| Summary of Significant Accounting Policies | (2) Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority-owned direct and indirect subsidiaries. All intercompany accounts and transactions have been eliminated. The ownership interests of noncontrolling investors in the Company’s subsidiaries are recorded as noncontrolling interests. CVR Energy has not recognized any other comprehensive income for the periods ended December 31, 2019, 2018, and 2017. CVR Partners is considered a VIE. As the 100% owner of the general partner of CVR Partners, the Company has the sole ability to direct the activities that most significantly impact the economic performance of the partnership and is considered to be the primary beneficiary. In January 2019, following the CVRR Unit Purchase, CVR Refining was no longer considered a VIE and is accounted for as a wholly-owned subsidiary. Investments in entities over which the Company has significant influence, but not control, are accounted for using the equity method of accounting. Income from equity method investments represents CVR Energy’s proportionate share of net income generated by the equity method investees and is recorded in Other income, net on the Company’s Consolidated Statements of Operations. Reclassifications Certain reclassifications have been made within the consolidated financial statements for the years ended December 31, 2018 and 2017 to conform with current presentation. Use of Estimates These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires management to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are reviewed on an ongoing basis, based on currently available information. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and on deposit, investments in highly liquid money market accounts, and debt instruments with original maturities of three months or less. Accounts Receivable, net Accounts receivable primarily consist of customer accounts receivable recorded at the invoiced amounts and generally do not bear interest. Also included within accounts receivable of the Nitrogen Fertilizer Segment are unbilled fixed price contracts which is further discussed within Note 7 (“Revenue”). Allowances for doubtful accounts are generally recorded when it becomes probable the receivable will not be collected and is booked to bad debt expense. The largest concentration of credit for any one customer at December 31, 2019 and 2018 was approximately 11% and 12%, respectively, of the net accounts receivable balance. As of December 31, 2019 and 2018, the allowance for doubtful accounts balances were immaterial. Inventories Inventories consist primarily of domestic and foreign crude oil, blending stock and components, work-in-progress, fertilizer products, and refined fuels and by-products. All inventories are valued at the lower of the first-in, first-out (“FIFO”) cost, or net realizable value. The Petroleum Segment’s unfinished and finished products inventory values were determined using the ability-to-bear methodology. Other inventories in the Petroleum and Nitrogen Fertilizer Segments, including other raw materials, spare parts, and supplies, are valued at the lower of moving-average cost, which approximates FIFO, or net realizable value. The cost of inventories includes inbound freight costs. At December 31, 2019 and 2018, inventories related to the Nitrogen Fertilizer Segment included depreciation of approximately $5 million and $6 million, respectively. Inventories consisted of the following: December 31, (in millions) 2019 2018 Raw materials $ 112 $ 101 In-process inventories 18 12 Finished goods 177 186 Parts and supplies 83 81 Total Inventories $ 390 $ 380 Property, Plant and Equipment Additions to property, plant and equipment, including capitalized interest and certain costs allocable to construction and property purchases, are recorded at cost. Expenditures for improvements that increase economic benefit or returns and/or extend useful life are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for significant asset classes are as follows: Asset Range of Useful Lives, in Years Land and improvements 15 to 30 Buildings and improvements 20 to 30 Machinery and equipment 5 to 30 Furniture and fixtures 3 to 10 ROU finance leases 1 to 25 Other 5 to 30 Property, plant and equipment consisted of the following: December 31, (in millions) 2019 2018 Machinery and equipment (1) $ 3,859 $ 3,785 Buildings and improvements 87 87 Land and improvements 46 43 Furniture and fixtures 35 33 ROU finance leases 27 — Construction in progress 95 102 Other 14 17 4,163 4,067 Less: Accumulated depreciation 1,827 1,637 Total Property, plant and equipment, net $ 2,336 $ 2,430 (1) Includes $29 million in leases classified as finance leases under ASC Topic 842 (Leases) as of December 31, 2019 and $32 million in leases classified as capital leases under the superseded ASC Topic 840 (Leases) as of December 31, 2018. Leasehold improvements