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EX-32.3 - EX-32.3 - CVR PARTNERS, LPuanq32017exhibit323.htm
EX-32.2 - EX-32.2 - CVR PARTNERS, LPuanq32017exhibit322.htm
EX-32.1 - EX-32.1 - CVR PARTNERS, LPuanq32017exhibit321.htm
EX-31.3 - EX-31.3 - CVR PARTNERS, LPuanq32017exhibit313.htm
EX-31.2 - EX-31.2 - CVR PARTNERS, LPuanq32017exhibit312.htm
EX-31.1 - EX-31.1 - CVR PARTNERS, LPuanq32017exhibit311.htm

 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2017
 
 
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
(Address of principal executive offices)
77479
(Zip Code)
(281) 207-3200
(Registrant’s telephone number, including area code)

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 þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ     No o

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  o
Accelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
 

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. o

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

There were 113,282,973 common units outstanding at October 30, 2017.
 





 CVR PARTNERS, LP AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT ON FORM 10-Q
For The Quarter Ended September 30, 2017


 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2



GLOSSARY OF SELECTED TERMS

The following are definitions of certain terms used in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 (this "Report"):     

2023 Notes
$645.0 million aggregate principal amount of 9.25% Senior Notes due 2023, which were issued through CVR Partners and CVR Nitrogen Finance Corporation.
 
 
ABL Credit Facility
The Partnership's senior secured asset based revolving credit facility with a group of lenders and UBS AG, Stamford Branch, as administrative agent and collateral agent.
 
 
ammonia
Ammonia is a direct application fertilizer and is primarily used as a building block for other nitrogen products for industrial applications and finished fertilizer products.
 
 
capacity
Capacity is defined as the throughput a process unit is capable of sustaining, either on a calendar or stream day basis. The throughput may be expressed in terms of maximum sustainable, nameplate or economic capacity. The maximum sustainable or nameplate capacities may not be the most economical. The economic capacity is the throughput that generally provides the greatest economic benefit based on considerations such as feedstock costs, product values and downstream unit constraints.
 
 
Coffeyville Facility
CVR Partners' nitrogen fertilizer manufacturing facility located in Coffeyville, Kansas.
 
 
common units
Common units representing limited partner interests of CVR Partners.
 
 
corn belt
The primary corn producing region of the United States, which includes Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, Ohio and Wisconsin.
 
 
CVR Energy
CVR Energy, Inc., a publicly traded company listed on the New York Stock Exchange under the ticker symbol "CVI," which indirectly owns our general partner and the common units owned by Coffeyville Resources, LLC.
 
 
CVR Nitrogen
CVR Nitrogen, LP (formerly known as East Dubuque Nitrogen Partners, L.P. and also formerly known as Rentech Nitrogen Partners L.P.).
 
 
CVR Partners
CVR Partners, LP.
 
 
CVR Refining
CVR Refining, LP, a publicly traded limited partnership listed on the New York Stock Exchange under the ticker symbol "CVRR," which through its subsidiaries, currently owns and operates a complex full coking medium-sour crude oil refinery with a rated capacity of 115,000 barrels per calendar day (bpcd) in Coffeyville, Kansas, a complex crude oil refinery with a rated capacity of 70,000 bpcd in Wynnewood, Oklahoma and ancillary businesses.
 
 
East Dubuque Facility
CVR Partners' nitrogen fertilizer manufacturing facility located in East Dubuque, Illinois.
 
 
East Dubuque Merger
The transactions contemplated by the Agreement and Plan of Merger dated August 9, 2015, whereby the Partnership acquired CVR Nitrogen and CVR Nitrogen GP, LLC on April 1, 2016.
 
 
farm belt
Refers to the states of Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Texas and Wisconsin.
 
 
general partner
CVR GP, LLC, our general partner, which is a wholly-owned subsidiary of Coffeyville Resources, LLC.
 
 
MMBtu
One million British thermal units: a measure of energy. One Btu of heat is required to raise the temperature of one pound of water one degree Fahrenheit.
 
 
MSCF
One thousand standard cubic feet, a customary gas measurement.
 
 
netback
Netback represents net sales less freight revenue divided by product sales volume in tons. Netback is also referred to as product pricing at gate.
 
 

3


on-stream
Measurement of the reliability of the gasification, ammonia and UAN units, defined as the total number of hours operated by each unit divided by the total number of hours in the reporting period.
 
 
Partnership
CVR Partners, LP.
 
 
pet coke
Petroleum coke - a coal-like substance that is produced during the oil refining process.
 
 
product pricing at gate
Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons. Product pricing at gate is also referred to as netback.
 
 
southern plains
Primarily includes Oklahoma, Texas and New Mexico.
 
 
ton
One ton is equal to 2,000 pounds.
 
 
turnaround
A periodically required standard procedure to refurbish and maintain a facility that involves the shutdown and inspection of major processing units.
 
 
UAN
UAN is an aqueous solution of urea and ammonium nitrate used as a fertilizer.

4


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
 
September 30,
2017
 
December 31,
2016
 
(unaudited)
 
 
 
(in thousands, except unit data)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
69,977

 
$
55,595

Accounts receivable, net of allowance for doubtful accounts of $44 and $46 at September 30, 2017 and December 31, 2016, respectively
12,345

 
13,924

Inventories
57,556

 
58,167

Prepaid expenses and other current assets, including $336 and $750 with affiliates at September 30, 2017 and December 31, 2016, respectively
5,128

 
6,845

Total current assets
145,006

 
134,531

Property, plant, and equipment, net of accumulated depreciation
1,083,999

 
1,130,121

Goodwill
40,969

 
40,969

Other long-term assets, including $463 and $598 with affiliates at September 30, 2017 and December 31, 2016, respectively
5,785

 
6,596

Total assets
$
1,275,759

 
$
1,312,217

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
 
 
 
Accounts payable, including $2,217 and $2,402 due to affiliates at September 30, 2017 and December 31, 2016, respectively
$
20,994

 
$
28,815

Personnel accruals, including $1,860 and $1,968 with affiliates at September 30, 2017 and December 31, 2016, respectively
7,454

 
9,256

Deferred revenue
19,361

 
12,571

Accrued expenses and other current liabilities, including $2,844 and $2,515 with affiliates at September 30, 2017 and December 31, 2016, respectively
23,915

 
12,374

Total current liabilities
71,724

 
63,016

Long-term liabilities:
 
 
 
Long-term debt, net of current portion
625,178

 
623,107

Other long-term liabilities
1,599

 
1,187

Total long-term liabilities
626,777

 
624,294

Commitments and contingencies


 


Partners’ capital:
 
 
 
Common unitholders, 113,282,973 units issued and outstanding at September 30, 2017 and December 31, 2016
577,257

 
624,906

General partner interest
1

 
1

Total partners’ capital
577,258

 
624,907

Total liabilities and partners’ capital
$
1,275,759

 
$
1,312,217

See accompanying notes to the condensed consolidated financial statements.

5


CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(unaudited)
 
(in thousands, except per unit data)
Net sales
$
69,393

 
$
78,474

 
$
252,610

 
$
271,363

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of materials and other — Affiliates
1,774

 
529

 
5,584

 
1,886

Cost of materials and other — Third parties
17,721

 
19,282

 
57,789

 
70,355

 
19,495

 
19,811

 
63,373

 
72,241

Direct operating expenses (exclusive of depreciation and amortization) — Affiliates
978

 
1,106

 
2,848

 
3,207

Direct operating expenses (exclusive of depreciation and amortization) — Third parties
39,290

 
31,460

 
111,151

 
107,193

 
40,268

 
32,566

 
113,999

 
110,400

Depreciation and amortization
19,483

 
16,452

 
54,877

 
40,987

     Cost of sales
79,246

 
68,829

 
232,249

 
223,628

 
 
 
 
 
 
 
 
Selling, general and administrative expenses — Affiliates
3,917

 
3,560

 
11,399

 
10,939

Selling, general and administrative expenses — Third parties
2,166

 
3,701

 
7,351

 
11,057

 
6,083

 
7,261

 
18,750

 
21,996

Total operating costs and expenses
85,329

 
76,090

 
250,999

 
245,624

Operating income (loss)
(15,936
)
 
2,384

 
1,611

 
25,739

Other income (expense):
 
 
 
 
 
 
 
Interest expense and other financing costs
(15,737
)
 
(15,633
)
 
(47,140
)
 
(32,820
)
Interest income
14

 

 
29

 
4

Loss on extinguishment of debt

 

 

 
(5,116
)
Other income, net
22

 
26

 
81

 
83

Total other expense
(15,701
)
 
(15,607
)
 
(47,030
)
 
(37,849
)
Loss before income tax expense
(31,637
)
 
(13,223
)
 
(45,419
)
 
(12,110
)
Income tax expense (benefit)
(35
)
 
207

 
(36
)
 
284

Net loss
$
(31,602
)
 
$
(13,430
)
 
$
(45,383
)
 
$
(12,394
)
 
 
 
 
 
 
 
 
Net loss per common unit — basic and diluted
$
(0.28
)
 
$
(0.12
)
 
$
(0.40
)
 
$
(0.12
)
Weighted-average common units outstanding — basic and diluted
113,283

 
113,283

 
113,283

 
99,947



See accompanying notes to the condensed consolidated financial statements.


6


CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(unaudited)
 
(in thousands)
Net loss
$
(31,602
)
 
$
(13,430
)
 
$
(45,383
)
 
$
(12,394
)
Other comprehensive income:
 
 
 
 
 
 
 
Net loss reclassified into income on settlement of interest rate swaps

 

 

 
119

Other comprehensive income

 

 

 
119

Total comprehensive loss
$
(31,602
)
 
$
(13,430
)
 
$
(45,383
)
 
$
(12,275
)
See accompanying notes to the condensed consolidated financial statements.


7


CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

 
Common Units 
 
General
Partner
Interest
 
Total
 
Issued
 
Amount
 
 
 
 
 
 
 
 
 
 
 
(unaudited)
 
(in thousands, except unit data)
Balance at December 31, 2016
113,282,973

 
$
624,906

 
$
1

 
$
624,907

Cash distributions to common unitholders – Affiliates

 
(778
)
 

 
(778
)
Cash distributions to common unitholders – Non-affiliates

 
(1,488
)
 

 
(1,488
)
Net loss

 
(45,383
)
 

 
(45,383
)
Balance at September 30, 2017
113,282,973

 
$
577,257

 
$
1

 
$
577,258


See accompanying notes to the condensed consolidated financial statements.


