CVR Partners - 10-Q quarterly report FY2019 Q2

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 30, 2019
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to .

Commission file number: 001-35120

______________________________________________

CVR PARTNERS, LP

(Exact name of registrant as specified in its charter)



Delaware				56-2677689
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

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

(Address of principal executive offices) (Zip Code)

(281) 207-3200

(Registrant’s telephone number, including area code)

_____________________________________________________________

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



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

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

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

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



Large accelerated filer	☐	Accelerated filer	☑	Non-Accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

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

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

There were 113,282,973 common units representing limited partner interests of CVR Partners, LP (“common units”) outstanding at July 23, 2019.

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TABLE OF CONTENTS

CVR PARTNERS - Quarterly Report on Form 10-Q

June 30, 2019



PART I. Financial Information			PART II. Other Information

Item 1.	Financial Statements	4	Item 1.	Legal Proceedings	31
	Condensed Consolidated Balance Sheets - June 30, 2019 and December 31, 2018 (unaudited)	4	Item 1A.	Risk Factors	31
	Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	5	Item 5.	Other Information	31
	Condensed Consolidated Statements of Partners’ Capital - Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	6	Item 6.	Exhibits	31
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2019 and 2018 (unaudited)	7	Signatures		32
	Notes to the Condensed Consolidated Financial Statements - June 30, 2019 (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30

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

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Important Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, those under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical fact, including without limitation, statements regarding future operations, financial position, estimated revenues and losses, growth, capital projects, impacts of legal proceedings, projected costs, prospects, plans and objectives are forward-looking statements. The words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar terms and phrases are intended to identify forward-looking statements. Although we believe our assumptions concerning future events are reasonable, a number of risks, uncertainties and other factors could cause actual results and trends to differ materially from those projected or forward-looking, including but not limited to:


•	our ability to make cash distributions on our common units;


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


•	volatile margins in the nitrogen fertilizer industry and exposure to risks associated with the pricing and availability of feedstocks, pet coke, utilities, urea ammonium nitrate (“UAN”), ammonia and other products;


•	the availability of adequate cash, credit and other sources of liquidity including volatility in the capital and credit markets and changes to our capital requirements;


•	changes in the expected value of, benefits derived from, and our ability to successfully implement, business strategies, transactions and capital projects;


•	changes in (and in the application of) local, state and federal laws, rules, regulations and policies, including with respect to environmental matters (including climate change), health and safety, exports, transportation (including pipeline and trucking transportation), the end-use and application of fertilizers and taxes (including the tax status of CVR Partners);


•	changes in economic conditions impacting our business and the business of our suppliers, customers, counterparties and lenders;


•	interruption of or changes in the cost, availability or regulation of pipelines, vessels, trucks and other means of transporting feedstocks, pet coke, UAN, ammonia and other products relating to our business;


•	changes in competition in the nitrogen fertilizer business including to our competitive advantages;


•	the cyclical and/or seasonal nature of the nitrogen fertilizer business;


•	weather conditions, fires, tornadoes, floods or other natural disasters affecting our operations or the areas in which our feedstocks and fertilizers are marketed or sold;


•	risks associated with governmental policies affecting the agricultural industry;


•	direct or indirect effects from actual or threatened terrorist incidents, security or cyber-security breaches or acts of war;


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


•	our ability to license the technology used in or secure permits required for our operations;


•	adverse rulings, judgments or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any reserves;


•	competition with CVR Energy and its affiliates, control of our general partner by CVR Energy and our reliance on CVR Energy’s senior management team including conflicts of interest they face operating each of CVR Partners and CVR Energy;


•	operating hazards and interruptions or production declines, including unscheduled maintenance or downtime and the availability and recoverability of adequate insurance coverage; and


•	the factors described in greater detail under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 and our other filings with the SEC.

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

June 30, 2019 | 3

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)



(in thousands)	June 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	69,266	$	61,776
Accounts receivable	22,980		61,662
Inventories	55,810		63,554
Prepaid expenses and other current assets	5,910		6,989
Total current assets	153,966		193,981
Property, plant, and equipment, net of accumulated depreciation	979,443		1,015,240
Goodwill	40,969		40,969
Other long-term assets	16,027		4,198
Total assets	$	1,190,405	$	1,254,388
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	21,340	$	26,789
Accounts payable to affiliates	2,434		2,976
Deferred revenue	9,485		68,804
Other current liabilities	22,952		24,066
Total current liabilities	56,211		122,635
Long-term debt	630,655		628,989
Other long-term liabilities	12,347		2,938
Total long-term liabilities	643,002		631,927
Commitments and contingencies (see Note 11)
Partners’ capital:
Common unitholders, 113,282,973 units issued and outstanding at June 30, 2019 and December 31, 2018	491,191		499,825
General partner interest	1		1
Total partners’ capital	491,192		499,826
Total liabilities and partners’ capital	$	1,190,405	$	1,254,388

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

June 30, 2019 | 4

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CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except unit data)	2019			2018			2019			2018
Net sales	$	137,660		$	93,197		$	229,533		$	173,056
Operating costs and expenses:
Cost of materials and other	26,000			19,139			49,730			41,608
Direct operating expenses (exclusive of depreciation and amortization)	45,630			47,465			80,450			86,134
Depreciation and amortization	25,030			20,405			41,614			36,831
Cost of sales	96,660			87,009			171,794			164,573
Selling, general and administrative expenses	6,465			6,900			13,311			12,562
(Gain) loss on asset disposals	(9		)	78			445			132
Operating income (loss)	34,544			(790		)	43,983			(4,211		)
Other (expense) income:
Interest expense, net	(15,599		)	(15,677		)	(31,249		)	(31,388		)
Other income, net	35			27			55			71
Net income (loss) before income taxes	18,980			(16,440		)	12,789			(35,528		)
Income tax expense (benefit)	12			19			(100		)	(18		)
Net income (loss)	$	18,968		$	(16,459	)	$	12,889		$	(35,510	)

Basic and diluted earnings (loss) per unit data	$	0.17		$	(0.15	)	$	0.11		$	(0.31	)
Distributions declared per unit	$	0.07		$	—		$	0.19		$	—

Weighted-average common units outstanding:
Basic and Diluted	113,283			113,283			113,283			113,283

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

June 30, 2019 | 5

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CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

(unaudited)



