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

QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31,
September 30, 2019
OR
¨

TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period fromto               .
Commission file number: 001-35120

CVR Partners,PARTNERS, LP
(Exact name of registrant as specified in its charter)
Delaware
Delaware
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56-2677689
(State or other jurisdiction of

incorporation or organization)
 
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56-2677689
(I.R.S. Employer
Identification No.)
2277 Plaza Drive, Suite 500, Sugar Land, Texas77479
(Address of principal executive offices) (Zip Code)
(281) (281207-3200
(Registrant’s telephone number, including area code)

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common units representing limited partner interestsUANThe New York Stock Exchange

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


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesþ     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 filero
Accelerated filerþ
Non-Accelerated filero

Smaller reporting companyo
Emerging growth companyo 


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 representing limited partner interests of CVR partnersPartners, LP (“common units”) outstanding at April 23,October 22, 2019.


   
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TABLE OF CONTENTS
CVR PARTNERS,
LP - Quarterly Report on Form 10-Q

September 30, 2019



PART I. Financial Information
PART I. Financial Information
 
PART II. Other Information
 
PART I. Financial Information
 
PART II. Other Information
 
  
 Item 1. Item 1.
  
  
  
  
 
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This Quarterly Report on Form 10-Q (including documents incorporated by reference herein) contains statements with respect to our expectations or beliefs as to future events. These types of statements are “forward-looking” and subject to uncertainties. See “Important Information Regarding Forward-Looking Statements” in Management’s Discussion and Analysissection of Financial Condition and Results of Operations in Part I, Item 2.this filing.




   
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Important Information Regarding Forward LookingForward-Looking Statements


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


our ability to make cash distributions on our common units;
the ability of our general partner to modify or revoke our distribution policy at any time;
volatile margins in the nitrogen fertilizer industry and exposure to risks associated with the pricing and availability of feedstocks, pet coke, utilities, urea ammonium nitrate (“UAN”), ammonia, natural gas and other products;
the availability of adequate cash, credit and other sources of liquidity including volatility in the capital and credit markets and changes to our capital requirements;
changes in the expected value of, benefits derived from, and our ability to successfully implement, business strategies, transactions, turnarounds, maintenance and capital projects;
changes in (and in the application of) local, state and federal laws, rules, regulations and policies, including with respect to environmental matters (including climate change), health and safety, exports, transportation (including pipeline and trucking transportation), the end-use and application of fertilizers and taxes (including the tax status of CVR Partners);
changes in economic conditions impacting our business and the business of our suppliers, customers, counterparties and lenders;
interruption of or changes in the cost, availability or regulation of pipelines, vessels, trucks and other means of transporting feedstocks, pet coke, UAN, ammonia and other products relating to our business;
changes in competition in the nitrogen fertilizer business including to our competitive advantages;
the cyclical and/or seasonal nature of the nitrogen fertilizer business;
weather conditions, fires, tornadoes, floods or other natural disasters affecting our operations or the areas in which our feedstocks and fertilizers are marketed or sold;
risks associated with governmental policies affecting the agricultural industry;
direct or indirect effects from actual or threatened terrorist incidents, security or cyber-security breaches or acts of war;
dependence on significant customers and suppliers and the creditworthiness and performance by counterparties;
our ability to license the technology used in or secure permits required for our operations;
adverse rulings, judgments or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any reserves;
competition with CVR Energy, Inc. and its affiliates (“CVR Energy”), control of our general partner by CVR Energy and our reliance on CVR Energy’s senior management team including conflicts of interest they face operating each of CVR Partners and CVR Energy;
operating hazards and interruptions or production declines, including unscheduled maintenance or downtime and the availability and recoverability of adequate insurance coverage; and
the factors described in greater detail under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 and our other filings with the SEC.Securities and Exchange Commission.


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


   
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)March 31, 2019 December 31, 2018September 30, 2019 December 31, 2018
   
ASSETS
Current assets:      
Cash and cash equivalents$96,606
 $61,776
$83,667
 $61,776
Accounts receivable, net of allowance for doubtful accounts16,922
 61,662
Accounts receivable14,909
 61,662
Inventories72,479
 63,554
56,864
 63,554
Prepaid expenses and other current assets5,673
 6,989
4,608
 6,989
Total current assets191,680
 193,981
160,048
 193,981
Property, plant, and equipment, net of accumulated depreciation997,103
 1,015,240
Property, plant, and equipment, net964,502
 1,015,240
Goodwill40,969
 40,969
40,969
 40,969
Other long-term assets17,238
 4,198
14,803
 4,198
Total assets$1,246,990
 $1,254,388
$1,180,322
 $1,254,388
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:      
Accounts payable$18,852
 $26,789
$29,389
 $26,789
Accounts payable to affiliates3,697
 2,976
2,131
 2,976
Deferred revenue65,366
 68,804
16,448
 68,804
Accrued expenses and other current liabilities36,423
 24,066
Other current liabilities36,687
 24,066
Total current liabilities124,338
 122,635
84,655
 122,635
Long-term liabilities:   
Long-term debt, net of current portion629,812
 628,989
Long-term debt631,520
 628,989
Other long-term liabilities12,687
 2,938
11,791
 2,938
Total long-term liabilities642,499
 631,927
643,311
 631,927
Commitments and contingencies: (see Note 12)

 

Commitments and contingencies (see Note 11)


 


Partners’ capital:      
Common unitholders, 113,282,973 units issued and outstanding at March 31, 2019 and December 31, 2018480,152
 499,825
Common unitholders, 113,282,973 units issued and outstanding at September 30, 2019 and December 31, 2018452,355
 499,825
General partner interest1
 1
1
 1
Total partners’ capital480,153
 499,826
452,356
 499,826
Total liabilities and partners’ capital$1,246,990
 $1,254,388
$1,180,322
 $1,254,388


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


   
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CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31,Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands, except per common unit)2019 2018
(in thousands, except unit data)2019 2018 2019 2018
Net sales$91,873
 $79,859
$88,582
 $79,909
 $318,115
 $252,965
Operating costs and expenses:          
Cost of materials and other (exclusive of depreciation and amortization)23,730
 22,469
Cost of materials and other21,617
 19,590
 71,347
 61,198
Direct operating expenses (exclusive of depreciation and amortization)34,820
 38,669
47,554
 35,334
 128,004
 121,468
Depreciation and amortization16,584
 16,426
18,418
 16,035
 60,032
 52,866
Cost of sales75,134
 77,564
87,589
 70,959
 259,383
 235,532
Selling, general and administrative expenses6,846
 5,662
6,326
 6,393
 19,637
 18,955
Loss on asset disposals454
 54
2,184
 28
 2,629
 160
Operating income (loss)9,439
 (3,421)
Operating (loss) income(7,517) 2,529
 36,466
 (1,682)
Other (expense) income:       
Interest expense, net(15,650) (15,711)(15,621) (15,693) (46,870) (47,080)
Other income, net20
 44
174
 30
 229
 100
Net loss before income taxes(6,191) (19,088)(22,964) (13,134) (10,175) (48,662)
Income tax benefit(112) (37)
Income tax expense (benefit)12
 12
 (88) (6)
Net loss$(6,079) $(19,051)$(22,976) $(13,146) $(10,087) $(48,656)
          
Net loss per common unit – basic and diluted$(0.05) $(0.17)
Basic and diluted loss per unit data$(0.20) $(0.12) $(0.09) $(0.43)
Distributions declared per unit$0.14
 $
 $0.33
 $
          
Weighted-average common units outstanding:          
Basic and Diluted$113,283
 113,283
113,283
 113,283
 113,283
 113,283