8


CVR PARTNERS, LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
 
 
 
 
(unaudited)
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(45,383
)
 
$
(12,394
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
54,877

 
40,987

Allowance for doubtful accounts
(2
)
 
14

Amortization of deferred financing costs and original issue discount
952

 
1,024

Amortization of debt fair value adjustment
1,306

 
1,250

Loss on disposition of fixed assets
58

 
127

Loss on extinguishment of debt

 
5,116

Share-based compensation – Affiliates
1,434

 
1,178

Share-based compensation
314

 
653

Change in assets and liabilities:
 
 
 
Accounts receivable
1,581

 
3,404

Inventories
167

 
32,244

Prepaid expenses and other current assets
1,721

 
4,218

Other long-term assets
330

 
(489
)
Accounts payable
(4,558
)
 
1,580

Deferred revenue
7,370

 
(27,672
)
Accrued expenses and other current liabilities
7,991

 
(4,008
)
Other long-term liabilities
(54
)
 
277

Net cash provided by operating activities
28,104

 
47,509

Cash flows from investing activities:
 
 
 
Capital expenditures
(11,456
)
 
(18,268
)
Acquisition of CVR Nitrogen, LP, net of cash acquired

 
(63,869
)
Net cash used in investing activities
(11,456
)
 
(82,137
)

9


 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
 
 
 
 
(unaudited)
 
(in thousands)
Cash flows from financing activities:
 
 
 
Principal and premium payments on 2021 Notes

 
(320,539
)
Principal payment on CRLLC Facility

 
(300,000
)
Principal payments on long-term debt

 
(125,000
)
Payment of revolving debt

 
(49,100
)
Payment of financing costs

 
(10,191
)
Proceeds on issuance of 2023 Notes, net of original issue discount

 
628,869

Proceeds on CRLLC Facility

 
300,000

Contribution from affiliate

 
507

Cash distributions to common unitholders – Affiliates
(778
)
 
(27,633
)
Cash distributions to common unitholders – Non-affiliates
(1,488
)
 
(41,956
)
Purchase of noncontrolling interest

 
(5,000
)
Net cash provided by (used in) financing activities
(2,266
)
 
49,957

Net increase in cash and cash equivalents
14,382

 
15,329

Cash and cash equivalents, beginning of period
55,595

 
49,967

Cash and cash equivalents, end of period
$
69,977

 
$
65,296

 
 
 
 
Supplemental disclosures:
 
 
 
Cash paid for income taxes, net
$
43

 
$
14

Cash paid for interest, net of capitalized interest of $150 and $422 in 2017 and 2016, respectively
$
29,896

 
$
22,304

Non-cash investing and financing activities:
 
 
 
Construction in progress additions included in accounts payable
$
608

 
$
1,394

Change in accounts payable related to construction in progress additions
$
(3,263
)
 
$
(3,816
)
Reduction of proceeds from 2023 Notes from original issue discount
$

 
$
16,131

Fair value of common units issued in a business combination
$

 
$
335,693

Fair value of debt assumed in a business combination
$

 
$
367,500


See accompanying notes to the condensed consolidated financial statements.

10

CVR PARTNERS, LP AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(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. Nitrogen fertilizer is used by farmers to improve the yield and quality of their crops, primarily corn and wheat. The Partnership principally produces ammonia and urea ammonium nitrate ("UAN"), an aqueous solution of urea and ammonium nitrate. The Partnership's product sales are sold on a wholesale basis in North America.

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"). On April 1, 2016, the Partnership completed the merger (the "East Dubuque Merger") with CVR Nitrogen, LP (formerly known as East Dubuque Nitrogen Partners, L.P. and also formerly known as Rentech Nitrogen Partners, L.P.) ("CVR Nitrogen") and with CVR Nitrogen GP, LLC (formerly known as East Dubuque Nitrogen GP, LLC and also formerly known as Rentech Nitrogen GP, LLC) ("CVR Nitrogen GP"), whereby the Partnership acquired the East Dubuque Facility. See Note 4 ("East Dubuque Merger") for further discussion.

The Partnership's subsidiaries include Coffeyville Resources Nitrogen Fertilizers, LLC ("CRNF"), which owns and operates the Coffeyville Facility, and East Dubuque Nitrogen Fertilizers, LLC ("EDNF"), which owns and operates the East Dubuque Facility. Both facilities manufacture ammonia and are able to further upgrade to other nitrogen fertilizer products, principally UAN.

Immediately subsequent to the East Dubuque Merger and as of September 30, 2017, 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 noneconomic general partner interest. As of September 30, 2017, Icahn Enterprises L.P. ("IEP") and its affiliates owned approximately 82% of the shares of CVR Energy.

Management and Operations

CVR GP, LLC ("CVR GP" or the "general partner") manages and operates the Partnership. Common unitholders have only limited voting rights on matters affecting the Partnership. In addition, common unitholders have no right to elect the general partner's directors on an annual or continuing basis.

The Partnership is operated by 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. The various rights and responsibilities of the Partnership's partners are set forth in the limited partnership agreement. The Partnership also is party to a number of agreements with CVR Energy and CVR GP to regulate certain business relations between the Partnership and the other parties thereto. See Note 14 ("Related Party Transactions") for further discussion.

(2) Basis of Presentation

The accompanying Partnership condensed consolidated financial statements include the accounts of CVR Partners and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). These condensed consolidated financial statements should be read in conjunction with the December 31, 2016 audited consolidated financial statements and notes thereto included in CVR Partners’ Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on February 21, 2017 (the "2016 Form 10-K").

The condensed consolidated financial statements include certain selling, general and administrative expenses and direct operating expenses that CVR Energy and its subsidiaries incurred on behalf of the Partnership. These related party transactions are governed by the services agreement. See Note 14 ("Related Party Transactions") for additional discussion of the services agreement and billing and allocation of certain costs.

11

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)


In the opinion of the Partnership’s management, the accompanying condensed consolidated financial statements and related notes reflect all adjustments (consisting only of normal recurring adjustments) that are necessary to fairly present the financial position of the Partnership as of September 30, 2017 and December 31, 2016, the results of operations and comprehensive income (loss) of the Partnership for the three and nine months ended September 30, 2017 and 2016, the cash flows of the Partnership for the nine months ended September 30, 2017 and 2016 and the changes in partners’ capital for the Partnership for the nine months ended September 30, 2017.

The preparation of 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, 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, 2017 or any other interim or annual period.

Planned Major Maintenance Costs

The direct-expense method of accounting is used for maintenance activities, including planned major maintenance activities and other less extensive shutdowns. Maintenance costs are recognized as expense when maintenance services are performed. Planned major maintenance activities generally occur every two to three years.

During the third quarter of 2017, the East Dubuque Facility completed a scheduled turnaround. Overall results were negatively impacted due to the lost production during the downtime that resulted in reduced sales and certain reduced variable expenses included in cost of materials and other and direct operating expenses (exclusive of depreciation and amortization). Exclusive of the impacts due to the lost production, costs of approximately $2.5 million and $2.6 million associated with the 2017 East Dubuque turnaround are included in direct operating expenses (exclusive of depreciation and amortization) in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017, respectively.

During the second quarter of 2016, the East Dubuque Facility completed a major scheduled turnaround. Overall results were negatively impacted due to the lost production during the downtime that resulted in reduced sales and certain reduced variable expenses included in cost of materials and other and direct operating expenses (exclusive of depreciation and amortization). Exclusive of the impacts due to the lost production, costs of approximately $6.6 million associated with the 2016 East Dubuque turnaround are included in direct operating expenses (exclusive of depreciation and amortization) in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2016.


12

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

(3) Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, creating a new topic, FASB Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers," which supersedes revenue recognition requirements in FASB ASC Topic 605, "Revenue Recognition." This ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In addition, an entity is required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for interim and annual periods beginning after December 15, 2017. The Partnership will adopt this standard as of January 1, 2018 using the modified retrospective application method, whereby the cumulative effect of initially applying the standard is recognized, if applicable, as an adjustment to the opening balance of partners’ capital. The guidance will be applied prospectively and revenues reported in the periods prior to the date of adoption will not be changed. The Partnership is executing its implementation plan to adopt the new standard and is currently finalizing the assessment phase of the plan, after which the Partnership will complete the design and implementation phases of the plan, which will include implementing any changes to existing business processes, internal controls and systems to accommodate the new standard. During the assessment phase, the Partnership has reviewed the majority of its existing revenue streams, including an evaluation of accounting policies, contract reviews, identification of the types of arrangements where differences may arise in the conversion to the new standard, identification of practical expedients to be elected and additional disclosure requirements. The Partnership is still evaluating certain revenue streams and contracts to determine the impact, if any, on the consolidated financial statements and related disclosures. To date, the Partnership has not identified any material differences in its existing revenue recognition methods that would require modification under the new standard. The Partnership has identified potential balance sheet presentation differences as well as additional disclosure requirements that the Partnership is in the process of evaluating.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"), creating a new topic, FASB ASC Topic 842, "Leases," 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 to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The standard is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. At adoption, ASU 2016-02 will be applied using the modified retrospective application method. The Partnership is formulating an assessment and implementation plan to adopt the new standard. The Partnership expects its assessment and implementation plan to be ongoing during 2017 and 2018 and is currently unable to reasonably estimate the impact of adopting the new leases standard on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment." The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Partnership adopted this standard as of January 1, 2017.

(4) East Dubuque Merger

On April 1, 2016, the Partnership completed the East Dubuque Merger as contemplated by the Agreement and Plan of Merger, dated as of August 9, 2015 (the "Merger Agreement"), whereby the Partnership acquired CVR Nitrogen and CVR Nitrogen GP. Under the terms of the Merger Agreement, holders of CVR Nitrogen common units eligible to receive consideration received 1.04 common units representing limited partner interests in CVR Partners and $2.57 in cash, without interest, for each CVR Nitrogen common unit. Pursuant to the Merger Agreement, CVR Partners issued approximately 40.2 million CVR Partners common units and paid approximately $99.2 million in cash consideration to CVR Nitrogen common unitholders and certain holders of CVR Nitrogen phantom units.

The aggregate merger consideration was approximately $802.4 million, including the fair value of CVR Partners common units issued of $335.7 million, a cash contribution of $99.2 million and $367.5 million fair value of assumed debt. During the three and nine months ended September 30, 2016, the Partnership incurred approximately $0.7 million and $3.1 million, respectively, of legal and other professional fees and other merger-related expenses, which were included in selling, general and administrative expenses.

13

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)


CVR Nitrogen’s debt arrangements that remained in place after the closing date of the East Dubuque Merger included $320.0 million of its 6.500% notes due 2021 (the "2021 Notes"). The substantial majority of the 2021 Notes were repurchased in June 2016.

Immediately prior to the East Dubuque Merger, CVR Nitrogen also had outstanding balances under a credit agreement with Wells Fargo Bank, National Association, as successor-in-interest by assignment from General Electric Company, as administrative agent (the "Wells Fargo Credit Agreement"). In connection with the closing of the East Dubuque Merger, the Partnership paid $49.4 million for the outstanding balance, accrued interest and fees under the Wells Fargo Credit Agreement, and the Wells Fargo Credit Agreement was terminated.

(5) Share‑Based Compensation

Certain employees of CVR Partners and employees of CVR Energy who perform services for the Partnership under the services agreement with CVR Energy participate in equity-based compensation plans of CVR Partners' affiliates. Accordingly, CVR Partners has recorded compensation expense for these plans. All compensation expense related to these plans for full-time employees of CVR Partners has been attributed 100% to the Partnership. For employees of CVR Energy, the Partnership records share-based compensation relative to the percentage of time spent by each employee providing services to the Partnership as compared to the total calculated share-based compensation by CVR Energy. The Partnership recognizes the costs of share-based compensation in selling, general and administrative expenses and direct operating expenses (exclusive of depreciation and amortization). Allocated expense amounts related to plans for which the Partnership is responsible for payment are reflected as an increase or decrease to accrued expenses and other current liabilities.