and assets held under finance leases are depreciated or amortized on the straight-line method over the shorter of the contractual lease term or the estimated useful life of the asset. Expenditures for routine maintenance and repair costs are expensed when incurred. Such expenses are reported in Direct operating expenses (exclusive of depreciation and amortization) in the Company’s Consolidated Statements of Operations. On May 21, 2019, a subsidiary of CVR Energy sold its crude oil storage terminal located in Cushing, Oklahoma and related assets (the "Terminal"). As part of this transaction, the Company received cash consideration of $43 million for the Terminal and related crude oil inventories resulting in a recognition of a gain on sale of $9 million. The carrying value of the inventory sold as part of this transaction has been presented on a net basis, with the proceeds on sale, within the net cash used in investing section of the Consolidated Statements of Cash Flows. Leases At inception, the Company determines whether an arrangement is a lease and the appropriate lease classification. Operating leases are included as operating lease right-of-use (“ROU”) assets within Other long-term assets and lease liabilities within Other current liabilities and Other long-term liabilities on our Consolidated Balance Sheets. Finance leases are included as ROU finance leases within Property, plant, and equipment, net, and finance lease liabilities within Other current liabilities and Long-term debt and finance lease obligations, net of current portion on our Consolidated Balance Sheets. Leases with an initial expected term of 12 months or less are considered short-term and are not recorded on our Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the expected lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of minimum lease payments over the lease term. The lease term is modified to reflect options to extend or terminate the lease when it is reasonably certain we will exercise such option. The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise, in which case the depreciation policy in the “Property, Plant and Equipment” section above is applicable. The periodic lease payments are treated as payments of the lease obligation and interest is recorded as interest expense. See “Recent Accounting Pronouncements - Adoption of Lease Standard” within this Note for a further discussion on the impacts of adopting the lease standard. Deferred Financing Costs Lender and other third-party costs associated with debt issuances are deferred and amortized to interest expense and other financing costs using the effective-interest method over the life of the debt. Deferred financing costs related to line-of-credit arrangements are amortized using the straight-line method through the termination date of the facility. The deferred financing costs are included net within long-term debt and in other long-term assets for the line-of-credit arrangements where no debt balance exists. Impairment of Long-Lived Assets Long-lived assets (excluding goodwill, intangible assets with indefinite lives, and deferred tax assets) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds their fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less cost to sell. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired less liabilities assumed. Intangible assets are assets that lack physical substance (excluding financial assets). Goodwill acquired in a business combination and intangible assets with indefinite useful lives are not amortized, while intangible assets with finite useful lives are amortized. Goodwill and intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company uses November 1 of each year as its annual valuation date for its goodwill impairment test. The Company performed its annual impairment review of goodwill for 2019, 2018, and 2017 associated with CVR Partners’ Coffeyville, Kansas Nitrogen Fertilizer (the “Coffeyville Fertilizer Facility”) reporting unit and concluded there were no impairments. For the period ended December 31, 2019, no events or circumstances were identified which would trigger the performance of a quantitative analysis after reviewing all qualitative factors impacting the reporting unit including improved market conditions, financial results, and financial forecasts from those used in the fair value analysis at December 31, 2018. For the periods ended December 31, 2018 and 2017, the fair value of the Coffeyville Fertilizer Facility reporting unit exceeded its carrying value by approximately 36% and 12%, respectively, based upon the results of the reporting unit’s goodwill impairment test. Loss Contingencies In the ordinary course of business, the Company 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 Company accrues liabilities for these matters if the Company has determined that it is probable a loss has been incurred and the loss can be reasonably