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, 2023 and 2022 and discusses year-to-year comparisons between such periods. The discussions of the year ended December 31, 2021 and year-to-year comparisons between the years ended December 31, 2022 and 2021 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, 2022 filed on February 22, 2023, 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. Partnership Overview CVR Partners is a Delaware limited partnership formed in 2011 by CVR Energy, Inc. (“CVR Energy”) to own, operate, and grow its nitrogen fertilizer business. The Partnership produces and distributes nitrogen fertilizer products, which are used by farmers to improve the yield and quality of their crops. The Partnership produces these products at two manufacturing facilities, one located in Coffeyville, Kansas operated by its wholly owned subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”) (the “Coffeyville Facility”) and one located in East Dubuque, Illinois operated by its wholly owned subsidiary, East Dubuque Nitrogen Fertilizers, LLC (“EDNF”) (the “East Dubuque Facility”). Our principal products are ammonia and urea ammonium nitrate (“UAN”). All of our products are sold on a wholesale basis. 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. Additionally, as the context may require, references to CVR Energy may refer to CVR Energy and its consolidated subsidiaries which include its petroleum and renewables refining, marketing, and logistics operations. Strategy and Goals The Partnership has adopted Mission and Values, which articulate the Partnership’s expectations for how it and its employees do business each and every day. 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. December 31, 2023 | 35 Table of Contents • 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. Strategic Objectives We have outlined the following strategic objectives to drive the accomplishment of our mission: • Environmental, Health & Safety (“EH&S”) - We aim to achieve continuous improvement in all EH&S 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 as efficient as possible by maintaining low operating costs and disciplined deployment of capital. Other Events Following good faith bargaining by East Dubuque Nitrogen Fertilizers, LLC (“EDNF”), the United Automobile Workers Union and its Local 1391 representing approximately 90 employees at the East Dubuque Facility went on strike on October 18, 2023 after its collective bargaining agreement expired the previous day. The East Dubuque Facility has continued to operate and is currently expected to continue normal operations during the strike. Environmental, Social & Governance (“ESG”) Highlights In the past year, we achieved numerous milestones through our commitment to ESG initiatives, including environmental and safety stewardship, diversity and inclusion, community outreach and sound corporate governance. In December 2023, we published a 2022 Environmental, Social & Governance Report (“2022 ESG Report”) which is based on the Sustainability Accounting Standards Board standards and is available at CVR Partner’s website at www.CVRPartners.com. The 2022 ESG Report does not constitute a part of, and is not incorporated by reference into, this Annual Report on Form 10-K or any other report we file with (or furnish to) the Securities and Exchange Commission (the “SEC”), whether made before or after the date of this Annual Report on Form 10-K. December 31, 2023 | 36 Table of Contents Industry Factors and Market Indicators 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. 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 world grain demand and production levels, changes in world population, the cost and availability of fertilizer transportation infrastructure, weather conditions, the availability of imports, the availability and price of feedstocks to produce nitrogen fertilizer, and the extent of government intervention in agriculture markets, among other factors. 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 markets, resulting in price and product margin volatility. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products. General Business Environment The Partnership believes the general business environment in which it operates will continue to remain volatile, driven by uncertainty around the availability and prices of its feedstocks, demand for its products, inflation, and global supply disruptions. As a result, future operating results and current and long-term financial conditions could be negatively impacted if economic conditions decline and remain volatile. 