Long-Term Incentive Plan – CVR Energy

CVR Energy has a Long-Term Incentive Plan ("CVR Energy LTIP") that permits the grant of options, stock appreciation rights, restricted shares, restricted stock units, dividend equivalent rights, share awards and performance awards (including performance share units, performance units and performance based restricted stock). As of September 30, 2017, only grants of performance units under the CVR Energy LTIP remain outstanding. Individuals who are eligible to receive awards and grants under the CVR Energy LTIP include CVR Energy’s or its subsidiaries’ employees, officers, consultants and directors.

Performance Unit Awards

In December 2015, CVR Energy entered into a performance unit award agreement (the "2015 Performance Unit Award Agreement") with its Chief Executive Officer. Compensation cost for the 2015 Performance Unit Award Agreement was recognized over the performance cycle from January 1, 2016 to December 31, 2016. The awards were fully vested at December 31, 2016 and the Partnership reimbursed CVR Energy $0.5 million for its allocated portion of the performance unit award during the first quarter of 2017. As of December 31, 2016, the Partnership had a liability of $0.5 million, for its allocated portion of the 2015 Performance Unit Award Agreement, which was recorded in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. Compensation expense recorded for the three and nine months ended September 30, 2016 related to the awards was approximately $0.2 million and $0.4 million, respectively.

In December 2016, CVR Energy entered into a performance unit award agreement (the "2016 Performance Unit Award Agreement") with its Chief Executive Officer. Compensation cost for the 2016 Performance Unit Award Agreement will be recognized over the performance cycle from January 1, 2017 to December 31, 2017. The performance unit award represents the right to receive, upon vesting, a cash payment equal to a defined threshold in accordance with the award agreement, multiplied by a performance factor that is based upon the achievement of certain operating objectives. The Partnership will be responsible for reimbursing CVR Energy for its allocated portion of the performance unit award. Assuming a target performance threshold and that the allocation of costs from CVR Energy remains consistent with the allocation percentages in place at September 30, 2017, there was approximately $0.1 million of total unrecognized compensation cost related to the 2016 Performance Unit Award Agreement to be recognized over approximately 0.3 years. Compensation expense recorded for the three and nine months ended September 30, 2017 related to the awards was approximately $0.1 million and $0.4 million, respectively. The Partnership will be responsible for reimbursing CVR Energy for its allocated portion of the awards. As of September 30, 2017, the Partnership had a liability of $0.4 million, for its allocated portion of

14

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

the 2016 Performance Unit Award Agreement, which is recorded in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

Incentive Unit Awards – CVR Energy

CVR Energy has granted awards of incentive units and distribution equivalent rights to certain employees of CRLLC, CVR Energy and the Partnership's general partner who provide shared services to CVR Energy and its subsidiaries (including the Partnership). The awards are generally graded vesting awards, which are expected to vest over three years, with one-third of the award vesting each year. Compensation expense is recognized on a straight-line basis over the vesting period of the respective tranche of the award. Each incentive unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one common unit of CVR Refining, LP ("CVR Refining") in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by CVR Refining from the grant date to and including the vesting date. The awards, which are liability-classified, are remeasured at each subsequent reporting date until they vest.

Assuming the portion of time spent on CVR Partners related matters by CVR Energy employees providing services to CVR Partners remains consistent with the amount of services provided during September 30, 2017, there was approximately $0.7 million of total unrecognized compensation cost related to the incentive units and associated distribution equivalent rights to be recognized over a weighted-average period of approximately 1.0 year. Inclusion of a vesting table would not be meaningful due to changes in allocation percentages that may occur from time to time. The unrecognized compensation expense has been determined by the number of incentive units and respective allocation percentage for individuals for whom, as of September 30, 2017, compensation expense has been allocated to the Partnership. Compensation expense recorded for both the three months ended September 30, 2017 and 2016 was approximately $0.2 million. Compensation expense recorded for the nine months ended September 30, 2017 and 2016 was approximately $0.7 million and $0.2 million, respectively. The Partnership is responsible for reimbursing CVR Energy for its allocated portion of the awards.

As of September 30, 2017 and December 31, 2016, the Partnership had a liability related to these awards of $1.0 million and $0.4 million, respectively, which is recorded in accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

Long-Term Incentive Plan – CVR Partners

The Partnership has a long-term incentive plan ("CVR Partners LTIP") that provides for the grant of options, unit appreciation rights, distribution equivalent rights, restricted units, phantom units and other unit-based awards, each in respect of common units. Individuals eligible to receive awards pursuant to the CVR Partners LTIP include (i) employees of the Partnership and its subsidiaries, (ii) employees of the general partner, (iii) members of the board of directors of the general partner, and (iv) certain CVR Partners' parent's employees, consultants and directors who perform services for the benefit of the Partnership.

Through the CVR Partners LTIP, phantom unit awards outstanding include awards granted to employees of both the Partnership and the general partner. Phantom unit awards made to employees of the general partner are considered non-employee equity based-awards. The phantom unit awards outstanding vest over a three-year period. The maximum number of common units issuable under the CVR Partners LTIP is 5,000,000. As of September 30, 2017, there were 4,820,215 common units available for issuance under the CVR Partners LTIP. As all phantom unit awards discussed below are cash settled awards, they do not reduce the number of common units available for issuance.

Each phantom unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one unit of the Partnership's common units in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by the Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, are remeasured at each subsequent reporting date until they vest. The phantom unit awards are generally graded vesting awards, which are expected to vest over three years with one-third of the award vesting each year. Compensation expense is recognized on a straight-line basis over the vesting period of the respective tranche of the award.


15

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

A summary of the phantom unit activity during the nine months ended September 30, 2017 is presented below:

 
Phantom Units
 
Weighted-Average
Grant Date Fair Value
Non-vested at January 1, 2017
771,786

 
$
6.47

Granted
3,172

 
4.73

Vested
(7,333
)
 
8.03

Forfeited
(23,222
)
 
6.49

Non-vested at September 30, 2017
744,403

 
$
6.45


Unrecognized compensation expense associated with the unvested phantom units at September 30, 2017 was approximately $1.0 million and is expected to be recognized over a weighted average period of 1.0 year. Compensation expense recorded for the three months ended September 30, 2017 related to the awards under the CVR Partners LTIP was approximately $0.3 million. Compensation benefit recorded for the three months ended September 30, 2016 related to the awards under the CVR Partners LTIP was approximately $0.2 million. Compensation expense recorded for the nine months ended September 30, 2017 and 2016 related to the awards under the CVR Partners LTIP was approximately $0.7 million and $1.2 million, respectively. Compensation expense related to the awards to employees of the Partnership and its subsidiaries under the CVR Partners LTIP has been recorded in selling, general and administrative expenses - third parties and direct operating expenses (exclusive of depreciation and amortization) - third parties. Compensation expense related to the awards issued to employees of the general partner under the CVR Partners LTIP has been recorded in selling, general and administrative expenses - affiliates and direct operating expenses (exclusive of depreciation and amortization) - affiliates. As of September 30, 2017 and December 31, 2016, the Partnership had a liability of $1.6 million and $1.0 million, respectively, for cash settled non-vested phantom unit awards and associated distribution equivalent rights, which is recorded in personnel accruals on the Condensed Consolidated Balance Sheets.

(6) Inventories

Inventories consisted of the following:


September 30,
2017
 
December 31,
2016
 
 
 
 
 
(in thousands)
Finished goods
$
17,422

 
$
15,860

Raw materials and precious metals
7,022

 
8,818

Parts and supplies
33,112

 
33,489

Total inventories
$
57,556

 
$
58,167



16

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

(7) Property, Plant and Equipment

A summary of costs and accumulated depreciation for property, plant and equipment is as follows:

 
September 30,
2017
 
December 31,
2016
 
 
 
 
 
(in thousands)
Land and improvements
$
12,987

 
$
12,995

Buildings and improvements
17,298

 
14,881

Machinery and equipment
1,351,165

 
1,343,980

Automotive equipment
599

 
599

Furniture and fixtures
1,421

 
1,437

Railcars
16,261

 
16,261

Construction in progress
7,508

 
9,588

 
1,407,239

 
1,399,741

Less: Accumulated depreciation
323,240

 
269,620

Total property, plant and equipment, net
$
1,083,999

 
$
1,130,121


Capitalized interest recognized as a reduction of interest expense was approximately $41,000 and $21,000 for the three months ended September 30, 2017 and 2016, respectively. Capitalized interest recognized as a reduction of interest expense was approximately $0.2 million and $0.4 million, respectively, for the nine months ended September 30, 2017 and 2016.

(8) Partners’ Capital and Partnership Distributions

The Partnership has two types of partnership interests outstanding:

common units; and

a general partner interest, which is not entitled to any distributions, and which is held by the general partner.

Immediately subsequent to the East Dubuque Merger and as of September 30, 2017, the Partnership had a total of 113,282,973 common units issued and outstanding, of which 38,920,000 common units were owned by CRLLC, representing approximately 34% of the total Partnership common units outstanding.

The board of directors of the Partnership's general partner has a policy for the Partnership to distribute all available cash generated on a quarterly basis. Cash distributions will be made to the common unitholders of record on the applicable record date, generally within 60 days after the end of each quarter. Available cash for each quarter will be determined by the board of directors of the general partner following the end of such quarter.

Available cash begins with Adjusted EBITDA reduced for cash needed for (i) net cash interest expense (excluding capitalized interest) and debt service and other contractual obligations; (ii) maintenance capital expenditures; and (iii) to the extent applicable, major scheduled turnaround expenses, reserves for future operating or capital needs that the board of directors of the general partner deems necessary or appropriate, and expenses associated with the East Dubuque Merger, if any. Adjusted EBITDA is defined as EBITDA (net income before interest expense, net, income tax expenses, depreciation and amortization) further adjusted for the impact of major scheduled turnaround expense, gain or loss on extinguishment of debt, loss on disposition of assets, expenses associated with the East Dubuque Merger and business interruption insurance recovery, when applicable. Available cash for distribution may be increased by the release of previously established cash reserves, if any, at the discretion of the board of directors of the general partner, and available cash is increased by the business interruption insurance proceeds and the impact of purchase accounting. Actual distributions are set by the board of directors of the general partner. The board of directors of the general partner may modify the cash distribution policy at any time, and the partnership agreement does not require the board of directors of the general partner to make distributions at all.

17

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)


The following is a summary of cash distributions paid to the Partnership's unitholders during 2017 for the respective quarters to which the distributions relate:

 
December 31,
2016
 
March 31,
2017
 
June 30,
2017
 
Total Cash Distributions
Paid in 2017
 
 
 
 
 
 
 
 
 
($ in millions, except per common unit amounts)
Amount paid to CRLLC
$

 
$
0.8

 
$

 
$
0.8

Amount paid to public unitholders

 
1.5

 

 
1.5

Total amount paid
$

 
$
2.3

 
$

 
$
2.3

Per common unit
$

 
$
0.02

 
$

 
$
0.02

Common units outstanding (in thousands)
113,283

 
113,283

 
113,283

 
 


(9) Goodwill

The Partnership evaluates the carrying value of goodwill annually as of November 1 and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Partnership's goodwill reporting unit is the Coffeyville Facility.