estimated. Environmental, Health & Safety (“EHS”) Matters The Petroleum and Nitrogen Fertilizer Segments are subject to various federal, state, and local EHS rules and regulations. Liabilities related to EHS matters are recognized when the related costs are probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, internal and third-party assessments of contamination, available remediation technology, site-specific costs, and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change and such accruals can take into account the legal liability of other parties. Environmental expenditures are capitalized at the time of the expenditure when such costs provide future economic benefits. Revenue Recognition The Company recognizes revenue based on consideration specified in contracts or agreements with customers when performance obligations are satisfied by transferring control over products or services to a customer. The Company’s revenue recognition patterns are described below by reportable segment: • Petroleum Segment - The vast majority of Petroleum Segment contracts contain pricing that is based on the market price for the product at the time of delivery. Obligations to deliver product volumes are typically satisfied and revenue is recognized when control of the product transfers to customers. Concurrent with the transfer of control, the right to payment for the delivered product is received, the customer accepts the product, and the customer has significant risks and rewards of ownership of the product. Payment terms require customers to pay shortly after delivery and do not contain significant financing components. Any pass-through finished goods delivery costs reimbursed by customers are reported in Net sales, while an offsetting expense is included in Cost of materials and other. Non-monetary product exchanges and certain buy/sell transactions which are entered into in the normal course of business are included on a net cost basis in Cost of materials and other on the Consolidated Statements of Operations. • Nitrogen Fertilizer Segment - Revenue is recognized when our customers receive control of the product. The adoption of ASC 606 resulted in the recognition of deferred revenue and related receivables, on a gross basis, associated with contracts that guarantee a price and supply of nitrogen fertilizer products in quantities expected to be delivered in the normal course of business. Other considerations - For both segments, excise and other taxes collected from customers and remitted to governmental authorities are excluded from reported revenues. Cost Classifications Cost of materials and other includes cost of crude oil, other feedstocks, blendstocks, purchased refined products, pet coke expenses, Renewable Identification Number (“RIN”) expenses, derivative gains or losses, and freight and distribution costs. Direct operating expenses (exclusive of depreciation and amortization) consist primarily of energy and other utility costs, direct costs of labor, including applicable share-based compensation expense, property taxes, plant-related maintenance services, and environmental and safety compliance costs, as well as catalyst and chemical costs. Selling, general and administrative expenses (exclusive of depreciation and amortization) consist primarily of labor and other direct expenses associated with the Company’s corporate activities, including accounting, finance, information technology, human resources, legal, and other related administrative functions. For the Company’s Nitrogen Fertilizer Segment, each of these financial statement line items are also impacted by changes in inventory balances. Derivatives and Fair Value of Financial Instruments The Petroleum Segment uses futures contracts, swaps, and forward contracts primarily to reduce exposure to changes in crude oil and finished goods product prices to provide economic hedges of inventory positions. These derivative instruments do not qualify as hedges for hedge accounting purposes under ASC Topic 815, Derivatives and Hedging , and accordingly are recorded at fair value at the end of each reporting period based on quoted market prices. The Nitrogen Fertilizer Segment may enter into forward contracts with fixed delivery prices to purchase portions of its natural gas requirements. These natural gas contracts are not treated as derivatives under normal purchase and normal sale exclusions. Accordingly, the fair value of these contracts are not recorded at the end of each reporting period. Refer to Note 8 (“Derivative Financial Instruments”) for further discussion of the Company’s derivative activity. Other financial instruments consisting of cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. Refer to Note 8 (“Derivative Financial Instruments”) for further fair value disclosures. Turnaround Expenses Turnarounds represent major maintenance activities that require the shutdown of significant parts of a plant to