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. Regulatory Environment - Certain governmental regulations and incentives associated with the automobile transportation and agricultural industries, including the ones related to corn-based ethanol and sustainable aviation fuel production or consumption can directly impact our business. In August 2022, the Inflation Reduction Act was passed and introduced the Clean Fuel Production Credit incentivizing lower Carbon Intensity feedstocks, including corn oil, which may increase demand for corn planting. In June 2023, the United States Environmental Protection Agency (“EPA”) announced the renewable volume obligations for 2023, 2024, and 2025 which maintained the conventional biofuel blending level at 15 billion gallons. These actions lead us to believe that the demand on food, in particular corn, for fuel will remain strong for the foreseeable future and support farmer economics that incentivize the use of nitrogen-based fertilizers. In contrast, in April 2023, the EPA announced the proposed federal vehicle emission standards for 2027 through 2032, which, if finalized, would significantly reduce the use of internal combustion engine vehicles and the demand for liquid fuels including ethanol. In 2023, production of ethanol consumed approximately 37% of the annual United States corn crop used by the market. Geopolitical Matters - The conflict between Israel and Hamas, which began in October 2023, and the ongoing Russia-Ukraine war, could significantly impact global fertilizer and agriculture markets. These conflicts pose significant geopolitical risks to global markets, raise concerns of major implications, such as the enforcement of sanctions, and could disrupt the production and trade of fertilizer, grains, and feedstock through several means, such as trade restrictions. The ultimate outcome of these conflicts and any associated market disruptions are difficult to predict and may affect our business, operations, and cash flows in unforeseen ways. Partnership Initiatives The Partnership has been conducting engineering studies on the potential to utilize natural gas as an optional feedstock to pet coke at its Coffeyville Facility. Based on these studies, CVR Partners subsidiaries could utilize either natural gas or pet coke to produce nitrogen fertilizer by making certain modifications to the plant. If this project is approved by the board of directors of our general partner (the “Board”) and successfully implemented, it could allow the Partnership to choose the lowest cost feedstock for production and would make the Coffeyville Facility the only nitrogen fertilizer plant in the U.S. with that feedstock flexibility. December 31, 2023 | 37 Table of Contents Market Indicators While there is risk of shorter-term volatility given the inherent nature of the commodity cycle and governmental and geopolitical risks, 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 and soybeans as feedstock for the domestic production of ethanol and other renewable fuels, and (v) positioning at the lower end of the global cost curve should provide a solid foundation for nitrogen fertilizer producers in the United States over the longer term. Corn and soybeans are two major crops planted by farmers in North America. Corn crops result in the depletion of the amount of nitrogen within the soil in which it is grown, which in turn, results in the need for this nutrient to be replenished after each growing cycle. Unlike corn, soybeans are able to obtain most of 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 shown by the chart presented below for 2023, 2022, and 2021. The relationship between the total acres planted for both corn and soybeans has a direct impact on the overall demand for nitrogen products, as the market and demand for nitrogen increases with increased corn acres and decreases with increased soybean acres. Additionally, an estimated 12.8 billion pounds of soybean oil is expected to be used in producing cleaner renewable fuels in marketing year 2023/2024. Multiple refiners have announced renewable diesel expansion projects for 2024 and beyond, which should only increase the demand for soybeans and potentially for corn and canola. The United States Department of Agriculture (“USDA”) data shows that in spring 2023 farmers planted 94.6 million corn acres, representing an increase of 6.8% as compared to 88.6 million corn acres in 2022. Planted soybean acres for spring 2023 are 83.6 million, representing a decrease of 4.5% as compared to 87.5 million soybean acres in 2022. The combined corn and soybean planted acres of 178.2 million in 2023 is an increase of 1.2% compared to the acreage planted in 2022. Due to lower input costs in 2023 for corn planting and the relative grain prices of corn versus soybeans, economics favored planting corn compared to soybeans in 2023. Lower inventory levels of corn and soybeans are expected to be supportive of grain prices into the spring of 2024. Ethanol is blended with gasoline to meet renewable fuel standard requirements and for its octane value. Since 2010, ethanol production