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Delaware | 2873 | 56-2677689 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Stuart H. Gelfond Michael A. Levitt Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, New York 10004 (212) 859-8000 | Alan P. Baden Vinson & Elkins L.L.P. 666 Fifth Avenue, 26th Floor New York, New York 10103 (212) 237-0000 | Peter J. Loughran Debevoise & Plimpton LLP 919 Third Avenue New York, New York 10022 (212) 909-6000 | G. Michael O’Leary Timothy C. Langenkamp Andrews Kurth LLP 600 Travis, Suite 4200 Houston TX 77002 (713) 220-4200 |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Proposed Maximum | ||||||||||
Title of Each Class of | Aggregate | Amount of | ||||||||
Securities to be Registered | Offering Price(1)(2) | Registration Fee | ||||||||
Common units representing limited partner interests | $ | 120,750,000 | $ | 4,745.48 | ||||||
(1) | Includes offering price of common units which the underwriters have the option to purchase. | |
(2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act. |
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
• | We may not have sufficient cash to enable us to make quarterly distributions following the payment of expenses and fees and the establishment of cash reserves. | |
• | Our nitrogen fertilizer plant has high fixed costs. If natural gas prices fall below a certain level, we may lose our cost advantage over producers who use natural gas as their primary raw material, which in turn, could have a material adverse effect on our ability to pay quarterly cash distributions. | |
• | The nitrogen fertilizer business is cyclical and volatile and has experienced significant downturns in the past, which exposes us to potentially significant fluctuations in our financial condition, cash flows and results of operations, which could result in volatility in the price of our common units or an inability to make quarterly distributions. | |
• | We depend on CVR Energy, Inc. and its senior management team to manage our business. | |
• | We depend on CVR Energy, Inc. for our supply of petroleum coke, an essential raw material used in our operations. On average during the last four years, CVR Energy, Inc. has supplied us with more than 75% of the petroleum coke used in our operations. | |
• | Our managing general partner and our special general partner have fiduciary duties to favor the interests of their owners, and those interests may differ significantly from, or conflict with, the interests of our common unitholders. | |
• | Common unitholders have limited voting rights, are not entitled to elect our managing general partner or its directors, or our special general partner or its managing member, and cannot, at initial ownership levels, remove our managing general partner without the consent of CVR Energy, Inc. | |
• | You will experience immediate and substantial dilution of $9.63 per common unit in the net tangible book value of your common units. See “Dilution”. | |
• | If we were treated as a corporation for federal income tax purposes, or if we were to become subject to entity-level taxation for state tax purposes, our cash available for distribution to you would be substantially reduced. | |
• | You will be required to pay taxes on your share of our income even if you do not receive any cash distributions from us. |
Per Common Unit | Total | |||||||
Initial public offering price | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds, before expenses, to us | $ | $ |
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fertilizer plant]
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• | Regional Advantage and Strategic Asset Location. We are geographically advantaged to supply nitrogen fertilizer products to markets in Kansas, Missouri, Nebraska, Iowa, Illinois, Colorado and Texas without incurring intermediate storage, barge or pipeline freight charges. Because we do not incur these costs, we have a distribution cost advantage over U.S. Gulf Coast ammonia and UAN producers and importers, based on recent freight rates and pipeline tariffs for U.S. Gulf Coast importers. |
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• | High Quality Pet Coke Gasification Fertilizer Plant with Solid Track Record. Our nitrogen fertilizer plant, completed in 2000, is the newest nitrogen fertilizer facility in North America and the only one of its kind in North America utilizing a pet coke gasification process to produce ammonia. While our facility is unique to North America, gasification technology has been in use for over 50 years and has demonstrated economic reliability. Because we use significantly less natural gas in the manufacture of ammonia than other domestic nitrogen fertilizer plants, with the currently high price of natural gas our feedstock cost per ton for ammonia is considerably lower than that of our natural gas-based fertilizer plant competitors. We estimate that our facility’s production cost advantage over U.S. Gulf Coast ammonia producers is sustainable at natural gas prices as low as $2.50 per MMBtu. We have a secure raw material supply, with an average of more than 75% of the pet coke required by our nitrogen fertilizer plant during the last four years supplied by CVR Energy’s refinery. We obtain pet coke pursuant to a20-year agreement with CVR Energy. |
• | The Energy Independence and Security Act of 2007 requires fuel producers to use at least 36 billion gallons of biofuel (such as ethanol) by 2022, a nearly five-fold increase over current levels. The increase in grain production necessary to meet this requirement is expected to result in rising demand for nitrogen-based fertilizers. |
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• | World population and economic growth, combined with changing dietary trends in many nations, has significantly increased demand for U.S. agricultural production and exports. Increasing U.S. crop production requires higher application rates of fertilizers, primarily nitrogen-based fertilizers. | |
• | Natural gas prices are currently higher in the United States and Canada compared to prevailing prices in the years prior to 2004. High North American natural gas prices contribute to the currently high prices for nitrogen-based fertilizers. Natural gas prices have often correlated positively with fertilizer price trends, although in 2007 fertilizer prices increased substantially more than natural gas prices increased (based on data provided by Blue Johnson). |
• | Expanding UAN Production. We are moving forward with an approximately $85 million nitrogen fertilizer plant expansion, of which approximately $8 million was incurred as of December 31, 2007. This expansion is expected to permit us to increase our UAN production and to result in our UAN manufacturing facility consuming substantially all of our net ammonia production. We expect that this will help to increase our margins because UAN has historically been a higher margin product than ammonia. The UAN expansion is expected to be completed in late 2009 or early 2010. We estimate it will result in an approximately 400,000 ton, or 50%, increase in our annual UAN production. | |
• | Executing Several Efficiency-Based and Other Projects. We are currently engaged in several efficiency-based and other projects in order to reduce overall operating costs, incrementally increase our ammonia production and utilize byproducts to generate revenue. For example, by redesigning the system that segregates carbon dioxide, or CO2, during the gasification process, we estimate that we will be able to produce approximately 25 tons per day of incremental ammonia, worth approximately $4 million per year at current market prices. We estimate that this project will cost approximately $7 million (of which none has yet been incurred) and will be completed in late 2009. We are also working with a company with expertise in CO2 capture and storage systems to develop plans whereby we may, in the future, either sell approximately 850,000 tons per year of high purity CO2 produced by our nitrogen fertilizer plant to oil and gas exploration and production companies to enhance oil recovery or pursue an economic means of geologically sequestering such CO2. | |
• | Evaluating Construction of a Third Gasifier Unit and a New Ammonia Unit and UAN Unit at Our Nitrogen Fertilizer Plant. We have engaged a major engineering firm to evaluate the construction and operation of an additional gasifier unit to produce a synthesis gas from pet coke. We expect that the addition of a third gasifier unit, together with additional ammonia and UAN units, to our operations could result, on a long-term basis, in an increase in UAN production of approximately 75,000 tons per month. This project is in its earliest stages of review and is still subject to numerous levels of internal analysis. |