	Common Units				General Partner Interest		Total Partners’ Capital
(in thousands, except unit data)	Issued	Amount			General Partner Interest		Total Partners’ Capital
Balance at December 31, 2018	113,282,973	$	499,825		$	1	$	499,826
Cash distributions to common unitholders - Affiliates	—	(4,670		)	—		(4,670		)
Cash distributions to common unitholders - Non-affiliates	—	(8,924		)	—		(8,924		)
Net loss	—	(6,079		)	—		(6,079		)
Balance at March 31, 2019	113,282,973	$	480,152		$	1	$	480,153
Cash distributions to common unitholders - Affiliates	—	(2,724		)	—		(2,724		)
Cash distributions to common unitholders - Non-affiliates	—	(5,205		)	—		(5,205		)
Net income	—	18,968			—		18,968
Balance at June 30, 2019	113,282,973	$	491,191		$	1	$	491,192



	Common Units				General Partner Interest		Total Partners’ Capital
(in thousands, except unit data)	Issued	Amount			General Partner Interest		Total Partners’ Capital
Balance at December 31, 2017	113,282,973	$	549,852		$	1	$	549,853
Net loss	—	(19,051		)	—		(19,051		)
Balance at March 31, 2018	113,282,973	$	530,801		$	1	$	530,802
Net loss	—	(16,459		)	—		(16,459		)
Balance at June 30, 2018	113,282,973	$	514,342		$	1	$	514,343

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

June 30, 2019 | 6

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CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



	Six Months Ended June 30,
(in thousands)	2019			2018
Cash flows from operating activities:
Net income (loss)	$	12,889		$	(35,510	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	41,614			36,831
Share-based compensation	2,218			1,500
Other adjustments	2,108			1,751
Change in assets and liabilities:
Current assets and liabilities	(24,822		)	(17,421		)
Non-current assets and liabilities	674			379
Net cash provided by (used in) operating activities	34,681			(12,470		)
Cash flows from investing activities:
Capital expenditures	(5,757		)	(8,623		)
Proceeds from sale of assets	89			172
Net cash used in investing activities	(5,668		)	(8,451		)
Cash flows from financing activities:
Cash distributions to common unitholders - Affiliates	(7,394		)	—
Cash distributions to common unitholders - Non-affiliates	(14,129		)	—
Net cash used in financing activities	(21,523		)	—
Net increase (decrease) in cash and cash equivalents	7,490			(20,921		)
Cash and cash equivalents, beginning of period	61,776			49,173
Cash and cash equivalents, end of period	$	69,266		$	28,252

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Organization and Nature of Business

CVR Partners, LP (referred to as “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, which are located in Coffeyville, Kansas (the “Coffeyville Facility”) and East Dubuque, Illinois (the “East Dubuque Facility”). 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.

As of June 30, 2019, public security holders held approximately 66% of the Partnership’s outstanding limited partner interests and Coffeyville Resources, LLC (“CRLLC”), a wholly-owned subsidiary of CVR Energy, held approximately 34% of the Partnership’s outstanding limited partner interests and 100% of the general partner interest held by CVR GP, LLC (“CVR GP” or the “general partner”). As of June 30, 2019, Icahn Enterprises L.P. (“IEP”) and its affiliates owned approximately 71% of the shares of CVR Energy.

Management and Operations

The Partnership, including CVR GP, is party to a number of agreements with CVR Energy and its subsidiaries to manage certain business relationships between the Partnership and the other parties thereto. The various rights and responsibilities of the Partnership, and its partners, are set forth in the Partnership’s limited partnership agreement. CVR GP manages and operates the Partnership via a combination of the general partner’s senior management team and CVR Energy’s senior management team pursuant to a services agreement among CVR Energy, CVR GP and the Partnership. See Note 13 (“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 on an annual or continuing basis.

(2) Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). These condensed consolidated financial statements should be read in conjunction with the December 31, 2018 audited consolidated financial statements and notes thereto included in CVR Partners’ Annual Report on Form 10-K for the year ended December 31, 2018.

The accompanying condensed consolidated financial statements reflect all adjustments that are necessary to fairly present the financial position of the Partnership as of June 30, 2019 and December 31, 2018, the results of operations of the Partnership for the three and six months ended June 30, 2019 and 2018, the changes in partners’ capital for the three and six months ended June 30, 2019 and 2018, and the cash flows of the Partnership for the six months ended June 30, 2019 and 2018. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Results of operations and cash flows for the interim periods presented are not necessarily indicative of the results that will be realized for the year ending December 31, 2019 or any other interim or annual period.

(3) Recent Accounting Pronouncements

Recent Accounting Pronouncement - Adoption of New Lease Standard

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, “Leases” (“ASU 2016-02”), creating a new topic, FASB ASC Topic 842, “Leases” (“Topic 842”), which supersedes lease requirements in FASB ASC Topic 840, “Leases.” The new standard revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability related to future lease payments and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term on the balance sheet. The ROU asset is classified as

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Other long-term assets on the condensed consolidated balance sheet. The current and long-term lease liabilities are classified as Other current liabilities and Other long-term liabilities, respectively, on the condensed consolidated balance sheet.

We adopted Topic 842 as of January 1, 2019, electing the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. In connection with the adoption of Topic 842, we made the following elections:


•	Under the short-term lease exception provided for in Topic 842, only ROU assets and the related lease liabilities for leases with an initial term greater than one year were recognized;


•	The accounting treatment for existing land easements was carried forward;


•	Lease and non-lease components were not and will not be bifurcated for all of the Partnership’s asset groups; and


•	The portfolio approach was and will be used in the selection of the discount rate used to calculate minimum lease payments and the related ROU asset and operating lease liability amounts.

The adoption of Topic 842 on January 1, 2019 incrementally impacted the Partnership’s condensed consolidated balance sheet as of that date. The following presents the financial statement line items impacted by the Partnership’s Topic 842 adoption as of January 1, 2019.

