339 $ 112,516 Accounts receivable, net 90,448 88,351 Inventories 77,518 52,270 Prepaid expenses and other current assets 11,399 9,108 Total current assets 265,704 262,245 Property, plant, and equipment, net 810,994 850,462 Other long-term assets 23,704 14,351 Total assets $ 1,100,402 $ 1,127,058 LIABILITIES AND PARTNERS’ CAPITAL Current liabilities: Accounts payable 45,522 41,504 Accounts payable to affiliates 5,302 8,895 Deferred revenue 47,516 87,060 Other current liabilities 27,717 24,401 Total current liabilities 126,057 161,860 Long-term liabilities: Long-term debt, net 546,800 610,642 Other long-term liabilities 15,734 12,358 Total long-term liabilities 562,534 623,000 Commitments and contingencies (See Note 8) Partners’ capital: Common unitholders, 10,569,637 and 10,681,332 units issued and outstanding as of December 31, 2022 and 2021, respectively 411,810 342,197 General partner interest 1 1 Total partners’ capital 411,811 342,198 Total liabilities and partners’ capital $ 1,100,402 $ 1,127,058 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2022 | 54 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, (in thousands, except per unit data) 2022 2021 2020 Net sales $ 835,584 $ 532,581 $ 349,953 Operating costs and expenses: Cost of materials and other 130,913 98,345 91,117 Direct operating expenses (exclusive of depreciation and amortization) 270,167 198,714 157,916 Depreciation and amortization 82,137 73,480 76,077 Cost of sales 483,217 370,539 325,110 Selling, general and administrative expenses 32,192 26,615 18,174 Loss on asset disposal 263 948 582 Goodwill impairment — — 40,969 Operating income (loss) 319,912 134,479 ( 34,882 ) Other (expense) income: Interest expense, net ( 34,065 ) ( 60,978 ) ( 63,428 ) Other income, net 1,114 4,711 159 Income (loss) before income tax expense 286,961 78,212 ( 98,151 ) Income tax expense 160 57 30 Net income (loss) $ 286,801 $ 78,155 $ ( 98,181 ) Basic and diluted earnings (loss) per common unit $ 27.07 $ 7.31 $ ( 8.77 ) Weighted-average common units outstanding: Basic and Diluted 10,593 10,685 11,195 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2022 | 55 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL (in thousands, except unit data) Common Units General Partner Interest Total Partners ’ Capital Issued Amount Balance at December 31, 2019 11,328,297 $ 419,543 $ 1 $ 419,544 Net loss — ( 98,181 ) — ( 98,181 ) Repurchase of common units ( 623,177 ) ( 7,076 ) — ( 7,076 ) Fractional unit impact of reverse unit split 590 — — — Other — ( 46 ) — ( 46 ) Balance at December 31, 2020 10,705,710 314,240 1 314,241 Net income — 78,155 — 78,155 Repurchase of common units ( 24,378 ) ( 529 ) — ( 529 ) Cash distributions to common unitholders – Affiliates — ( 18,098 ) — ( 18,098 ) Cash distributions to common unitholders – Non-affiliates — ( 31,571 ) — ( 31,571 ) Balance at December 31, 2021 10,681,332 342,197 1 342,198 Net income — 286,801 — 286,801 Repurchase of common units ( 111,695 ) ( 12,398 ) — ( 12,398 ) Cash distributions to common unitholders – Affiliates — ( 75,193 ) — ( 75,193 ) Cash distributions to common unitholders – Non-affiliates — ( 129,597 ) — ( 129,597 ) Balance at December 31, 2022 10,569,637 $ 411,810 $ 1 $ 411,811 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2022 | 56 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2022 2021 2020 Cash flows from operating activities: Net income (loss) $ 286,801 $ 78,155 $ ( 98,181 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 82,137 73,480 76,077 Amortization of deferred financing costs and original issue discount 821 2,799 4,049 Goodwill impairment — — 40,969 Loss on asset disposal 263 948 582 Loss on debt extinguishment 628 8,462 — Share-based compensation 25,264 23,069 1,035 Other adjustments ( 107 ) 142 964 Changes in assets and liabilities: Accounts receivable ( 21,139 ) ( 21,877 ) 2,892 Inventories ( 24,807 ) ( 7,508 ) 538 Prepaid expenses and other current assets ( 2,278 ) ( 785 ) ( 4,514 ) Accounts payable ( 6,577 ) 11,367 ( 1,635 ) Deferred revenue ( 20,502 ) 26,658 ( 1,612 ) Accrued expenses and other current liabilities ( 14,939 ) ( 7,182 ) ( 1,726 ) Other long-term assets and liabilities ( 4,101 ) 997 302 Net cash provided by operating activities 301,464 188,725 19,740 Cash flows from investing activities: Capital expenditures ( 44,668 ) ( 20,594 ) ( 18,598 ) Proceeds from the sale of assets 45 252 48 Net cash used in investing activities ( 44,623 ) ( 20,342 ) ( 18,550 ) Cash flows from financing activities: Principal payments on senior secured notes ( 65,000 ) ( 582,240 ) — Proceeds on issuance of senior secured notes — 550,000 — Payment of deferred financing costs ( 829 ) ( 3,892 ) ( 448 ) Repurchase of common units ( 12,398 ) ( 529 ) ( 7,076 ) Cash distributions to common unitholders – Affiliates ( 75,193 ) ( 18,098 ) — Cash distribution to common unitholders – Non-affiliates ( 129,597 ) ( 31,571 ) — Other financing activities ( 1 ) ( 96 ) ( 101 ) Net cash used in financing activities ( 283,018 ) ( 86,426 ) ( 7,625 ) Net (decrease) increase in cash and cash equivalents ( 26,177 ) 81,957 ( 6,435 ) Cash and cash equivalents, beginning of period 112,516 30,559 36,994 Cash and cash equivalents, end of period $ 86,339 $ 112,516 $ 30,559 The accompanying notes are an integral part of these consolidated financial statements. December 31, 2022 | 57 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization and Nature of Business CVR Partners, LP (“CVR Partners” or the “Partnership”) is a Delaware limited partnership formed by CVR Energy, Inc. (together with its subsidiaries, but excluding the Partnership and its subsidiaries, “CVR Energy”) to own, operate and grow its nitrogen fertilizer business. The Partnership produces nitrogen fertilizer products at two manufacturing facilities, one located in Coffeyville, Kansas operated by our wholly owned subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”) (the “Coffeyville Facility”) and one located in East Dubuque, Illinois operated by our wholly owned subsidiary, East Dubuque Nitrogen Fertilizers, LLC (“EDNF”) (the “East Dubuque Facility”). Both facilities manufacture ammonia and are able to further upgrade such ammonia to other nitrogen fertilizer products, principally urea ammonium nitrate (“UAN”). Nitrogen fertilizer is used by farmers to improve the yield and quality of their crops, primarily corn and wheat. The Partnership’s products are sold on a wholesale basis in the United States of America. As used in these financial statements, references to CVR Partners, the Partnership, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners or one or both of the facilities, as the context may require. Interest Holders As of December 31, 2022, public common unitholders held approximately 63 % of the Partnership’s outstanding limited partner interests; CVR Services, LLC (“CVR Services”), a wholly-owned subsidiary of CVR Energy, held the remaining approximately 37 % of the Partnership’s outstanding limited partner interests; and CVR GP, LLC (“CVR GP” or the “general partner”), a wholly owned subsidiary of CVR Energy, held 100 % of the Partnership’s general partner interest. As of December 31, 2022, Icahn Enterprises L.P. and its affiliates owned approximately 71 % of the common stock of CVR Energy. Unit Repurchase Program On May 6, 2020, the board of directors of the Partnership’s general partner (the “Board”), on behalf of the Partnership, authorized a unit repurchase program (the “Unit Repurchase Program”), which was increased on February 22, 2021. The Unit Repurchase Program, as increased, authorized the Partnership to repurchase up to $ 20 million of the Partnership’s common units. During the years ended December 31, 2022 and 2021, the Partnership repurchased 111,695 and 24,378 common units, respectively, on the open market in accordance with a repurchase agreement under Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended, at a cost of $ 12.4 million and $ 0.5 million, respectively, exclusive of transaction costs, or