• | Acquiring Assets from CVR Energy’s Petroleum Business. We may seek to purchase specific assets from CVR Energy and enter into agreements with CVR Energy for crude oil transportation, crude oil storage and asphalt and refined fuels terminaling services. Examples of assets that we may seek to acquire from CVR Energy include (1) a 25,000 bpd crude oil gathering pipeline operation serving central Kansas, northern Oklahoma, and southwestern |
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• | Providing Infrastructure Services to CVR Energy. We expect that over time, as CVR Energy grows, it will need incremental pipeline transportation and storage infrastructure services. We believe we will be well situated to meet these needs due to our relationship with CVR Energy and proximity to CVR Energy’s petroleum facilities, combined with management’s knowledge and expertise in hydrocarbon storage and related disciplines. We may seek to acquire new assets (including pipeline assets and storage facilities) in order to service this potential new source of revenue from CVR Energy. |
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• | common units representing limited partner interests, all of which we will sell in this offering (approximately 13% of all of our outstanding units); | |
• | GP units representing special general partner interests, all of which will be held by our special general partner (approximately 47% of all of our outstanding units); | |
• | subordinated GP units representing special general partner interests, all of which will be held by our special general partner (40% of all of our outstanding units); | |
• | incentive distribution rights representing limited partner interests, all of which will be held by our managing general partner; and | |
• | a managing general partner interest, which is not entitled to any distributions, which is held by our managing general partner. |
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• | Our general partners and Coffeyville Resources will enter into a second amended and restated agreement of limited partnership, the form of which is attached hereto as Appendix A; | |
• | We will distribute all of our cash on hand immediately prior to the completion of this offering, estimated to be $40.0 million, including the settlement of net intercompany balances at the time of such distribution, to our special general partner; | |
• | We expect to enter into a new -year, $ million revolving secured credit facility, with no principal amount expected to be drawn upon the closing of this offering, and expect to be released from our obligations under CVR Energy’s credit facility and swap agreements with J. Aron & Co., or J. Aron, which is an affiliate of Goldman, Sachs & Co.; | |
• | Coffeyville Resources will contribute its 30,333 special LP units to our special general partner, and the 30,303,000 special GP units and 30,333 special LP units will convert into 18,750,000 GP units and 16,000,000 subordinated GP units; and |
• | We will offer and sell 5,250,000 common units in this offering, pay related commissions and expenses and apply the net proceeds of this offering as described under “Use of Proceeds”. |
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* | CVR GP, LLC is our managing general partner. Our managing general partner holds incentive distribution rights, or IDRs, which entitle it to receive increasing percentages of our quarterly distributions if we increase our distributions above an amount specified in our limited partnership agreement. The IDRs will only be payable after we have distributed all adjusted operating surplus (as that term is defined in our partnership agreement and in the glossary of selected terms included as Appendix B in this prospectus) we generate during the period from the closing of this offering through December 31, 2009. |
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Issuer | CVR Partners, LP | |
Common units offered | 5,250,000 common units. | |
Option to purchase additional common units from us | 787,500 common units. | |
Units outstanding immediately after this offering | 5,250,000 common units representing approximately 13% of our outstanding units, 18,750,000 GP units representing approximately 47% of our outstanding units and 16,000,000 subordinated GP units representing 40% of our outstanding units (in each case excluding 2,000,000 common units which are subject to issuance under our long-term incentive plan). | |
6,037,500 common units representing approximately 15% of our outstanding units, 18,750,000 GP units representing approximately 46% of our outstanding units and 16,000,000 subordinated GP units representing approximately 39% of our outstanding units, if the underwriters exercise their option to purchase additional common units in full (in each case excluding 2,000,000 common units which are subject to issuance under our long-term incentive plan). | ||
Our outstanding units are comprised of three different types of units: common units, GP units and subordinated units. Our common units represent limited partner interests issued in this offering. Our GP units represent special general partner interests owned by our special general partner. Our subordinated units represent special general partner interests owned by our special general partner. | ||
Use of Proceeds | We estimate that the net proceeds to us in this offering, after deducting underwriting discounts and commissions and the estimated expenses of this offering, will be approximately $93.4 million (based on an assumed initial public offering price of $20.00 per common unit). We intend to use the net proceeds of this offering as follows: | |
• approximately $18.4 million will be used to reimburse Coffeyville Resources for certain capital expenditures made on our behalf prior to October 24, 2007; | ||
• approximately $2.5 million will be used by us to pay financing fees in connection with entering into our new revolving secured credit facility; and | ||
• approximately $72.5 million will be retained by us to fund working capital and future capital expenditures of our business, including the ongoing expansion of our nitrogen fertilizer plant. | ||
If the underwriters exercise their option to purchase 787,500 additional common units in full, the additional net proceeds to us would be approximately $14.6 million. We intend to retain such additional net proceeds from any exercise of the |
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underwriters’ option to fund working capital and future capital expenditures of our business. See “Use of Proceeds”. | ||
Cash Distributions | We will make minimum quarterly distributions of $0.375 per common unit ($1.50 per common unit on an annualized basis) to the extent we have sufficient available cash (as defined below). Our ability to pay cash distributions at this minimum quarterly distribution rate is subject to various restrictions and other factors described in more detail under “Our Cash Distribution Policy and Restrictions on Distributions”. | |
Within 45 days after the end of each quarter, beginning with the quarter ending , 2008, we will make cash distributions to unitholders of record on the applicable record date. We will pay investors in this offering a prorated quarterly distribution for the period from the closing of this offering through the end of the quarter in which this offering occurs based on the actual length of the period. | ||
In general, we will pay any cash distributions we make each quarter in the following manner: | ||
• First, to the holders of common units and GP units until each common unit and GP unit has received a minimum quarterly distribution of $0.375 plus any arrearages from prior quarters; | ||
• Second, to the holders of subordinated units, until each subordinated unit has received a minimum quarterly distribution of $0.375; and | ||
• Third, to all unitholders, pro rata, until each unit has received a quarterly distribution of $0.4313. | ||
If cash distributions exceed $0.4313 per unit in a quarter, our managing general partner, as holder of the IDRs, will, after the distribution of the amount described under “ — Non-IDR Surplus Amount” below, receive increasing percentages, up to 48%, of the cash we distribute in excess of $0.4313 per unit. We refer to these distributions as “incentive distributions”. Our managing general partner holds all of the IDRs. See “How We Make Cash Distributions — Incentive Distribution Rights”. | ||
Our partnership agreement requires us to distribute all of our cash on hand at the end of each quarter, less reserves established by our managing general partner, subject to the sustainability requirement in the event we elect to increase the quarterly distribution amount. We refer to this cash as “available cash”, and we define its meaning in our partnership agreement, under “How We Make Cash Distributions — Distributions of Available Cash — Definition of Available Cash” and in the Glossary of Selected Terms included as Appendix B in this prospectus. The amount of available cash may be greater or less than the aggregate amount necessary to make the minimum quarterly distribution on all common units, GP units and subordinated units. |