has historically consumed 37% of the U.S. corn crop used by the market, so demand for corn generally rises and falls with ethanol demand, as shown by the charts below, through December 31, 2023. U.S. Plant Production of Fuel Ethanol (1) Corn and Soybean Planted Acres (2) (1) Information used within this chart was obtained from the U.S. Energy Information Administration (“EIA”) through December 31, 2023. (2) Information used within this chart was obtained from the USDA, National Agricultural Statistics Services as of December 31, 2023. December 31, 2023 | 38 Table of Contents Weather continues to be a critical variable for crop production. Even with high planted acres and trendline yields per acre in the U.S., global inventory levels for corn and soybeans remain below historical levels and prices have remained elevated. With tight grain and fertilizer inventory levels driven by the conflict in Ukraine, prices for grains remained elevated through 2023, although below the elevated prices experienced in the spring of 2022. Demand for nitrogen fertilizer, as well as other crop inputs, was strong for the spring 2023 planting season and fall 2023 ammonia application, primarily due to elevated grain prices and favorable weather conditions for planting and fertilizer application. Fertilizer input costs have been volatile since the fall of 2021. Natural gas prices were elevated in the fall of 2022 due to shortages in Europe and demand being driven by building natural gas storage for winter. Winter 2022/2023 weather was warmer than average in Europe and when combined with natural gas conservation measures caused demand and prices for natural gas in Europe to fall significantly in the first quarter of 2023 and remain below the 2021/2022 price levels. The decline in natural gas prices has led to a significant reduction in the price for nitrogen fertilizer globally due to lower input costs. While we expect that natural gas prices might remain below the elevated levels experienced in 2022 in the near term, we believe that the structural shortage of natural gas in Europe will continue to be a source of volatility into 2024. Although pet coke prices remain elevated compared to historical levels, third-party pet coke prices have declined into 2024. The charts below show relevant market indicators by month through December 31, 2023: Ammonia and UAN Market Pricing (1) (1) Information used within this chart was obtained from various third-party sources including Green Markets (a Bloomberg Company), Pace Petroleum Coke Quarterly, and the EIA, amongst others. December 31, 2023 | 39 Table of Contents Natural Gas Market Pricing (1) Pet Coke Market Pricing (1) (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. Results of Operations The following should be read in conjunction with the information outlined in the previous sections of this Part II, Item 7 and the financial statements and related notes thereto in Part II, Item 8 of this Report. The chart presented below summarizes our ammonia utilization rates on a consolidated basis for the years ended December 31, 2023, 2022, and 2021. 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 of ammonia produced divided by capacity. Utilization is presented solely on ammonia production, rather than on 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 production primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how we operate. December 31, 2023 | 40 Table of Contents Consolidated Ammonia Utilization On a consolidated basis, utilization increased 19% to 100% for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to reduced production volumes and utilization during the planned turnarounds at both facilities in the third quarter of 2022, which subsequently improved operational reliability. In addition, there was increased unplanned downtime in 2022 associated with the Messer air separation plant (the “Messer Outages”) at the Coffeyville Facility and various pieces of equipment being down at the East Dubuque Facility. Sales and Pricing per Ton - Two of our key operating metrics are total sales volumes for ammonia and UAN, along with the product pricing per ton realized at the gate. Product pricing at the 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. Sales (thousand tons) Product Pricing at Gate ($ per ton) For the year ended December 31, 2023, total product sales volumes were favorable driven by reduced production volumes and utilization during the planned turnarounds at both facilities in the third quarter of 2022, which subsequently improved operational reliability. In addition, the facilities experienced minimal unplanned downtime in 2023 compared to 2022 due to the Messer Outages at the Coffeyville Facility and various pieces of equipment being down at the East Dubuque Facility in 2022. For the year ended December 31, 2023, total product sales were