an average price of $ 110.98 and $ 21.69 per common unit, respectively. During the year ended December 31, 2020, as adjusted to reflect the impact of the 1-for-10 reverse unit split of the Partnership’s common units that was effective as of November 23, 2020, the Partnership repurchased 623,177 common units at a cost of $ 7.1 million, inclusive of transaction costs, or an average price of $ 11.34 per common unit. As of December 31, 2022, the Partnership had a nominal authorized amount remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to purchase any common units and may be cancelled or terminated by the Board at any time. Management and Operations The Partnership, including CVR GP, is managed by a combination of the Board, the general partner’s executive officers, CVR Services (as sole member of the general partner), and certain officers of CVR Energy and its subsidiaries, pursuant to the Partnership Agreement, as well as a number of agreements among the Partnership, CVR GP, CVR Energy, and certain of their respective subsidiaries, including a service agreement. See Note 9 (“Related Party Transactions”) for further discussion. Common unitholders have limited voting rights on matters affecting the Partnership and have no right to elect the general partner’s directors or officers, whether on an annual or continuing basis or otherwise. (2) Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange December 31, 2022 | 58 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Commission (“SEC”), include the accounts of CVR Partners and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Reclassifications Certain immaterial reclassifications have been made within the consolidated financial statements for prior periods to conform with current presentation. Use of Estimates The consolidated financial statements are prepared in conformity with GAAP, which requires management to make certain estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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 and investments in highly liquid money market accounts with original maturities of three months or less. Accounts Receivable, net Accounts receivable, net primarily consists of customer accounts receivable recorded at the invoiced amounts and generally do not bear interest. Also included within Accounts receivable, net are uncollected fixed price contracts which are discussed further within Note 6 (“Revenue”). Allowances for doubtful accounts are based on historical loss experience, expected credit losses from current economic conditions, and management’s expectations of future economic conditions. The allowance is recorded when the receivable is deemed uncollectible and is booked to bad debt expense. The largest concentration of credit for any one customer was approximately 45 % and 22 % of the Accounts receivable, net balance at December 31, 2022 and 2021, respectively. There was no bad debt expense for the year ended December 31, 2022. For the years ended December 31, 2021, and 2020, bad debt expenses were $ 0.2 million and $ 0.1 million, respectively. Inventories Inventories consist of fertilizer products and raw materials (primarily natural gas and pet coke), which are valued at the lower of GAAP First-In, First-Out (“FIFO”) cost or net realizable value. Inventories also include parts and supplies that are valued at the weighted moving-average cost, which approximates FIFO. The cost of inventories includes inbound freight costs. Inventories consisted of the following: December 31, (in thousands) 2022 2021 Finished goods $ 28,630 $ 17,141 Raw materials 3,116 833 Parts, supplies and other 45,772 34,296 Total inventories $ 77,518 $ 52,270 At December 31, 2022 and 2021, inventories included depreciation of approximately $ 4.4 million and $ 3.1 million, respectively. December 31, 2022 | 59 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 3 to 30 Automotive equipment 5 to 30 Machinery and equipment 1 to 30 Other 3 to 10 Property, plant, and equipment, net consisted of the following: December 31, (in thousands) 2022 2021 Machinery and equipment $ 1,432,875 $ 1,410,203 Buildings and improvements 17,461 17,598 Automotive equipment 16,377 16,433 Land and improvements 14,604 14,199 Construction in progress 7,858 14,167 Other 3,035 2,221 1,492,210 1,474,821 Less: Accumulated depreciation and amortization ( 681,216 ) ( 624,359 ) Total property, plant and equipment, net $ 810,994 $ 850,462 Leasehold improvements and assets held under finance leases are depreciated or amortized utilizing the straight-line method over the shorter of the contractual lease term or the estimated useful life of the asset. Expenditures for routine maintenance and repair costs are expensed when incurred and are reported in Direct operating expenses (exclusive of depreciation and amortization) in the Partnership’s Consolidated Statements of Operations. For the years ended December 31, 2022, 2021, and 2020, depreciation and amortization expenses were $ 81.3 million, $ 72.4 million, and $ 75.0 million, respectively. During the planning and execution of the turnarounds at the Coffeyville and East Dubuque Facilities in 2022 and 2021, the Partnership updated the estimated useful lives of certain assets, which resulted in additional depreciation expense of $ 12.7 million and $ 4.5 million during the years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, the Partnership had not identified the existence of an impairment indicator for our long-lived asset groups as outlined under the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment . Leases At inception, the Partnership determines whether an arrangement is a lease and the appropriate lease classification. Operating leases are included as operating lease right-of-use (“ROU”) assets within Other long-term assets and lease liabilities within Other current liabilities and Other long-term liabilities on our Consolidated Balance Sheets. When applicable, finance leases are included as ROU finance leases within Property, plant, and equipment, net, and finance lease liabilities within Other current liabilities and Long-term debt, 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 Partnership recognizes lease expense for these leases on a straight-line basis over the expected lease term. ROU assets represent the Partnership’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 lease commencement December 31, 2022 | 60 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS date based on the present value of minimum lease payments over the lease term using an incremental borrowing rate with a maturity similar to the lease term, as our leases do not generally provide an implicit rate. 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. A lease modification is assessed to conclude whether it is a separate new contract or a modified contract. If it is a modified contract, the Partnership reconsiders the lease classification and remeasures the lease. 