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We believe that, based on the estimates and assumptions described under “Our Cash Distribution Policy and Restrictions on Distributions — Assumptions and Considerations”, we should have sufficient available cash to make the full minimum quarterly distributions for the twelve months ending March 31, 2009 on all common units, GP units and subordinated units. However, unanticipated events may occur which could materially adversely affect the actual results we achieve during the forecast period. Consequently, our actual results of operations, cash flows and financial condition during the forecast period may vary from the forecast, and such variations may be material. Prospective investors are cautioned not to place undue reliance on the forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition. Our pro forma cash available for distribution generated during the year ended December 31, 2007 would have been sufficient to allow us to make the full minimum quarterly distribution on the common units, GP units and subordinated units during this period. See “Our Cash Distribution Policy and Restrictions on Distributions — Pro Forma Cash Available for Distribution”. | ||
Non-IDR Surplus Amount | Our managing general partner will not be entitled to receive any distributions in respect of the IDRs until we have made cash distributions in an aggregate amount equal to our adjusted operating surplus generated during the period from the closing of this offering until December 31, 2009. We define adjusted operating surplus in our partnership agreement, in “How We Make Cash Distributions — Subordination Period — Definition of Adjusted Operating Surplus” and in the Glossary of Selected Terms included as Appendix B in this prospectus. | |
Subordination Period | During the subordination period, the subordinated units will not be entitled to receive any distributions until the common units and GP units have received the minimum quarterly distribution of $0.375 per unit plus any arrearages from prior quarters. The subordination period will end once we meet the financial tests in our partnership agreement, but it generally cannot end before , 2013. | |
If we meet the financial tests in our partnership agreement for any three consecutive four-quarter periods ending on or after , 2011, 25% of the subordinated GP units will convert into GP units on a one-for-one basis. If we meet these financial tests for any three consecutive four-quarter periods ending on or after , 2012, an additional 25% of the subordinated GP units will convert into GP units on a one-for-one basis. The early conversion of the second 25% of the subordinated GP units may not occur until at least one year following the end of the last four-quarter period in respect of which the first 25% of the subordinated GP units were converted. If the subordinated GP units have converted into |
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subordinated LP units at the time the financial tests are met they will convert into common units, rather than GP units. | ||
In addition, the subordination period will end if our managing general partner is removed as our managing general partner where “cause” (as defined in our partnership agreement) does not exist and no units held by our managing general partner and its affiliates are voted in favor of that removal. | ||
When the subordination period ends, all subordinated units will convert into GP units or common units on a one-for-one basis, and the common units and GP units will no longer be entitled to arrearages. See “How We Make Cash Distributions — Subordination Period”. | ||
Issuance of additional units | Our partnership agreement authorizes us to issue an unlimited number of additional units and rights to buy units for the consideration and on the terms and conditions determined by our managing general partner without the approval of our unitholders. See “Units Eligible for Future Sale” and “The Partnership Agreement — Issuance of Additional Partnership Interests”. | |
Limited voting rights | Our managing general partner, together with our special general partner, manages and operates us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect either of our general partners or our managing general partner’s directors on an annual or other continuing basis. Prior to October 26, 2012, our managing general partner may be removed only for “cause” (as defined in our partnership agreement) by a vote of the holders of at least 80% of the outstanding units, including any units owned by our managing general partner and its affiliates (including CVR Energy), voting together as a single class. On or after October 26, 2012, our managing general partner may be removed with or without cause by a vote of the holders of at least 80% of the outstanding units, including any units owned by our managing general partner and its affiliates (including CVR Energy), voting together as a single class. Upon the completion of this offering, our special general partner, which is indirectly owned by CVR Energy, will own an aggregate of approximately 87% of our outstanding units (approximately 85% if the underwriters exercise their option to purchase additional common units in full). This will give CVR Energy the ability to prevent removal of our managing general partner. See “The Partnership Agreement — Voting Rights”. | |
Limited call rights | If at any time our managing general partner and its affiliates own more than 80% of the common units, our managing general partner will have the right, but not the obligation, to purchase all of the remaining common units at a purchase price equal to the greater of (x) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the |
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call right is first mailed and (y) the highestper-unit price paid by our managing general partner or any of its affiliates for common units during the90-day period preceding the date such notice is first mailed. See “The Partnership Agreement — Limited Call Right”. | ||
Estimated ratio of taxable income to distributions | We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending December 31, 2011, you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be % or less of the cash distributed to you with respect to that period. For example, if you receive an annual distribution of $1.50 per common unit, we estimate that your average allocable taxable income per year will be no more than $ per common unit. See “Material Tax Consequences — Tax Consequences of Unit Ownership — Ratio of Taxable Income to Distributions”. | |
Material Tax Consequences | For a discussion of material federal income tax consequences that may be relevant to prospective unitholders, see “Material Tax Consequences”. | |
Exchange Listing | We intend to apply to list our common units on the New York Stock Exchange under the symbol “CVE”. | |
Risk Factors | See “Risk Factors” beginning on page 21 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in our common units. |
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Historical | Pro Forma | ||||||||||||||||||||||
Immediate | |||||||||||||||||||||||
Predecessor | Successor | ||||||||||||||||||||||
174 Days | 191 Days | Year | Year | Year | |||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | |||||||||||||||||||
June 23, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||
2005 | 2005 | 2006 | 2007 | 2007 | |||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
(dollars in millions, except per unit data and as otherwise indicated) | |||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||
Net sales | $ | 76.7 | $ | 96.8 | $ | 170.0 | $ | 187.4 | $ | 187.4 | |||||||||||||
Cost of product sold (exclusive of depreciation and amortization) | 9.8 | 19.2 | 33.4 | 33.1 | 35.6 | ||||||||||||||||||
Direct operating expenses (exclusive of depreciation and amortization)(1) | 26.0 | 29.1 | 63.6 | 66.7 | 66.7 | ||||||||||||||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization)(1) | 5.1 | 4.6 | 12.9 | 20.4 | 20.2 | ||||||||||||||||||
Net costs associated with flood(2) | — | — | — | 2.4 | 2.4 | ||||||||||||||||||
Depreciation and amortization(3) | 0.3 | 8.4 | 17.1 | 16.8 | 16.8 | ||||||||||||||||||
Operating income | $ | 35.5 | $ | 35.5 | $ | 43.0 | $ | 48.0 | $ | 45.7 | |||||||||||||
Miscellaneous income (expense)(4) | (2.0 | ) | 0.4 | (6.9 | ) | 0.2 | 0.1 | ||||||||||||||||
Interest (expense) and other financing costs | (0.8 | ) | (14.8 | ) | (23.5 | ) | (23.6 | ) | (0.9 | ) | |||||||||||||
Gain (loss) on derivatives | — | 4.9 | 2.1 | (0.5 | ) | — | |||||||||||||||||
Income before income taxes | $ | 32.7 | $ | 26.0 | $ | 14.7 | $ | 24.1 | $ | 44.9 | |||||||||||||
Income tax expense | — | — | — | — | — | ||||||||||||||||||
Net income(5) | $ | 32.7 | $ | 26.0 | $ | 14.7 | $ | 24.1 | $ | 44.9 | |||||||||||||
Financial and Other Data: | |||||||||||||||||||||||
Cash flows provided by operating activities | 24.3 | 45.3 | 34.1 | 46.5 | |||||||||||||||||||