unfavorable driven by sales price decreases of 44% for ammonia and 36% for UAN during the year. Ammonia and UAN sales prices were unfavorable primarily due to lower natural gas prices and increased global supplies of nitrogen fertilizers. December 31, 2023 | 41 Table of Contents Production Volumes - Gross tons of ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represents 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, 2023, 2022, and 2021: Year Ended December 31, (in thousands of tons) 2023 2022 2021 Ammonia (gross produced) 864 703 807 Ammonia (net available for sale) 270 213 275 UAN 1,369 1,140 1,208 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, 2023, 2022, and 2021: Year Ended December 31, 2023 2022 2021 Petroleum coke used in production (thousands of tons) 518 425 514 Petroleum coke used in production (dollars per ton) $ 78.14 $ 52.88 $ 44.69 Natural gas used in production (thousands of MMBtus) (1) 8,462 6,905 8,049 Natural gas used in production (dollars per MMBtu) (1) $ 3.42 $ 6.66 $ 3.95 Natural gas in cost of materials and other (thousands of MMBtus) (1) 8,671 6,701 7,848 Natural gas in cost of materials and other (dollars per MMBtu) (1) $ 3.84 $ 6.37 $ 3.83 (1) The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in Direct operating expenses (exclusive of depreciation and amortization). Financial Highlights Overview - For the year ended December 31, 2023, the Partnership’s operating income and net income were $201.4 million and $172.4 million, respectively, representing declines of $118.5 million and $114.4 million, respectively, compared to operating income and net income of $319.9 million and $286.8 million, respectively, for the year ended December 31, 2022. These variances were primarily driven by decreased product sales prices, offset by increased production and sales volumes, compared to 2022. Net Sales Operating Income December 31, 2023 | 42 Table of Contents Net Income EBITDA (1) (1) See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above. Net Sales - Net sales decreased by $154.1 million to $681.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This decrease was primarily due to unfavorable UAN and ammonia pricing conditions which reduced revenue by $373.5 million, partially offset by increased sales volumes which contributed $210.0 million in higher revenue compared to the year ended December 31, 2022. For the years ended December 31, 2023 and 2022, net sales included $42.1 million and $34.8 million in freight revenue and $18.2 million and $11.3 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, 2023 compared to the year ended December 31, 2022: (in thousands) Price Variance Volume Variance UAN $ (246,954) $ 121,886 Ammonia (126,590) 88,071 For the year ended December 31, 2023 compared to the year ended December 31, 2022, ammonia and UAN sales prices were unfavorable primarily due to lower natural gas prices and increased global supplies of nitrogen fertilizers in the current year. Total product sales volumes were favorable driven by reduced production volumes and utilization during the planned turnarounds at both facilities in the third quarter of 2022, which subsequently improved operational reliability. In addition, there was minimal unplanned downtime in 2023 compared to 2022 due to the Messer Outages at the Coffeyville Facility and various pieces of equipment being down at the East Dubuque Facility in 2022. December 31, 2023 | 43 Table of Contents Cost of Materials and Other Direct Operating Expenses (1) (1) Exclusive of depreciation and amortization expense. Cost of Materials and Other - For the year ended December 31, 2023, cost of materials and other was $134.4 million compared to $130.9 million for the year ended December 31, 2022. The $3.5 million increase was driven primarily by higher third-party pet coke feedstock costs, partially offset by lower natural gas feedstock costs in the current period. Direct Operating Expenses (exclusive of depreciation and amortization) - For the year ended December 31, 2023, direct operating expenses (exclusive of depreciation and amortization) were $234.9 million compared to $270.2 million for the year ended December 31, 2022. The $35.3 million decrease was primarily due to turnaround expenses in the prior period associated with the planned turnarounds taking place at both facilities in the third quarter of 2022, coupled with decreased personnel costs from share-based compensation and lower natural gas and electricity costs in the current period. Depreciation and Amortization Selling, General, and Administrative Expenses and Loss on Asset Disposal Depreciation and Amortization Expense - Depreciation and amortization expense decreased $2.