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 term 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, net 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 or asset group 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 the 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 Partnership uses November 1 of each year as its annual valuation date for its goodwill impairment test. One of our reporting units, the Coffeyville Facility, had a goodwill balance of $ 41.0 million at December 31, 2019, which was fully impaired during the second quarter of 2020 when it was determined the estimated fair value of the Coffeyville Facility reporting unit did not exceed its carrying value. As there was no goodwill balance as of December 31, 2022 and 2021, no annual impairment review was performed. Asset Retirement Obligations The Partnership records an asset retirement obligation (“ARO”) at fair value for the estimated cost to retire a tangible long-lived asset at the time the liability is incurred, which is generally when the asset is purchased, constructed, or leased. The liability is recorded when there is a legal or contractual obligation to incur costs to retire the asset and only when a reasonable estimate of the fair value can be made. Loss Contingencies In the ordinary course of business, CVR Partners may become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. The outcome of these matters cannot always be predicted accurately, but the Partnership accrues liabilities for these matters if the Partnership has determined that it is probable a loss will be incurred and the loss can be reasonably estimated. Accrued amounts, if any, are reflected in Other current liabilities or Other long-term liabilities depending on when the Partnership expects to expend such amounts. As of December 31, 2022 and 2021, there are no matters or contingencies that require recognition or disclosure. December 31, 2022 | 61 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Environmental, Health & Safety (“EH&S”) Matters The Partnership is subject to various stringent 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. Accrued amounts, if any, are reflected in Other current liabilities or Other long-term liabilities depending on when the Partnership expects to expend such amounts. As of December 31, 2022 and 2021, no liabilities have been recognized for environmental remediation matters, as no matters have been identified that are considered to be probable or estimable. Revenue Recognition The Partnership’s revenue is generated from contracts with customers and is recognized at a point in time when performance obligations are satisfied by transferring control of the products or services to a customer. The transfer of control occurs upon delivery of the product, as the customer accepts the product, has title and significant risks and rewards of ownership of the product, physical possession of the product has been transferred, and we have the right to payment. The transaction prices of the Partnership’s contracts are either fixed or based on market indices, and any uncertainty related to the variable consideration when determining the transaction price is resolved on the pricing date or the date when the product is delivered. The payment terms depend on the product and type of contract, but generally require customers to pay within 30 days or less, 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 exchanges which are entered into in the normal course of business are included on a net cost basis in Cost of materials and other on our Consolidated Statements of Operations. Qualifying excise and other taxes collected from customers and remitted to governmental authorities are recorded as a reduction of the transaction price. Certain sales contracts require 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 prepaid contract amounts. Cost Classifications Cost of materials and other consists primarily of freight and distribution expenses, feedstock expenses, purchased ammonia, and purchased hydrogen. Direct operating expenses (exclusive of depreciation and amortization) consist primarily of energy and other utility costs, direct costs of labor, property taxes, plant-related maintenance services, including turnaround, and environmental and safety compliance costs, as well as catalyst and chemical costs. Each of these financial statement line items are also impacted by changes in inventory balances, as they include inventory production costs. Direct operating expenses also include allocated share-based compensation from CVR Energy and its subsidiaries, as discussed in Note 7 (“Share-Based Compensation”). Selling, general and administrative expenses consist primarily of legal expenses, treasury, accounting, marketing, human resources, information technology, and maintaining the corporate and administrative offices in Texas and Kansas. Turnaround Expenses Turnarounds represent major maintenance activities that require the shutdown of significant parts of a plant to perform necessary inspections, cleanings, 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 vary in frequency dependent on refinery units, but generally occur every two to three years . December 31, 2022 | 62 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Partnership follows the direct-expense method of accounting for turnaround activities. Costs associated with these turnaround activities are included in Direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations. During the years ended December 31, 2022, 2021, and 2020, the Partnership incurred turnaround expenses of $ 33.4 million, $ 2.9 million, and $ 0.7 million, respectively. Share-Based Compensation The Partnership accounts for share-based compensation in accordance with FASB ASC Topic 718, Compensation — Stock Compensation . Currently, all of the Partnership’s share-based compensation awards 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 unit price value and expense reversals resulting from employee terminations prior to award vesting. See Note 7 (“Share-Based Compensation”) for further discussion. Income Taxes The Partnership accounts for income taxes utilizing the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between the amounts recorded in the accounting books 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 Partnership recognizes interest expense (income) and penalties on income tax deficiencies (refunds) in Income tax expense. Allocation of Costs CVR Energy and its subsidiaries provide a variety of services to the Partnership, including employee benefits provided through CVR Energy’s benefit plans, administrative services provided by CVR Energy’s employees and management, insurance, and office space leased by CVR Energy. As such, the accompanying consolidated financial statements include costs that have been incurred by CVR Energy on behalf of the Partnership. These amounts incurred by CVR Energy are then billed or allocated to the Partnership and are classified on the Consolidated Statements of Operations as either Direct operating expenses (exclusive of depreciation and amortization) or as Selling, general and administrative expenses. See Note 9 (“Related Party Transactions”) for a detailed discussion of the billing procedures and the basis for calculating the charges for specific products and services. Recent Accounting Pronouncements - Accounting Standards Issued But Not Yet Implemented In March 2020, FASB issued Accounting Standard Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through the sunset date of Topic 848, which is currently expected to occur on December 31, 2024. The Partnership has not utilized any of the optional expedients or exceptions available under this guidance and will continue to assess whether this guidance is applicable throughout the effective period. December 31, 2022 | 63 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Leases Lease Overview We lease railcars and certain facilities to support the Partnership’s operations. Most of our leases include one or more renewal options to extend the lease term, which can be exercised at our sole discretion. Certain leases also include options to purchase the leased property. Additionally, certain of our lease agreements include rental payments, which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Furthermore, we do not have any material lessor or sub-leasing arrangements. Balance Sheet Summary at December 31, 2022 and 2021 The following tables summarize the ROU asset and lease liability balances for the Partnership’s operating and finance leases at December 31, 2022 and 2021: December 31, 2022 December 31, 2021 (in thousands) Operating Leases Finance Leases Operating Leases Finance Leases ROU asset, net Railcars $ 10,449 $ — $ 4,570 $ — Real estate and other 2,370 — 2,755 34 Lease liability Railcars 10,449 — 4,570 — Real estate and other 456 — 665 — Lease Expense Summary for the Years Ended December 31, 2022, 2021, and 2020 We recognize lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of depreciation and amortization). For