Based on a significant decline in market capitalization and lower cash flow forecasts resulting from weakened fertilizer pricing trends that occurred during the third quarter of 2017, the Partnership identified a triggering event and therefore performed an interim goodwill impairment test as of August 31, 2017. The quantitative goodwill impairment analysis compares the fair value of the reporting unit to its carrying value. The Coffeyville Facility reporting unit fair value is based upon consideration of various valuation methodologies, including guideline public company multiples and projected future cash flows discounted at rates commensurate with the risk involved. The carrying amount of the reporting unit was less than its fair value; therefore, no impairment was recorded.

The fair value of the reporting unit exceeded its carrying value by approximately 12% based upon the results of the interim goodwill impairment test as of August 31, 2017. Judgments and assumptions are inherent in management’s estimates used to determine the fair value of the reporting unit. Assumptions used in the discounted cash flows ("DCF") included estimating appropriate discount rates and growth rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF, which are intended to reflect the risks inherent in future cash flow projections, are based on estimates of the weighted-average cost of capital of a market participant. Such estimates are derived from analysis of peer companies and consider the industry weighted average return on debt and equity from a market participant perspective. The most significant assumption to determining the fair value of the reporting unit was forecasted fertilizer pricing. Changes in assumptions may result in a change in management's estimates and may result in an impairment in future periods, including, but not limited to, further declines in the forecasted fertilizer pricing. The Partnership also calculated fair value estimates derived from the market approach utilizing the public company market multiple method, which required assumptions about the applicability of those multiples to the Coffeyville Facility reporting unit.

(10) Net Income (Loss) per Common Unit

The Partnership's net income (loss) is allocated wholly to the common units as the general partner does not have an economic interest. Basic and diluted net income (loss) per common unit is calculated by dividing net income (loss) by the weighted-average number of common units outstanding during the period. The common units issued during the period are included on a weighted-average basis for the days in which they were outstanding.


18

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

(11) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows:


As of 
 September 30, 
 2017
 
As of 
 December 31, 
 2016
 
 
 
 
 
(in thousands)
Property taxes
$
1,700

 
$
1,742

Accrued interest
17,635

 
2,683

Railcar maintenance accruals
152

 
2,502

Affiliates (1)
2,844

 
2,515

Other accrued expenses and liabilities
1,584

 
2,932

Total accrued expenses and other current liabilities
$
23,915

 
$
12,374

________________________________

(1)
Accrued expenses and other current liabilities include amounts owed by the Partnership to CVR Energy under the feedstock and shared services agreement. Refer to Note 14 ("Related Party Transactions") for additional discussion.

(12) Debt

Long-term debt consisted of the following:

 
As of 
 September 30, 
 2017
 
As of 
 December 31, 
 2016
 
 
 
 
 
(in thousands)
9.250% senior secured notes, due 2023
$
645,000

 
$
645,000

6.500% notes, due 2021
2,240

 
2,240

Total long-term debt, before debt issuance costs and discount
647,240

 
647,240

Less:
 
 
 
Unamortized discount
13,914

 
15,220

Unamortized debt issuance costs
8,148

 
8,913

Total long-term debt, net of current portion
$
625,178

 
$
623,107


For the three months ended September 30, 2017 and 2016, amortization of the discount on debt and amortization of debt issuance costs reported as interest expense and other financing costs totaled approximately $0.7 million and $0.6 million, respectively. For the nine months ended September 30, 2017 and 2016, amortization of the discount on debt and amortization of debt issuance costs reported as interest expense and other financing costs totaled approximately $2.1 million and $1.0 million, respectively.

2023 Notes

On June 10, 2016, the Partnership and CVR Nitrogen Finance Corporation ("CVR Nitrogen Finance"), an indirect wholly-owned subsidiary of the Partnership, (together the "2023 Notes Issuers"), certain subsidiary guarantors named therein and Wilmington Trust, National Association, as trustee and as collateral trustee, completed a private offering of $645.0 million aggregate principal amount of 9.250% Senior Secured Notes due 2023 (the "2023 Notes"). The 2023 Notes mature on June 15, 2023, unless earlier redeemed or repurchased by the issuers. Interest on the 2023 Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The 2023 Notes are guaranteed on a senior secured basis by all of the Partnership’s existing subsidiaries.

The 2023 Notes contain customary covenants for a financing of this type that, among other things, restrict the Partnership’s ability and the ability of certain of its subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Partnership’s units or

19

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from the Partnership’s restricted subsidiaries to the Partnership; (vii) consolidate, merge or transfer all or substantially all of the Partnership’s assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries.

The indenture governing the 2023 Notes prohibits the Partnership from making distributions to unitholders if any default or event of default (as defined in the indenture) exists. In addition, the indenture limits the Partnership's ability to pay distributions to unitholders. The covenants will apply differently depending on the Partnership's fixed charge coverage ratio (as defined in the indenture). If the fixed charge coverage ratio is not less than 1.75 to 1.0, the Partnership will generally be permitted to make restricted payments, including distributions to its unitholders, without substantive restriction. If the fixed charge coverage ratio is less than 1.75 to 1.0, the Partnership will generally be permitted to make restricted payments, including distributions to our unitholders, up to an aggregate $75.0 million basket plus certain other amounts referred to as "incremental funds" under the indenture. As of September 30, 2017, the ratio was less than 1.75 to 1.0. Restricted payments have been made, and $72.7 million of the basket was available as of September 30, 2017. The Partnership was in compliance with the covenants contained in the 2023 Notes as of September 30, 2017.

Included in other current liabilities on the Condensed Consolidated Balance Sheets is accrued interest payable totaling approximately $17.6 million and $2.7 million, respectively, as of September 30, 2017 and December 31, 2016 related to the 2023 Notes. At September 30, 2017 and December 31, 2016, respectively, the estimated fair value of the 2023 Notes was approximately $686.9 million and $664.4 million. This estimate of fair value is Level 2 as it was determined by quotations obtained from a broker-dealer who makes a market in these and similar securities.

2021 Notes

The $320.0 million of 2021 Notes were issued by CVR Nitrogen and CVR Nitrogen Finance prior to the East Dubuque Merger. The 2021 Notes bear interest at a rate of 6.500% per annum, payable semi-annually in arrears on April 15 and October 15 of each year. The 2021 Notes are scheduled to mature on April 15, 2021, unless repurchased or redeemed earlier in accordance with their terms. The substantial majority of the 2021 Notes were repurchased in 2016. During the nine months ended September 30, 2016, the Partnership recognized a loss on debt extinguishment of $5.1 million. As of September 30, 2017 and December 31, 2016, $2.2 million of principal amount of the 2021 Notes remained outstanding and accrued interest was nominal.

Asset Based (ABL) Credit Facility

On September 30, 2016, the Partnership entered into a senior secured asset based revolving credit facility (the "ABL Credit Facility") with a group of lenders and UBS AG, Stamford Branch ("UBS"), as administrative agent and collateral agent. The ABL Credit Facility has an aggregate principal amount of availability of up to $50.0 million with an incremental facility, which permits an increase in borrowings of up to $25.0 million in the aggregate subject to additional lender commitments and certain other conditions. The proceeds of the loans may be used for capital expenditures and working capital and general corporate purposes of the Partnership and its subsidiaries. The ABL Credit Facility provides for loans and standby letters of credit in an amount up to the aggregate availability under the facility, subject to meeting certain borrowing base conditions, with sub-limits of the lesser of 10% of the total facility commitment and $5.0 million for swingline loans and $10.0 million for letters of credit. The ABL Credit Facility is scheduled to mature on September 30, 2021.

At the option of the borrowers, loans under the ABL 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. The borrowers must also pay a commitment fee on the unutilized commitments and also pay customary letter of credit fees.

The ABL Credit Facility also contains customary covenants for a financing of this type that limit the ability of the Partnership and its subsidiaries to, among other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and loans, enter into affiliate transactions, issue equity interests or create subsidiaries and unrestricted subsidiaries. The ABL Credit Facility also contains a fixed charge coverage ratio financial covenant, as defined therein. The Partnership was in compliance with the covenants of the ABL Credit Facility as of September 30, 2017.


20

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

As of September 30, 2017, the Partnership and its subsidiaries had availability under the ABL Credit Facility of $47.6 million. There were no borrowings outstanding under the ABL Credit Facility as of September 30, 2017.

CRLLC Facility

On April 1, 2016, in connection with the closing of the East Dubuque Merger, the Partnership entered into a $300.0 million senior term loan credit facility (the "CRLLC Facility") with CRLLC, as the lender, the proceeds of which were used by the Partnership (i) to fund the repayment of amounts outstanding under the Wells Fargo Credit Agreement discussed in Note 4 ("East Dubuque Merger"), (ii) to pay the cash consideration and to pay fees and expenses in connection with the East Dubuque Merger and related transactions and (iii) to repay all of the loans outstanding under the Credit Agreement discussed below. The CRLLC Facility had a term of two years and an interest rate of 12.0% per annum. Interest was calculated on the basis of the actual number of days elapsed over a 360-day year and payable quarterly. In April 2016, the Partnership borrowed $300.0 million under the CRLLC Facility. On June 10, 2016, the Partnership paid off the $300.0 million outstanding under the CRLLC Facility, paid $7.0 million in interest, and terminated the CRLLC Facility.

Credit Agreement

On April 13, 2011, CRNF, as borrower, and CVR Partners, as guarantor, entered into a credit facility with a group of lenders including Goldman Sachs Lending Partners LLC, as administrative and collateral agent (the "Credit Agreement"). The Credit Agreement included a term loan facility of $125.0 million and a revolving credit facility of $25.0 million with an uncommitted incremental facility of up to $50.0 million. At March 31, 2016, the effective rate of the term loan was approximately 3.98%. On April 1, 2016, the Partnership repaid all amounts outstanding under the Credit Agreement and the Credit Agreement was terminated.

(13) Commitments and Contingencies

Leases and Unconditional Purchase Obligations

The minimum required payments for the Partnership’s operating leases and unconditional purchase obligations are as follows:


Operating
Leases   
 
Unconditional
Purchase
Obligations
 
 
 
 
 
(in thousands)
Three months ending December 31, 2017
$
1,162

 
$
8,907

Year Ending December 31,
 
 
 
2018
4,424

 
17,321

2019
3,676

 
12,099

2020
3,138

 
6,978

2021
2,955

 
5,572

Thereafter
3,039

 
54,386

 
$
18,394

 
$
105,263


CRNF leases railcars and facilities under long-term operating leases. Lease expense included in cost of materials and other for the three months ended September 30, 2017 and 2016 totaled approximately $1.2 million and $1.3 million, respectively. Lease expense included in cost of materials and other for the nine months ended September 30, 2017 and 2016 totaled approximately $3.7 million and $3.6 million, respectively. The lease agreements have various remaining terms. Some agreements are renewable, at CRNF’s option, for additional periods. It is expected, in the ordinary course of business, that leases may be renewed or replaced as they expire. The Partnership leases railcars from a related party, which is included in the operating lease commitments shown above. See Note 14 ("Related Party Transactions") for further discussion.