Cash flows (used in) investing activities | (1.4 | ) | (2.0 | ) | (13.3 | ) | (6.5 | ) | |||||||||||||||
Cash flows (used in) financing activities | (22.9 | ) | (43.3 | ) | (20.8 | ) | (25.5 | ) | |||||||||||||||
EBITDA(6) | 33.8 | 48.7 | 53.9 | 65.0 | 63.3 | ||||||||||||||||||
Capital expenditures for property, plant and equipment | 1.4 | 2.0 | 13.3 | 6.5 | |||||||||||||||||||
Key Operating Data: | |||||||||||||||||||||||
Product pricing (plant gate) (dollars per ton)(7): | |||||||||||||||||||||||
Ammonia | $ | 294 | $ | 348 | $ | 339 | $ | 376 | |||||||||||||||
UAN | 167 | 177 | 164 | 209 | |||||||||||||||||||
Production volume: | |||||||||||||||||||||||
Ammonia (tons in thousands) | 193.2 | 220.0 | 369.3 | 326.7 | |||||||||||||||||||
UAN (tons in thousands) | 309.9 | 353.4 | 633.1 | 576.9 | |||||||||||||||||||
On-stream factors(8): | |||||||||||||||||||||||
Gasifier | 97.4 | % | 98.7 | % | 92.5 | % | 90.0 | % | |||||||||||||||
Ammonia | 95.0 | % | 98.3 | % | 89.3 | % | 87.7 | % | |||||||||||||||
UAN | 93.9 | % | 94.8 | % | 88.9 | % | 78.7 | % |
Historical | Pro Forma | ||||||||||||||||
Successor | |||||||||||||||||
December 31, | December 31, | December 31, | December 31, | ||||||||||||||
2005 | 2006 | 2007 | 2007 | ||||||||||||||
(unaudited) | |||||||||||||||||
Balance Sheet Data: | (in millions) | ||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 14.5 | $ | 72.4 | |||||||||
Working capital | (2.5 | ) | (0.5 | ) | 7.5 | 61.3 | |||||||||||
Total assets | 423.7 | 416.1 | 429.9 | 485.4 | |||||||||||||
Total debt including current portion | — | — | — | — | |||||||||||||
Partners’ capital/divisional equity | 400.5 | 397.6 | 400.5 | 456.0 |
(1) | Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) for the 191 days ended December 31, 2005, the year ended December 31, 2006 and the year ended December 31, 2007 include a charge related to CVR Energy’s share-based compensation expense allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). We are not responsible for the payment of cash related to any share-based compensation allocated to us by CVR Energy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies —Share-Based Compensation.” The charges were: |
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191 Days ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2005 | 2006 | 2007 | ||||||||||
(in millions) | ||||||||||||
Direct operating expenses (exclusive of depreciation and amortization) | $ | 0.1 | $ | 0.8 | $ | 1.2 | ||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization) | 0.2 | 3.2 | 9.7 | |||||||||
Total | $ | 0.3 | $ | 4.0 | $ | 10.9 |
(2) | Total gross costs recorded as a result of the flood damage to our nitrogen fertilizer plant for the year ended December 31, 2007 were approximately $5.8 million, including approximately $0.8 million recorded for depreciation for temporarily idle facilities, $0.7 million for internal salaries and $4.3 million for other repairs and related costs. An insurance receivable of approximately $3.3 million was also recorded for the year December 31, 2007 for the probable recovery of such costs under CVR Energy’s insurance policies. | |
(3) | Depreciation and amortization is comprised of the following components as excluded from direct operating expenses and selling, general and administrative expenses and as included in net costs associated with flood: |
Historical | Pro Forma | |||||||||||||||||||||
Immediate | ||||||||||||||||||||||
Predecessor | Successor | |||||||||||||||||||||
174 Days | 191 Days | Year | ||||||||||||||||||||
Ended | Ended | Year Ended | Year Ended | Ended | ||||||||||||||||||
June 23, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||
2005 | 2005 | 2006 | 2007 | 2007 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||
Depreciation and amortization excluded from direct operating expenses | $ | 0.3 | $ | 8.3 | $ | 17.1 | $ | 16.8 | $ | 16.8 | ||||||||||||
Depreciation and amortization excluded from selling, general and administrative expenses | — | 0.1 | — | — | — | |||||||||||||||||
Depreciation included in net costs associated with flood | — | — | — | 0.8 | 0.8 | |||||||||||||||||
Total depreciation and amortization | $ | 0.3 | $ | 8.4 | $ | 17.1 | $ | 17.6 | $ | 17.6 |
(4) | Miscellaneous income (expense) is comprised of the following components included in our consolidated statement of operations: |
Historical | Pro Forma | |||||||||||||||||||||
Immediate | ||||||||||||||||||||||
Predecessor | Successor | |||||||||||||||||||||
174 Days | 191 Days | Year | ||||||||||||||||||||
Ended | Ended | Year Ended | Year Ended | Ended | ||||||||||||||||||
June 23, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||
2005 | 2005 | 2006 | 2007 | 2007 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||
Interest income | $ | — | $ | 0.5 | $ | 1.4 | $ | 0.3 | $ | — | ||||||||||||
Loss on extinguishment of debt | (1.2 | ) | — | (8.5 | ) | (0.2 | ) | — | ||||||||||||||
Other income (expense) | (0.8 | ) | (0.1 | ) | 0.2 | 0.1 | 0.1 | |||||||||||||||
Miscellaneous income (expense) | $ | (2.0 | ) | $ | 0.4 | $ | (6.9 | ) | $ | 0.2 | $ | 0.1 |
(5) | The following are certain charges and costs that are meaningful to understanding our net income and in evaluating our performance: |
Historical | Pro Forma | |||||||||||||||||||||
Immediate | ||||||||||||||||||||||
Predecessor | Successor | |||||||||||||||||||||
174 Days | 191 Days | Year | ||||||||||||||||||||
Ended | Ended | Year Ended | Year Ended | Ended | ||||||||||||||||||
June 23, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||
2005 | 2005 | 2006 | 2007 | 2007 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||
Loss on extinguishment of debt(a) | $ | 1.2 | $ | — | $ | 8.5 | $ | 0.2 | $ | — | ||||||||||||
Inventory fair market value adjustment | — | 0.7 | — | — | — | |||||||||||||||||
Interest rate swap | — | 0.1 | (1.8 | ) | (1.4 | ) | — | |||||||||||||||
Share-based compensation expense(b) | — | 0.3 | 4.0 | 10.9 | 10.9 |
(a) | Represents our portion of (1) the write-off of deferred financing costs in connection with the refinancing of the senior secured credit facility of Coffeyville Resources, LLC on June 23, 2005, (2) the write-off in connection with the |
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refinancing of the senior secured credit facility of Coffeyville Resources, LLC on December 28, 2006, and (3) the write-off in connection with the repayment and termination of three of the credit facilities of Coffeyville Resources, LLC and Coffeyville Refining & Marketing Holding, Inc., an indirect parent company of Coffeyville Resources, LLC and a subsidiary of CVR Energy, Inc., on October 26, 2007. |
(b) | Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) include a charge related to CVR Energy’s share-based compensation expense that was allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). See Note 1 above. We are not responsible for the payment of cash related to any share-based compensation expense allocated to us by CVR Energy. |
(6) | EBITDA is defined as net income plus interest expense and other financing costs, income tax expense and depreciation and amortization, net of interest income. | |
EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess: | ||
• | the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; | |
• | the ability of our assets to generate cash sufficient to make distributions to our partners and to pay interest on our indebtedness; and | |
• | our operating performance and return on invested capital compared to those of other publicly traded limited partnerships, without regard to financing methods and capital structure. | |
EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently. | ||
A reconciliation of our net income to EBITDA is as follows: |
Historical | Pro Forma | |||||||||||||||||||||
Immediate | ||||||||||||||||||||||
Predecessor | Successor | |||||||||||||||||||||
174 Days | 191 Days | Year | Year | Year | ||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||
June 23, | December 31, | December 31, | December 31, | December 31, | ||||||||||||||||||
2005 | 2005 | 2006 | 2007 | 2007 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||
Net income | $ | 32.7 | $ | 26.0 | $ | 14.7 | $ | 24.1 | $ | 44.9 | ||||||||||||
Adjustments: | ||||||||||||||||||||||
Interest expense and other financing costs | 0.8 | 14.8 | 23.5 | 23.6 | 0.9 | |||||||||||||||||
Interest income | — | (0.5 | ) | (1.4 | ) | (0.3 | ) | (0.1 | ) | |||||||||||||
Income tax expense | — | — | — | — | — | |||||||||||||||||
Depreciation and amortization | 0.3 | 8.4 | 17.1 | 17.6 | 17.6 | |||||||||||||||||
EBITDA | $ | 33.8 | $ | 48.7 | $ | 53.9 | $ | 65.0 | $ | 63.3 |
(7) | Plant gate price per ton represents net sales less freight revenue divided by product sales volume in tons in the reporting period. Plant gate price per ton is shown in order to provide a pricing measure that is comparable across the fertilizer industry. | |
(8) | On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period. Excluding the impact of turnarounds at the nitrogen fertilizer facility in the third quarter of 2006, the on-stream factors in 2006 would have been 97.1% for gasifier, 94.3% for ammonia and 93.6% for UAN. |