Effect of Topic 842 Adoption on the Condensed Consolidated Balance Sheet as of January 1, 2019



(in thousands)	December 31, 2018 As Stated		Effect of Adoption of Topic 842 - Leases (Unaudited)				January 1, 2019 As Adjusted
Current assets:
Prepaid expenses and other current assets	$	6,989	$	(2,650	)	(1)	$	4,339
Total currents assets	193,981		(2,650		)		191,331
Other long-term assets	4,198		16,923			(2)	21,121
Total assets	$	1,254,388	$	14,273			$	1,268,661
Current liabilities:
Other current liabilities	$	24,066	$	3,462		(3)	$	27,528
Total current liabilities	122,635		3,462				126,097
Long-term liabilities:
Other long-term liabilities	2,938		10,811			(3)	13,749
Total long-term liabilities	631,927		10,811				642,738
Equity:
Total liabilities and partners’ capital	$	1,254,388	$	14,273			$	1,268,661


(1)	Represents lease prepayments reclassified to ROU assets.


(2)	Represents recognition of initial ROU assets for operating leases, including the reclassification of certain lease prepayments as noted above.


(3)	Represents the initial recognition of lease liabilities.

New Accounting Standards Issued But Not Yet Implemented

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. This ASU is effective for the Partnership beginning January 1, 2020, with early adoption permitted. The Partnership is evaluating the effect of adopting this ASU, but does not currently expect adoption will have a material impact on the Partnership’s disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This standard is effective for the Partnership beginning January 1, 2020 with early adoption permitted. The amendments in this standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Partnership is evaluating the effect of adopting this new accounting guidance on its consolidated financial statements, but does not currently expect adoption will have a material impact on the Partnership’s consolidated financial position or results of operations.

(4) Inventories

Inventories consisted of the following:



(in thousands)	June 30, 2019		December 31, 2018
Finished goods	$	17,998	$	25,136
Raw materials	374		439
Parts, supplies and other	37,438		37,979
Total inventories	$	55,810	$	63,554

(5) Property, Plant and Equipment

Property, plant and equipment consisted of the following:



(in thousands)	June 30, 2019		December 31, 2018
Machinery and equipment	$	1,371,339	$	1,362,965
Buildings and improvements	17,116		17,116
Automotive equipment	16,773		16,773
Land and improvements	13,751		13,250
Construction in progress	10,358		15,126
Other	1,655		2,753
	1,430,992		1,427,983
Less: Accumulated depreciation	451,549		412,743
Total property, plant and equipment, net	$	979,443	$	1,015,240

(6) Leases

Lease Overview

We lease railcars and certain facilities to support the Partnership’s operations. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Effect of Initial Adoption of New Lease Standard - January 1, 2019

ROU Assets. As of January 1, 2019, upon initial recognition, our ROU assets for operating and finance leases were comprised of the following:



(in thousands)	January 1, 2019 (initial recognition)
Railcar leases	$	14,255
Real Estate and other leases	18
Total ROU assets	$	14,273

Lease Liabilities. As of January 1, 2019, upon initial recognition, our lease liabilities for operating and finance leases were comprised of the following:



(in thousands)	January 1, 2019 (initial recognition)
Current liabilities:
Operating leases	$	3,462
Long-term liabilities:
Operating leases	10,811
Total lease liabilities	$	14,273

Balance Sheet Summary for the Period Ended June 30, 2019

The following tables summarize the ROU asset and lease liability balances for the Partnership’s operating and finance leases at June 30, 2019:



(in thousands)	June 30, 2019
Operating Leases:
ROU asset, net
Railcars	$	12,399
Real estate and other	2,451
Lease liability
Railcars	$	12,552
Real estate and other	12

Financing Leases:
ROU asset, net
Real estate and other	$	251
Lease liability
Real estate and other	$	292

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Lease Expense Summary for the Three and Six months ended June 30, 2019

We recognize lease expense for these leases on a straight-line basis over the lease term. For the three and six months ended June 30, 2019, we recognized net lease expense comprised of the following components:



(in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease expense	$	1,023	$	2,046
Financing lease expense:
Amortization of ROU asset	167		272
Interest expense on lease liability	$	9	$	15

Short-term lease expense, recognized within direct operating expenses, was $0.1 million for both the three and six months ended June 30, 2019, respectively.

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 liabilities:



	June 30, 2019		January 1, 2019 (initial recognition)
Weighted-average remaining lease term (years)
Operating Leases	3.9		4.3
Finance Leases	2.5		0.5
Weighted-average discount rate
Operating Leases	5.1	%	5.1	%
Finance Leases	4.9	%	8.0	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum lease payments through maturity of the Partnership’s ROU assets and liabilities at June 30, 2019:



(in thousands)	Operating Leases			Financing Leases
Remainder of 2019	$	2,046		$	91
2020	3,602			107
2021	3,430			107
2022	2,990			—
2023	1,133			—
Thereafter	648			—
Total lease payments	13,849			305
Less: imputed interest	(1,285		)	(13		)
Total lease liability	$	12,564		$	292

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(7) Other Current Liabilities

Other current liabilities are as follows:



(in thousands)	June 30, 2019		December 31, 2018
Personnel accruals	$	5,783	$	7,993
Sales incentives	3,857		1,727
Share-based compensation	3,743		2,667
Operating lease liabilities	3,337		—
Accrued interest	2,519		2,516
Prepaid revenue contracts	643		5,863
Other accrued expenses and liabilities	3,070		3,300
Total other current liabilities	$	22,952	$	24,066

Other current liabilities include amounts accrued by the Partnership to CVR Energy and affiliates of $3.4 million and $3.5 million at June 30, 2019 and December 31, 2018, respectively. Refer to Note 13 (“Related Party Transactions”) for additional discussion.

(8) Long-Term Debt

Long-term debt and finance lease obligations consists of the following:



(in thousands)	June 30, 2019			December 31, 2018
9.25% Senior Secured Notes, due 2023 (1)	$	645,000		$	645,000
6.50% Notes, due 2021	2,240			2,240
Unamortized discount and debt issuance costs	(16,585		)	(18,251		)
Total long-term debt	$	630,655		$	628,989


(1)	The estimated fair value of total long-term debt outstanding was approximately $674.5 million and $670.8 million as of June 30, 2019 and December 31, 2018, respectively.

Credit Facility



(in thousands)	Total Capacity		Amount Borrowed as of June 30, 2019		Outstanding Letters of Credit		Available Capacity as of June 30, 2019		Maturity Date
Asset Based (“AB”) Credit Facility (2)	$	48,342	$	—	$	—	$	48,342	September 30, 2021


(2)	At the option of the borrowers, loans under the AB Credit Facility initially bear interest at an annual rate equal to (i) 2.00% plus LIBOR or (ii) 1.00% plus a base rate, subject to a 0.50% step-down based on the previous quarter’s excess availability.