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




   
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CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSPARTNERS’ CAPITAL
(unaudited)
 Three Months Ended March 31,
(in thousands)2019 2018
Cash flows from operating activities:   
Net loss$(6,079) $(19,051)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization16,584
 16,426
Share-based compensation1,108
 280
Other adjustments1,212
 885
Change in assets and liabilities:   
Current assets and liabilities39,010
 15,683
Non-current assets and liabilities89
 263
Net cash provided by operating activities51,924
 14,486
Cash flows from investing activities:   
Capital expenditures(3,500) (2,720)
Proceeds from sale of assets
 172
Net cash used in investing activities(3,500) (2,548)
Cash flows from financing activities:   
Cash distributions to common unitholders - Affiliates(4,670) 
Cash distributions to common unitholders - Non-affiliates(8,924) 
Net cash used in financing activities(13,594) 
Net increase in cash and cash equivalents34,830
 11,938
Cash and cash equivalents, beginning of period61,776
 49,173
Cash and cash equivalents, end of period$96,606
 $61,111
 Common Units  
General
Partner
Interest
 Total Partners’ Capital
(in thousands, except unit data)Issued Amount 
Balance at December 31, 2018113,282,973
 $499,825
 $1
 $499,826
Cash distributions to common unitholders - Affiliates
 (4,670) 
 (4,670)
Cash distributions to common unitholders - Non-affiliates
 (8,924) 
 (8,924)
Net loss
 (6,079) 
 (6,079)
Balance at March 31, 2019113,282,973
 $480,152
 $1
 $480,153
Cash distributions to common unitholders - Affiliates
 (2,724) 
 (2,724)
Cash distributions to common unitholders - Non-affiliates
 (5,205) 
 (5,205)
Net income
 18,968
 
 18,968
Balance at June 30, 2019113,282,973
 $491,191
 $1
 $491,192
Cash distributions to common unitholders - Affiliates
 (5,449) 
 (5,449)
Cash distributions to common unitholders - Non-affiliates
 (10,411) 
 (10,411)
Net loss
 (22,976) 
 (22,976)
Balance at September 30, 2019113,282,973
 $452,355
 $1
 $452,356


 Common Units  General
Partner
Interest
 Total Partners’ Capital
(in thousands, except unit data)Issued Amount 
Balance at December 31, 2017113,282,973
 $549,852
 $1
 $549,853
Net loss
 (19,051) 
 (19,051)
Balance at March 31, 2018113,282,973
 $530,801
 $1
 $530,802
Net loss
 (16,459) 
 (16,459)
Balance at June 30, 2018113,282,973
 $514,342
 $1
 $514,343
Net loss
 (13,146) 
 (13,146)
Balance at September 30, 2018113,282,973
 $501,196
 $1
 $501,197

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





   
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CVR PARTNERS, LP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Nine Months Ended September 30,
(in thousands)2019 2018
Cash flows from operating activities:   
Net loss$(10,087) $(48,656)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization60,032
 52,866
Share-based compensation2,970
 2,695
Other adjustments5,256
 2,640
Change in assets and liabilities:   
Current assets and liabilities9,283
 16,490
Non-current assets and liabilities1,218
 1,083
Net cash provided by operating activities68,672
 27,118
Cash flows from investing activities:   
Capital expenditures(9,487) (15,022)
Proceeds from sale of assets89
 172
Net cash used in investing activities(9,398) (14,850)
Cash flows from financing activities:   
Cash distributions to common unitholders - Affiliates(12,843) 
Cash distributions to common unitholders - Non-affiliates(24,540) 
Net cash used in financing activities(37,383) 
Net increase in cash and cash equivalents21,891
 12,268
Cash and cash equivalents, beginning of period61,776
 49,173
Cash and cash equivalents, end of period$83,667
 $61,441

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


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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




(1) Organization and Nature of Business


CVR Partners, LP (referred to as “CVR Partners” or the “Partnership”) is a Delaware limited partnership formed by CVR Energy, Inc. (together with its subsidiaries, but excluding the Partnership and its subsidiaries, “CVR Energy”) to own, operate and grow its nitrogen fertilizer business. The Partnership produces nitrogen fertilizer products at two2 manufacturing facilities, which are located in Coffeyville, Kansas (the “Coffeyville Facility”) and East Dubuque, Illinois (the “East Dubuque Facility”). The Coffeyville Facility sells and distributes products to destinations located principally on the Union Pacific railroad, the BNSF Railway railroad, or as direct shipments to customers, while the East Dubuque Facility primarily sells to customers located within 200 miles of the facility. As used in these financial statements, references to CVR Partners, and the Partnership, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners or one or both of the facilities, as the context may require.


As of March 31,September 30, 2019, public security holders held approximately 66% of the Partnership’s outstanding limited partner interests and Coffeyville Resources, LLC (“CRLLC”), a wholly-owned subsidiary of CVR Energy, held approximately 34% of the Partnership’s outstanding limited partner interests and 100% of the Partnership’s general partner interest is held by CVR GP, LLC (“CVR GP” or the “general partner”)., a wholly owned subsidiary of CVR Energy. As of March 31,September 30, 2019, Icahn Enterprises L.P. (“IEP”) and its affiliates owned approximately 71% of the sharescommon stock of CVR Energy.


Management and Operations


The Partnership, including CVR GP, is party to a number of agreements with CVR Energy and its subsidiaries to manage certain business relationships between the Partnership and the other parties thereto. The various rights and responsibilities of the Partnership, and its partners, are set forth in the Partnership’s limited partnership agreement.agreement and, as applicable, those agreements with CVR Energy. CVR GP manages and operates the Partnership via a combination of the general partner’s senior management team and CVR Energy’s senior management team pursuant to a services agreement among CVR Energy, CVR GP and the Partnership. See Note 1413 (“Related Party Transactions”) for further discussion. Common unitholders have limited voting rights on matters affecting the Partnership and have no right to elect the general partner’s directors on an annual or continuing basis.


(2) Basis of Presentation


The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). These condensed consolidated financial statements should be read in conjunction with the December 31, 2018 audited consolidated financial statements and notes thereto included in CVR Partners’ Annual Report on Form 10-K for the year ended December 31, 2018 which was filed with the SEC on February 21, 2019 (the “2018 Form 10-K”).


TheIn the opinion of the Partnership’s management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary to fairly presentfor fair presentation of the financial position of the Partnership as of March 31, 2019 and December 31, 2018, the results of operations of the Partnership for the three month periods ended March 31, 2019 and 2018 and the cash flows of the Partnership for the three month periods ended March 31, 2019 and 2018.presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.


Certain reclassifications have been made within the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 to conform with current presentation.

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


(3) Recent Accounting Pronouncements


Recent Accounting Pronouncement - Adoption of New Lease Standard


In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standard Update (“ASU”) No. 2016-02, “Leases” (“ASU 2016-02”), creating a new topic, FASB ASC Topic 842, “Leases” (“Topic 842842”), which supersedes lease requirements in FASB ASC Topic 840, “Leases.” The new standard revises accounting for operating leases by a lessee,

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

among other changes, and requires a lessee to recognize a liability related to future lease payments and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term on the balance sheet. The ROU asset is classified as Other long-term assets on the condensed consolidated balance sheet. The

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

current and long-term lease liabilities are classified as Accrued expenses and otherOther current liabilities and Other long-term liabilities, respectively, on the condensed consolidated balance sheet.
 
We adopted Topic 842 as of January 1, 2019, electing the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. In connection with the adoption of Topic 842, we made the following elections:


Under the short-term lease exception provided for in Topic 842, only ROU assets and the related lease liabilities for leases with an initial term greater than one year were recognized;
The accounting treatment for existing land easements was carried forward;
Lease and non-lease components were not, and will not, be bifurcated for all of the Partnership’s asset groups; and
The portfolio approach was, and will continue to be, used in the selection of the discount rate used to calculate minimum lease payments and the related ROU asset and operating lease liability amounts.


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


Effect of Topic 842 Adoption on the Condensed Consolidated Balance Sheet as of January 1, 2019
(in thousands)
December 31, 2018
As Stated
(Unaudited)
 
Effect of Adoption of
Topic 842 - Leases (Unaudited)
 
January 1, 2019
As Adjusted
December 31, 2018
As Stated
 
Effect of Adoption of
Topic 842 - Leases (Unaudited)
 
January 1, 2019
As Adjusted
Current assets:          
Prepaid expenses and other current assets$6,989
 $(2,650)(1)$4,339
$6,989
 $(2,650)(1)$4,339
Total currents assets193,981
 (2,650) 191,331
193,981
 (2,650) 191,331
Other long-term assets4,198
 16,923
(2)21,121
4,198
 16,923
(2)21,121
Total assets$1,254,388
 $14,273
 $1,268,661
$1,254,388
 $14,273
 $1,268,661
Current liabilities:

          
Accrued expenses and other current liabilities$24,066
 $3,462
(3)$27,528
Other current liabilities$24,066
 $3,462
(3)$27,528
Total current liabilities122,635
 3,462
 126,097
122,635
 3,462
 126,097
Long-term liabilities:          
Long term liabilities:    
Other long-term liabilities2,938
 10,811
(3)13,749
2,938
 10,811
(3)13,749
Total long-term liabilities631,927
 10,811
 642,738
631,927
 10,811
 642,738
Equity:          
Total liabilities and partners’ capital$1,254,388
 $14,273
 $1,268,661
$1,254,388
 $14,273
 $1,268,661
 
(1)Represents lease prepayments reclassified to right-of-useROU assets.
(2)Represents recognition of initial right-of-useROU assets for operating leases, including the reclassification of certain lease prepayments as noted above.prepayments.
(3)Represents the initial recognition of lease liabilities.