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• | Original Predecessor refers to the one facility within the eight-plant Nitrogen Fertilizer Manufacturing and Marketing Division of Farmland which Coffeyville Resources, LLC acquired on March 3, 2004 in a sale process under Chapter 11 of the U.S. Bankruptcy Code; | |
• | Initial Acquisition refers to the acquisition of Original Predecessor on March 3, 2004 by Coffeyville Resources, LLC; | |
• | Immediate Predecessor refers to Coffeyville Resources Nitrogen Fertilizers, LLC, the subsidiary of Coffeyville Group Holdings, LLC that held our business between March 3, 2004 and June 24, 2005; | |
• | Subsequent Acquisition refers to the acquisition of Immediate Predecessor on June 24, 2005 by Coffeyville Acquisition LLC; | |
• | Successor refers to (1) Coffeyville Resources Nitrogen Fertilizers, LLC from June 24, 2005 through October 23, 2007 and (2) CVR Partners, LP and its consolidated subsidiary, Coffeyville Resources Nitrogen Fertilizers, LLC, on and after October 24, 2007; and | |
• | The Partnership, we, us and our refer to our business, which is referred to in our financial statements as (1) Original Predecessor until March 3, 2004, (2) Immediate Predecessor from March 3, 2004 until June 24, 2005 and (3) Successor for all periods thereafter, unless the context otherwise requires or as otherwise indicated. |
• | managing general partner refers to CVR GP, LLC, our managing general partner, which is owned by Coffeyville Acquisition III LLC; | |
• | special general partner refers to CVR Special GP, LLC, our special general partner, which is indirectly owned by CVR Energy; | |
• | general partners refers to our managing general partner and our special general partner; | |
• | Coffeyville Resources refers to Coffeyville Resources, LLC, the subsidiary of CVR Energy which was our sole limited partner prior to this offering; | |
• | Coffeyville Acquisition III refers to Coffeyville Acquisition III LLC, the owner of our managing general partner, which in turn is owned by the Goldman Sachs Funds, the Kelso Funds and certain members of CVR Energy’s senior management team; and | |
• | CVR Energy refers to CVR Energy, Inc., a publicly traded company listed on the New York Stock Exchange under the ticker symbol “CVI”, which following this offering will indirectly own our special general partner and, as a result, will indirectly own approximately 87% of our units. |
• | common units refers to the 5,250,000 common units sold to the public in this offering and common units that may be sold to the public in the future; | |
• | GP units refers to the 18,750,000 GP units owned by our special general partner immediately after the closing of this offering; | |
• | subordinated GP units refers to the 16,000,000 subordinated units owned by our special general partner immediately after the closing of this offering; |
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• | subordinated units refers to our subordinated GP units and any subordinated units representing limited partner interests, or subordinated LP units, into which the subordinated GP units held by our special general partner may be converted; | |
• | units refers to our common units, GP units and subordinated units; and | |
• | IDRs refer to the incentive distribution rights owned by our managing general partner. |
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• | Our managing general partner has broad discretion to establish reserves for the prudent conduct of our business. The establishment of those reserves could result in a reduction of our distributions. | |
• | The amount of distributions made by us and the decision to make any distribution are determined by our managing general partner, whose interests may be different from those of the common unitholders. Our managing general partner has limited fiduciary and contractual duties, which may permit it to favor its own interests to the detriment of the common unitholders. | |
• | UnderSection 17-607 of the Delaware Revised Uniform Limited Partnership Act, or Delaware Act, we may not make a distribution to our limited partners if the distribution would cause our liabilities to exceed the fair value of our assets. | |
• | Although our partnership agreement requires us to distribute our available cash, the partnership agreement may be amended. | |
• | The new revolving secured credit facility that we expect to enter into upon the closing of this offering will, and any future credit facility or other debt instruments may, limit the distributions which we can make. In addition, we expect that our new revolving secured credit facility will, and any future credit facility may, contain financial tests and covenants that we must satisfy. Any failure to comply with these tests and covenants could result in the lenders prohibiting distributions by us. | |
• | The actual amount of cash available for distribution will depend on numerous factors, some of which are beyond our control, including the level of capital expenditures made by us, our debt service requirements, the cost of acquisitions, if any, fluctuations in our working capital needs, our ability to borrow funds and access capital markets, the amount of fees and expenses incurred by us, and restrictions on distributions and on our ability to make working capital and other borrowings for distributions contained in our credit agreements. |
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• | unforeseen difficulties in the acquired operations and disruption of the ongoing operations of our business; | |
• | failure to achieve cost savings or other financial or operating objectives with respect to an acquisition; |
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• | strain on the operational and managerial controls and procedures of our business, and the need to modify systems or to add management resources; | |
• | difficulties in the integration and retention of customers or personnel and the integration and effective deployment of operations or technologies; | |
• | assumption of unknown material liabilities or regulatory non-compliance issues; | |
• | amortization of acquired assets, which would reduce future reported earnings; | |
• | possible adverse short-term effects on our cash flows or operating results; and | |
• | diversion of management’s attention from the ongoing operations of our business. |
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• | Our managing general partner holds all of our IDRs. IDRs will give our managing general partner a right to increasing percentages of our quarterly distributions after we have distributed all adjusted operating surplus generated by us during the period from the closing of this offering through December 31, 2009 and if quarterly distributions exceed the target of $0.4313 per unit. Our managing general partner may have an incentive to manage us in a manner which preserves or increases the possibility of these future cash flows rather than in a manner that preserves or increases current cash flows. | |
• | Our managing general partner may also have an incentive to engage in conduct with a high degree of risk in order to increase cash flows substantially and thereby increase the value of the IDRs instead of following a safer course of action. | |
• | The owners of our general partners are permitted to compete with us or to own businesses that compete with us. In addition, the owners of our general partners are not required to share business opportunities with us. |
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• | Neither our partnership agreement nor any other agreement will require the owners of our general partners to pursue a business strategy that favors us. The owners of our general partners have fiduciary duties to make decisions in their own best interests, which may be contrary to our interests. In addition, our managing general partner is allowed to take into account the interests of parties other than us, such as its owners or CVR Energy, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders. | |
• | Our managing general partner has limited its liability and reduced its fiduciary duties under our partnership agreement and has also restricted the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty. As a result of purchasing common units, unitholders consent to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other duties under applicable state law. | |
• | Our managing general partner will determine the amount and timing of asset purchases and sales, capital expenditures, borrowings, repayment of indebtedness, issuances of additional partnership interests and cash reserves maintained by us (subject to our special general partner’s specified joint management rights), each of which can affect the amount of cash that is available for distribution to our common unitholders and the amount of cash paid to our managing general partner in respect of its IDRs. | |