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily as a result of various assets being fully depreciated in the prior period, as well as fluctuations in depreciation capitalized to inventory. Selling, General, and Administrative Expenses and Loss on Asset Disposal - Selling, general and administrative expenses and Loss on asset disposal, combined, decreased approximately $1.4 million for the year ended December 31, 2023 compared December 31, 2023 | 44 Table of Contents to the year ended December 31, 2022. The decrease was primarily related to lower share-based compensation due to a decrease in market prices for CVR Partners’ common units in the current period. 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 financial information presented in accordance with accounting principles generally accepted in the United States (“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. The following are non-GAAP measures we present for the years ended December 31, 2023, 2022, and 2021: EBITDA - Net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense. Adjusted EBITDA - EBITDA adjusted for certain significant noncash items and items that management believes are not attributable to or indicative of our on-going operations or that may obscure our underlying results and trends. Available Cash for Distribution - EBITDA for the quarter excluding noncash 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. 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 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 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 Major Scheduled Turnaround Activities Our results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future due to expenses incurred as part of planned turnarounds. We incurred turnaround expenses of $1.8 million, $33.4 million, and $2.9 million during the years ended December 31, 2023, 2022, and 2021, respectively. The next planned turnarounds are currently scheduled to take place in 2025 at the Coffeyville Facility and in 2026 at the East Dubuque Facility. December 31, 2023 | 45 Table of Contents Non-GAAP Reconciliations Reconciliation of Net Income to EBITDA, Adjusted EBITDA and Available Cash for Distribution Year Ended December 31, (in thousands) 2023 2022 2021 Net income $ 172,433 $ 286,801 $ 78,155 Interest expense, net 28,653 34,065 60,978 Income tax expense 289 160 57 Depreciation and amortization 79,720 82,137 73,480 EBITDA and Adjusted EBITDA 281,095 403,163 212,670 Current (reserves) adjustments for operating activities (1) (40,235) (37,433) (56,221) Current (reserves) adjustments for investing activities (2) (52,167) (27,783) (24,736) Current (reserves) adjustments for financing activities (3) (500) (78,212) (35,156) Available cash for distribution (4) (5) $ 188,193 $ 259,735 $ 96,557 Common units outstanding 10,570 10,570 10,681 (1) Includes reserves for debt service (interest expense) and other future operating needs. (2) Includes reserves for future capital expenditures, including turnarounds, and other future investing activities, as well as cash impacts from equity method investments. (3) Includes reserves for debt financing, repurchase of common units and other future financing activities. (4) 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. (5) The Partnership declared and paid cash distributions of $10.50, $10.43, $4.14, and $1.55 per common unit related to the fourth quarter of 2022, and the first, second, and third quarters of 2023, respectively, and declared a cash distribution of $1.68 per common unit related to the fourth quarter of 2023, to be paid in March 2024. 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. Current geopolitical matters, such as the conflict between Israel and Hamas and the ongoing Russia-Ukraine war, have contributed to the volatile fertilizer and agricultural market conditions, driving uncertainty around the availability and prices of feedstocks, demand for products, inflation, and global supply disruptions. Despite the volatility in commodity pricing, nitrogen fertilizer product pricing remains above the recent 5-year average and has not significantly impacted our primary source of liquidity. When considering the market conditions and actions described above, we currently believe that our cash from operations and existing cash and cash equivalents, along with borrowings and reserves, as necessary, 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 including, but not limited to, rising material and labor costs and other inflationary pressures. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future performance, which is subject to operating performance, as well as 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 redeem, repurchase, refinance, or retire our outstanding debt through privately negotiated transactions, open market repurchases, redemptions, exchanges, tender offers or otherwise, but we are under no obligation to do so. 