21

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

CRNF’s purchase obligation for pet coke from a subsidiary of CVR Refining has been derived from a calculation of the average pet coke price paid to such subsidiary over the preceding two-year period. See Note 14 ("Related Party Transactions") for further discussion of the coke supply agreement.

CRNF is party to a hydrogen purchase and sale agreement with a subsidiary of CVR Refining, pursuant to which CRNF agrees to pay a monthly fixed fee. See Note 14 ("Related Party Transactions") for further discussion of the hydrogen purchase and sale agreement.

CRNF is party to the Amended and Restated On-Site Product Supply Agreement with The BOC Group, Inc. (as predecessor in interest to Linde LLC). Pursuant to the agreement, which expires in 2020, CRNF is required to take as available and pay for the supply of oxygen and nitrogen to the fertilizer operation. Expenses associated with this agreement are included in direct operating expenses (exclusive of depreciation and amortization), and, for the three months ended September 30, 2017 and 2016, totaled approximately $1.1 million and $1.0 million, respectively, and for the nine months ended September 30, 2017 and 2016, totaled approximately $3.2 million and $2.9 million, respectively.

CRNF is a party to a pet coke supply agreement with HollyFrontier Corporation. The term of this agreement ends in December 2017. The delivered cost of this pet coke is included in cost of materials and other and totaled approximately $1.0 million and $1.1 million, respectively, for the three months ended September 30, 2017 and 2016 and totaled approximately $3.0 million and $3.6 million, respectively, for the nine months ended September 30, 2017 and 2016.

EDNF is a party to a utility service agreement with Jo-Carroll Energy, Inc. The term of this agreement ends in 2019 and includes certain charges on a take-or-pay basis. The cost of utilities is included in direct operating expenses (exclusive of depreciation and amortization) and amounts associated with this agreement totaled approximately $2.5 million for both the three months ended September 30, 2017 and 2016 and totaled approximately $8.0 million and $4.3 million, respectively, for the nine months ended September 30, 2017 and 2016.

Commitments for natural gas purchases consist of the following:
 
September 30,
2017
 
 
 
(in thousands, except weighted average rate)
MMBtus under fixed-price contracts
2,169

Commitments to purchase natural gas
$
6,488

Weighted average rate per MMBtu (1)
$
2.99

________________________________

(1)
Weighted average rate per MMBtu is based on the fixed rates applicable to each contract, exclusive of transportation costs.

Litigation

From time to time, the Partnership is involved in various lawsuits arising in the normal course of business, including environmental, health and safety ("EHS") matters described below under "Environmental, Health and Safety Matters." Liabilities, if any, related to such litigation are recognized when the related costs are probable and can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. It is possible that management’s estimates of the outcomes will change within the next year due to uncertainties inherent in litigation and settlement negotiations. There were no new proceedings or material developments in proceedings from those provided in the 2016 Form 10-K. In the opinion of management, the ultimate resolution of any other litigation matters is not expected to have a material adverse effect on the accompanying condensed consolidated financial statements. There can be no assurance that management’s beliefs or opinions with respect to liability for potential litigation matters are accurate.


22

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

Environmental, Health and Safety Matters

The Partnership's subsidiaries are subject to various stringent federal, state and local EHS rules and regulations. Liabilities related to EHS matters are recognized when the related costs are probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, existing technology, site-specific costs and currently enacted laws and regulations. In reporting EHS liabilities, no offset is made for potential recoveries. All liabilities are monitored and adjusted regularly as new facts emerge or changes in laws or technology occur.

There have been no new developments or material changes to the environmental accruals or expected capital expenditures related to compliance with environmental matters from those provided in the 2016 Form 10-K. The Partnership believes its subsidiaries are in material compliance with existing EHS rules and regulations. There can be no assurance that the EHS matters which may develop in the future will not have a material adverse effect on the Partnership's business, financial condition or results of operations.

(14) Related Party Transactions

Related Party Agreements

CVR Partners and its subsidiaries are party to, or otherwise subject to certain agreements with CVR Energy and its subsidiaries (including CVR Refining and its subsidiary Coffeyville Resources Refining & Marketing, LLC ("CRRM")) that govern the business relations among each party including: the (i) Feedstock and Shared Services Agreement; (ii) Hydrogen Purchase and Sale Agreement; (iii) Coke Supply Agreement; (iv) Environmental Agreement; (v) Services Agreement; (vi) GP Services Agreement; and (vii) Limited Partnership Agreement. The agreements are described as in effect at September 30, 2017. Except as otherwise described below, there have been no new developments or material changes to these agreements from those provided in the 2016 Form 10-K.

Amounts owed to CVR Partners and its subsidiaries from CVR Energy and its subsidiaries with respect to these agreements are included in prepaid expenses and other current assets and other long-term assets on the Condensed Consolidated Balance Sheets. Conversely, amounts owed to CVR Energy and its subsidiaries by CVR Partners and its subsidiaries with respect to these agreements are included in accounts payable, personnel accruals and accrued expenses and other current liabilities on the Partnership's Condensed Consolidated Balance Sheets.

Feedstock and Shared Services Agreement

CRNF is party to a feedstock and shared services agreement with CRRM under which the two parties provide feedstock and other services to one another. These feedstocks and services are utilized in the respective production processes of CRRM's Coffeyville, Kansas refinery and CRNF's Coffeyville Facility. The agreement was amended and restated effective January 1, 2017.

Prior to January 1, 2017, CRNF and CRRM transferred hydrogen to one another pursuant to the feedstock and shared services agreement. CRNF is not required to sell hydrogen to CRRM if such hydrogen is required for operation of CRNF's Coffeyville Facility, if such sale would adversely affect the Partnership's classification as a partnership for federal income tax purposes, or if such sale would not be in CRNF's best interest. Net monthly sales of hydrogen to CRRM have been reflected as net sales for CVR Partners, when applicable. Net monthly receipts of hydrogen from CRRM have been reflected in cost of materials and other for CVR Partners, when applicable. For the three and nine months ended September 30, 2016, the net sales generated from the sale of hydrogen to CRRM were approximately $1.2 million and $2.9 million, respectively. At December 31, 2016, there was approximately $0.1 million included in accounts payable on the Condensed Consolidated Balance Sheets associated with net hydrogen purchases.

Beginning January 1, 2017, hydrogen purchases from CRRM are governed pursuant to the hydrogen purchase and sale agreement discussed below, but hydrogen sales to CRRM remain governed pursuant to the feedstock and shared services agreement. For the nine months ended September 30, 2017, the gross sales generated from the sale of hydrogen to CRRM pursuant to the feedstock and shared services agreement were approximately $0.1 million, which is included in net sales in the Condensed Consolidated Statements of Operations. There were no gross sales generated from the sale of hydrogen to CRRM for the three months ended September 30, 2017. The monthly hydrogen sales are cash settled net on a monthly basis with hydrogen purchases, pursuant to the hydrogen purchase and sale agreement.

23

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)


The feedstock and shared services agreement also provides a mechanism pursuant to which CRNF transfers a tail gas stream to CRRM. CRNF receives the benefit of eliminating a waste gas stream and recovers the fuel value of the tail gas system. For the three and nine months ended September 30, 2017 and 2016, the net sales generated from the sale of tail gas to CRRM were nominal. In April 2011, in connection with the tail gas stream transfers to CRRM, CRRM installed a pipe between the Coffeyville, Kansas refinery and the Coffeyville Facility to transfer the tail gas. CRNF agreed to pay CRRM the cost of installing the pipe and provide an additional 15% to cover the cost of capital, which was due from CRNF to CRRM over four years. At both September 30, 2017 and December 31, 2016, there were assets of approximately $0.2 million included in prepaid expenses and other current assets and approximately $0.5 million and $0.6 million, respectively, included in other long-term assets in the Condensed Consolidated Balance Sheets.

At September 30, 2017 and December 31, 2016, receivables of $0.1 million and $0.3 million, respectively, were included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets for amounts yet to be received related to components of the feedstock and shared services agreement, other than amounts related to hydrogen transfers and tail gas discussed above. At September 30, 2017 and December 31, 2016, current obligations of approximately $0.8 million and $0.9 million were included in accounts payable on the Condensed Consolidated Balance Sheets associated with unpaid balances related to components of the feedstock and shared services agreement.

Hydrogen Purchase and Sale Agreement

CRNF and CRRM entered into a hydrogen purchase and sale agreement that was effective on January 1, 2017, pursuant to which CRRM agrees to sell and deliver a committed hydrogen volume of 90,000 mscf per month, and CRNF agrees to purchase and receive the committed volume. The committed volume pricing is based on a monthly fixed fee (based on the fixed and capital charges associated with producing the committed volume) and a monthly variable fee (based on the natural gas price associated with hydrogen actually received). In the event CRNF fails to take delivery of the full committed volume in a month, CRNF remains obligated to pay CRRM for the monthly fixed fee and the monthly variable fee based upon the actual hydrogen volume received, if any. In the event CRRM fails to deliver any portion of the committed volume for the applicable month for any reason other than planned repairs and maintenance, CRNF will be entitled to a pro-rata reduction of the monthly fixed fee. CRNF also has the option to purchase excess volume of up to 60,000 mscf per month, or more upon mutual agreement, from CRRM, if available for purchase.

A portion of the monthly variable fee, as defined in the terms of the agreement, is determined according to the natural gas costs incurred by CRRM in operation of the hydrogen plant, which will reflect market-driven changes in the natural gas prices. In addition, certain fixed fees will be adjusted on an annual basis according to the changes in a cost index, as defined in the terms of the agreement.

CRRM is not required to sell hydrogen to CRNF if such sale would adversely affect CVR Refining’s classification as a partnership for federal income tax purposes, and is not required to sell hydrogen to CRNF in excess of the committed volume if such volumes are needed for CRRM’s operations.

The agreement has an initial term of 20 years and will be automatically extended following the initial term for additional successive five-year renewal terms unless either party gives 180 days written notice. Certain fees under the agreement are subject to modification after this initial term. The agreement contains customary terms related to indemnification, as well as termination for breach, by mutual consent, or due to insolvency or cessation of operations.

For the three and nine months ended September 30, 2017, the cost of hydrogen purchases from CRRM was approximately $0.9 million and $3.0 million, respectively, which were included in cost of materials and other in the Condensed Consolidated Statement of Operations. The monthly hydrogen purchases are cash settled net on a monthly basis with hydrogen sales pursuant to the feedstock and shared services agreement. At September 30, 2017, current obligations, net of any amounts due to CRNF under the feedstock and shared services agreement for hydrogen, of approximately $0.4 million were included in accounts payable on the Condensed Consolidated Balance Sheets associated with net hydrogen purchases from CRRM.