• | Our managing general partner will also be able to determine the amount and timing of any capital expenditures and whether a capital expenditure is for maintenance, which reduces operating surplus, or expansion, which does not. Such determinations can affect the amount of cash that is available for distribution and the manner in which the cash is distributed. | |
• | In some instances our managing general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period, which may not be in the interest of the common unitholders. | |
• | Our partnership agreement permits us to classify up to $60 million as operating surplus, even if this cash is generated from asset sales, borrowings other than working capital borrowings or other sources the distribution of which would otherwise constitute capital surplus. This cash may be used to fund distributions in respect of the IDRs. | |
• | Our partnership agreement does not restrict our managing general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf. | |
• | Our managing general partner may exercise its rights to call and purchase all of our common units if at any time it and its affiliates own more than 80% of the common units. | |
• | Our managing general partner will control the enforcement of obligations owed to us by it and its affiliates. In addition, our managing general partner will decide whether to retain separate counsel or others to perform services for us. | |
• | Our managing general partner determines which costs incurred by it and its affiliates are reimbursable by us. | |
• | The executive officers of our managing general partner, and the majority of the directors of our managing general partner, also serve as directorsand/or executive officers of CVR Energy. The executive officers who work for both CVR Energy and our managing general partner, including our chief executive officer, chief operating officer, chief financial officer and general counsel, divide their time between our business and the business of CVR Energy. These executive officers will face conflicts of interest from time to time in making decisions which may benefit either us or CVR Energy. |
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• | Our partnership agreement permits our managing general partner to make a number of decisions in its individual capacity, as opposed to its capacity as managing general partner. This entitles our managing general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, our common unitholders. Decisions made by our managing general partner in its individual capacity will be made by the sole member of our managing general partner, and not by the board of directors of our managing general partner. Examples include the exercise of its limited call right, its voting rights with respect to any common units, GP units or subordinated units it may own, its registration rights and its determination whether or not to consent to any merger or consolidation or amendment to our partnership agreement. | |
• | Our partnership agreement provides that our general partners will not have any liability to us or our unitholders for decisions made in their capacity as general partners so long as they acted in good faith, meaning they believed that the decisions were in our best interests. | |
• | Our partnership agreement provides that our general partners and the officers and directors of our managing general partner will not be liable for monetary damages to us for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our managing general partner or those persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such person’s conduct was criminal. | |
• | Our partnership agreement generally provides that affiliate transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our managing general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally provided to or available from unrelated third parties or be “fair and reasonable”. In determining whether a transaction or resolution is “fair and reasonable”, our managing general partner may consider the totality of the relationship between the parties involved, including other transactions that may be particularly advantageous or beneficial to us. |
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• | we were conducting business in a state but had not complied with that particular state’s partnership statute; or | |
• | limited partners’ right to act with other unitholders to remove or replace our managing general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constituted “control” of our business. |
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• | the level of our distributions and our earnings or those of other companies in our industry; | |
• | the failure of securities analysts to cover our common units after this offering or changes in financial estimates by analysts; | |
• | announcements by us or our competitors of significant contracts or acquisitions; | |
• | variations in quarterly results of operations; | |
• | loss of a large customer or supplier; | |
• | general economic conditions; | |
• | terrorist acts; | |
• | changes in accounting standards, policies, guidance, interpretations or principles; |
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• | future sales of our common units; and | |
• | investor perceptions of us and the industries in which our products are used. |
• | the proportionate ownership interest of unitholders immediately prior to the issuance will decrease; | |
• | the amount of cash distributions on each unit may decrease; | |
• | because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders during the subordination period will increase; | |
• | the ratio of our taxable income to distributions may increase; | |
• | the relative voting strength of each previously outstanding unit may be diminished; and | |
• | the market price of the common units may decline. |
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• | our ability to make cash distributions on the units; | |
• | our ability to forecast our future financial condition or results of operations and our future revenues and expenses; | |
• | our high fixed costs and the potential decline in the price of natural gas, which is the main resource used by our competitors and which correlates strongly to the market price of nitrogen fertilizer products; | |
• | the cyclical nature of our business; | |
• | intense competition from other nitrogen fertilizer producers; | |
• | adverse weather conditions, including potential floods; | |
• | the supply and price levels of essential raw materials; | |
• | the volatile nature of ammonia, potential liability for accidents involving ammonia that cause severe damage to propertyand/or injury to the environment and human health and potential increased costs relating to transport of ammonia; | |
• | our reliance on pet coke that we purchase from CVR Energy; | |
• | the dependence of our operations on a few third-party suppliers; | |
• | our reliance on third party providers of transportation services and equipment; | |
• | capital expenditures and potential liabilities arising from environmental laws and regulations; | |
• | environmental laws and regulations on the end-use and application of fertilizers; | |
• | potential laws and regulations relating to CO2 and other greenhouse gas emissions; | |
• | a decrease in ethanol production; | |
• | potential operating hazards from accidents, fire, severe weather, floods or other natural disasters; | |
• | scheduled or unscheduled downtime for maintenance and repairs; | |
• | the potential loss of our transportation cost advantage over our competitors; | |
• | our ability to comply with employee safety laws and regulations; | |
• | our dependence on significant customers; | |
• | our potential inability to successfully implement our business strategies, including the completion of significant capital programs; |
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• | the success of our acquisition and expansion strategies; | |
• | additional risks, compliance costs and liabilities from acquisitions; | |
• | our reliance on CVR Energy’s senior management team; | |
• | the potential loss of key personnel; | |
• | new regulations concerning the transportation of hazardous chemicals, risks of terrorism and the security of chemical manufacturing facilities; | |
• | successfully defending against third-party claims of intellectual property infringement; | |
• | our ability to continue to license the technology used in our operations; | |
• | restrictions in our debt agreements; | |
• | the dependence on our subsidiary for cash to meet our debt obligations; | |
• | our limited operating history as a stand-alone company; | |
• | potential increases in costs and distraction of management resulting from the requirements of being a publicly traded partnership; | |
• | risks relating to evaluations of internal controls required by Section 404 of the Sarbanes-Oxley Act; | |
• | risks relating to our relationships with CVR Energy; | |