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. December 31, 2023 | 46 Table of Contents On September 26, 2023, CVR Partners and certain of its subsidiaries entered into Amendment No. 1 to the Credit Agreement (the “ABL Amendment”) with Wells Fargo Bank, National Association, a national banking associate (“Wells Fargo”), as administrative agent, collateral agent and a lender. The ABL Amendment amended that certain Credit Agreement, dated as of September 30, 2021 (as amended, the “ABL Credit Facility”), by and among the credit parties thereto and Wells Fargo, as administrative agent, collateral agent and a lender, to, among other things, (i) increase the aggregate principal amount available under the credit facility by an additional $15.0 million to a total of $50.0 million in the aggregate, with an incremental facility of an additional $15.0 million in the aggregate subject to additional lender commitments and certain other conditions, and (ii) extend the maturity date by an additional four years to September 26, 2028. Refer to Part II, Item 8, Note 8 (“Long-Term Debt”) of this Report for further discussion. The Partnership and its subsidiaries were in compliance with all covenants under their respective debt instruments as of December 31, 2023 and through the date of filing, as applicable. 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, 2023, we had cash and cash equivalents of $45.3 million, including $2.5 million of customer advances. Combined with $39.0 million available under our ABL Credit Facility, we had total liquidity of $84.3 million as of December 31, 2023. As of December 31, 2022, we had $86.3 million in cash and cash equivalents, including $13.7 million of customer advances. Long-term debt consists of the following: December 31, (in thousands) 2023 2022 6.125% Senior Secured Notes, due June 2028 550,000 550,000 Unamortized debt issuance costs (2,692) (3,200) Total long-term debt $ 547,308 $ 546,800 As of December 31, 2023, the Partnership had the 6.125% Senior Secured Notes, due June 2028 (the “2028 Notes”) and the ABL Credit Facility, the proceeds of which may be used to fund working capital and capital expenditures, and for other general corporate purposes. Refer to Part II, Item 8, Note 8 (“Long-Term Debt”) of this Report 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, 2023 and 2022, along with our estimated expenditures for 2024 are as follows: Year Ended December 31, Estimated (in thousands) 2023 2022 2024 Maintenance capital $ 28,025 $ 40,793 $32,000 - 35,000 Growth capital 1,056 653 12,000 - 13,000 Total capital expenditures $ 29,081 $ 41,446 $44,000 - 48,000 Our estimated capital expenditures are subject to change due to changes in the cost, scope, and completion time for capital projects. For example, we may experience 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. Capital spending for CVR Partners is determined by the Board. We will continue to monitor market conditions and make adjustments, if needed, to our current capital spending or turnaround plans. December 31, 2023 | 47 Table of Contents We incurred turnaround expenses of $1.8 million, $33.4 million, and $2.9 million during the years ended December 31, 2023, 2022, and 2021, respectively. The next planned turnarounds are currently scheduled to take place in 2025 at the Coffeyville Facility and in 2026 at the East Dubuque Facility. Cash Requirements The following table summarizes our known contractual obligations and other commercial commitments as of December 31, 2023 that are expected to be paid within the next year and thereafter: Payments Due by Period (in thousands) Short-Term Long-Term Total Debt obligations (1) $ — $ 550,000 $ 550,000 Interest payments related to debt obligations (2) 33,941 118,856 152,797 Operating lease liabilities (3) 3,816 10,151 13,967 Purchase commitments (4) 48,166 81,324 129,490 Transportation agreements (5) 6,665 9,070 15,734 Total cash requirements $ 92,588 $ 769,401 $ 861,989 (1) Debt obligations consist of the 2028 Notes as of December 31, 2023. (2) Interest payments related to debt obligations consist of interest payments for our long-term debt outstanding as of December 31, 2023 and commitment fees on the unutilized commitments of the ABL Credit Facility. (3) Operating lease liabilities are described in Part II, Item 8, Note 6 (“Leases”) of this Report. (4) Consists primarily of purchase obligations for pet coke and other feedstocks, as well as water and utilities usage. (5) Includes purchase obligations related to the transportation of feedstocks. Distributions to Unitholders The current policy of the Board is to distribute all Available Cash for Distribution, as determined by the Board in its sole discretion, the Partnership generated on a quarterly basis. Available Cash for Distribution for each quarter will be determined by the Board following the end of such quarter. Available Cash for Distribution for each quarter is calculated as EBITDA for