the years ended December 31, 2022, 2021, and 2020, we recognized lease expense comprised of the following components: Year Ended December 31, (in thousands) 2022 2021 2020 Operating lease expense $ 4,230 $ 3,827 $ 4,113 Finance lease expense: Amortization of ROU asset 34 102 101 Interest expense on lease liability — 2 6 Short-term lease expense 2,839 1,174 372 Lease Terms and Discount Rates The following outlines the remaining lease terms and discount rates used in the measurement of the Partnership’s ROU assets and lease liabilities at December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Operating Leases Finance Leases Operating Leases Finance Leases Weighted-average remaining lease term 4.3 years 0.0 years 2.1 years 0.0 years Weighted-average discount rate 5.5 % — % 5.1 % — % December 31, 2022 | 64 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Maturities of Lease Liabilities The following summarizes the remaining minimum operating lease payments through maturity of the Partnership’s liabilities at December 31, 2022. There were no finance lease payments remaining at December 31, 2022. (in thousands) Operating Leases Year Ending December 31, 2023 $ 3,402 2024 2,718 2025 2,302 2026 2,042 2027 1,756 Thereafter — Total lease payments 12,220 Less: imputed interest ( 1,315 ) Total lease liability $ 10,905 On February 21, 2022, CRNF entered into the First Amendment to the On-Site Product Supply Agreement with Messer LLC (“Messer”), which amended the July 31, 2020 On-Site Product Supply Agreement (as amended, the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for oxygen from Messer’s facility. This arrangement for CRNF’s purchase of oxygen from Messer does not meet the definition of a lease under FASB ASC Topic 842, Leases (“Topic 842”), as CRNF does not expect to receive substantially all of the output, which includes oxygen, nitrogen and compressed air, of Messer’s on-site production from its air separation unit over the life of the Messer Agreement. The Messer Agreement also obligates Messer to install a new oxygen storage vessel, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Facility. The arrangement for the use of the Oxygen Storage Vessel meets the definition of a lease under Topic 842, as CRNF will receive all output associated with the Vessel. Based on terms outlined in the Messer Agreement, the Partnership expects the lease of the Oxygen Storage Vessel to be classified as a financing lease with an amount of approximately $ 25 million being capitalized upon lease commencement when the Vessel is placed in service, which is currently expected within the next 12 months. (4) Other Current Liabilities Other current liabilities were as follows: December 31, (in thousands) 2022 2021 Share-based compensation $ 9,231 $ 5,888 Personnel accruals 7,539 7,920 Operating lease liabilities 2,931 3,052 Accrued insurance 2,283 718 Accrued taxes other than income taxes 1,789 1,744 Sales incentives 1,772 1,555 Accrued interest 1,404 1,654 Other accrued expenses and liabilities 768 1,870 Total other current liabilities $ 27,717 $ 24,401 December 31, 2022 | 65 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Long-Term Debt Long-term debt, net consists of the following: December 31, (in thousands) 2022 2021 9.25 % Senior Secured Notes, due June 2023 (1) $ — $ 65,000 6.125 % Senior Secured Notes, due June 2028 (1) 550,000 550,000 Unamortized discount and debt issuance costs ( 3,200 ) ( 4,358 ) Total long-term debt $ 546,800 $ 610,642 (1) The $ 65 million outstanding balance of the 2023 Notes, defined below, was paid in full on February 22, 2022 at par, plus accrued and unpaid interest. The estimated fair value of the 2028 Notes, defined below, was approximately $ 493.3 million and $ 580.3 million as of December 31, 2022 and 2021, respectively. These estimates of fair value are a Level 2 measurement, as defined by ASC Topic 820 - Fair Value Measurements and Disclosure, as they were determined by quotations obtained from a broker-dealer who makes a market in these and similar securities. Credit Agreements (in thousands) Total Available Borrowing Capacity Amount Borrowed as of December 31, 2022 Outstanding Letters of Credit Available Capacity as of December 31, 2022 Maturity Date ABL Credit Facility $ 35,000 $ — $ — $ 35,000 September 30, 2024 9.25 % Senior Secured Notes due June 2023 On June 10, 2016, CVR Partners and its subsidiary, CVR Nitrogen Finance Corporation (“Finance Co.” and, together with CVR Partners, 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 would have matured on June 15, 2023, but the 2023 Notes Issuers redeemed the remaining outstanding balance at par plus accrued and unpaid interest to the applicable redemption date on February 22, 2022. Interest on the 2023 Notes was paid semi-annually in arrears on June 15 and December 15 of each year and were guaranteed on a senior secured basis by all of the Partnership’s existing subsidiaries. The 2023 Notes contained customary covenants for a financing of this type that, among other things, restricted CVR Partners’ ability and the ability of certain of its subsidiaries to have: (i) sold assets; (ii) paid distributions on, redeemed or repurchased the Partnership’s units or redeemed or repurchased its subordinated debt; (iii) made investments; (iv) incurred or guaranteed additional indebtedness or issued preferred units; (v) created or incurred certain liens; (vi) entered into agreements that restrict distributions or other payments from the Partnerships’ restricted subsidiaries to the Partnership; (vii) consolidated, merged or transferred all or substantially all of the Partnerships’ assets; (viii) engaged in transactions with affiliates; and (ix) created unrestricted subsidiaries. In addition, the indenture contained customary events of default, the occurrence of which would have resulted in or permitted the trustee or the holders of at least 25 % of the 2023 Notes to have caused the acceleration of the 2023 Notes, in addition to pursuing other available remedies. During 2021, the Partnership redeemed $ 580 million in aggregate principal amounts of the outstanding 2023 Notes at par. On February 22, 2022, the Partnership redeemed all of the remaining outstanding 2023 Notes at par and settled accrued and unpaid interest of approximately $ 1.1 million through the date of redemption. As a result of this transaction, the Partnership recognized a loss on extinguishment of debt of $ 0.6 million in the first quarter of 2022, which includes the write-off of unamortized deferred financing costs and discount of $ 0.2 million and $ 0.4 million, respectively. 6.125 % Senior Secured Notes due June 2028 On June 23, 2021, CVR Partners and Finance Co. (the “Issuers”), completed a private offering of $ 550 million aggregate principal amount of 6.125 % Senior Secured Notes due June 2028 (the “2028 Notes”). Interest on the 2028 Notes is payable semi-annually in arrears on June 15 and December 15 each year, commencing on December 15, 2021. The 2028 Notes mature December 31, 2022 | 66 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS on June 15, 2028, unless earlier redeemed or repurchased by the Issuers. The 2028 Notes are jointly and severally guaranteed on a senior secured basis by all the existing domestic subsidiaries of CVR Partners, excluding Finance Co. We may, at our option, at any time and from time to time prior to June 15, 2024, on any one or more occasions, redeem all or part of the 2028 Notes at a price equal to 100 % of the principal amount plus a “make whole” premium, plus accrued and unpaid interest. On or after June 15, 2024, we may, on any one or more occasions, redeem all or part of the 2028 Notes 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. 