• | control of our managing general partner and our special general partner by the Goldman Sachs Funds and the Kelso Funds; | |
• | the conflicts of interest faced by the senior management team, which operates both us and CVR Energy, and our general partners, who owe fiduciary duties to both us and their owners; | |
• | limitations on the fiduciary duties owed by our general partners which are included in the partnership agreement; and | |
• | changes in our treatment as a partnership for U.S. income or state tax purposes. |
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• | approximately $18.4 million will be used to reimburse Coffeyville Resources for certain capital expenditures made on our behalf prior to October 24, 2007; | |
• | approximately $2.5 million will be used by us to pay financing fees in connection with entering into our new revolving secured credit facility; and | |
• | approximately $72.5 million will be retained by us to fund working capital and future capital expenditures of our business, including the ongoing expansion of our nitrogen fertilizer plant. |
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As of December 31, 2007 | ||||||||
Actual | Pro Forma | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Cash and cash equivalents | $ | 14,472 | $ | 72,427 | ||||
New revolving secured credit facility(1) | — | — | ||||||
Partners’ capital: | ||||||||
Equity held by public: | ||||||||
Common units: 5,250,000 issued and outstanding pro forma(2) | — | 93,400 | ||||||
Equity held by general partners and their affiliates: | ||||||||
Special GP units: 30,303,000 issued and outstanding actual; none issued and outstanding pro forma | 396,242 | — | ||||||
Special LP units: 30,333 issued and outstanding actual; none issued and outstanding pro forma | 397 | — | ||||||
GP units: 18,750,000 issued and outstanding pro forma | — | 193,813 | ||||||
Subordinated GP units: 16,000,000 issued and outstanding pro forma | — | 164,947 | ||||||
Managing general partner’s interest | 3,854 | 3,854 | ||||||
Total partners’ capital | 400,493 | $ | 456,014 | |||||
Total capitalization | $ | 400,493 | $ | 456,014 | ||||
(1) | We expect to have approximately $ million of available capacity under our new revolving secured credit facility at the closing of this offering. | |
(2) | Assumes (x) an initial public offering price of $20.00 per unit and (y) that the underwriters do not exercise their option to purchase 787,500 additional common units. |
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Assumed initial public offering price per common unit | $ | 20.00 | ||||||
Pro forma net tangible book value per unit before this offering(1) | $ | 9.25 | ||||||
Increase in net tangible book value per unit attributable to purchasers in this offering and use of proceeds | $ | 1.12 | ||||||
Less: Pro forma net tangible book value per unit after this offering(2) | $ | 10.37 | ||||||
Immediate dilution in net tangible book value per common unit to purchasers in this offering | $ | 9.63 | ||||||
(1) | Determined by dividing the net tangible book value of our assets less total liabilities by the number of units (18,750,000 GP units and 16,000,000 subordinated units) outstanding prior to this offering. | |
(2) | Determined by dividing our pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering, by the total number of units (5,250,000 common units, 18,750,000 GP units and 16,000,000 subordinated units) to be outstanding after this offering. |
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Units Acquired | Total Consideration | |||||||||||||||
Number | Percent | Amount | Percent | |||||||||||||
Special general partner and its affiliates(1)(2) | 34,750,000 | 86.9 | % | $ | 347,458,756 | 78.8 | % | |||||||||
New investors | 5,250,000 | 13.1 | % | 93,400,000 | 21.2 | % | ||||||||||
Total | 40,000,000 | 100.0 | % | $ | 440,858,756 | 100.0 | % | |||||||||
(1) | Upon the completion of the Transactions, our special general partner will own 18,750,000 GP units and 16,000,000 subordinated GP units. | |
(2) | The assets contributed by affiliates of CVR Energy were recorded at historical cost in accordance with GAAP. |
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• | Our unitholders have no contractual or other legal right to receive cash distributions other than the obligation under our partnership agreement to distribute available cash on a quarterly basis. Our managing general partner’s board of directors will have the authority to establish reserves for the prudent conduct of our business (including reserves for payments to our managing general partner and for the satisfaction of obligations in respect of pre-paid fertilizer contracts and future capital expenditures) or for future distributions to unitholders, and the establishment of (or any increase in) those reserves could result in a reduction in cash distributions to you from levels we currently anticipate pursuant to our stated distribution policy. | |
• | Although our partnership agreement requires us, subject to the sustainability requirement described below, to distribute all of our available cash, our partnership agreement may be amended. During the subordination period, our partnership agreement may be amended with the approval of a majority of the outstanding common units and GP units (excluding the units owned by our managing general partner and its affiliates) voting as a class and the approval of a majority of the outstanding subordinated units voting as a class. After the subordination period has ended, our partnership agreement can be amended with the approval of a majority of the outstanding units voting as a class. At the closing of this offering, CVR Energy and its affiliates will beneficially own approximately 47% of the outstanding common units and GP units (approximately 46% if the underwriters exercise their option to purchase additional common units in full) and 100% of the outstanding subordinated units, or approximately 87% |
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of all outstanding units (approximately 85% if the underwriters exercise their option to purchase additional common units in full). |
• | The provision in our partnership agreement that requires us to distribute all of our available cash is subject to the requirement that, in order for our managing general partner to raise our quarterly distribution amount, the board of directors of our managing general partner must determine that the increasedper-unit distribution rate is likely to be sustainable for at least the succeeding twelve quarters. We refer to this limitation as the “sustainability requirement”. | |
• | Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our managing general partner, taking into consideration the terms of our partnership agreement. | |
• | UnderSection 17-607 of the Delaware Act, we may not make a distribution to our limited partners if the distribution would cause our liabilities to exceed the fair value of our assets. | |
• | We expect that our distribution policy will be subject to restrictions on distributions under our new revolving secured credit facility. We anticipate that our new revolving secured credit facility will contain tests that we must satisfy in order to make distributions to unitholders. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — New Revolving Secured Credit Facility”. Should we be unable to satisfy these restrictions under our new revolving secured credit facility, we would be prohibited from making cash distributions to you notwithstanding our cash distribution policy. | |
• | We may lack sufficient cash to make distributions to our unitholders due to a number of factors that would adversely affect us, including but not limited to decreases in net revenues or increases in operating expenses, principal and interest payments on outstanding debt, working capital requirements, maintenance and replacement capital expenditures or anticipated cash needs. See “Risk Factors” for information regarding these factors. | |
• | If we make distributions out of capital surplus, as opposed to operating surplus, such distributions will constitute a return of capital and will result in a reduction in the minimum quarterly distribution and the target distribution levels. At the present time we do not anticipate that we will make any distributions from capital surplus. |
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Full Exercise of the Underwriters’ | ||||||||||||||||||||||||
No Exercise of the Underwriters’ Overallotment Option | Overallotment Option | |||||||||||||||||||||||
Number of | Distributions | Number of | Distributions | |||||||||||||||||||||
Units | One Quarter | Four Quarters | Units | One Quarter | Four Quarters | |||||||||||||||||||
Publicly held common units | 5,250,000 | $ | 1,968,750 | $ | 7,875,000 | 6,037,500 | $ | 2,264,063 | $ | 9,056,250 | ||||||||||||||
GP units held by affiliates | 18,750,000 | $ | 7,031,250 | $ | 28,125,000 | 18,750,000 | $ | 7,031,250 | $ | 28,125,000 | ||||||||||||||