New Accounting Standards Issued But Not Yet Implemented


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



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

   
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


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

(4) Inventories


Inventories consisted of the following:
(in thousands)September 30, 2019 December 31, 2018
Finished goods$19,919
 $25,136
Raw materials362
 439
Parts, supplies and other36,583
 37,979
Total inventories$56,864
 $63,554

(in thousands)March 31, 2019 December 31, 2018
Finished goods$34,315
 $25,136
Raw materials317
 439
Parts, supplies and other37,847
 37,979
Total inventories$72,479
 $63,554


(5) Property, Plant and Equipment


Property, plant and equipment consisted of the following:
(in thousands)September 30, 2019 December 31, 2018
Machinery and equipment$1,360,019
 $1,362,965
Buildings and improvements17,116
 17,116
Automotive equipment16,719
 16,773
Land and improvements13,751
 13,250
Construction in progress17,299
 15,126
Other1,654
 2,753
 1,426,558
 1,427,983
Less: Accumulated depreciation462,056
 412,743
Total property, plant and equipment, net$964,502
 $1,015,240
(in thousands)March 31, 2019 December 31, 2018
Machinery and equipment$1,369,904
 $1,362,965
Automotive equipment16,773
 16,860
Buildings and improvements16,707
 17,116
Land and improvements13,751
 13,250
Construction in progress9,812
 15,802
Other2,074
 1,990
 1,429,021
 1,427,983
Less: Accumulated depreciation431,918
 412,743
Total property, plant and equipment, net$997,103
 $1,015,240


On October 22, 2019, the Audit Committee of CVR Energy and the Conflicts Committee of the Board of Directors of the general partner of CVR Partners each agreed to authorize the exchange of certain parcels of property owned by subsidiaries of CVR Energy with an equal number of parcels owned by subsidiaries of CVR Partners, all located in Coffeyville, Kansas (the “Property Swap”). This Property Swap will enable each such subsidiary to create a more usable contiguous parcel of land near its own operating footprint. The Partnership will account for this transaction in accordance with the ASC 805-50 guidance on transferring assets between entities under common control.

(6) Leases


Lease Overview


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


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

ROU Assets. As of January 1, 2019, upon initial recognition, our ROU assets for operating and finance leases were comprised of the following:
(in thousands)
January 1, 2019
(initial recognition)
Railcar leases$14,255
Real Estate and other leases18
Total ROU assets$14,273


   
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Effect of Initial Adoption of New Lease Liabilities. As ofStandard - January 1, 2019 upon

ROU Assets. Upon initial recognition, our ROU assets for operating and finance leases were comprised of the following:
(in thousands)
January 1, 2019
(initial recognition)
Railcar leases$14,255
Real Estate and other leases18
Total ROU assets$14,273


Lease Liabilities. Upon initial recognition, our lease liabilities for operating and finance leases were comprised of the following:
(in thousands)
January 1, 2019
(initial recognition)
Current liabilities: 
Operating leases$3,462
Long-term liabilities: 
Operating leases10,811
Total lease liabilities$14,273

(in thousands)Consolidated Balance Sheet Classification
January 1, 2019
(initial recognition)
Current liabilities:  
Operating leasesAccrued expense and other current liabilities$3,462
Long-term liabilities:  
Operating leasesOther long-term liabilities10,811
Total lease liabilities

 $14,273


Balance Sheet Summary for the Period Ended March 31,September 30, 2019


The following tables summarize the ROU asset and lease liability balances for the Partnership’s operating and finance leases at March 31,September 30, 2019:
(in thousands)March 31, 2019September 30, 2019
Operating Leases:  
ROU asset, net  
Railcars$13,328
$11,454
Real estate and other2,496
2,396
Lease liability  
Railcars$13,409
$11,666
 
Financing Leases: 
ROU asset, net 
Real estate and other15
$226
Lease liability 
Real estate and other$229

(in thousands)March 31, 2019
Financing Leases: 
ROU asset, net 
Real estate and other$111
Lease liability 
Real estate and other$155

Lease Expense Summary for the Three-Month Period Ended March 31, 2019

We recognize lease expense for these leases on a straight-line basis over the lease term. For the three months ended March 31, 2019, we recognized net lease expense comprised of the following components:
(in thousands)March 31, 2019
Operating lease expense$1,023
Financing lease expense: 
Amortization of ROU asset$105
Interest expense on lease liability6

Short-term lease expense, recognized within direct operating expenses, was $0.7 million for the three-month period ended March 31, 2019.





   
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Lease Expense Summary for the Three and Nine months ended September 30, 2019

We recognize lease expense on a straight-line basis over the lease term. For the three and nine months ended September 30, 2019, we recognized lease expense comprised of the following components:
(in thousands)Three Months Ended
September 30, 2019
 Nine Months Ended
September 30, 2019
Operating lease expense$1,023
 $3,069
Financing lease expense:   
Amortization of ROU asset$25
 $297
Interest expense on lease liability2
 17


Short-term lease expense, recognized within direct operating expenses, was $0.2 million and $0.3 million for the three and nine months ended September 30, 2019, respectively.

Lease Terms and Discount Rates


The following outlines the remaining lease terms and discount rates used in the measurement of the Partnership’s ROU assets and liabilities:
 September 30, 2019 
January 1, 2019
(initial recognition)
Weighted-average remaining lease term (years)   
Operating Leases3.7
 4.3
Finance Leases2.5
 0.5
Weighted-average discount rate   
Operating Leases5.1% 5.1%
Finance Leases3.9% 8.0%

 March 31, 2019 
January 1, 2019
(initial recognition)
Weighted-average remaining lease term (years)   
Operating Leases4.1
 4.3
Finance Leases0.4
 0.5
Weighted-average discount rate   
Operating Leases5.1% 5.1%
Finance Leases11.0% 8.0%


Maturities of Lease Liabilities


The following summarizes the remaining minimum lease payments through maturity of the Partnership’s ROU assets and liabilities at March 31,September 30, 2019:
(in thousands)Operating Leases Financing Leases
Remainder of 2019$1,023
 $27
20203,602
 107
20213,430
 107
20222,990
 
20231,133
 
Thereafter648
 
Total lease payments12,826
 241
Less: imputed interest(1,160) (12)
Total lease liability$11,666
 $229

(in thousands)Operating Leases 
Financing
Leases
Remainder of 2019$3,410
 $155
20203,602
 
20213,430
 
20222,990
 
20231,133
 
Thereafter648
 
Total lease payments15,213
 $155
Less: imputed interest(1,789) 
Total lease liability$13,424
 $155


(7) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are as follows:
(in thousands)March 31, 2019 December 31, 2018
Share-based compensation$1,172
 $2,667
Personnel accruals4,136
 7,993
Accrued interest17,643
 2,516
Other accrued expenses and liabilities13,472
 10,890
Total accrued expenses and other current liabilities$36,423
 $24,066

Accrued expenses and other current liabilities include amounts owed by the Partnership to CVR Energy and affiliates of $3.8 million and $3.5 million at March 31, 2019 and December 31, 2018, respectively. Refer to Note 14 (“Related Party Transactions”) for additional discussion.



   
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


(7) Other Current Liabilities

Other current liabilities consisted of the following:
(in thousands)September 30, 2019 December 31, 2018
Accrued interest$17,470
 $2,516
Personnel accruals7,099
 7,993
Share-based compensation4,959
 2,667
Operating lease liabilities3,220
 
Sales incentives613
 1,727
Prepaid revenue contracts459
 5,863
Other accrued expenses and liabilities2,867
 3,300
Total other current liabilities$36,687
 $24,066


Other current liabilities include amounts accrued by the Partnership and owed to CVR Energy and its affiliates of $4.7 million and $3.5 million at September 30, 2019 and December 31, 2018, respectively. See Note 13 (“Related Party Transactions”) for additional discussion.