the quarter excluding noncash 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. Distributions, if any, including the payment, amount, and timing thereof, and the Board’s distribution policy, including the definition of Available Cash for Distribution, 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, during 2023 and 2022 (amounts presented in the 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 2022 - 4th Quarter March 13, 2023 $ 10.5 $ 70,115 $ 40,866 $ 110,981 2023 - 1st Quarter May 22, 2023 10.43 69,647 40,594 110,241 2023 - 2nd Quarter August 21, 2023 4.14 27,646 16,113 43,759 2023 - 3rd Quarter November 20, 2023 1.55 10,350 6,033 16,383 Total 2023 quarterly distributions $ 26.62 $ 177,759 $ 103,605 $ 281,364 December 31, 2023 | 48 Table of Contents 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 and the fourth quarter of 2020. For the fourth quarter of 2023, the Partnership, upon approval by the Board on February 20, 2024, declared a distribution of $1.68 per common unit, or $17.8 million, which is payable March 11, 2024 to unitholders of record as of March 4, 2024. Of this amount, CVR Energy will receive approximately $6.5 million, with the remaining amount payable to public unitholders. Capital Structure On May 6, 2020, 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 year ended December 31, 2023, CVR Partners did not repurchase any common units. During the years ended December 31, 2022 and 2021, CVR Partners 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. As of December 31, 2023, considering all repurchases made since inception of the Unit Repurchase Program, CVR Partners had a nominal authorized amount remaining under the Unit Repurchase Program. This Unit Repurchase Program does not obligate the Partnership to acquire any common units and may be cancelled or terminated by the Board at any time. On February 20, 2024, the Board, on behalf of the Partnership, terminated the nominal authority remaining under the Unit Repurchase Program. Cash Flows The following table sets forth our cash flows for the periods indicated below: Year Ended December 31, (in thousands) 2023 2022 2021 Net cash provided by (used in): Operating activities $ 243,526 $ 301,464 $ 188,725 Investing activities (2,722) (44,623) (20,342) Financing activities (281,864) (283,018) (86,426) Net (decrease) increase in cash and cash equivalents $ (41,060) $ (26,177) $ 81,957 December 31, 2023 | 49 Table of Contents Operating Activities The change in net cash flows from operating activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily due to a $114.4 million decrease in net income as a result of lower product prices, partially offset by increased sales volumes and a $17.0 million decrease in noncash share-based compensation as a result of lower market prices for CVR Partners’ units. This is partially offset by an increase in working capital of $70.6 million primarily due to increases in accounts receivable and inventories, partially offset by decreases in accounts payable and deferred revenue. Investing Activities The change in net cash used in investing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to distributions received from CVR Partners’ equity method investment of $21.5 million associated with the 45Q Transaction in 2023 and a decrease in capital expenditures of $20.5 million during 2023 resulting from reduced spending on capital projects compared to 2022. Financing Activities The change in net cash used in financing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to an increase of $76.6 million in cash distributions paid in 2023 compared to 2022. This is partially offset by decreases of $65.0 million and $12.4 million used for the redemption of the remaining balance of the 2023 Notes and unit repurchases of the Partnership’s common units in 2022, respectively, with no corresponding amounts in 2023. Recent Accounting Pronouncements Refer to Part II, Item 8, Note 2 (“Summary of Significant Accounting Policies”) of this Report 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 and 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 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. There were no inventory adjustments recognized during the years ended December 31, 2023, 2022, and 2021. 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 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 December 31, 2023 | 50 Table of Contents which there are identifiable cash flows that are largely independent of the cash flows of other assets (for example, at a fertilizer facility level). In addition, when preparing the expected future cash flows or estimating the fair value of impaired assets, we make several estimates that include subjective assumptions related to future sales volumes, commodity prices, operating costs, discount rates, and capital expenditures, among others.