12-month period beginning June 15, Percentage 2024 103.063 % 2025 101.531 % 2026 and thereafter 100.000 % The indenture governing the 2028 Notes contains covenants that are substantially the same as the indenture governing the 2023 Notes. However, the 2028 Notes contain a permitted investment activity carveout that allows for the transfer of certain carbon capture assets to a joint venture for the purpose of monetizing potential tax credits. ABL Credit Agreement On September 30, 2021, CVR Partners, LP and its subsidiaries, CVR Nitrogen, LP, EDNF, CRNF, CVR Nitrogen Holdings, LLC, Finance Co. and CVR Nitrogen GP, LLC, entered into the ABL Credit Facility with Wells Fargo Bank National Association, a national banking association (“Wells Fargo”), as administrative agent, collateral agent, and lender. The ABL Credit Facility has an aggregate principal amount of availability of up to $ 35.0 million with an incremental facility, which permits an increase in borrowings of up to $ 15.0 million in the aggregate subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for general corporate purposes of the Partnership and its subsidiaries. The ABL Credit Facility provides for loans and letters of credit, subject to meeting certain borrowing base conditions, with sub-limits of $ 3.5 million for swingline loans and $ 10.0 million for letters of credit. The ABL Credit Facility is scheduled to mature on September 30, 2024. Beginning September 30, 2021, loans under the Partnership’s ABL Credit Facility bear interest at an annual rate equal to, at the option of the borrowers, (i) (a) 1.615 % plus the daily simple Secured Overnight Financing Rate (“SOFR”) or (b) 0.615 % plus a base rate, if our quarterly excess availability is greater than or equal to 75%, (ii) (a) 1.865 % plus SOFR or (b) 0.865 % plus a base rate, if our quarterly excess availability is greater than or equal to 50% but less than 75%, or (iii) (a) 2.115 % plus SOFR or (b) 1.115 % plus a base rate, otherwise. The borrowers must also pay a commitment fee on the unutilized commitments and also pay customary letter of credit fees. The ABL Credit Facility contains customary covenants for a financing of this type and requires the Partnership in certain circumstances to comply with a minimum fixed charge coverage ratio test and contains other restrictive covenants that limit the ability of the Partnership and its subsidiaries ability to, among other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and loans, enter into affiliate transactions, issue certain equity interests, create subsidiaries and unrestricted subsidiaries, and create certain restrictions on the ability to make distributions, loans, and asset transfers among the Partnership or its subsidiaries. Covenant Compliance The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of December 31, 2022. December 31, 2022 | 67 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Revenue The following table presents the Partnership’s revenue, disaggregated by major product: Year Ended December 31, (in thousands) 2022 2021 2020 Ammonia $ 199,523 $ 146,140 $ 94,117 UAN 556,519 316,014 198,258 Urea products 33,506 28,746 14,115 Net sales, exclusive of freight and other 789,548 490,900 306,490 Freight revenue (1) 34,770 31,419 33,329 Other revenue 11,266 10,262 10,134 Net sales $ 835,584 $ 532,581 $ 349,953 (1) Freight revenue recognized by the Partnership represents the pass-through finished goods delivery costs incurred prior to customer acceptance and is reimbursed by customers. An offsetting expense for freight is included in Cost of materials and other. Remaining Performance Obligations We have spot and term contracts with customers and the transaction prices are either fixed or based on market indices (variable consideration). We do not disclose remaining performance obligations for contracts that have terms of one year or less and for contracts where the variable consideration was entirely allocated to an unsatisfied performance obligation. As of December 31, 2022, the Partnership had approximately $ 4.6 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Partnership expects to recognize approximately $ 4.4 million of these performance obligations as revenue by the end of 2023 and the remaining balance during 2024. Contract Balances A summary of the deferred revenue activity for the year ended December 31, 2022 is presented below: (in thousands) Balance at December 31, 2021 $ 87,060 Add: New prepay contracts entered into during the period (1) 116,832 Less: Revenue recognized that was included in the contract liability balance at the beginning of the period ( 85,840 ) Revenue recognized related to contracts entered into during the period ( 69,613 ) Other changes ( 923 ) Balance at December 31, 2022 $ 47,516 (1) Includes $ 83.0 million where payments associated with prepaid contracts were collected as of December 31, 2022. Major Customers CVR Partners had two customers who comprised 30 % and 26 % of net sales for the years ended December 31, 2022 and 2020, respectively, and one customer who comprised 13 % of net sales for the year ended December 31, 2021. (7) Share-Based Compensation Overview CVR Partners has a Long-Term Incentive Plan (“CVR Partners LTIP”) which permits the granting of options, stock and unit appreciation rights (“SARs”), restricted shares, restricted stock units, phantom units, unit awards, substitute awards, other December 31, 2022 | 68 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 under or in connection with the CVR Partners LTIP include any director, officer, employee, employee candidate, consultant, or advisor of the Partnership, its subsidiaries, or its parent. CVR Partners’ Phantom Unit Awards and Compensation Expense Phantom unit awards that have been granted to officers, employees, and directors (the “Share-Based Awards”) reflect the value and distributions of CVR Partners, as applicable. Each Share-Based Award and the related distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one unit, in accordance with the award agreement, plus (ii) the per unit cash value of all 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-third of the award vesting each year the grantee remains employed by the Partnership and its subsidiaries. Compensation expense is recognized ratably, based on service provided to the Partnership and its subsidiaries, with the amount recognized fluctuating as a result of the Share-Based Awards being remeasured to fair value at the end of each reporting period due to their liability-award classification. A summary of phantom unit award activity during the year ended December 31, 2022 is presented below: (in thousands, except per unit data) Units (1) Weighted- Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested at December 31, 2021 361,840 $ 18.89 $ 29,921 Granted 33,395 109.83 Vested ( 178,411 ) 19.72 Forfeited ( 16,515 ) 25.38 Non-vested at December 31, 2022 200,309 $ 37.58 $ 20,147 (1) As of December 31, 2022, there are no outstanding awards under the CVR Partners LTIP, and the only outstanding and unvested phantom awards are issued in connection with, not under, the CVR Partners LTIP. Unrecognized compensation expense associated with the phantom units at December 31, 2022 was approximately $ 10.6 million, which is expected to be recognized over a weighted average period of 1.4 years. Compensation expense recorded for the years ended December 31, 2022, 2021, and 2020 related to these awards was approximately $ 25.7 million, $ 27.0 million, and $ 0.6 million, respectively. As of December 31, 2022 and 2021, the Partnership had a liability of $ 9.7 million and $ 9.1 million, respectively, for cash settled non-vested phantom unit awards and associated distribution equivalent rights and, for the years ended December 31, 2022, 2021, and 2020, paid cash of $ 17.7 million, $ 11.1 million, and $ 0.5 million, respectively, to settle liability-classified awards upon vesting. As of December 31, 2022 and 2021, CVR Energy had a liability associated with the CVR Partners LTIP of $ 3.8 million and $ 3.3 million, respectively, for cash settled non-vested phantom unit awards and associated distribution equivalent rights and, for the years ended December 31, 2022, 2021, and 2020, paid cash of $ 7.0 million, $ 4.4 million, and $ 0.3 