Covenant Compliance

The Partnership is in compliance with all covenants of the AB Credit Facility and the 9.25% Senior Secured Notes and 6.50% Notes as of June 30, 2019.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(9) Revenue

The following table presents the Partnership’s revenue disaggregated by product:



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2019		2018		2019		2018
Ammonia	$	49,954	$	28,373	$	63,306	$	39,970
UAN	73,542		51,394		137,606		104,157
Urea products	5,006		4,936		9,677		9,847
Fertilizer sales, exclusive of freight and other	128,502		84,703		210,589		153,974
Freight revenue	7,139		6,364		15,157		15,103
Other revenue	2,019		2,130		3,787		3,979
Total net sales	$	137,660	$	93,197	$	229,533	$	173,056

The Partnership sells its products on a wholesale basis under a contract or by purchase order. The Partnership’s contracts with customers, including purchase orders, generally contain fixed pricing and most have terms of less than one year. The Partnership recognizes revenue at the point in time at which the customer obtains control of the product, which is generally upon delivery and acceptance by the customer. The customer acceptance point is stated in the contract and may be at one of the Partnership’s manufacturing facilities, at one of the Partnership’s off-site loading facilities or at the customer’s designated facility. 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. Qualifying taxes collected from customers and remitted to governmental authorities are not included in reported revenues.

Depending on the product sold and the type of contract, payments from customers are generally either due prior to delivery or within 15 to 30 days of product delivery.

The Partnership generally provides no warranty other than the implicit promise that goods delivered are free of liens and encumbrances and meet the agreed upon specifications. Product returns are rare, and as such, the Partnership does not record a specific warranty reserve or consider activities related to such warranty, if any, to be a separate performance obligation.

The Partnership has an immaterial amount of variable consideration for contracts with an original duration of less than a year. A small portion of the Partnership’s revenue includes contracts extending beyond one year, some of which contain variable pricing in which the majority of the variability is attributed to the market-based pricing. The Partnership’s contracts do not contain a significant financing component.

The Partnership has an immaterial amount of fee-based revenue, included in other revenue in the table above, that is recognized based on the net amount of the proceeds received.

Transaction price allocated to remaining performance obligations

As of June 30, 2019, the Partnership had approximately $8.3 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Partnership expects to recognize approximately 29% of these performance obligations as revenue by the end of 2019, an additional 36% by 2020 and the remaining balance thereafter. The Partnership has elected to not disclose the amount of transaction price allocated to remaining performance obligations for contracts with an original expected duration of less than one year. The Partnership has elected to not disclose variable consideration allocated to wholly unsatisfied performance obligations that are based on market prices that have not yet been determined.

Contract balances

The Partnership’s deferred revenue is a contract liability that primarily relates to fertilizer sales contracts requiring customer prepayment prior to product delivery to guarantee a price and supply of nitrogen fertilizer. Deferred revenue is recorded at the point in time in which a prepaid contract is legally enforceable and the associated right to consideration is

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

unconditional prior to transferring product to the customer. An associated receivable is recorded for uncollected prepaid contract amounts. Contracts requiring prepayment are generally short-term in nature and, as discussed above, revenue is recognized at the point in time in which the customer obtains control of the product. At June 30, 2019, $7.4 million of the deferred revenue balance pertained to prepaid contracts where the associated receivable was recognized as it had not yet been collected by the Partnership.

A summary of the deferred revenue activity during the six months ended June 30, 2019 is presented below:



(in thousands)
Balance at December 31, 2018	$	68,804
Add:
New prepay contracts entered into during the period	16,610
Less:
Revenue recognized that was included in the contract liability balance at the beginning of the period	67,460
Revenue recognized related to contracts entered into during the period	8,055
Other changes	414
Balance at June 30, 2019	$	9,485

(10) Share-Based Compensation

A summary of compensation expense during the three and six months ended June 30, 2019 and 2018 is presented below:



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2019		2018		2019		2018
Phantom Units	$	755	$	548	$	1,545	$	954
Other Awards (1)	355		672		673		546
Total share-based compensation expense	$	1,110	$	1,220	$	2,218	$	1,500


(1)	Other awards include the allocation of compensation expense for certain employees of CVR Energy who perform services for the Partnership under the services agreement with CVR Energy and participate in equity compensation plans of CVR Partners’ affiliates.

(11) Commitments and Contingencies

Except as described below, there have been no material changes in the Partnership’s commitments and contingencies disclosed in the 2018 Form 10-K. In the ordinary course of business, the Partnership may become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory, and other matters. The outcome of these matters cannot always be predicted accurately, but the Partnership accrues liabilities for these matters if the Partnership has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, the Partnership believes there would be no material impact on its consolidated financial statements.

Litigation

In 2008, Coffeyville Resources Nitrogen Fertilizer LLC (“CRNF”), a subsidiary of CVR Partners LP, protested the reclassification and reassessment by Montgomery County, Kansas (the “County”) of CRNF’s nitrogen fertilizer plant following expiration of its ten year property tax abatement that expired on December 31, 2007, which reclassification and reassessment resulted in an increase in CRNF’s annual property tax expense in excess of $10 million per year for the 2008 through 2012 tax years. Despite its protest, CRNF fully accrued and paid these property taxes. In February 2013, the County and CRNF agreed to a settlement for tax years 2009 through 2012 which resulted in decreased property taxes through 2017, leaving 2008 in dispute. In 2013, the Kansas Court of Appeals overturned an adverse ruling of the Kansas Board of Tax Appeals (“BOTA”) and instructed BOTA to classify each CRNF asset on an asset-by-asset basis. In March 2015, BOTA concluded its classification and determined a substantial majority of CRNF’s assets in dispute were personal property for the 2008 tax year. In September 2018, the Kansas Court of Appeals upheld BOTA’s property tax determinations in CRNF’s favor. In October 2018, the County

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

petitioned the Kansas Supreme Court to review the Court of Appeals determination. Subsequent briefs were filed by CRNF and the County. In April 2019, CRNF and the County executed an agreement under which the County agreed to withdraw its petition to the Kansas Supreme Court and CRNF is expected to recover $7.9 million through favorable property tax assessments from 2019 through 2028, subject to the terms of the settlement agreement.