perform necessary inspection, cleaning, repairs, and replacements of assets. Costs incurred for routine repairs and maintenance or unplanned outages at our facilities are expensed as incurred. Planned turnaround activities for the Petroleum Segment vary in frequency dependent on refinery units, but generally occur every four two Petroleum Segment - Effective January 1, 2019, the Company revised its accounting policy method for the costs of planned major maintenance activities (turnarounds) specific to the Petroleum Segment from being expensed as incurred (the direct-expense method) to the deferral method. Under the deferral method, the costs of turnarounds are deferred and amortized on a straight-line basis over a four Nitrogen Fertilizer Segment - The Nitrogen Fertilizer Segment follows the direct-expense method of accounting for turnaround activities. Costs associated with these turnaround activities were included in Direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations. During the years ended December 31, 2019, 2018, and 2017, the Nitrogen Fertilizer Segment incurred turnaround expenses of $10 million, $6 million, and $3 million, respectively. The following presents the financial statement line items impacted by the Petroleum Segment turnaround accounting change for each of the periods presented within these consolidated financial statements. Effect of Turnaround Accounting Change on Consolidated Balance Sheet as of December 31, 2018 December 31, 2018 (in millions) As Previously Reported Effect of Turnaround Accounting Change As Stated Property, plant and equipment, net of accumulated depreciation $ 2,445 $ (15) $ 2,430 Other long-term assets (1) 169 108 277 Total assets $ 3,907 $ 93 $ 4,000 Long-term liabilities: Deferred income taxes (2) $ 362 $ 18 $ 380 Total long-term liabilities 1,543 18 1,561 Equity: CVR stockholders’ equity: Additional paid-in-capital $ 1,473 $ 1 $ 1,474 Retained deficit (226) 39 (187) Total CVR stockholders’ equity 1,246 40 1,286 Noncontrolling interest 622 35 657 Total equity 1,868 75 1,943 Total liabilities and equity $ 3,907 $ 93 $ 4,000 (1) This represents the capitalized turnaround asset recognized due to the turnaround policy change. (2) This represents the increase in deferred tax liability due to the recognition of the capitalized turnaround asset. Effect of Turnaround Accounting on Consolidated Statement of Operations and Consolidated Statement of Cash Flows for the Years Ended December 31, 2018 and 2017 Year Ended December 31, 2018 2017 (in millions) As Previously Reported Effect of Turnaround Accounting Change As Stated As Previously Reported Effect of Turnaround Accounting Change As Stated Consolidated Statement of Operations Direct operating expenses $ 523 $ (6) $ 517 $ 598 $ (82) $ 516 Depreciation and amortization 202 61 263 203 44 247 Income tax expense (benefit) 89 (10) 79 (217) (3) (220) Net income (loss) $ 411 $ (45) $ 366 $ 217 $ 41 $ 258 Less: Net income attributable to noncontrolling interest 122 (15) 107 (18) 13 (5) Net income attributable to CVR Energy stockholders $ 289 $ (30) $ 259 $ 235 $ 28 $ 263 Consolidated Statement of Cash Flows Net cash provided by operating activities $ 620 $ 8 $ 628 $ 168 $ 80 $ 248 Net cash used by investing activities $ (100) $ (8) $ (108) $ (196) $ (80) $ (276) Share-Based Compensation The Company accounts for share-based compensation in accordance with ASC Topic 718, Compensation — Stock Compensation (“ASC 718”). Currently, all of the Company’s share-based compensation awards, including those issued by CVR Refining and CVR Partners, are liability-classified and are measured at fair value at the end of each reporting period based on the applicable closing unit price. Compensation expense will fluctuate based on changes in the applicable share or unit prices and expense reversals resulting from employee terminations prior to award vesting. Additionally, the Company has issued certain performance unit awards. The fair value of these performance unit awards is recognized as compensation expense only if the attainment of the performance conditions is considered probable. Uncertainties involved in this estimate include continued employment requirements and whether or not the performance conditions will be attained. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and, therefore, are considered reasonably possible of being achieved. If this assumption proves not to be true and the awards do not vest, compensation expense recognized during the performance cycle will be reversed. See Note 9 (“Share-Based Compensation”) for further discussion. Income Taxes Income taxes are accounted for utilizing the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred amounts are measured using enacted tax rates expected to apply to taxable income in the year those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of the deferred income tax assets, including net operating loss and state tax credit carryforwards, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Further, the Company recognizes interest expense (income) and penalties on uncertain tax positions and income tax deficiencies (refunds) in Income tax expense (benefit). Earnings Per Share There were no dilutive awards outstanding during the years ended December 31, 2019, 2018, and 2017. Recent Accounting Pronouncements - Adoption of Lease Standard In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “ Leases ” (“ASU 2016-02”), creating a new topic, FASB ASC Topic 842, “Leases” (“Topic 842”), which supersedes lease requirements in FASB ASC Topic 840, “Leases.” The new standard revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability related to future lease payments and a right-of-use (“ROU”) asset representing its right to use of the underlying asset for the lease term on the consolidated balance sheets. 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: • Only ROU assets and related lease liabilities for leases with an initial term greater than one year were and will be recognized; • The accounting treatment for existing land easements was carried forward; • Lease and non-lease components were and will not be bifurcated for all of the Company’s asset groups, respectively; and • The portfolio approach was, and will be, used in the selection of the discount rate used to calculate minimum lease payments and the related ROU asset and operating lease liability amounts. The Company’s adoption of Topic 842 resulted in the recognition of additional ROU assets and lease liabilities of approximately $56 million as of January 1, 2019, in addition to the recognition of a finance lease asset of $26 million with an obligation of $23 million. There were no impacts to our consolidated statements of operations or cash flows. See Note 4 (“Leases”) for further discussion. (in millions) December 31, 2018 As Stated (1) Effect of Adoption of Topic 842 January 1, 2019 As Adjusted Current assets: Prepaid expenses and other current assets $ 76 $ (3) (2) $ 73 Total currents assets 1,293 (3) 1,290 Property, plant and equipment, net 2,430 26 (3) 2,456 Other long-term assets 277 56 (4) 333 Total assets $ 4,000 $ 79 $ 4,079 Current liabilities: Other current liabilities $ 176 $ 16 (5) $ 192 Total current liabilities 496 16 512 Long-term debt and finance lease obligations 1,167 23 (3) 1,190 Other long-term liabilities 14 40 (5) 54 Total long-term liabilities 1,561 63 1,624 Equity: Total liabilities and equity $ 4,000 $ 79 $ 4,079 (1) Represents the retrospectively adjusted balance sheet amounts upon reflection of the turnaround accounting change, for which the Recast Form 8-K for 2018 was filed on June 12, 2019, prior to the adoption of Topic 842. (2) Represents lease prepayments reclassified to ROU assets. (3) The additional $26 million ROU asset and $23 million in lease liability represents a lease with a third-party that met the definition of a finance lease under ASC 842 as compared to an operating lease under ASC 840. (4) Represents recognition of initial ROU assets for operating leases, including the reclassification of certain lease prepayments as noted above. (5) Represents the initial recognition of lease liabilities. Recent Accounting Pronouncements - Adoption of Internal-Use Software Standard In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). This ASU better aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is also a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Effective January 1, 2019, we adopted this ASU and chose to apply the prospective approach for all implementation costs incurred after the date of adoption. We evaluated the effects of adopting this new accounting guidance and concluded it did not have a material impact on the Company’s consolidated financial position or results of operations. Recent Accounting Pronouncements - New Accounting Standards Issued But Not Yet Implemented In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The ASU replaces the incurred loss model with a current expected credit loss model for more timely recognition of expected impairment losses for most financial assets and certain other instruments that are not measured at fair value through net income. Effective January 1, 2020, the Company adopted this ASU and evaluated the effects of adopting this new accounting guidance. The adoption will not have a material impact on the Company’s consolidated financial position or results of operations. 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. Effective January 1, 2020, we adopted this ASU and evaluated the effects of adopting this new accounting guidance. The adoption did not have a material impact on the Company’s disclosures. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and modifies other areas of the topic to clarify the application of GAAP. Certain amendments within the standard are required to be applied on a retrospective basis |