million, respectively, to settle liability-classified awards upon vesting under the CVR Partners LTIP. Incentive Unit Awards — CVR Energy CVR Energy grants awards of incentive units and dividend equivalent rights to certain of its employees and those of its subsidiaries, including CVR GP, who provide shared services for CVR Energy and its subsidiaries, including the Partnership. Costs related to these incentive unit awards are allocated to the Partnership based on time spent on Partnership business. Total compensation expense allocated to the Partnership for the years ended December 31, 2022, 2021, and 2020 related to the incentive units was $ 5.3 million, $ 2.3 million and $ 0.4 million, respectively. December 31, 2022 | 69 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Partnership had no separate liabilities related to these incentive unit awards as of December 31, 2022 and 2021, as the allocation of compensation expense for incentive unit awards is part of the amount charged to the Partnership under the Corporate MSA. For the years ended December 31, 2022 and 2021, the Partnership had no reimbursements related to its allocated portion of CVR Energy’s incentive unit awards payments, and for the year ended December 31, 2020, the Partnership made reimbursements to CVR Energy of $ 2.2 million. See Note 9 (“Related Party Transactions”) for further discussion of the Corporate MSA. Performance Unit Awards Pursuant to the amended employment agreement, effective December 22, 2021, with the Partnership’s Executive Chairman, CVR Energy amended the performance award agreement (the “Performance Unit Award Agreement”) to extend the end of the performance period thereunder to December 31, 2024. The Performance Unit Award Agreement represents the right to receive upon vesting, a cash payment equal to $ 10.0 million if the average closing price of CVR Energy’s common stock over the 30 -day trading period from January 6, 2025 through February 20, 2025 is equal to or greater than $ 60 per share. Under the Performance Unit Award Agreement, no compensation costs were recognized for the years ended December 31, 2022 and 2020. For the year ended December 31, 2021, the Partnership recognized a benefit of $ 0.6 million. Under the Performance Unit Award Agreement, as of December 31, 2022 and 2021, the Partnership had no outstanding liability. Once the performance parameters are probable of being met under the Performance Unit Award Agreement, the Partnership’s allocated portion of unrecognized compensation costs would be approximately $ 2.3 million. Other Benefit Plans CVR Energy 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 (collectively, the “Plans”), in which employees of the general partner, CVR Partners and its subsidiaries 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. CVR Partners 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 Partnership’s matching contributions and contain a provision to count service with predecessor organizations. The Partnership had contributions under the Plans of approximately $ 2.3 million and $ 1.9 million for the years ended December 31, 2022 and 2020, respectively. The Partnership had no contributions during the year ended December 31, 2021, as the Partnership’s matching contributions for the Plans were suspended effective January 1, 2021 and resumed effective January 1, 2022. (8) Commitments Supply Commitments The Partnership is a party to various supply agreements with both related and third parties which commit the Partnership to purchase minimum volumes of hydrogen, oxygen, nitrogen, pet coke, and natural gas to run its plants’ operations. The minimum required payments for unconditional purchase obligations, including the natural gas purchases outlined below, are as follows: (in thousands) Unconditional Purchase Obligations Year Ending December 31, 2023 $ 56,364 2024 15,881 2025 15,347 2026 15,047 2027 15,047 Thereafter 32,703 $ 150,389 December 31, 2022 | 70 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Partnership is also party to natural gas supply agreements with various third-parties. Natural gas expense for the years ended December 31, 2022, 2021, and 2020 totaled approximately $ 77.9 million, $ 52.9 million, and $ 32.4 million, respectively, and is included in Cost of materials and other and Direct operating expenses (exclusive of depreciation and amortization). The Partnership entered into the Coffeyville Master Service Agreement (“Coffeyville MSA”) with Coffeyville Resources Refining & Marketing, LLC (“CRRM”), an indirect, wholly-owned subsidiary of CVR Energy, pursuant to which, it agrees to pay a monthly fee for pet coke purchases. The Partnership’s Coffeyville Facility obtains a significant amount ( 44 % on average during the last five years , 47 % in 2022) of the pet coke it needs from the Coffeyville MSA. Any remaining pet coke needs are required to be purchased from various third parties. The price paid pursuant to the Coffeyville MSA is based on the lesser of a pet coke price derived from the price received for UAN (the “UAN-based Price”) or a pet coke price index. The UAN-based Price begins with a pet coke price of $ 25 per ton based on a price per ton for UAN that excludes transportation cost (“netback price”) of $ 205 per ton, and adjusts up or down $ 0.50 per ton for every $ 1.00 change in the netback price. The UAN-based price has a ceiling of $ 40 per ton and a floor of $ 5 per ton. See Note 9 (“Related Party Transactions”) for further discussion of the Coffeyville MSA. Pursuant to the Coffeyville MSA, the Partnership agreed, with respect to the Coffeyville Facility, to pay CRRM for hydrogen purchases. The committed hydrogen volume pricing is based on a monthly fixed fee (based on the fixed and capital charges associated with producing the committed volume) and a monthly variable fee (based on the natural gas price associated with hydrogen actually received). In the event the Coffeyville Facility fails to take delivery of the full committed volume in a month, the Partnership remains obligated to pay CRRM for the monthly fixed fee and the monthly variable fee based upon the actual hydrogen volume received, if any. In the event CRRM fails to deliver any portion of the committed volume for the applicable month for any reason other than planned repairs and maintenance, the Partnership will be entitled to a pro-rata reduction of the monthly fixed fee. See Note 9 (“Related Party Transactions”) for further discussion. The Partnership, with respect to the Coffeyville Facility, is also party to the Messer Agreement, pursuant to which, it is required to take as available and pay for the supply of oxygen and nitrogen to the plant. This agreement was renewed and commenced in July 2020 for an initial term of 15 years with annual renewals thereafter. Expenses associated with this agreement are included in Direct operating expenses (exclusive of depreciation and amortization), and, for the years ended December 31, 2022, 2021, and 2020, totaled approximately $ 3.8 million, $ 3.9 million, and $ 4.2 million, respectively. In addition to the related party Coffeyville MSA, the Coffeyville Facility has pet coke supply agreements with multiple third-party refineries to purchase approximately 233,500 tons of pet coke at a fixed price for delivery at different dates through December 2023. The Coffeyville Facility has historically purchased third-party pet coke based on spot purchases and supply agreements in place at the time. The delivered cost of third-party pet coke purchases is included in Cost of materials and other and totaled approximately $ 14.6 million, $ 17.4 million, and $ 17.9 million for the years ended December 31, 2022, 2021, and 2020, respectively. (9) Related Party Transactions Limited Partnership Agreement The Partnership’s general partner manages the Partnership’s operations and activities as specified in CVR Partners’ limited partnership agreement. The general partner of the Partnership, CVR GP, is managed by its board of directors. The partnership