(12) Supplemental Cash Flow Information

Cash flows related to interest, leases, and capital expenditures included in accounts payable are as follows:



	Six Months Ended June 30,
(in thousands)	2019		2018
Supplemental disclosures:
Cash paid for interest	$	30,016	$	30,111
Cash paid for amounts included in the measurement of lease liabilities*:
Financing cash flows from finance leases	272
Non-cash investing activities:
Capital expenditures included in accounts payable	967		3,713

(*)The lease standard was adopted on January 1, 2019 on a prospective basis. Therefore only 2019 disclosures are applicable to be included within the table above.

(13) Related Party Transactions

Activity associated with the Partnership’s related party arrangements for the three and six month periods ended June 30, 2019 and 2018 is summarized below.

Sales to related parties



		Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	Related Party	2019		2018		2019		2018
Net Sales
Feedstock and Shared Services Agreement	CRRM (1)	$	—	$	237	$	2	$	292

Expenses from related parties



		Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	Related Party	2019		2018		2019		2018
Cost of materials and other
Coke Supply Agreement	CRRM (1)	$	1,229	$	716	$	2,550	$	1,075
Hydrogen Purchase and Sale Agreement	CRRM (1)	1,194		774		2,735		2,084

Direct operating expenses (exclusive of depreciation and amortization)
Services Agreement	CVR Energy	$	849	$	769	$	1,789	$	1,384
Limited Partnership Agreement	CVR GP	203		174		377		330

Selling, general and administrative expenses
Services Agreement	CVR Energy	$	3,772	$	3,895	$	7,810	$	6,758
Limited Partnership Agreement	CVR GP	625		787		1,540		1,294

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Amounts due to related parties



(in thousands)	Related Party	June 30, 2019		December 31, 2018
Accounts payable to affiliates
Feedstock and Shared Services Agreement	CRRM (1)	$	703	$	1,106
Hydrogen Purchase and Sale Agreement and other	CRRM (1)	333		324
Coke Supply Agreement	CRRM (1)	237		138
Services Agreement	CVR GP	1,150		1,372

Other current liabilities
Limited Partnership Agreement	CVR GP	$	1,246	$	1,179
Services Agreement	CVR Energy	2,118		2,352

Other long-term liabilities
Limited Partnership Agreement	CVR Energy	$	406	$	503


(1)	Coffeyville Resources Refining & Marketing, LLC, an indirect, wholly-owned subsidiary of CVR Energy

Distributions to CVR Partners’ Unitholders

The following table presents distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of June 30, 2019.



				Dividends Paid (in thousands)
Related Period	Date Paid	Dividend Per Common Unit		Unitholders		CVR Energy		Total
2018 - 4th Quarter	March 11, 2019	$	0.12	$	8,924	$	4,670	$	13,594
2019 - 1st Quarter	May 13, 2019	0.07		5,205		2,724		7,929
Total		$	0.19	$	14,129	$	7,394	$	21,523

For the second quarter of 2019, the Partnership, upon approval by the Board of Directors of CVR Partners’ general partner on July 24, 2019, declared a distribution of $0.14 per common unit, or $15.9 million, which is payable August 12, 2019 to unitholders of record as of August 5, 2019. Of this amount, CVR Energy will receive approximately $5.4 million, with the remaining amount payable to public unitholders.

Distributions, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the board of directors of CVR Partners’ general partner.

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Item 2. 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 flows should be read in conjunction with the unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report, as well as our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on February 21, 2019 (the “2018 Form 10-K”). Results of operations for the three and six months ended June 30, 2019 and cash flows for the six months ended June 30, 2019 are not necessarily indicative of results to be attained for any other period. See “Important Information Regarding Forward Looking Statements”.

Partnership Overview

CVR Partners, LP (“CVR Partners” or the “Partnership”) is a Delaware limited partnership formed in 2011 by CVR Energy, Inc. (“CVR Energy”) to own, operate and grow our nitrogen fertilizer business. We produce and distribute 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, which are located in Coffeyville, Kansas and East Dubuque, Illinois. Our principal products are ammonia and 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 refining, marketing and logistics operations.

Strategy and Goals

Mission and Core Values

Our mission is to be a top tier North American nitrogen-based fertilizer company as measured by safe and reliable operations, superior performance and profitable growth. The foundation of how we operate is built on five core values:


•	Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it’s not safe, then we don’t do it.


•	Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it’s our duty to protect it.


•	Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way—the right way with integrity.


•	Corporate Citizenship - We are proud members of the communities where we operate. We are good neighbors and know that it’s a privilege we can’t take for granted. We seek to make a positive economic and social impact through our financial donations and the contributions of time, knowledge and talent of our employees to the places where we live and work.


•	Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork 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.

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Strategic Objectives

We have outlined the following strategic objectives to drive the accomplishment of our mission:

Safety - We aim to achieve continuous improvement in all environmental, health and safety areas through ensuring our people’s commitment to environmental, health and safety comes first, the refinement of existing policies, continuous training, and enhanced monitoring procedures.

Reliability - Our goal is to achieve industry-leading utilization rates at both of our facilities through safe and reliable operations. We are focusing on improvements in day-to-day plant operations, identifying alternative sources for plant inputs to reduce lost time due to third-party operational constraints, and optimizing our commercial and marketing functions to maintain plant operations at their highest level.

Market Capture - We continuously evaluate opportunities to improve the facilities’ realized pricing at the gate and reduce variable costs incurred in production to maximize our capture of market opportunities.

Financial Discipline - We strive to be efficient as possible by maintaining low operating costs and disciplined deployment of capital.

Achievements

We successfully executed a number of achievements in support of our strategic objectives shown below through the date of this filing:



	Safety	Reliability	Market Capture	Financial Discipline
Maintained high asset reliability and utilization at both facilities through the second quarter of 2019	ü	ü		ü
Generated positive cash available for distribution despite the delay in the spring planting season due to wet weather		ü	ü	ü
Declared cash distributions of 33 cents per unit in 2019				ü
Achieved monthly record sales deliveries at the East Dubuque nitrogen fertilizer facility for April 2019			ü

Industry Factors and Market Conditions

Within the nitrogen fertilizer business, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, utilization, and operating costs and expenses.