(8) Long-Term Debt


Long-term debt consists of the following:
(in thousands)March 31, 2019 December 31, 2018
9.25% senior secured notes, due 2023 (1)$645,000
 $645,000
6.50% notes, due 20212,240
 2,240
Unamortized discount and debt issuance costs(17,428) (18,251)
Total long-term debt, net of current portion$629,812
 $628,989
(in thousands)September 30, 2019 December 31, 2018
9.25% Senior Secured Notes, due 2023 (1)$645,000
 $645,000
6.50% Notes, due 20212,240
 2,240
Unamortized discount and debt issuance costs(15,720) (18,251)
Total long-term debt$631,520
 $628,989


(1)The estimated fair value of long-term debt outstanding was approximately $672.4 million and $670.8 million as of September 30, 2019 and December 31, 2018, respectively.

Credit Facility
(in thousands)Total Capacity Amount Borrowed as of September 30, 2019 Outstanding Letters of Credit Available Capacity as of September 30, 2019 Maturity Date
Asset Based (“AB”) Credit Facility (2)$47,517
 $
 $
 $47,517
 September 30, 2021

(1) The estimated fair value of total long-term debt outstanding was approximately $675.6 million and $670.8 million as of March 31, 2019 and December 31, 2018, respectively.

Credit Facility
(in thousands)Total Capacity Amount Borrowed as of March 31, 2019 Outstanding Letters of Credit Available Capacity as of March 31, 2019 Maturity Date
Asset Based Credit Facility (2)$50,000
 $
 $
 $50,000
 September 30, 2021
(2)At the option of the borrowers, loans under the asset based credit facilityAB Credit Facility initially bear interest at an annual rate equal to (i) 2.00% plus LIBOR or (ii) 1.00% plus a base rate, subject to a 0.50% step-down based on the previous quarter’s excess availability.


Covenant Compliance


The Partnership is in compliance with all covenants of the asset based credit facilityAB Credit Facility, the 9.25% Senior Secured Notes, and the 9.25% senior secured notes and 6.50% notesNotes as of March 31,September 30, 2019.


(9) Partners' Capital

The following table summarizes the partners’ capital and general partners’ interest for the three months ended March 31, 2019.
 Common Units  
General
Partner
Interest
 Total
(in thousands, except unit data)Issued Amount 
  
Balance at December 31, 2018113,282,973
 $499,825
 $1
 $499,826
Cash distributions to common unitholders - Affiliates
 (4,670) 
 (4,670)
Cash distributions to common unitholders - Non-affiliates
 (8,924) 
 (8,924)
Net loss
 (6,079) 
 (6,079)
Balance at March 31, 2019113,282,973
 $480,152
 $1
 $480,153


 Common Units  General
Partner
Interest
 Total
(in thousands, except unit data)Issued Amount 
        
Balance at December 31, 2017113,282.973
 $549,852
 $1
 $549,853
Net loss
 (19,051) 
 (19,051)
Balance at March 31, 2018113,282,973
 $530,801
 $1
 $530,802



   
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



(9) Revenue
Distributions

For the fourth quarter of 2018, the Partnership declared a cash distribution of $0.12 per common unit, or $13.6 million, which was paid on March 11, 2019.

On April 24, 2019, the Board of Directors of the general partner of the Partnership declared a cash distribution for the first quarter of 2019 in the amount of $0.07 per common unit, or approximately $8 million in aggregate. The cash distribution will be paid on May 13, 2019 to the Partnership’s unitholders of record at the close of business on May 6, 2019.

(10) Revenue


The following table presents the Partnership’s revenue, disaggregated by major product:
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)2019 2018 2019 2018
Ammonia$11,110
 $11,391
 $74,416
 $51,361
UAN61,970
 52,681
 199,576
 156,838
Urea products4,575
 4,987
 14,251
 14,834
Net sales, exclusive of freight and other77,655
 69,059
 288,243
 223,033
Freight revenue8,752
 8,805
 23,909
 23,908
Other revenue2,175
 2,045
 5,963
 6,024
Net sales$88,582
 $79,909
 $318,115
 $252,965

(in thousands)Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Ammonia$13,352
 $11,597
UAN64,064
 52,763
Urea products4,671
 4,911
Fertilizer sales, exclusive of freight and other82,087
 69,271
Freight revenue8,018
 8,739
Other revenue1,768
 1,849
Total net sales$91,873
 $79,859


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


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


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


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


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


Transaction price allocated to remaining performance obligations


As of March 31,September 30, 2019, the Partnership had approximately $9.6$7.3 million of remaining performance obligations for contracts with an original expected duration of more than one year. The Partnership expects to recognize approximately 39%20% of these performance obligations as revenue by the end of 2019, an additional 30% by40% in 2020, and the remaining balance thereafter. The Partnership has elected to not disclose the amount of transaction price allocated to remaining performance obligations for contracts with an original expected duration of less than one year. The Partnership has elected to not disclose variable

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

consideration allocated to wholly unsatisfied performance obligations that are based on market prices that have not yet been determined.


Contract balances


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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

requiring prepayment are generally short-term in nature and, as discussed above, revenue is recognized at the point in time in which the customer obtains control of the product. At March 31,September 30, 2019, $0.7$0.4 million of the deferred revenue balance pertained to prepaid contracts where the associated receivable was recognized as it had not yet been collected by the Partnership.


A summary of the deferred revenue activity duringfor the threenine months ended March 31,September 30, 2019 is presented below:
(in thousands) 
Balance at December 31, 2018$68,804
Add: 
New prepay contracts entered into during the period (1)24,121
Less: 
Revenue recognized that was included in the contract liability balance at the beginning of the period67,823
Revenue recognized related to contracts entered into during the period8,174
Other changes480
Balance at September 30, 2019$16,448

(in thousands)Three Months Ended March 31, 2019
Balance at January 1, 2019$68,804
Add: 
New prepay contracts entered into during the period (1)9,621
Less: 
Revenue recognized that was included in the contract liability balance at the beginning of the period12,172
Revenue recognized related to contracts entered into during the period620
Other changes267
Balance at March 31, 2019$65,366
 
(1) Includes $8.9$23.7 million where payment associated with prepaid contracts was collected.


(11)(10) Share-Based Compensation


A summary of compensation expense duringfor the three and nine months ended March 31,September 30, 2019 and 2018 is presented below:
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)2019 2018 2019 2018
Phantom Units$544
 $710
 $2,089
 $1,663
Other Awards (1)
208
 486
 881
 1,032
Total share-based compensation expense$752
 $1,196
 $2,970
 $2,695

(in thousands)Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Phantom Units$790
 $406
Other Awards (1)
318
 (126)
Total Share-Based Compensation Expense$1,108
 $280
 

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


(12)(11) Commitments and Contingencies


Except as describednoted below, there have been no material changes in the Partnership’s commitments and contingencies duringdisclosed in the three months ended March 31, 2019.2018 Form 10-K. In the ordinary course of business, the Partnership may become party to lawsuits, administrative proceedings, and governmental investigations, including environmental, regulatory, and other matters. The outcome of these matters cannot always be predicted accurately, but the Partnership accrues liabilities for these matters if the Partnership has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, the Partnership believes there would be no material impact on its consolidated financial statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Litigation


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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Court of Appeals upheld BOTA’s property tax determinations in CRNF’s favor.  In October 2018, the County petitioned the Kansas Supreme Court to review the Court of Appeals determination.  Subsequent briefs were filed by CRNF and the County.  In April 2019, CRNF and the County executed an agreement under which the County agreed to withdraw its petition to the Kansas Supreme Court and CRNF is expected to recover $7.9 million through favorable property tax assessments from 2019 through 2028, subject to the terms of the settlement agreement.


(13)(12) Supplemental Cash Flow Information


Cash flows related to interest, leases, and constructioncapital expenditures included in processaccounts payable are as follows:
 Nine Months Ended September 30,
(in thousands)2019 2018
Supplemental disclosures:   
Cash paid for interest$30,102
 $30,244
Cash paid for amounts included in the measurement of lease liabilities (1):   
Operating cash flows from operating leases3,069
  
Operating cash flows from finance leases17
  
Financing cash flows from finance leases297
  
Non-cash investing activities:   
Change in capital expenditures included in accounts payable2,087
 734

 Three Months Ended March 31,
(in thousands)2019 2018
Supplemental disclosures:   
Cash paid for interest$53
 $138
Non-cash investing activities:   
Construction in process additions included in accounts payable$1,252
 $2,203
Change in accounts payable related to construction in process additions(668) 1,314
(1)The lease standard was adopted on January 1, 2019 on a prospective basis. Therefore only 2019 disclosures are applicable to be included within the table above.