agreement provides that the Partnership will reimburse CVR GP for all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership, including salary, bonus, incentive compensation, and other amounts paid to any person to perform services for the Partnership or for its general partner in connection with operating the Partnership. Omnibus Agreement We are party to an omnibus agreement with CVR Energy and our general partner, pursuant to which we have agreed that CVR Energy will have a preferential right to acquire any assets or group of assets that do not constitute assets used in a fertilizer restricted business. In determining whether to exercise any preferential right under the omnibus agreement, CVR Energy will be permitted to act in its sole discretion, without any fiduciary obligation to us or the unitholders whatsoever. These obligations will continue so long as CVR Energy owns at least 50 % of our general partner. There was no activity reported under this agreement during the years ended 2022, 2021, and 2020. December 31, 2022 | 71 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Coffeyville MSA Effective January 1, 2020, the Conflicts Committee of the Board and the audit committee of CVR Energy approved, and CRNF and CRRM entered into, the Coffeyville MSA which is comprised of various supply and service agreements effectively replacing, on substantially equivalent terms, other related party agreements in place during 2019 (the “Replaced Coffeyville Agreements”). In addition to affirming the terms and services described in the Replaced Coffeyville Agreements and resetting the durations thereof, as applicable, commencing January 1, 2020, the Coffeyville MSA provides for monthly payments, subject to netting, for all goods and services supplied under the Coffeyville MSA. The Coffeyville MSA will continue in effect until terminated in writing, in whole or in part, by either party, or until terminated automatically in the event a party falls out of common control with the other party. The Coffeyville MSA provides the following services: • Cross Easements - Both CRNF and CRRM can access and utilize each other’s land in certain circumstances in order to operate their respective businesses. • Hydrogen Purchase and Sale - CRRM agrees to sell and deliver a committed hydrogen volume of 90,000 mscf per month to CRNF and CRNF agrees to purchase and receive the committed volume. CRNF also has the option to purchase excess volume from CRRM, if available. • Raw Water and Facilities Sharing - CRNF and CRRM are each owners of an undivided one-half interest in and to the water rights and agree to (i) allocate raw water resources between CVR Energy’s Coffeyville refinery and our Coffeyville Facility and (ii) provide for the management of the water intake system which draws raw water from the Verdigris River for both our Coffeyville Facility and CVR Energy’s Coffeyville refinery. • Coke Supply - CRRM must deliver, and our Coffeyville Facility must purchase, during each calendar year an annual required amount of pet coke equal to the lesser of (i) 100 percent of the pet coke or (ii) 500,000 tons of pet coke. If during a calendar month, more than 41,667 tons of pet coke is produced and available for purchase, then the Coffeyville Facility will have the option to purchase the excess at the purchase price provided for in the agreement. If the option is declined, CRRM may sell the excess to a third-party. • Feedstock and Shared Services - CRNF and CRRM provide feedstock and other services to one another. These feedstocks and services are utilized in the respective production processes of CRRM’s Coffeyville refinery and our Coffeyville Facility. Feedstocks provided under the agreement include, among others, hydrogen, high-pressure steam, nitrogen, instrument air, oxygen, and natural gas. • Lease - CRNF leases certain office and laboratory space from CRRM. In February 2023, CRRM assigned its interests in the Coffeyville MSA to affiliates, which are newly formed, indirect wholly-owned subsidiaries of CVR Energy, following consent to such assignment by CRNF. Corporate MSA Also effective January 1, 2020, the Conflicts Committee of the Board and the audit committee of CVR Energy approved, and the parties entered into the Corporate MSA between CVR Services and certain of its affiliates, including CVR Energy, CVR GP and the Partnership and its subsidiaries, which is comprised of various management and service agreements effectively replacing other related party agreements, on substantially equivalent terms, in place for 2019 (the “Replaced Corporate Agreements”). In addition to affirming the terms and services described in the Replaced Corporate Agreements and resetting the durations thereof, as applicable, commencing January 1, 2020, the Corporate MSA provides for payment by each service recipient under the Corporate MSA of a monthly fee for goods and services supplied under the Corporate MSA, subject to netting and an annual true up, as well as pass-through of any direct costs incurred on behalf of a service recipient without markup. Either CVR Services or CVR GP may terminate the Corporate MSA upon at least 90 days’ notice. Under the Corporate MSA, CVR GP and the Partnership and its subsidiaries obtain certain management and other professional services from CVR Services, including the following, among others: • services from CVR Services’ employees in capacities equivalent to the capacities of corporate executive officers, except that those who serve in such capacities under the agreement will serve the Partnership on a shared, part-time basis only, unless the Partnership and CVR Services agree otherwise; December 31, 2022 | 72 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • administrative and professional services, including legal, accounting, SOX compliance, financial reporting, human resources, information technology, communications, insurance, tax, credit, finance, corporate compliance, enterprise risk management, consulting, and government and regulatory affairs; • recommendations on capital raising activities to the board of directors of the general partner, including the issuance of debt or equity interests, the entry into credit facilities, and other capital market transactions; • managing or overseeing litigation and administrative or regulatory proceedings, investigations and other reviews in the ordinary course of business or operations, establishing appropriate insurance policies for the Partnership, and providing safety and environmental advice; • recommending the payment of distributions; • managing or providing advice for other projects, including acquisitions, as may be agreed by the general partner and CVR Services from time to time; and • permitting the use of the CVR Energy and CVR Partners trademarks by CVR GP and the Partnership at no cost. For services performed in connection with the services agreement, the Partnership recognized personnel costs, excluding amounts related to share based compensation (refer to Note 7 (“Share-Based Compensation”)), of $ 8.3 million, $ 8.1 million, and $ 6.6 million, respectively, for the years ended December 31, 2022, 2021, and 2020. Related Party Activity Activity associated with the Partnership’s related party arrangements for the years ended December 31, 2022, 2021, and 2020 is summarized below: Year Ended December 31, (in thousands) 2022 2021 2020 Sales to related parties (1) $ 312 $ 308 $ 993 Purchases from related parties (2) 56,427 41,717 26,276 December 31, 2022 2021 Due to related parties (3) $ 4,518 $ 3,580 (1) Sales to related parties, included in Net sales, consist primarily of sales of feedstocks and services to CRRM under the Coffeyville MSA. (2) Purchases from related parties, included in Cost of materials and other, Direct operating expenses (exclusive of depreciation and amortization), and Selling, general and administrative expenses, consist primarily of pet coke and hydrogen purchased from CRRM under the Coffeyville MSA. (3) Due to related