The price at which nitrogen fertilizer products are ultimately sold depends on numerous factors, including the global supply and demand for nitrogen fertilizer products which, in turn, depends on, among other factors, world grain demand and production levels, changes in world population, the cost and availability of fertilizer transportation infrastructure, weather conditions, the availability of imports, and the extent of government intervention in agriculture markets.

Nitrogen fertilizer prices are also affected by local factors, including local market conditions, weather patterns, and the operating levels of competing facilities. An expansion or upgrade of competitors’ facilities, new facility development, political and economic developments, and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products.

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2019 Market Conditions

While there is risk of shorter-term volatility given the inherent nature of the commodity cycle, the longer-term fundamentals for the U.S. nitrogen fertilizer industry remain intact. The Partnership views the anticipated combination of (i) increasing global population, (ii) decreasing arable land per capita, (iii) continued evolution to more protein-based diets in developing countries, (iv) sustained use of corn as feedstock for the domestic production of ethanol, and (v) positioning at the lower end of the global cost curve will continue to provide a solid foundation for nitrogen fertilizer producers in the U.S over the longer term.

The table below shows relevant market indicators by month through June 30, 2019:


(1)	Information used in the charts was obtained from various third-party sources, including Pace Petroleum Coke Quarterly, Green Markets (a Bloomberg Company) and the U.S. Energy Information Administration.

Non-GAAP Measures

Our management uses certain non-GAAP performance measures, and reconciliations to those measures, to evaluate current and past performance and prospects for the future to supplement our GAAP financial information presented in accordance with U.S. GAAP. These non-GAAP financial measures are important factors in assessing our operating results and profitability and include the performance and liquidity measures defined below.

The following are non-GAAP measures presented for the period ended June 30, 2019:

EBITDA - Net income (loss) before (i) interest expense, net, (ii) income tax expense (benefit) and (iii) depreciation and amortization expense.

Adjusted EBITDA - EBITDA adjusted to exclude turnaround expense which management believes is material to an investor’s understanding of the Partnership’s underlying operating results.

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Reconciliation of Net Cash Provided By (Used in) Operating Activities to EBITDA - Net cash provided by (used in) operating activities reduced by (i) interest expense, net, (ii) income tax expense (benefit), (iii) change in working capital, and (iv) other non-cash adjustments.

Available Cash for Distribution - Adjusted EBITDA reduced for cash reserves established by the board of directors of our general partner for (i) debt service, (ii) maintenance capital expenditures, (iii) turnaround expenses and, to the extent applicable, (iv) reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate, if any, 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 of directors of our general partner.

Results of Operations

The following sections should be read in conjunction with the information outlined in Part I, Item 2 and the financial statements and related notes thereto in Part I, Item 1 of this Report.

Key Operating Data

Utilization - The following charts summarize our ammonia utilization rates on a consolidated basis and at each of our facilities. Utilization is an important measure used by management to assess operational output at each of the Partnership’s facilities. Utilization is calculated as actual tons produced divided by capacity adjusted for planned turnarounds.

We present our utilization on a two-year rolling average to take into account the impact of our planned and unplanned outages on any specific period. We believe the two-year rolling average is a more useful presentation of the long-term utilization performance of our plants.

We present utilization solely on ammonia production rather than each nitrogen product as it provides a comparative baseline against industry peers and eliminates the disparity of plant configurations for upgrade of ammonia into other nitrogen products. With our efforts being primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how well we operate.

Consolidated Ammonia Utilization - The consolidated ammonia utilization decreased 2% to 92% for the two years ended June 30, 2019 compared to the two years ended June 30, 2018. This decrease was primarily a result of ammonia storage capacity constraints at the East Dubuque facility in the first quarter of 2019 due to inclement weather impacting customers’ ability to apply ammonia.

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Sales and Pricing per Ton - Two of our key operating metrics are total sales for ammonia and UAN along with the product pricing per ton realized at the gate. 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 that is comparable across the fertilizer industry.

Operating Highlights (three months ended June 30, 2019 versus June 30, 2018)

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Operating Highlights (six months ended June 30, 2019 versus June 30, 2018)

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Production Volumes - Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products.



	Three Months Ended June 30,		Six Months Ended June 30,
(in thousands of tons)	2019	2018	2019	2018
Ammonia (gross produced)	211	174	390	373
Ammonia (net available for sale)	71	65	112	124
UAN	316	241	651	580



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Petroleum coke used in production (thousand tons)	134		90		266		208
Petroleum coke (dollars per ton)	$	34.60	$	25.33	$	36.14	$	21.34
Natural gas used in production (thousands of MMBtu) (1)	2,070		1,964		3,510		3,814
Natural gas used in production (dollars per MMBtu) (1)	$	2.61	$	2.78	$	3.11	$	3.00
Natural gas in cost of materials and other (thousands of MMBtu) (1)	3,185		2,571		4,193		3,829
Natural gas in cost of materials and other (dollars per MMBtu) (1)	$	3.32	$	2.84	$	3.45	$	3.05


(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 expense (exclusive of depreciation and amortization).

Financial Highlights (three months ended June 30, 2019 versus June 30, 2018)

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Financial Highlights (six months ended June 30, 2019 versus June 30, 2018)


(1)	See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.

Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

Net Sales. Net sales increased by $44.5 million to $137.7 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. This increase was primarily due to favorable pricing and volume conditions which contributed $19.8 million and $24.7 million, respectively, in higher revenues as compared to 2018.

The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018:



(in thousands)	Price Variance		Volume Variance
UAN	$	8,152	$	14,739
Ammonia	$	11,695	$	9,928

The increase in UAN and ammonia sales pricing for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018 was primarily attributable to a shift in demand from the first quarter 2019 to second quarter 2019. Due to continuous inclement weather, customers delayed receipt of nitrogen products from first quarter 2019 to second quarter 2019. As a result, customer demand for ammonia increased in the second quarter of 2019 as customers attempted to make up for the missed application. In addition, the aforementioned ammonia application coupled with the freezing temperatures and flooding throughout the Midwest and Southern Plains shifted the demand for UAN, and sales volumes increased for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018.

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Cost of materials and other. Cost of materials and other for the three months ended June 30, 2019 was $26.0 million compared to $19.1 million for the three months ended June 30, 2018. The $6.9 million increase was comprised of a $2.8 million increase in pet coke costs at our Coffeyville plant, a $0.8 million increase in freight costs associated with increased sales volumes, and a $3.2 million due to a draw in inventory due to increased demand.