(14)(13) Related Party Transactions


Activity associated with the Partnership’s related party arrangements for the three month periodsand nine months ended March 31,September 30, 2019 and 2018 is summarized below.


Sales to related parties
 Three Months Ended March 31, Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)Related Party 2019 2018Related Party 2019 2018 2019 2018
Net Sales            
Feedstock and Shared Services AgreementCRRM (1) $2
 $35
CRRM (1) $113
 $
 $115
 $292




   
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Expenses from related parties
 Three Months Ended March 31, Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)Related Party 2019 2018Related Party 2019 2018 2019 2018
Cost of materials and other             
Coke Supply AgreementCRRM (1) $1,321
 $359
CRRM (1) $705
 $1,057
 $3,255
 $2,133
Hydrogen Purchase and Sale AgreementCRRM (1) 1,541
 1,310
CRRM (1) 984
 1,072
 3,719
 3,157
            
Direct operating expenses (exclusive of depreciation and amortization)            
Services AgreementCVR Energy $940
 $616
CVR Energy $797
 $761
 $2,586
 $2,145
Limited Partnership AgreementCVR GP 174
 663
CVR GP 219
 242
 595
 572
            
Selling, general and administrative expenses            
Services AgreementCVR Energy $4,038
 $2,863
CVR Energy $3,915
 $3,595
 $11,724
 $10,353
Limited Partnership AgreementCVR GP 915
 1,330
CVR GP 651
 626
 2,191
 1,920

Amounts due to related parties
(in thousands)Related Party September 30, 2019 December 31, 2018
Prepaid expenses and other current assets     
Feedstock and Shared Services AgreementCRRM (1) $128
 $
      
Accounts payable to affiliates     
Feedstock and Shared Services AgreementCRRM (1) $681
 $1,106
Hydrogen Purchase and Sale Agreement and otherCRRM (1) 348
 324
Coke Supply AgreementCRRM (1) 132
 138
Services AgreementCVR GP 970
 1,372
      
Other current liabilities     
Limited Partnership AgreementCVR GP $1,697
 $1,179
Services AgreementCVR Energy 3,009
 2,352
      
Other long-term liabilities     
Limited Partnership AgreementCVR Energy $530
 $503

 

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


Amounts due to related parties
(in thousands)Related Party March 31, 2019 December 31, 2018
Accounts payable     
Feedstock and Shared Services AgreementCRRM (1) $1,102
 $1,280
Hydrogen Purchase and Sale Agreement and otherCRRM (1) 1,335
 324
Limited Partnership AgreementCVR GP 1,260
 1,372
      
Accrued expenses and other current liabilities     
Limited Partnership AgreementCVR GP $940
 $1,179
Services AgreementCVR Energy 2,818
 2,352



   
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Distributions to CVR Partners’ Unitholders

The following table presents distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of September 30, 2019.
      Dividends Paid (in thousands)
Related Period Date Paid Dividend Per Common Unit Unitholders CVR Energy Total
2018 - 4th Quarter March 11, 2019 $0.12
 $8,924
 $4,670
 $13,594
2019 - 1st Quarter May 13, 2019 0.07
 5,205
 2,724
 7,929
2019 - 2nd Quarter August 12, 2019 0.14
 10,411
 5,449
 15,860
Total   $0.33
 $24,540
 $12,843
 $37,383


For the third quarter of 2019, the Partnership, upon approval by the Board of Directors of CVR Partners’ general partner on October 22, 2019, declared a distribution of $0.07 per common unit, or $7.9 million, which is payable November 12, 2019 to unitholders of record as of November 4, 2019. Of this amount, CVR Energy will receive approximately $2.7 million, with the remaining amount payable to public unitholders.

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

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Item 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations


The following discussion and analysis of our financial condition, results of operations, and cash flows should be read in conjunction with the unaudited condensed consolidated financial statements and related notes and with the statistical information and financial data appearing in this Report, as well as our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on February 21, 2019 (the “2018 Form 10-K”). Results of operations for the three and nine months ended September 30, 2019 and cash flows for the threenine months ended March 31,September 30, 2019 are not necessarily indicative of results to be attained for any other period. See “Important Information Regarding Forward looking statements”Looking Statements”.
 
Partnership Overview
CVR Partners, LP (“CVR Partners” or the “Partnership”) is a Delaware limited partnership formed in 2011 by CVR Energy, Inc. (“CVR Energy”) to own, operate, and grow our nitrogen fertilizer business. We produce and distribute nitrogen fertilizer products, which are used by farmers to improve the yield and quality of their crops. The Partnership produces these products at two manufacturing facilities, which are located in Coffeyville, Kansas and East Dubuque, Illinois. Our principal products are ammonia and urea ammonium nitrate (“UAN”). All of our products are sold on a wholesale basis. References to CVR Partners, the Partnership, “we”, “us”, and “our” may refer to consolidated subsidiaries of CVR Partners or one or both of the facilities, as the context may require. Additionally, as the context may require, references to CVR Energy may refer to CVR Energy and its consolidated subsidiaries which include its petroleum refining, marketing, and logistics operations. Our principal products are ammonia and UAN. All of our products are sold on a wholesale basis. We produce nitrogen fertilizer products at two manufacturing facilities, which are located in Coffeyville, Kansas and East Dubuque, Illinois.
Strategy and Goals


Mission and Core Values


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


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

Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it’s our duty to protect it.
Safety - We always put safety first. The protection of our employees, contractors and communities is paramount. We have an unwavering commitment to safety above all else. If it’s not safe, then we don’t do it.
Integrity - We require high business ethics. We comply with the law and practice sound corporate governance. We only conduct business one way—the right way with integrity.

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


Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.
Environment - We care for our environment. Complying with all regulations and minimizing any environmental impact from our operations is essential. We understand our obligation to the environment and that it’s our duty to protect it.

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

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

Continuous Improvement - We believe in both individual and team success. We foster accountability under a performance-driven culture that supports creative thinking, teamwork and personal development so that employees can realize their maximum potential. We use defined work practices for consistency, efficiency and to create value across the organization.


Our core values are driven by our people, inform the way we do business each and every day and enhance our ability to accomplish our mission and related strategic objectives.


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Strategic Objectives


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


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



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


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


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


Achievements


During 2019, we successfully executed certaina number of achievements in support of our strategic objectives shown abovebelow through the date of this filing:
 Safety Reliability Market Capture Financial Discipline
Safely completed the East Dubuque turnaroundü
Maintained high asset reliability during firstand utilization at both facilities through the third quarter 2019.of 2019ü ü   ü
Achieved monthly record ammonia volumes at the East Dubuque nitrogen fertilizer facility for April 2019
ü
Generated positive cash available for distribution despite the delayfor three consecutive quarters inthe spring planting season due to wet weather. 2019  ü ü ü
Declared a first quarter 2019 cash distributiondistributions of 740 cents per unit.unit in 2019      ü


Industry Factors and Market Conditions
Within the nitrogen fertilizer business, earnings and cash flows from operations are primarily affected by the relationship between nitrogen fertilizer product prices, utilization, and operating costs and expenses.expenses, including petroleum coke and natural gas feedstock costs.


The price at which nitrogen fertilizer products are ultimately sold depends on numerous factors, including the global supply and demand for nitrogen fertilizer products which, in turn, depends on, among other factors, world grain demand and production levels, changes in world population, the cost and availability of fertilizer transportation infrastructure, weather conditions, the availability of imports, and the extent of government intervention in agriculture markets.
 
Nitrogen fertilizer prices are also affected by local factors, including local market conditions, weather patterns, and the operating levels of competing facilities. An expansion or upgrade of competitors’ facilities, new facility development, political and economic developments, and other factors are likely to continue to play an important role in nitrogen fertilizer industry economics. These factors can impact, among other things, the level of inventories in the market, resulting in price volatility and a reduction in product margins. Moreover, the industry typically experiences seasonal fluctuations in demand for nitrogen fertilizer products.
 
2019 Market Conditions


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



   
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During 2019, weather impacted the business by causing delays in the planting conditions. Increased amounts of rain led to ineffective planting of corn and soybean crops, resulting in an anticipated lower yield per planted acre in 2019. Furthermore, the severe flooding in Kansas and Oklahoma curtailed UAN rail shipments in the second quarter. Despite these conditions, there was still strong demand for nitrogen due to the catchup from the poor fall application and late start to spring. The late planting season extended well into July and fertilizer consumption brought customer inventories to very low levels by the end of the global cost curve will continue to provide a solid foundationseason, creating strong demand for nitrogen fertilizer producers in the U.S over the longer term.third quarter.