parties, included in Accounts payable to affiliates, consist primarily of amounts payable for feedstocks and other supplies and services provided by CRRM and CVR Services under the Coffeyville MSA and the Corporate MSA. Environmental Agreement CRNF is a party to an environmental agreement with CRRM which provides for certain indemnification and access rights in connection with environmental matters affecting CVR Energy’s Coffeyville refinery and the Coffeyville Facility. To the extent that liability arises from environmental contamination that is caused by CRRM but is also commingled with environmental contamination caused by CRNF, CRRM may elect, in its sole discretion and at its own cost and expense, to perform government mandated environmental activities relating to such liability, subject to certain conditions and provided that CRRM will not waive any rights to indemnification or compensation otherwise provided for in the agreement. No liability under this agreement was recorded as of December 31, 2022 and 2021. In February 2023, CRRM assigned its interests in the Environmental Agreement to an affiliate, which is a newly formed, indirect wholly-owned subsidiary of CVR Energy, following consent to such assignment by CRNF. December 31, 2022 | 73 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Terminal and Operating Agreement CRNF entered into a lease and operating agreement with Coffeyville Resources Terminal, LLC, an indirect wholly owned subsidiary of CVR Energy (“CRT”), under which it leases the premises located at Phillipsburg, Kansas to be utilized as a UAN terminal. The initial term of the agreement will expire in May 2032, provided, however, CRNF may terminate the lease at any time during the initial term by providing 180 days prior written notice. In addition, this agreement will automatically renew for successive five-year terms, provided that CRNF may terminate the agreement during any renewal term with at least 180 days written notice. Under the terms of this agreement, CRNF will pay CRT $ 1.00 per year for rent, $ 4.00 per ton of UAN placed into the terminal, and $ 4.00 per ton of UAN taken out of the terminal. Property Exchange On October 18, 2019, the Conflicts Committee of the Board and on October 22, 2019, the audit committee of CVR Energy each agreed to authorize the exchange of certain parcels of property owned by subsidiaries of CVR Energy with an equal number of parcels owned by subsidiaries of CVR Partners, all located in Coffeyville, Kansas (the “Property Exchange”). On February 19, 2020, a subsidiary of CVR Energy and a subsidiary of CVR Partners 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. CVR Energy and the Partnership accounted for this transaction in accordance with the FASB ASC Topic 805-50, Business Combinations (“Topic 805-50”), guidance on transferring assets between entities under common control. This transaction had a net impact to the Partnership’s partners’ capital of less than $ 0.1 million. Distributions to CVR Partners’ Unitholders The Board has a policy for the Partnership to distribute all available cash, as determined by the Board in its sole discretion, generated on a quarterly basis. Cash distributions are made to the common unitholders of record on the applicable record date, generally within 60 days after the end of each quarter. Available cash for each quarter is determined by the Board following the end of such quarter. Distributions, if any, including the payment, amount, and timing thereof, are subject to change at the discretion of the Board. The following tables present quarterly distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of December 31, 2022 and 2021 (amounts presented in table below may not add to totals presented due to rounding): Quarterly Distributions Paid (in thousands) Related Period Date Paid Quarterly Distributions Per Common Unit Public Unitholders CVR Energy Total 2021 - 4th Quarter March 14, 2022 $ 5.24 $ 35,576 $ 20,394 $ 55,970 2022 - 1st Quarter May 23, 2022 2.26 15,091 8,796 23,887 2022 - 2nd Quarter August 22, 2022 10.05 67,109 39,115 106,225 2022 - 3rd Quarter November 21, 2022 1.77 11,819 6,889 18,708 Total 2022 quarterly distributions $ 19.32 $ 129,597 $ 75,193 $ 204,790 Quarterly Distributions Paid (in thousands) Related Period Date Paid Quarterly Distributions Per Common Unit Public Unitholders CVR Energy Total 2021 - 2nd Quarter August 23, 2021 $ 1.72 $ 11,678 $ 6,694 $ 18,372 2021 - 3rd Quarter November 22, 2021 2.93 19,893 11,404 31,297 Total 2021 quarterly distributions $ 4.65 $ 31,571 $ 18,098 $ 49,669 There were no quarterly distributions declared or paid by the Partnership related to the first quarter of 2021 or the fourth quarter of 2020. During the year ended December 31, 2020, there were no quarterly distributions declared or paid by the Partnership. For the fourth quarter of 2022, the Partnership, upon approval by the Board on February 21, 2023, declared a distribution of $ 10.50 per common unit, or $ 111.0 million, which is payable March 13, 2023 to unitholders of record as of March 6, 2023. December 31, 2022 | 74 Table of Contents CVR PARTNERS, LP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Of this amount, CVR Energy will receive approximately $ 40.9 million, with the remaining amount payable to public unitholders. (10) Supplemental Cash Flow Information Cash flows related to income taxes, interest, leases, and capital expenditures and deferred financing costs included in accounts payable are as follows: Year Ended December 31, (in thousands) 2022 2021 2020 Supplemental disclosures: Cash paid for income taxes, net of refunds $ 110 $ 27 $ 69 Cash paid for interest 35,164 51,369 59,850 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 3,474 3,652 4,117 Operating cash flows from finance leases — 2 6 Financing cash flows from finance leases — 96 100 Non-cash investing and financing activities: Change in capital expenditures included in accounts payable ( 3,222 ) 5,092 ( 2,167 ) Change in deferred financing costs included in accounts payable — 675 — (11) Subsequent Events We believe that certain carbon oxide capture and sequestration activities conducted at or in connection with the Coffeyville Facility qualify under the Internal Revenue Service (“IRS”) safe harbor described in Revenue Procedure 2020-12 for certain tax credits available to joint ventures under Section 45Q of the Internal Revenue Code of 1986, as amended (“Section 45Q Credits”). In January 2023, we entered into a series of agreements with CapturePoint LLC, an unaffiliated Texas limited liability company, and certain unaffiliated third-party investors intended to qualify under the Internal Revenue Service safe harbor described in Revenue Procedure 2020-12 for certain joint ventures that are eligible to claim Section 45Q Credits and allow us to monetize Section 45Q Credits we expect to generate from January 6, 2023 until March 31, 2030. In January 2023, we received an initial upfront payment, net of expenses, of approximately $ 18.1 million and could receive up to an additional $ 60 million in payments through March 31, 2030, if certain carbon oxide capture and sequestration milestones are met, subject to the terms of the applicable agreements. The foregoing summaries of the agreements do not purport to be complete and are qualified in their entirety by the terms of the relevant agreements, which will be filed with the Partnership’s Quarterly Report on Form 10-Q for the period ended March 31, 2023. The Partnership evaluated all other subsequent events, if any, that would require an adjustment to the Partnership’s consolidated financial statements or require disclosure in the notes to the consolidated financial statements through the date of issuance of these consolidated financial statements. Where applicable, the notes to these consolidated financial statements have been updated to discuss all significant subsequent events which have occurred. December 31, 2022 | 75 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.