24

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

Coke Supply Agreement

CRNF is party to a coke supply agreement with CRRM pursuant to which CRRM supplies CRNF with pet coke. This agreement provides that CRRM must deliver to CRNF during each calendar year an annual required amount of pet coke equal to the lesser of
(i) 100 percent of the pet coke produced at CRRM's Coffeyville, Kansas petroleum refinery or (ii) 500,000 tons of pet coke. CRNF is also obligated to purchase this annual required amount. If during a calendar month CRRM produces more than 41,667 tons of pet coke, then CRNF will have the option to purchase the excess at the purchase price provided for in the agreement. If CRNF declines to exercise this option, CRRM may sell the excess to a third party.

CRNF obtains most (over 70% on average during the last five years) of the pet coke it needs from CRRM's adjacent crude oil refinery pursuant to the pet coke supply agreement, and procures the remainder through a contract with HollyFrontier Corporation and on the open market. The price CRNF pays pursuant to the pet coke supply agreement is based on the lesser of a pet coke price derived from the price received for UAN (the "UAN-based price") or a pet coke price index. The UAN-based price begins with a pet coke price of $25 per ton based on a price per ton for UAN that excludes transportation cost ("netback price") of $205 per ton, and adjusts up or down $0.50 per ton for every $1.00 change in the netback price. The UAN-based price has a ceiling of $40 per ton and a floor of $5 per ton.

CRNF will pay any taxes associated with the sale, purchase, transportation, delivery, storage or consumption of the pet coke. CRNF is entitled to offset any amount payable for the pet coke against any amount due from CRRM under the feedstock and shared services agreement between the parties.

The cost of pet coke associated with the transfer of pet coke from CRRM to CRNF were approximately $0.6 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively, which was recorded in cost of materials and other. For the nine months ended September 30, 2017 and 2016, these expenses were approximately $1.6 million and $1.7 million, respectively. Payables of approximately $0.1 million related to the coke supply agreement were included in accounts payable on the Condensed Consolidated Balance Sheets at both September 30, 2017 and December 31, 2016.

Services Agreement

CVR Partners obtains certain management and other services from CVR Energy pursuant to a services agreement between the Partnership, CVR GP and CVR Energy.

Net amounts incurred under the services agreement for the three and nine months ended September 30, 2017 and 2016 were as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in thousands)
Direct operating expenses (exclusive of depreciation and amortization) — Affiliates
$
766

 
$
976

 
$
2,158

 
$
2,616

Selling, general and administrative expenses — Affiliates
3,239

 
2,939

 
9,398

 
8,562

Total
$
4,005

 
$
3,915

 
$
11,556

 
$
11,178


For services performed in connection with the services agreement, the Partnership recognized personnel costs, excluding amounts related to share-based compensation that are disclosed in Note 5 ("Share‑Based Compensation"), of $1.8 million and $1.7 million, respectively, for the three months ended September 30, 2017 and 2016. For services performed in connection with the services agreement, the Partnership recognized personnel costs, excluding amounts related to share-based compensation, of $5.0 million for both the nine months ended September 30, 2017 and 2016. At September 30, 2017 and December 31, 2016, current obligations of $3.7 million and $3.5 million, respectively, were included in accounts payable and accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets with respect to amounts billed in accordance with the services agreement.


25

CVR PARTNERS, LP AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2017
(unaudited)

Limited Partnership Agreement

The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership (including salary, bonus, incentive compensation and other amounts paid to any person to perform services for the Partnership or for its general partner in connection with operating the Partnership). Pursuant to the partnership agreement, the Partnership incurred approximately $0.8 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, primarily for personnel costs related to the compensation of executives at the general partner, who manage the Partnership's business. For the nine months ended September 30, 2017 and 2016, approximately $2.4 million and $2.9 million were incurred related to amounts due for reimbursement, respectively. At September 30, 2017 and December 31, 2016, current obligations of $1.9 million and $2.0 million, respectively, were included in personnel accruals on the Condensed Consolidated Balance Sheets related to amounts outstanding in accordance with the limited partnership agreement.

Insight Portfolio Group

Insight Portfolio Group LLC ("Insight Portfolio Group") is an entity formed by Mr. Carl C. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. In January 2013, CVR Energy acquired a minority equity interest in Insight Portfolio Group. The Partnership participates in Insight Portfolio Group’s buying group through its relationship with CVR Energy. The Partnership may purchase a variety of goods and services as members of the buying group at prices and on terms that management believes would be more favorable than those which would be achieved on a stand-alone basis. Transactions with Insight Portfolio Group for each of the reporting periods were nominal.

CRLLC Facility

On April 1, 2016, in connection with the closing of the East Dubuque Merger, the Partnership entered into the CRLLC Facility. See Note 12 ("Debt") for further discussion.

Parent Affiliate Units

In March 2016, CVR Energy purchased 400,000 CVR Nitrogen common units, representing approximately 1% of the outstanding CVR Nitrogen limited partner interests. CVR Energy did not receive merger consideration for these designated CVR Nitrogen common units. Subsequent to the East Dubuque Merger, the Partnership purchased 400,000 CVR Nitrogen common units from CVR Energy during the three months ended June 30, 2016 for $5.0 million.

Railcar Lease Agreements and Maintenance

CRNF has agreements to lease a total of 115 UAN railcars from ARI Leasing, LLC ("ARI"), a company controlled by IEP. The lease agreements will expire in 2023. For the three and nine months ended September 30, 2017, rent expense of approximately $0.2 million and $0.7 million, respectively, was recorded in cost of materials and other in the Condensed Consolidated Statement of Operations related to these agreements. Rent expense related to these agreements were nominal for the three and nine months ended September 30, 2016.

In the second quarter of 2017, CRNF entered into an agreement to lease an additional 70 UAN railcars from ARI. The lease agreement has a term of 5 years. The Partnership obtained physical receipt of the majority of the leased railcars and associated lease payment obligations commenced during the third quarter of 2017. Almost all of the additional railcars were received in October 2017.

American Railcar Industries, Inc., a company controlled by IEP, performed railcar maintenance for CRNF and the expense associated with this maintenance was approximately $0.2 million for the nine months ended September 30, 2017 and was included in cost of materials and other in the Condensed Consolidated Statement of Operations. There were no expenses associated with this maintenance for the three months ended September 30, 2017.


26


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 the 2016 Form 10-K. Results of operations and cash flows for the three and nine months ended September 30, 2017 and 2016 are not necessarily indicative of results to be attained for any other period.

Forward-Looking Statements

This Report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking statements" as defined by the Securities and Exchange Commission ("SEC"), including statements concerning contemplated transactions and strategic plans, expectations and objectives for future operations. Forward-looking statements include, without limitation:

statements, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future;

statements relating to future financial or operational performance, future distributions, future capital sources and capital expenditures; and

any other statements preceded by, followed by or that include the words "anticipates," "believes," "expects," "plans," "intends," "estimates," "projects," "could," "should," "may" or similar expressions.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. These statements are based on assumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many of which are beyond our control. You are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements as a result of various factors, including but not limited to those set forth under the section captioned "Risk Factors" in the 2016 Form 10-K, filed with the SEC on February 21, 2017. Such factors include, among others:

our ability to make cash distributions on the common units;

the volatile nature of our business and the variable nature of our distributions;

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

the cyclical nature of our business;

the seasonal nature of our business;

the dependence of our operations on a few third-party suppliers, including providers of transportation services and equipment;

our reliance on pet coke that we purchase from CVR Refining;
 
our reliance on the natural gas and electricity that we purchase from third parties;

the supply and price levels of essential raw materials;

the risk of a material decline in production at our nitrogen fertilizer plants;

potential operating hazards from accidents, fire, severe weather, floods or other natural disasters;

27



competition in the nitrogen fertilizer businesses;

capital expenditures and potential liabilities arising from environmental laws and regulations;

existing and proposed environmental laws and regulations, including those relating to climate change, alternative energy or fuel sources, and the end-use and application of fertilizers;

new regulations concerning the transportation of hazardous chemicals, risks of terrorism and the security of chemical manufacturing facilities;

the risk of security breaches;

our lack of asset diversification;

our dependence on significant customers;

the potential loss of our transportation cost advantage over our competitors;

our partial dependence on customer and distributor transportation of purchased goods;

our potential inability to successfully implement our business strategies, including the completion of significant capital programs;

our reliance on CVR Energy’s senior management team and conflicts of interest they face operating each of CVR Partners, CVR Refining and CVR Energy;

the risk of labor disputes and adverse employee relations;

risks relating to our relationships with CVR Energy and CVR Refining;

control of our general partner by CVR Energy;

our ability to continue to license the technology used in our operations;

restrictions in our debt agreements;
 
changes in our treatment as a partnership for U.S. federal income or state tax purposes;

instability and volatility in the capital and credit markets; and

CVR Energy and its affiliates may compete with us.

All forward-looking statements contained in this Report speak only as of the date of this Report. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after the date of this Report, or to reflect the occurrence of unanticipated events, except to the extent required by law.

Partnership Overview

CVR Partners, LP ("CVR Partners," the "Partnership," "we," "us" or "our") is a Delaware limited partnership formed by 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. Our principal products are UAN and ammonia. All of our products are sold on a wholesale basis.

We produce our nitrogen fertilizer products at two manufacturing facilities, which are located in Coffeyville, Kansas and East Dubuque, Illinois. We acquired the East Dubuque, Illinois facility in April 2016 through our acquisition of CVR Nitrogen. For a

28


discussion of the East Dubuque Merger, refer to Note 4 ("East Dubuque Merger") of Part I, Item 1 of this Report. The consolidated financial statements and key operating metrics include the results of the East Dubuque Facility beginning on April 1, 2016, the date of the closing of the acquisition.

Our Coffeyville Facility includes a 1,300 ton-per-day capacity ammonia unit, a 3,000 ton-per-day capacity UAN unit, and a gasifier complex having a capacity of 89 million standard cubic feet per day of hydrogen. Our gasifier is a dual-train facility, with each gasifier able to function independently of the other, thereby providing redundancy and improving our reliability. Strategically located adjacent to CVR Refining’s refinery in Coffeyville, Kansas, our Coffeyville Facility is the only operation in North America that utilizes a petroleum coke, or pet coke, gasification process to produce nitrogen fertilizer. During the past five years, over 70% of the pet coke consumed by our Coffeyville Facility was produced and supplied by CVR Refining’s Coffeyville, Kansas crude oil refinery. We upgrade substantially all of the ammonia we produce at our Coffeyville Facility to higher margin UAN, which has historically commanded a premium price over ammonia. Approximately 93% of our Coffeyville Facility produced ammonia tons were upgraded into UAN in 2016. For the three months ended September 30, 2017 and 2016, approximately 95% and 96%, respectively, of our Coffeyville Facility produced ammonia tons were upgraded into UAN. For the nine months ended September 30, 2017 and 2016, approximately 88% and 92%, respectively, of our Coffeyville Facility produced ammonia tons were upgraded into UAN.