Direct operating expenses (exclusive of depreciation and amortization). Direct operating expenses (exclusive of depreciation and amortization) for the three months ended June 30, 2019 were $45.6 million compared to $47.5 million for the three months ended June 30, 2018. The slight decrease was primarily due to Coffeyville turnaround costs of $6.3 million in the second quarter of 2018 offset by an inventory draw due to increased sales in the second quarter of 2019.

Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

Net Sales. Net sales increased by $56.5 million to $229.5 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. This increase was primarily due to favorable pricing and volume conditions which contributed $44.5 million and $12.4 million, respectively, in higher revenues as compared to 2018.

The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018:



(in thousands)	Price Variance		Volume Variance
UAN	$	31,103	$	2,413
Ammonia	$	13,381	$	9,952

The increase in UAN and ammonia sales pricing for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 was primarily attributable to a shift in demand from the fourth quarter of 2018 to the second quarter of 2019. Due to the continuous inclement weather, customers delayed receipt of nitrogen products from the fourth quarter of 2018 to the second quarter of 2019. As a result, customer demand for ammonia increased in the second quarter of 2019 as customers attempted to make up for the missed application. In addition, the aforementioned ammonia application coupled with freezing temperatures and flooding throughout the Midwest and Southern Plains shifted the demand for ammonia, and sales volumes increased for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Cost of materials and other. Cost of materials and other for the six months ended June 30, 2019 was $49.7 million, compared to $41.6 million for the six months ended June 30, 2018. The $8.1 million increase was comprised primarily of a $5.1 million increase in pet coke costs at our Coffeyville plant, coupled with a draw in ammonia inventories as a result of increased sales contributing $2.9 million.

Direct Operating Expenses (exclusive of depreciation and amortization). Direct operating expenses (exclusive of depreciation and amortization) for the six months ended June 30, 2019 were $80.5 million as compared to $86.1 million for the six months ended June 30, 2018. The $5.7 million decrease was primarily due to turnaround costs of $6.3 million at the Coffeyville facility in the second quarter of 2018.

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Non-GAAP Reconciliations

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA



	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2019		2018			2019			2018
Net income (loss)	$	18,968	$	(16,459	)	$	12,889		$	(35,510	)
Add:
Interest expense, net	15,599		15,677			31,249			31,388
Income tax expense (benefit)	12		19			(100		)	(18		)
Depreciation and amortization	25,030		20,405			41,614			36,831
EBITDA	$	59,609	$	19,642		$	85,652		$	32,691
Add:
Turnaround expenses	151		6,337			151			6,404
Adjusted EBITDA	$	59,760	$	25,979		$	85,803		$	39,095

Reconciliation of Net Cash Provided By (Used In) Operating Activities to EBITDA



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Net cash (used in) provided by operating activities	$	(17,243	)	$	(26,956	)	$	34,681		$	(12,470	)

Add:
Interest expense, net	15,599			15,677			31,249			31,388
Income tax expense (benefit)	12			19			(100		)	(18		)
Change in assets and liabilities	63,246			32,988			24,148			17,042
Other non-cash adjustments	(2,005		)	(2,086		)	(4,326		)	(3,251		)
EBITDA	$	59,609		$	19,642		$	85,652		$	32,691

Reconciliation of Adjusted EBITDA to Available Cash for Distribution



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Adjusted EBITDA	$	59,760		$	25,979		$	85,803		$	39,095
Less:
Debt Service	(14,865		)	(14,870		)	(29,692		)	(29,790		)
Maintenance capital expenditures	(1,447		)	(4,098		)	(4,814		)	(6,366		)
Turnaround expenses	(151		)	(6,337		)	(151		)	(6,404		)
Adjustments:
Reserve for East Dubuque turnaround	(7,000		)	—			(7,000		)	—
Reserve for maintenance capital expenditures	(16,000		)	—			(16,000		)	—
Cash reserves for future operating needs	(5,000		)	(674		)	(5,000		)	(674		)
Available Cash for distribution (1)	$	15,297		$	—		$	23,146		$	(4,139	)

Common units outstanding	113,283			113,283			113,283			113,283


(1)	Amount represents the cumulative Available Cash based on quarter-to-date and year-to-date results, respectively. However, Available Cash for distribution is calculated quarterly, with distributions (if any) being paid in the following period.

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Liquidity and Capital Resources

Our principal source of liquidity has historically been 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.

We believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, under the AB Credit Facility, will be sufficient to satisfy anticipated cash requirements associated with our existing operations for at least the next 12 months, and that we have sufficient cash resources to fund our operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future performance, which is subject to general economic, political, financial, competitive, and other factors beyond our control.

Depending on the needs of our business, contractual limitations, and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or otherwise refinance our existing debt. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all.

There have been no material changes in liquidity for the three months ended June 30, 2019. The Partnership was in compliance with all covenants under its debt instruments as of June 30, 2019.

Cash and Other Liquidity

As of June 30, 2019, we had cash and cash equivalents of $69.3 million, including $2.1 million from customer advances. Combined with $48.3 million available under our AB Credit Facility less $25.0 million in cash included in our borrowing base, we had total liquidity of $92.6 million as of June 30, 2019.



Debt, including current maturities	June 30, 2019			December 31, 2018
(in thousands)	June 30, 2019			December 31, 2018
9.25% Senior Notes due 2023	$	645,000		$	645,000
6.50% Senior Notes due 2021	2,240			2,240
Unamortized discount and debt issuance costs	(16,585		)	(18,251		)
Total debt	$	630,655		$	628,989

AB Credit Facility - The Partnership has an AB Credit Facility, the proceeds of which may be used to fund working capital, capital expenditures and for other general corporate purposes. The AB Credit Facility is a senior secured asset-based revolving credit facility with an aggregate principal amount of availability of up to $50 million with an incremental facility, which permits an increase in borrowings of up to $25 million in the aggregate subject to additional lender commitments and certain other conditions. The AB Credit Facility matures in September 2021. CVR Partners was in compliance with all applicable covenants as of June 30, 2019.