The table below shows relevant market indicators for the nitrogen fertilizer segment for the three months ended March 31, 2019,2018 and 2017:by month through September 30, 2019:


chart-b7f5feea5cb5348a3aa.jpgchart-2add30be56b76479064.jpgchart-7a4ce72a14525e25916.jpgchart-c0eb64f452a856cc9df.jpg
 
(1)Information used in the charts was obtained from various third-party sources, including MartketViewPace Petroleum Coke Quarterly, Green Markets (a Bloomberg Company) and the U.S. Energy Information Administration.


Non-GAAP Measures


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


The following are non-GAAP measures presented for the period ended March 31,September 30, 2019:


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


Adjusted EBITDA - EBITDA adjusted to exclude turnaround expenseexpenses and other significant, nonrecurring items which management believes are material to an investor’s understanding of the Partnership’s underlying operating results.


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

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Available Cash for Distribution - Adjusted EBITDA reduced for cash reserves established by the board of directors of our general partner for (i) debt service, (ii) maintenance capital expenditures, (iii) turnaround expenses and, to the extent applicable, (iv) reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate, if any.any, in its sole discretion. Available cash for distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the board of directors of our general partner.



March 31, 2019 | 19

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.

Major Scheduled Turnaround Activities

On September 14, 2019, the East Dubuque facility began a major scheduled turnaround and the ammonia and UAN units were down for approximately 17 days during the quarter. This turnaround was completed in October. Overall, quarterly 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 $6.8 million and $7.0 million 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, 2019, respectively.

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Results of Operations


The following sections should be read in conjunction with the information outlined in Part I, Item 2 and the financial statements and related notes thereto in Part I, Item 1 of this Report.
Key Operating Data
Utilization - The following charts summarize our ammonia utilization rates on a consolidated basis and at each of our facilities. Utilization is an important measure used by management to assess operational output at each of the Partnership’s facilities. Utilization is calculated as actual tons produced divided by capacity adjusted byfor planned turnarounds.


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


We present utilization solely on ammonia production rather than each nitrogen product as it provides a comparative baseline against industry peers and eliminates the disparity of plant configurations for upgrade of ammonia into other nitrogen products. With our efforts being primarily focused on ammonia upgrade capabilities, we believe this measure provides a meaningful view of how well we operate.
chart-b1b678d6882f76db410.jpgchart-7edf1c14c731904eae8.jpg


   
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chart-e05a2a24f44f5126bc0.jpgchart-03fb282a9f6a5f1b8b9.jpg
Consolidated Ammonia Utilization - The consolidated ammonia utilization decreased 2% to 93% for the two years ended September 30, 2019 compared to the two years ended September 30, 2018. This decrease was primarily a result of ammonia storage capacity constraints at the East Dubuque facility in the first quarter of 2019 due to inclement weather impacting customers’ ability to apply ammonia.

Sales and Pricing per Ton.Ton - Two of our key operating metrics are total sales for ammonia and UAN along with the product pricing per ton realized at the gate. Product pricing at the gate represents net sales less freight revenue divided by product sales volume in tons and is shown in order to provide a pricing measure that is comparable across the fertilizer industry.
chart-d122f672686a8b0d1e2.jpgchart-541617b500eb8fd7573.jpg

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

chart-89f6f640fbb55fdca15.jpgchart-a8a2a6972fd251b78d3.jpg

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chart-845b2da0ea975ee696c.jpgchart-ed1d87932dae5379b41.jpg
Operating Highlights (nine months ended September 30, 2019 versus September 30, 2018)

chart-2cd9160855fa599b8da.jpgchart-947e66f5f5085765b32.jpg
chart-b5b9d2d34e5753bdaf4.jpgchart-0d8a2ab1ddd1550e881.jpg

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Production Volumes. Volumes -Gross tons produced for ammonia represent the total ammonia produced, including ammonia produced, that was upgraded into other fertilizer products. Net tons available for sale represent the ammonia available for sale that was not upgraded into other fertilizer products.
Three Months Ended March 31,Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands of tons)2019 20182019 2018 2019 2018
Ammonia (gross produced)179
 199
196
 212
 586
 584
Ammonia (net available for sale)41
 59
56
 63
 168
 187
UAN335
 339
318
 338
 969
 919


Three Months Ended March 31,Three Months Ended
September 30,
 Nine Months Ended
September 30,
2019 20182019 2018 2019 2018
Petroleum coke used in production (thousand tons)132
 118
137
 117
 404
 325
Petroleum coke (dollars per ton)$38
 $18
$37.75
 $25.65
 $36.68
 $22.89
Natural gas used in production (thousands of MMBtu) (1)1,440
 1,850
1,700
 2,118
 5,210
 5,933
Natural gas used in production (dollars per MMBtu) (1)$3.83
 $3.24
$2.40
 $3.03
 $2.88
 $3.01
Natural gas in cost of materials and other (thousands of MMBtu) (1)1,008
 1,258
1,294
 1,439
 5,487
 5,268
Natural gas in cost of materials and other (dollars per MMBtu) (1)$3.87
 $3.48
$2.46
 $2.98
 $3.22
 $3.03
 
(1)The feedstock natural gas shown above does not include natural gas used for fuel. The cost of fuel natural gas is included in direct operating expense (exclusive of depreciation and amortization).



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


chart-1a3e6744485c5ee7b92.jpgchart-677cc1bcc4b15ebf998.jpgchart-517adb86f5f05b0591f.jpg
chart-5bd9886ef88151d09fe.jpgchart-009e0e87460452208ed.jpgchart-69d328c9b808598a9b2.jpg

   
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Financial Highlights (2019 1st Quarter Versus 2018 1st Quarter)(nine months ended September 30, 2019 versus September 30, 2018)


chart-ac73759e677c779cd2d.jpgchart-eea1a9d3c82a1ef94fe.jpgchart-51343c7895cffda8252.jpgchart-b368e4b4c4805494b9d.jpgchart-10797b4d7ecf58f4874.jpgchart-06d1bfe835355305938.jpg

chart-be5e12d910d683e012e.jpgchart-0b68f3a5c43e695a76f.jpgchart-88e90ffd324a31b00c3.jpgchart-0e450f3af1f95391a75.jpgchart-f6be0a7a33a5561f8fd.jpgchart-20e11eceac9c5534b3b.jpg
 
(1)See “Non-GAAP Reconciliations” section below for reconciliations of the non-GAAP measures shown above.


Three Months Ended March 31,September 30, 2019 Compared to the Three Months Ended March 31,September 30, 2018


Net Sales.Net sales increased by $12.0$8.7 million to $91.9$88.6 million for the three months ended March 31,September 30, 2019compared to the three months ended March 31,September 30, 2018. This increase wasprimarily due to favorable pricing and volume conditions which contributed $22$5.5 million and $3.5 million, respectively, in higher revenues. These price increases were offset by $10.0 million due to volume reductionsrevenues in 2019the current period as compared to 2018.


The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales, excluding freight, for the three months ended March 31,September 30, 2019 as compared to the three months ended March 31,September 30, 2018:
(in thousands)
Price
 Variance
 
Volume
 Variance
Price
 Variance
 
Volume
 Variance
UAN$20,760
 $(9,975)$4,188
 $5,100
Ammonia$1,600
 $106
$1,321
 $(1,602)


The increase in UAN and ammonia sales pricing for the three months ended March 31,September 30, 2019 as compared to the three months ended March 31,September 30, 2018 was primarily attributable to inclement weather throughout the region in the first quarter of 2019, delaying the crop cycle and also continuing nitrogen demand during the three months ended September 30, 2019. As a result of the aforementioned delay in the crop cycle, UAN sales volumes increased for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

Cost of materials and other. Cost of materials and other for the three months ended September 30, 2019 was $21.6 million compared to $19.6 million for the three months ended September 30, 2018. The $2.0 million increase was comprised of a $2.1 million increase in pet coke costs at our Coffeyville facility, a $0.6 million increase in freight costs representing additional shipments made to our off-premise storage facilities, and a $1.5 million increase due to a draw in inventory resulting from increased demand. These amounts were partially offset by favorable natural gas pricing at our East Dubuque facility, contributing $2.3 million for the three months ended September 30, 2019.