Our East Dubuque Facility includes a 1,075 ton-per-day capacity ammonia unit and a 1,100 ton-per-day capacity UAN unit. The facility is located on a 210-acre, 140-foot bluff above the Mississippi River, with access to the river for loading certain products. The East Dubuque Facility uses natural gas as its primary feedstock. The East Dubuque Facility has the flexibility to significantly vary its product mix. This enables us to upgrade our ammonia production into varying amounts of UAN, nitric acid and liquid and granulated urea each season, depending on market demand, pricing and storage availability. Product sales are heavily weighted toward sales of ammonia and UAN. For the post-acquisition period ended December 31, 2016, approximately 44% of our East Dubuque Facility produced ammonia tons were upgraded to other products. For the three months ended September 30, 2017 and 2016, approximately 44% and 41%, respectively, of our East Dubuque Facility produced ammonia tons were upgraded to other products. For the nine months ended September 30, 2017, approximately 44% of our East Dubuque Facility produced ammonia tons were upgraded to other products.

CVR Energy, which indirectly owns our general partner and approximately 34% of our outstanding common units, also indirectly owns the general partner and approximately 66% of the outstanding common units of CVR Refining at September 30, 2017. CVR Refining's subsidiaries own and operate a complex full coking medium-sour crude oil refinery with a rated capacity of 115,000 barrels per calendar day (bpcd) in Coffeyville, Kansas, a complex crude oil refinery with a rated capacity of 70,000 bpcd in Wynnewood, Oklahoma and ancillary businesses.

Major Influences on Results of Operations

Our earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, on-stream factors and operating costs and expenses.

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

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

We have the capacity to store approximately 160,000 tons of UAN and 80,000 tons of ammonia. Our storage tanks are located primarily at our two production facilities. Inventories are often allowed to accumulate to allow customers to take delivery to meet the seasonal demand.

In order to assess our operating performance, we calculate the product pricing at gate as an input to determine our operating margin. Product pricing at gate represents net sales less freight revenue divided by product sales volume in tons. We believe product pricing at gate is a meaningful measure because we sell products at our plant gates and terminal locations' gates ("sold gate") and delivered to

29


the customer's designated delivery site ("sold delivered"). The relative percentage of sold gate versus sold delivered can change period to period. The product pricing at gate provides a measure that is consistently comparable period to period.

We and other competitors in the U.S. farm belt share a significant transportation cost advantage when compared to our out-of-region competitors in serving the U.S. farm belt agricultural market. Our products leave our Coffeyville Facility either in railcars for destinations located principally on the Union Pacific Railroad or in trucks for direct shipment to customers. We do not currently incur significant intermediate transfer, storage, barge freight or pipeline freight charges; however, we do incur costs to maintain and repair our railcar fleet. Selling products to customers within economic rail transportation limits of the Coffeyville Facility and keeping transportation costs low are keys to maintaining profitability.

The East Dubuque Facility is located in northwest Illinois, in the corn belt. The East Dubuque Facility primarily sells its product to customers located within 200 miles of the facility. In most instances, customers take delivery of nitrogen products at the plant and arrange and pay to transport them to their final destinations by truck. The East Dubuque Facility has direct access to a barge dock on the Mississippi River as well as a nearby rail spur serviced by the Canadian National Railway Company.

The high fixed cost of the Coffeyville Facility direct operating expense structure also directly affects our profitability. Our Coffeyville Facility's pet coke gasification process results in a significantly higher percentage of fixed costs than a natural gas-based fertilizer plant, such as our East Dubuque Facility. Major fixed operating expenses include a large portion of electrical energy, employee labor, and maintenance, including contract labor and outside services.

Our largest raw material expense used in the production of ammonia at our Coffeyville Facility is pet coke, which we purchase from CVR Refining and third parties. For the three months ended September 30, 2017 and 2016, we incurred approximately $2.0 million and $1.7 million, respectively, for the cost of pet coke, which equaled an average cost per ton of $18 and $13, respectively. For the nine months ended September 30, 2017 and 2016, we incurred approximately $6.5 million and $5.4 million, respectively, for the cost of pet coke, which equaled an average cost per ton of $18 and $14, respectively.

Our largest raw material expense used in the production of ammonia at our East Dubuque Facility is natural gas, which we purchase from third parties. Our East Dubuque Facility's natural gas process results in a higher percentage of variable costs as compared to the Coffeyville Facility. For the three months ended September 30, 2017 and 2016, we expensed approximately $6.1 million and $4.9 million, respectively, for feedstock natural gas, which equaled an average cost per MMBtu of $3.15 and $2.92, respectively. For the nine months ended September 30, 2017, we expensed approximately $19.5 million for feedstock natural gas, which equaled an average cost per MMBtu of $3.30.

Consistent, safe and reliable operations at our nitrogen fertilizer plants are critical to our financial performance and results of operations. Unplanned downtime may result in lost margin opportunity, increased maintenance expense and a temporary increase in working capital investment and related inventory position. The financial impact of planned downtime, such as major turnaround maintenance, is mitigated through a diligent planning process that takes into account margin environment, the availability of resources to perform the needed maintenance, feedstock logistics and other factors.
Historically, the Coffeyville Facility has undergone a full facility turnaround approximately every two to three years. The Coffeyville Facility underwent a full facility turnaround in the third quarter of 2015, at a cost of approximately $7.0 million, exclusive of the impacts due to the lost production during the downtime. The Coffeyville Facility is planning to undergo the next scheduled full facility turnaround in 2018.
Historically, the East Dubuque Facility has also undergone a full facility turnaround approximately every two to three years. The East Dubuque Facility underwent a full facility turnaround in the second quarter of 2016, at a cost of approximately $6.6 million, exclusive of the impacts due to the lost production during the downtime. We determined that there were more pressing preventative maintenance issues at the East Dubuque Facility, so we completed a scheduled turnaround at the East Dubuque Facility in the third quarter of 2017 at a cost of approximately $2.6 million, exclusive of the impacts of the lost production during the downtime.
Production levels in the third quarter of 2017 were negatively impacted by the planned 14-day turnaround at our East Dubuque Facility. Production levels in the third quarter of 2017 were also impacted an additional eight days of unplanned downtime due to an exchanger outage at the East Dubuque Facility that resulted in repair costs which were not material. Subsequent to the third quarter of 2017, the East Dubuque Facility experienced an additional outage caused by refractory failing in piping.  As of the date of this filing, the piping repair work is ongoing and the total outage is expected to last 12 days and the repair cost is estimated to be immaterial.


30


Agreements with CVR Energy and CVR Refining

We are party to several agreements with CVR Energy and its affiliates that govern the business relations among us, CVR Energy and its subsidiaries (including CVR Refining), and our general partner. These include the pet coke supply agreement under which we buy the pet coke we use in our Coffeyville Facility; a services agreement, under which CVR Energy and its subsidiaries provide us with management services including the services of its senior management team; a feedstock and shared services agreement, which governs the provision of feedstocks for our Coffeyville Facility, including, but not limited to, high-pressure steam, nitrogen, instrument air, oxygen and natural gas; a hydrogen purchase and sale agreement, which governs the purchase of hydrogen for our Coffeyville Facility; a raw water and facilities sharing agreement, which allocates raw water resources between the two facilities in Coffeyville; an easement agreement; an environmental agreement; a lease agreement pursuant to which we lease office space and laboratory space; and certain financing agreements that we entered into in connection with the East Dubuque Merger. These agreements were not the result of arm's-length negotiations and the terms of these agreements are not necessarily as favorable to the parties to these agreements as terms which could have been obtained from unaffiliated third parties. See Note 14 ("Related Party Transactions") to Part I, Item 1 of this Report for additional discussion of the agreements.

Factors Affecting Comparability of Our Financial Results

Our historical results of operations for the periods presented may not be comparable with prior periods or to our results of operations in the future for the reason discussed below.

East Dubuque Merger

On April 1, 2016, the Partnership completed the East Dubuque Merger, whereby the Partnership acquired the East Dubuque Facility. The consolidated financial statements and key operating metrics include the results of the East Dubuque Facility beginning on April 1, 2016, the date of the closing of the acquisition. During the three and nine months ended September 30, 2016, the Partnership incurred $0.7 million and $3.1 million, respectively, of legal and other professional fees and other merger-related expenses, which were included in selling, general and administrative expenses. See Note 4 ("East Dubuque Merger") to Part I, Item 1 of this Report for further discussion.

Major Scheduled Turnaround Activities

During the third quarter of 2017, the East Dubuque Facility completed a scheduled turnaround and the ammonia and UAN units were down for approximately 14 days. Overall results were negatively impacted due to the lost production during the downtime that resulted in lost sales and certain reduced variable expenses included in cost of materials and other and direct operating expenses (exclusive of depreciation and amortization). Exclusive of the impacts due to the lost production during the turnaround downtime, costs of approximately $2.5 million and $2.6 million, respectively, are included in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations for the three and nine months ended September 30, 2017.

During the second quarter of 2016, the East Dubuque Facility completed a major scheduled turnaround and the ammonia and UAN units were down for approximately 28 days. Overall results were negatively impacted due to the lost production during the downtime that resulted in lost sales and certain reduced variable expenses included in cost of materials and other and direct operating expenses (exclusive of depreciation and amortization). Exclusive of the impacts due to the lost production during the turnaround downtime, costs of approximately $6.6 million are included in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations for the nine months ended September 30, 2016.


31


Indebtedness

On April 1, 2016, as a result of the East Dubuque Merger, the Partnership acquired CVR Nitrogen, including its debt. During the second quarter of 2016, the Partnership used $300.0 million of funds from the senior term loan credit facility with Coffeyville Resources, LLC, a related party, to finance the payoff of CVR Partners' $125.0 million term loan, payoff CVR Nitrogen's credit facility outstanding balance of $49.1 million, and to fund the cash merger consideration and certain merger-related expenses. In June 2016, the Partnership issued $645.0 million aggregate principal of 9.250% Senior Secured Notes due 2023 to refinance the substantial majority of its existing debt. Also as a result of the financing transactions, the Partnership recognized a loss on debt extinguishment of approximately $5.1 million during the nine months ended September 30, 2016. As a result of the financing transactions, the Partnership's interest expense increased for the nine months ended September 30, 2017 as compared to the prior year. Further discussion regarding the Partnership's indebtedness can be found in Note 12 ("Debt") to Part I, Item 1 of this Report.

Results of Operations

The period to period comparisons of our results of operations have been prepared using the historical periods included in our condensed consolidated financial statements. In order to effectively review and assess our historical financial information below, we have also included supplemental operating measures and industry measures that we believe are material to understanding our business.

To supplement our actual results calculated in accordance with U.S. generally accepted accounting principles ("GAAP") for the applicable periods, the Partnership also uses certain non-GAAP financial measures, which are reconciled to our GAAP-based results below. These non-GAAP financial measures should not be considered as an alternative to GAAP results.

The following tables summarize the financial data and key operating statistics for CVR Partners and our subsidiaries for the three and nine months ended September 30, 2017 and 2016. The results of operations for our East Dubuque Facility are included for the post acquisition period beginning April 1, 2016. The following data should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Report. All information in "Management’s Discussion and Analysis of Financial Condition and Results of Operations," except for the balance sheet data as of December 31, 2016, is unaudited.