2023 Notes - CVR Partners issued $645 million aggregate principal amount of 9.25% Senior Secured Notes due 2023 (the “2023 Notes”) in 2016. The 2023 Notes are guaranteed on a senior secured basis by all of the Partnership’s existing subsidiaries. On or after June 15, 2019, we may on any one or more occasions, redeem all or part of the 2023 Notes at the redemption prices set forth below expressed as a percentage of the principal amount of the 2023 Notes plus accrued and unpaid interest to the applicable redemption date.



12-month period beginning June 15,	Percentage
2019	104.625%
2020	102.313%
2021 and thereafter	100.000%

Upon the occurrence of certain change of control events as defined in the 2023 Indenture (including the sale of all or substantially all of the properties or assets of the Nitrogen Fertilizer Segment and its subsidiaries taken as a whole), each holder

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of the 2023 Notes will have the right to require that the Nitrogen Fertilizer Segment repurchase all or a portion of such holder’s 2023 Notes in cash at a purchase price equal to 101% of the aggregate principal amount thereof plus any accrued and unpaid interest to the date of repurchase.

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 six months ended June 30, 2019 and our estimated expenditures for 2019 are as follows:



	Six Months Ended June 30,		Estimated full year
(in thousands)	2019		2019
Maintenance capital	$	4,502	$ 18,000 - 20,000
Growth capital	303		2,000 - 5,000
Total capital expenditures	$	4,805	$ 20,000 - 25,000

Our estimated capital expenditures are subject to change due to unanticipated changes in the cost, scope and completion time for capital projects. For example, we may experience increases/decreases in labor or equipment costs necessary to comply with government regulations or to complete projects that sustain or improve the profitability of the refineries or nitrogen fertilizer plants. We may also accelerate or defer some capital expenditures from time to time. Capital spending is determined by the board of directors of the Partnership’s general partner.

The next planned major turnaround is at the East Dubuque facility, which is expected to commence in the second half of 2019. This turnaround is expected to take 28 days and include $7 million in expenditures that will be expensed as incurred.

Distributions to Unitholders

The current policy of the board of directors of the Partnership’s general partner is to distribute all Available Cash the Partnership generated on a quarterly basis. Available Cash for each quarter will be determined by the board of directors of the Partnership’s general partner following the end of such quarter. Available Cash for each quarter is calculated as Adjusted EBITDA reduced for cash needed for (i) debt service, (ii) maintenance capital expenditures, (iii) turnaround expenses, and, to the extent applicable, (iv) reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate, if any, 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 of directors of our general partner.

The following table presents distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of June 30, 2019.



				Dividends Paid (in millions)
Related Period	Date Paid	Dividend Per Common Unit		Unitholders		CVR Energy		Total
2018 - 4th Quarter	March 11, 2019	$	0.12	$	8.9	$	4.7	$	13.6
2019 - 1st Quarter	May 13, 2019	0.07		5.2		2.7		7.9
Total		$	0.19	$	14.1	$	7.4	$	21.5

Distributions, if any, including the payment, amount and timing thereof, are subject to change at the discretion of the board of directors of CVR Partners’ general partner.

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Cash Flows

The following table sets forth our cash flows for the periods indicated below:



	Six Months Ended June 30,
(in thousands)	2019			2018			Change
Net cash flow provided by (used in):
Operating activities	$	34,681		$	(12,470	)	$	47,151
Investing activities	(5,668		)	(8,451		)	2,783
Financing activities	(21,523		)	—			(21,523		)
Net increase (decrease) in cash and cash equivalents	$	7,490		$	(20,921	)	$	28,411

Cash Flows Provided by Operating Activities

The change in net cash flows from operating activities for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 is primarily due to net income of $12.9 million in 2019 compared to a net loss of $35.5 million in 2018.

Cash Flows Used in Investing Activities

The change in net cash used in investing activities for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, was primarily due to decreased capital expenditures during 2019 of $2.9 million.

Cash Flows Used in Financing Activities

The change in net cash used in financing activities for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was the result of two cash distributions paid during the six months ended June 30, 2019, compared to no distributions paid during 2018.

Off-Balance Sheet Arrangements

We do not have any “off-balance sheet arrangements” as such term is defined within the rules and regulations of the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risks as of and for the three and six months ended June 30, 2019 as compared to the risks discussed in Part II, Item 7A of our 2018 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of June 30, 2019, we have evaluated, under the direction of our Executive Chairman, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e). Based upon and as of the date of that evaluation, our Executive Chairman, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Partnership’s management, including our Executive Chairman, Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer as appropriate, to allow timely decisions regarding required disclosure.

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Changes in Internal Control Over Financial Reporting

There has been no material change in the Partnership’s internal control over financial reporting required by Rule 13a-15 of the Exchange Act that occurred during the fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 11 (“Commitments and Contingencies”) to Part I, Item 1 of this Report, which is incorporated by reference into this Part II, Item 1, for a description of certain litigation, legal and administrative proceedings and environmental matters.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of our 2018 Form 10-K.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit		Exhibit Description

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Executive Chairman.
31.2*		Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer.
31.3*		Rule 13a-14(a)/15d-14(a) Certification of Executive Vice President and Chief Financial Officer.
31.4*		Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer and Corporate Controller.
32.1†		Section 1350 Certification of Executive Chairman, President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, and the Chief Accounting Officer and Corporate Controller.
101*		The following financial information for CVR Partners, LP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (“Extensible Business Reporting Language”) includes: (1) Condensed Consolidated Balance Sheets (unaudited), (2) Condensed Consolidated Statements of Operations (unaudited), (3) Condensed Consolidated Statements of Partners’ Capital (unaudited), (4) Condensed Consolidated Statements of Cash Flows (unaudited) and (5) the Notes to Condensed Consolidated Financial Statements (unaudited), tagged in detail.


*	Filed herewith.


†	Furnished herewith.


+	Denotes management contract or compensatory plan or arrangement.

PLEASE NOTE: Pursuant to the rules and regulations of the SEC, we may file or incorporate by reference agreements referenced as exhibits to the reports that we file with or furnish to the SEC. The agreements are filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other factual information about the Partnership, its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Partnership’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Partnership, its business or operations on the date hereof.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	CVR Partners, LP
	By:	CVR GP, LLC, its general partner



July 25, 2019	By:	/s/ Tracy D. Jackson
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)


July 25, 2019	By:	/s/ Matthew W. Bley
		Chief Accounting Officer and Corporate Controller
		(Principal Accounting Officer)

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CVR Partners - 10-Q quarterly report FY2019 Q2

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