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Direct operating expenses (exclusive of depreciation and amortization).Direct operating expenses (exclusive of depreciation and amortization) for the three months ended September 30, 2019were $47.6 million compared to $35.3 million for the three months ended September 30, 2018. The increase was primarily due to turnaround costs at the East Dubuque facility of $6.8 million coupled with an inventory draw contributing $3.8 million due to increased sales in the third quarter of 2019.

Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

Net Sales.Net sales increased by $65.2 million to $318.1 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. This increase wasprimarily due to favorable pricing and volume conditions which contributed $51.0 million and $14.7 million, respectively, in higher revenues in the current period as compared to 2018.

The following table demonstrates the impact of changes in sales volumes and pricing for the primary components of net sales, excluding freight, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018:
(in thousands)
Price
 Variance
 
Volume
 Variance
UAN$35,499
 $7,234
Ammonia$15,546
 $7,509

The increase in UAN and ammonia sales pricing for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 was primarily attributable to a shift in the timing of demand from fourth quarter 2018 to first quarter 2019. Due to heavy rain in the fall season, customers purchased lower quantities of ammonia for application in the fourth quarter of 2018.2018 to the second quarter of 2019, as customers delayed receipt of nitrogen products due to continued inclement weather. As a result, customer demand for ammonia increased in the firstsecond quarter of 2019 as theycustomers attempted to make up for the missed application. In addition, the aforementioned ammonia application coupled with freezing temperatures and flooding throughout the Eastern CornbeltMidwest and Southern Plains in the current period shifted the demand for UAN, andammonia, resulting in increased sales volumes decreased for the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018.



Cost of materials and other. Cost of materials and other for the nine months ended September 30, 2019 was $71.3 million, compared to $61.2 million for the nine months ended September 30, 2018. The $10.1 million increase was comprised primarily of a $6.3 million increase in pet coke costs at our Coffeyville facility, coupled with a draw in ammonia inventories as a result of increased sales contributing $4.5 million.

Direct Operating Expenses (exclusive of depreciation and amortization).Direct operating expenses (exclusive of depreciation and amortization) for the nine months ended September 30, 2019were $128.0 million as compared to $121.5 million for the nine months ended September 30, 2018. The $6.5 million increase was primarily due to spare part inventory write-offs totaling $1.3 million, increased personnel costs of $1.9 million, and an inventory draw contributing $3.3 million due to increased sales in the second quarter of 2019.

Non-GAAP Reconciliations

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)2019 2018 2019 2018
Net loss$(22,976) $(13,146) $(10,087) $(48,656)
Add:       
Interest expense, net15,621
 15,693
 46,870
 47,080
Income tax expense (benefit)12
 12
 (88) (6)
Depreciation and amortization18,418
 16,035
 60,032
 52,866
EBITDA$11,075
 $18,594
 $96,727
 $51,284
Add:       
Turnaround expenses6,805
 
 6,956
 6,405
Adjusted EBITDA$17,880
 $18,594
 $103,683
 $57,689

   
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Cost of Materials and Other (exclusive of depreciation and amortization).Cost of materials and other (exclusive of depreciation and amortization) for the three months ended March 31, 2019 was $23.7 million, compared to the three months ended March 31, 2018 of $22.5 million. The $1.2 million increase was comprised of $2.2 million increase in pet coke costs at our Coffeyville plant, offset by a $1.0 million decrease in distribution costs to off-site inventory locations.

Direct Operating Expenses (exclusive of depreciation and amortization).Direct operating expenses (exclusive of depreciation and amortization) for the three months ended March 31, 2019were $34.8 million as compared to the three months ended March 31, 2018 of $38.7 million. The $3.9 million decrease was primarily due to a build of UAN and ammonia inventories in the first quarter of 2019 compared to the first quarter in 2018.

Non-GAAP Reconciliations

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
 Three Months Ended March 31,
(in thousands)2019 2018
Net loss$(6,079) $(19,051)
Add:   
Interest expense, net15,650
 15,711
Income tax benefit(112) (37)
Depreciation and amortization16,584
 16,426
EBITDA and Adjusted EBITDA$26,043
 $13,049


Reconciliation of Net Cash Provided By Operating Activities to EBITDA
Three Months Ended March 31,Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)2019 20182019 2018 2019 2018
Net cash provided by operating activities$51,924
 $14,486
$33,991
 $39,588
 $68,672
 $27,118
   
Less:   
Add:       
Interest expense, net15,650
 15,711
15,621
 15,693
 46,870
 47,080
Income tax benefit(112) (37)
Change in working capital(39,098) (15,946)
Income tax expense (benefit)12
 12
 (88) (6)
Change in assets and liabilities(34,649) (34,615) (10,501) (17,573)
Other non-cash adjustments(2,321) (1,165)(3,900) (2,084) (8,226) (5,335)
EBITDA$26,043
 $13,049
$11,075
 $18,594
 $96,727
 $51,284


Reconciliation of Adjusted EBITDA to Available Cash for Distribution
Three Months Ended March 31,Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)2019 20182019 2018 2019 2018
Adjusted EBITDA$26,043
 $13,049
$17,880
 $18,594
 $103,683
 $57,689
Less:   
Debt Service(14,827) (14,920)
Current reserves for amounts related to:       
Debt service(14,833) (14,873) (44,525) (44,664)
Maintenance capital expenditures(3,367) (2,268)(6,594) (4,526) (11,409) (10,894)
Available Cash for distribution (1)$7,849
 $(4,139)
Turnaround expenses(6,805) 
 (6,956) (6,405)
Other:       
Future cash reserves
 
 (28,000) 
Release of previously established cash reserves18,399
 675
 18,399
 
Available Cash for distribution (1) (2)$8,047
 $(130) $31,192
 $(4,274)
          
Common units outstanding113,283
 113,283
113,283
 113,283
 113,283
 113,283
 
(1) Amount represents the cumulative Available Cash based on full year results. However, Available Cash for distribution is calculated quarterly for distribution in the following period.

(1)Amount represents the cumulative Available Cash based on quarter-to-date and year-to-date results, respectively. Available Cash for distribution is calculated quarterly, with distributions (if any) being paid in the following period.
(2)The Partnership declared and paid cash distributions totaling $0.21 per common unit related to the first two quarters of 2019 for a total of $23.8 million.

March 31, 2019 | 23


Liquidity and Capital Resources
Our principal source of liquidity has historically been cash from operations, which can include cash advances from customers resulting from prepay contracts. Our principal uses of cash are for working capital, capital expenditures, funding our debt service obligations, and paying distributions to our unitholders, as further discussed below.
We believe that our cash from operations and existing cash and cash equivalents, along with borrowings, as necessary, under the ABLAB Credit Facility, (defined below), will be sufficient to satisfy anticipated cash requirements associated with our existing operations for at least the next 12 months, and that we have sufficient cash resources to fund our operations for at least the next 12 months. However, our future capital expenditures and other cash requirements could be higher than we currently expect as a result of various factors. Additionally, our ability to generate sufficient cash from our operating activities and secure additional financing depends on our future performance, which is subject to general economic, political, financial, competitive, and other factors, some of which may be beyond our control.
Depending on the needs of our business, contractual limitations, and market conditions, we may from time to time seek to issue equity securities, incur additional debt, issue debt securities, or otherwise refinance our existing debt. There can be no assurance that we will seek to do any of the foregoing or that we will be able to do any of the foregoing on terms acceptable to us or at all.



September 30, 2019 | 28


There have been no material changes in liquidity for the three months ended March 31,September 30, 2019. The Partnership was in compliance with all covenants under its debt instruments as of March 31,September 30, 2019.


Cash and Other Liquidity




As of March 31,September 30, 2019, we had cash and cash equivalents of $96.6$83.7 million, including $63.4$16.0 million from customer advances. Combined with $50$47.5 million available under our ABLAB Credit Facility less $25.0 million in cash included in our borrowing base, we had total liquidity of $121.6$106.2 million as of March 31,September 30, 2019.