32


 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017

2016
 
2017

2016
 
 
 
 
 
 
 
 
 
(in millions)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Net sales
$
69.4

 
$
78.5

 
$
252.6

 
$
271.4

 
 
 
 
 
 
 
 
Cost of materials and other – Affiliates
1.8

 
0.6

 
5.6

 
1.9

Cost of materials and other – Third parties
17.6

 
19.3

 
57.7

 
70.3

 
19.4

 
19.9

 
63.3

 
72.2

Direct operating expenses – Affiliates (1)
1.0

 
1.1

 
2.8

 
3.2

Direct operating expenses – Third parties (1)
36.8

 
31.4

 
108.6

 
100.6

Major scheduled turnaround expenses
2.5

 

 
2.6

 
6.6

 
40.3

 
32.5

 
114.0

 
110.4

Depreciation and amortization
19.5

 
16.4

 
54.9

 
41.0

Cost of sales
79.2

 
68.8

 
232.2

 
223.6

 
 
 
 
 
 
 
 
Selling, general and administrative expenses – Affiliates (2)
3.9

 
3.6

 
11.4

 
10.9

Selling, general and administrative expenses – Third parties (2)
2.2

 
3.7

 
7.4

 
11.1

 
6.1

 
7.3

 
18.8

 
22.0

Operating income (loss)
(15.9
)
 
2.4

 
1.6

 
25.8

Interest expense and other financing costs
(15.7
)
 
(15.6
)
 
(47.1
)
 
(32.8
)
Loss on extinguishment of debt

 

 

 
(5.1
)
Other income, net

 

 
0.1

 

Total other expense
(15.7
)
 
(15.6
)
 
(47.0
)
 
(37.9
)
Loss before income tax expense
(31.6
)
 
(13.2
)
 
(45.4
)
 
(12.1
)
Income tax expense

 
0.2

 

 
0.3

Net loss
$
(31.6
)
 
$
(13.4
)
 
$
(45.4
)
 
$
(12.4
)
 
 
 
 
 
 
 
 
EBITDA (3)*
$
3.6

 
$
18.8

 
$
56.6

 
$
61.7

Adjusted EBITDA (3)*
$
5.0

 
$
17.4

 
$
58.1

 
$
74.4

Available cash for distribution (4)*
$
(1.2
)
 
$
0.4

 
$
0.6

 
$
50.8

 
 
 
 
 
 
 
 
Reconciliation to net sales:
 
 
 
 
 
 
 
Fertilizer sales net at gate
$
59.4

 
$
66.7

 
$
223.0

 
$
234.8

Freight in revenue
8.3

 
8.8

 
23.6

 
24.4

Hydrogen revenue

 
1.2

 
0.1

 
2.9

Other, including the impact of purchase accounting
1.7

 
1.8

 
5.9

 
9.3

Total net sales
$
69.4

 
$
78.5

 
$
252.6

 
$
271.4

________________________________
* See footnote (3) and (4) below for discussion of non-GAAP financial measures.


33


 
As of 
 September 30, 
 2017
 
As of 
 December 31, 
 2016
 
 
 
(audited)
 
(in millions)
Balance Sheet Data:
 
 
 
Cash and cash equivalents
$
70.0

 
$
55.6

Working capital
73.3

 
71.5

Total assets
1,275.8

 
1,312.2

Total debt, net of current portion
625.2

 
623.1

Total partners’ capital
577.3

 
624.9


 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Cash Flow Data:
 
 
 
 
 
 
 
Net cash flow provided by (used in):
 
 
 
 
 
 
 
Operating activities
$
21.1

 
$
18.4

 
$
28.1

 
$
47.5

Investing activities
(2.8
)
 
(6.4
)
 
(11.4
)
 
(82.1
)
Financing activities

 
(23.0
)
 
(2.3
)
 
49.9

Net increase (decrease) in cash and cash equivalents
$
18.3

 
$
(11.0
)
 
$
14.4

 
$
15.3

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
Maintenance capital expenditures
$
2.7

 
$
3.4

 
$
11.1

 
$
8.3

Growth capital expenditures
0.1

 
3.0

 
0.3

 
10.0

Total capital expenditures
$
2.8

 
$
6.4

 
$
11.4

 
$
18.3


______________________________


(1)
Direct operating expenses are shown exclusive of major scheduled turnaround expenses and depreciation and amortization.

(2)
The Partnership incurred approximately $0.7 million and $3.1 million, respectively, of legal and other professional fees and other merger-related expenses for the three and nine months ended September 30, 2016, as discussed in Note 4 ("East Dubuque Merger") to Part I, Item 1 of this Report, which are included in selling, general and administrative expenses.

(3)
EBITDA is defined as net income (loss) before (i) interest (income) expense, (ii) income tax expense and (iii) depreciation and amortization expense.

Adjusted EBITDA is defined as EBITDA further adjusted for the impact of major scheduled turnaround expenses, gain or loss on extinguishment of debt, loss on disposition of assets, expenses associated with the East Dubuque Merger and business interruption insurance recovery, when applicable.

We present EBITDA because we believe it allows users of our financial statements, such as investors and analysts, to assess our financial performance without regard to financing methods, capital structure or historical cost basis. We present Adjusted EBITDA because we have found it helpful to consider an operating measure that excludes amounts, such as major scheduled turnaround expenses, gain or loss on extinguishment of debt, loss on disposition of assets, expenses associated with the East Dubuque Merger and business interruption insurance recovery, relating to transactions not reflective of our core operations. When applicable, each of these amounts is discussed herein, so that investors have complete information about these amounts. We also present Adjusted EBITDA because it is the starting point used by the board of directors of our general partner when calculating our available cash for distribution.


34


EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be substituted for net income (loss) or cash flows from operations. Management believes that EBITDA and Adjusted EBITDA enable investors and analysts to better understand our ability to make distributions to common unitholders, help investors and analysts evaluate our ongoing operating results and allow for greater transparency in reviewing our overall financial, operational and economic performance by allowing investors to evaluate the same information used by management. EBITDA and Adjusted EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.

A reconciliation of consolidated Net loss to consolidated EBITDA and consolidated Adjusted EBITDA is as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
Net loss
$
(31.6
)
 
$
(13.4
)
 
$
(45.4
)
 
$
(12.4
)
Add:
 
 
 
 
 
 
 
Interest expense and other financing costs, net
15.7

 
15.6

 
47.1

 
32.8

Income tax expense

 
0.2

 

 
0.3

Depreciation and amortization
19.5

 
16.4

 
54.9

 
41.0

EBITDA
$
3.6

 
$
18.8

 
$
56.6

 
$
61.7

Add:
 
 
 
 
 
 
 
Major scheduled turnaround expenses
2.5

 

 
2.6

 
6.6

Loss on extinguishment of debt

 

 

 
5.1

Expenses associated with the East Dubuque Merger

 
0.7

 

 
3.1

Less:
 
 
 
 
 
 
 
Insurance recovery - business interruption
(1.1
)
 
(2.1
)
 
(1.1
)
 
(2.1
)
Adjusted EBITDA
$
5.0

 
$
17.4

 
$
58.1

 
$
74.4


(4)
The board of directors of our general partner has a policy to calculate available cash for distribution starting with Adjusted EBITDA. For the three and nine months ended September 30, 2017 and 2016, available cash for distribution equaled our Adjusted EBITDA reduced for cash needed for (i) net cash interest expense (excluding capitalized interest) and debt service and other contractual obligations; (ii) maintenance capital expenditures; and (iii) to the extent applicable, major scheduled turnaround expenses, reserves for future operating or capital needs that the board of directors of the general partner deems necessary or appropriate, and expenses associated with the East Dubuque Merger, if any. Available cash for distribution may be increased by the release of previously established cash reserves, if any, at the discretion of the board of directors of our general partner, and available cash is increased by the business interruption insurance proceeds and the impact of purchase accounting. Actual distributions are set by the board of directors of our general partner. The board of directors of our general partner may modify our cash distribution policy at any time, and our partnership agreement does not require us to make distributions at all.

Available cash for distribution is not a recognized term under GAAP. Available cash for distribution should not be considered in isolation or as an alternative to net income (loss) or operating income, or any other measure of financial performance or operating performance. In addition, available cash for distribution is not presented as, and should not be considered, an alternative to cash flows from operations or as a measure of liquidity. Available cash for distribution as reported by the Partnership may not be comparable to similarly titled measures of other entities, thereby limiting its usefulness as a comparative measure.


35


A reconciliation of consolidated available cash for distribution is as follows:

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions, except units and per unit data)
Adjusted EBITDA
$
5.0

 
$
17.4

 
$
58.1

 
$
74.4

Adjustments:
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
Net cash interest expense (excluding capitalized interest) and debt service
(15.0
)
 
(15.0
)
 
(44.9
)
 
(31.0
)
Maintenance capital expenditures
(2.7
)
 
(3.4
)
 
(11.1
)
 
(8.3
)
Major scheduled turnaround expenses
(2.5
)
 

 
(2.6
)
 
(6.6
)
Expenses associated with the East Dubuque Merger

 
(0.7
)
 

 
(3.1
)
Add:
 
 
 
 
 
 
 
Insurance recovery - business interruption
1.1

 
2.1

 
1.1

 
6.1

Impact of purchase accounting

 

 

 
13.0

Available cash associated with East Dubuque 2016 first quarter

 

 

 
6.3

Release of previously established cash reserves, net
12.9

 

 

 

Available cash for distribution
$
(1.2
)
 
$
0.4

 
$
0.6

 
$
50.8

Available cash for distribution, per common unit
$
(0.01
)
 
$

 
$

 
$
0.45

Distribution declared, per common unit
$

 
$

 
$
0.02

 
$
0.44

Common units outstanding (in thousands)
113,283

 
113,283

 
113,283

 
113,283




36



The following tables show selected information about key operating statistics and market indicators for our business:

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Key Operating Statistics:
 
 
 
 
 
 
 
Consolidated sales (thousand tons):
 
 
 
 
 
 
 
Ammonia
65.3

 
47.7

 
201.8

 
145.7

UAN
299.1

 
296.0

 
951.6

 
902.4

Consolidated product pricing at gate (dollars per ton) (1):
 
 
 
 
 
 
 
Ammonia
$
214

 
$
345

 
$
287

 
$
385

UAN
$
138

 
$
154

 
$
158

 
$
187

Consolidated production volume (thousand tons):
 
 
 
 
 
 
 
Ammonia (gross produced) (2)
180.7

 
200.8

 
615.2

 
485.9

Ammonia (net available for sale) (2)
46.2

 
60.3

 
203.7

 
121.0

UAN
306.6

 
317.2

 
962.3

 
861.9

Feedstock:
 
 
 
 
 
 
 
Petroleum coke used in production (thousand tons)
114.3

 
126.8

 
371.0

 
384.4

Petroleum coke used in production (dollars per ton)
$
18

 
$
13

 
$
18

 
$
14

Natural gas used in production (thousands of MMBtu)
1,555.4

 
2,075.5

 
5,780.7

 
3,471.6

Natural gas used in production (dollars per MMBtu) (3)
$
3.12

 
$
2.97

 
$
3.25

 
$
2.75

Natural gas in cost of materials and other (thousands of MMBtu)
1,934.9

 
1,679.5

 
5,898.3

 
2,742.5

Natural gas in cost of materials and other (dollars per MMBtu) (3)
$
3.15

 
$
2.92

 
$
3.30

 
$
2.68

Coffeyville Facility on-stream factors (4):