Capital Structure
Debt, including current maturitiesMarch 31, December 31,September 30, 2019 December 31, 2018
(in thousands)2019 2018
9.25% Senior Notes due 2023$645,000
 $645,000
$645,000
 $645,000
6.50% Senior Notes due 20212,240
 2,240
2,240
 2,240
Unamortized discount and debt issuance costs(17,428) (18,251)(15,720) (18,251)
Total debt$629,812
 $628,989
$631,520
 $628,989


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

2023 Notes - CVR Partners issued $645 million aggregate principal amount of 9.25% Senior Secured Notes due 2023 (the “2023 Notes”) in 2016. The 2023 Notes are guaranteed on a senior secured basis by all of the Partnership’s existing subsidiaries. On or after June 15, 2019, we may on any one or more occasions, redeem all or part of the 2023 Notes at the redemption prices set forth below expressed as a percentage of the principal amount of the 2023 Notes plus accrued and unpaid interest to the applicable redemption date.
12-month period beginning June 15,Percentage
2019104.625%
2020102.313%
2021 and thereafter100.000%

Upon the occurrence of certain change of control events as defined in the 2023 Indenture (including the sale of all or substantially all of the properties or assets of the Partnership and its subsidiaries taken as a whole), each holder of the 2023 Notes will have the right to require that the Partnership repurchase all or a portion of such holder’s 2023 Notes in cash at a purchase price equal to 101% of the aggregate principal amount thereof plus any accrued and unpaid interest to the date of repurchase.

Capital Spending


We divide capital spending needs into two categories: maintenance and growth. Maintenance capital spending includes non-discretionary maintenance projects and projects required to comply with environmental, health, and safety regulations. Growth capital projects generally involve an expansion of existing capacity and/or a reduction in direct operating expenses. We undertake growth capital spending based on the expected return on incremental capital employed. Our total capital expenditures for the threenine months ended March 31,September 30, 2019 and our estimated expenditures for 2019 are as follows:
Three Months Ended March 31, Estimated full yearNine Months Ended September 30, Estimated full year
(in thousands)2019 20192019 2019
Maintenance capital$3,500
 $18,000 - 20,000$10,763
 $ 18,000 - 20,000
Growth capital
     2,000 - 5,000811
 2,000 - 5,000
Total capital expenditures$3,500
 $20,000 - 25,000$11,574
 $ 20,000 - 25,000



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


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Tablethe East Dubuque facility began a major scheduled turnaround, which was completed in October. We have incurred $7.0 million in the nine months ended September 30, 2019 related to this turnaround and estimate total costs of Contents

approximately $9.3 million, with the remaining costs to be incurred in the fourth quarter of 2019.
Distributions to Unitholders
The current policy of the board of directors of the Partnership’s general partner is to distribute all Available Cash the Partnership generated on a quarterly basis. Available Cash for each quarter will be determined by the board of directors of the Partnership’s general partner following the end of such quarter. Available Cash for each quarter is calculated as Adjusted EBITDA reduced for cash needed for (i) debt service, (ii) maintenance capital expenditures, (iii) turnaround expenses, and, to the extent applicable, (iv) reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate, if any.any, in its sole discretion. Available Cash for distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the board of directors of our general partner.


The following table presents distributions paid by the Partnership to CVR Partners’ unitholders, including amounts paid to CVR Energy, as of September 30, 2019.
      Dividends Paid (in thousands)
Related Period Date Paid Dividend Per Common Unit Unitholders CVR Energy Total
2018 - 4th Quarter March 11, 2019 $0.12
 $8,924
 $4,670
 $13,594
2019 - 1st Quarter May 13, 2019 0.07
 5,205
 2,724
 7,929
2019 - 2nd Quarter August 12, 2019 0.14
 10,411
 5,449
 15,860
Total   $0.33
 $24,540
 $12,843
 $37,383

For the fourth quarter of 2018, the Partnership declared a distribution of $0.12 per common unit, or $13.6 million, which was paid on March 11, 2019.

For the firstthird quarter of 2019, the Partnership, upon approval by the Board of Directors of CVR GP’s board of directorsPartners’ general partner on April 24,October 22, 2019, declared a distribution of $0.07 per common unit, or $8$7.9 million, which is payable on May 13,November 12, 2019 to unitholders of record as of May 6,November 4, 2019. Of this amount, CVR Energy will receive approximately $2.7 million, with the remaining amount payable to public unitholders.

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


Cash Flows


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


Three Months Ended March 31,Nine Months Ended September 30,
(in thousands)2019 2018 Change2019 2018 Change
Net cash flow provided by (used in):          
Operating activities$51,924
 $14,486
 $37,438
$68,672
 $27,118
 $41,554
Investing activities(3,500) (2,548) (952)(9,398) (14,850) 5,452
Financing activities(13,594) 
 (13,594)(37,383) 
 (37,383)
Net increase in cash and cash equivalents$34,830
 $11,938
 $22,892
$21,891
 $12,268
 $9,623



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Cash Flows Provided by Operating Activities


The change in net cash flows from operating activities for the threenine months ended March 31,September 30, 2019 as compared to the threenine months ended March 31,September 30, 2018 is primarily due to improved operating results and increased customer advances received and reflected as deferred revenueleading to a net loss of $10.1 million in the first quarter of 2019 compared to a net loss of $48.7 million in 2018.


Cash Flows Used in Investing Activities


The change in net cash used in investing activities for the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018, was primarily due to increaseddecreased capital expenditures in 2019.during 2019 of $5.5 million.


Cash Flows Used in Financing Activities


The change in net cash used in financing activities for the threenine months ended March 31,September 30, 2019 compared to the threenine months ended March 31,September 30, 2018 was the result of the fourth quarter 2018 cash distributions totaling $37.4 million paid in March 2019.during the nine months ended September 30, 2019, compared to no distributions paid during 2018.


Off-Balance Sheet Arrangements


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


Item 3. Quantitative and Qualitative Disclosures About Market Risk


There have been no material changes to our market risks as of March 31, 2019.and for the three and nine months ended September 30, 2019 as compared to the risks discussed in Part II, Item 7A of our 2018 Form 10-K.


Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


As of March 31,September 30, 2019, we have evaluated, under the direction of our Executive Chairman, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, the effectiveness of our disclosure controls and procedures, as defined in

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


Changes in Internal Control Over Financial Reporting


There hashave been no material changechanges in the Partnership’s internal controlcontrols over financial reporting required by Rule 13a-15 of the Exchange Act that occurred during the fiscal quarter ended March 31,September 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.



PART II. OTHER INFORMATION


Item 1. Legal Proceedings


See Note 1211 (“Commitments and Contingencies”) to Part I, Item 1 of this Report, which is incorporated by reference into this Part II, Item 1, for a description of certain litigation, legal, and administrative proceedings and environmental matters.




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Item 1A. Risk Factors


There have been no material changes from theto our risk factors previously disclosedas of and for the three and nine months ended September 30, 2019 as compared to the risks discussed in the “Risk Factors” sectionPart I, Item 1A of our 2018 Form 10-K.


Item 5. Other Information


None.On October 22, 2019, the Audit Committee of CVR Energy and the Conflicts Committee of the Board of Directors of the general partner of CVR Partners each agreed to authorize the exchange of certain parcels of property owned by subsidiaries of CVR Energy with an equal number of parcels owned by subsidiaries of CVR Partners, all located in Coffeyville, Kansas (the “Property Swap”). This Property Swap will enable each such subsidiary to create a more usable contiguous parcel of land near its own operating footprint. The Partnership will account for this transaction in accordance with the ASC 805-50 guidance on transferring assets between entities under common control.


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Item 6. Exhibits
Exhibit 


Exhibit Description
   
 
 
 
 
 
101* The following financial information for CVR Partners, LP’s Quarterly Report on Form 10-Q for the quarter ended March 31,September 30, 2019, formatted in XBRL (“Extensible Business Reporting Language”) includes: (1) Condensed Consolidated Balance Sheets (unaudited), (2) Condensed Consolidated Statements of Operations (unaudited), (3) Condensed Consolidated Statements of Partners’ Capital (unaudited), (4) Condensed Consolidated Statements of Cash Flows (unaudited) and (4)(5) the Notes to Condensed Consolidated Financial Statements (unaudited), tagged in detail.
 
*Filed herewith.
Furnished herewith.
+Denotes management contract or compensatory plan or arrangement.


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



   
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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  CVR Partners, LP
  By:CVR GP, LLC, its general partner
    
    
    
April 25,October 24, 2019 By:/s/ Tracy D. Jackson
  

Executive Vice President and Chief Financial Officer
  

(Principal Financial Officer)
    
    
April 25,October 24, 2019 By:/s/ Matthew W. Bley
   Chief Accounting Officer and Corporate Controller
   (Principal Accounting Officer)
    





   
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