Subordinated GP units held by affiliates | 16,000,000 | $ | 6,000,000 | $ | 24,000,000 | 16,000,000 | $ | 6,000,000 | $ | 24,000,000 | ||||||||||||||
Total | 40,000,000 | $ | 15,000,000 | $ | 60,000,000 | 40,787,500 | $ | 15,295,313 | $ | 61,181,250 | ||||||||||||||
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• | “Unaudited Pro Forma Cash Available for Distribution”, in which we present our estimate of the amount of pro forma cash available for distribution we would have had for the year ended December 31, 2007, based on our unaudited pro forma consolidated financial statements for that year; and | |
• | “Estimated Cash Available for Distribution”, in which we present how we calculate the estimated minimum EBITDA necessary for us to have sufficient cash available for distribution to make the full minimum quarterly distribution on all the outstanding units for each quarter for the twelve months ending March 31, 2009. In “— Assumptions and Considerations” below, we present the assumptions underlying our belief that we will generate sufficient EBITDA to make the minimum quarterly distribution on all the outstanding units for each quarter in the twelve months ending March 31, 2009. |
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• | the effectiveness of our second amended and restated agreement of limited partnership; | |
• | our entering into the coke supply agreement; | |
• | our entering into a new – year revolving secured credit facility, with no principal amount expected to be drawn upon the closing of this offering, and our payment of financing fees of approximately $2.5 million related thereto; | |
• | the contribution of 30,333 special LP units held by Coffeyville Resources to our special general partner; | |
• | the conversion of 30,303,000 special GP units and 30,333 special LP units held by our special general partner into 18,750,000 GP units and 16,000,000 subordinated GP units; |
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• | our issuance and sale of 5,250,000 common units to the public in this offering, at an assumed initial public offering price of $20.00 per common unit; and | |
• | our release from our guarantees under Coffeyville Resources’ credit facility and swap agreements with J. Aron. |
Year Ended | ||||
December 31, 2007 | ||||
(in millions) | ||||
Net income | $ | 44.9 | ||
Add: | ||||
Interest expense, net and other financing costs(a) | 0.8 | |||
Income tax expense | — | |||
Depreciation and amortization(b) | 17.6 | |||
EBITDA(c) | 63.3 | |||
Subtract: | ||||
Interest expense, net and other financing costs | (0.8 | ) | ||
Estimated incremental general and administrative expenses(d) | (2.5 | ) | ||
Maintenance capital expenditures(e) | (4.4 | ) | ||
Add: | ||||
Share-based compensation expense(f) | 10.9 | |||
Cash available for distribution | $ | 66.5 | ||
Assuming no exercise of the underwriters’ option: | ||||
Annualized minimum quarterly cash distributions to: | ||||
Common units(g) | 7.9 | |||
GP units(g) | 28.1 | |||
Subordinated units(g) | 24.0 | |||
Total cash distributions | 60.0 | |||
Excess of cash available for distribution over annualized minimum quarterly cash distributions | $ | 6.5 | ||
�� | ||||
Assuming full exercise of the underwriters’ option: | ||||
Annualized minimum quarterly cash distributions to: | ||||
Common units(g) | 9.1 | |||
GP units(g) | 28.1 | |||
Subordinated units(g) | 24.0 | |||
Total cash distributions | 61.2 | |||
Excess of cash available for distribution over annualized minimum quarterly cash distributions | $ | 5.3 | ||
(a) | Interest expense and other financing costs represents the interest expense and fees, net of interest income, related to our borrowings, assuming that our new revolving secured credit facility had been put in place on January 1, 2007 and we had been released from our obligations under CVR Energy’s credit facility and swap agreements with J. Aron. We assume that we will fund our capital needs and distributions through funds generated from operations and that we will not borrow under our revolving secured credit facility. Interest expense, net and other financing costs included in the table also reflects the amortization of deferred financing fees related to our new revolving secured credit facility that we expect to enter into in connection with this offering. | |
(b) | Included in this amount is approximately $0.8 million recorded for depreciation for the temporarily idle facilities and included on our statement of operations in net costs associated with the flood. |
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(c) | EBITDA is defined as net income plus interest expense and other financing costs, income tax expense and depreciation and amortization, net of interest income. Cash available for distribution as used in this table is defined as EBITDA less interest expense, net and other financing costs, estimated incremental general and administrative expenses associated with being a public company and maintenance capital expenditures, plusnon-cash share-based compensation expense. | |
EBITDA and cash available for distribution are used as supplemental financial measures by management and by external users of our financial statements, such as investors and commercial banks, to assess: |
• | the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; | |
• | the ability of our assets to generate cash sufficient to make distributions to our partners and to pay interest on our indebtedness; and | |
• | our operating performance and return on invested capital compared to those of other publicly traded limited partnerships, without regard to financing methods and capital structure. |
(d) | Reflects an adjustment for estimated incremental general and administrative expenses we expect that we will incur as a publicly traded limited partnership, such as costs associated with SEC reporting requirements, including annual and quarterly reports to unitholders, tax return andSchedule K-1 preparation and distribution, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and director compensation. | |
(e) | Reflects actual capital expenditures during the year ended December 31, 2007 for the replacement of worn out or obsolete equipment and to comply with environmental and safety laws and regulations. | |
(f) | Reflects an adjustment for stock compensation expense which is not subject to reimbursement by us. We are allocated non-cash share-based compensation expense from CVR Energy and Coffeyville Acquisition III, for purposes of financial statement reporting. CVR Energy and Coffeyville Acquisition III account for share-based compensation in accordance with SFAS No. 123(R), Share-Based Payments and in accordance withEITF 00-12, “Accounting by an Investor forStock-Based Compensation Granted to Employees of anEquity-Method Investee.” In accordance with SAB Topic 1-B, CVR Energy allocates costs between itself and us based upon the percentage of time a CVR Energy employee provides services to us. In accordance with the services agreement, we will not be responsible for the payment of cash related to any share-based compensation which CVR Energy allocates to us. | |
(g) | See table under “— Our Initial Distribution Rate” above which sets forth the assumed number of outstanding common units, GP units and subordinated GP units upon the closing of this offering and calculates the estimated per unit and aggregate distribution amounts payable on our units at our initial distribution rate of $0.375 per unit per quarter ($1.50 per unit on an annualized basis). |
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Twelve Months Ending | ||||
March 31, 2009 | ||||
(in millions, except | ||||
per unit data) | ||||
(unaudited) | ||||
Net sales | $ | 256.6 | ||
Cost of product sold (exclusive of depreciation and amortization) | (36.2 | ) | ||
Direct operating expenses (exclusive of depreciation and amortization) | (72.5 | ) | ||
Selling, general and administrative expenses (exclusive of depreciation and amortization) | (14.3 | ) | ||
Depreciation and amortization | (17.6 | ) | ||
Income tax expense | — | |||
Net Income | 116.0 | |||
Adjustments to reconcile net income to EBITDA: | ||||
Add: | ||||
Income tax expense | — | |||
Depreciation and amortization | 17.6 | |||
EBITDA | 133.6 | |||
Adjustments to reconcile EBITDA to cash available for distribution: | ||||
Subtract: | ||||
Interest expense and other financing costs | — | |||
Expansion capital expenditures | (63.8 | ) | ||
Maintenance capital expenditures | (9.6 | ) | ||
Add: | ||||
Funds retained from this offering to fund our expansion capital expenditures | 63.8 | |||
Cash available for distribution | 124.0 | |||
Cash distributions: | ||||
Assuming no exercise of the underwriters’ option: | ||||
Annualized minimum quarterly cash distribution per unit | $ | 1.50 | ||
Minimum annual cash distributions to: | ||||
Publicly held common units | $ | 7.9 | ||
GP units held by our affiliates | $ | 28.1 | ||
Subordinated GP units held by our affiliates | $ | 24.0 | ||
Total | $ | 60.0 | ||
Excess of estimated cash available for distributions over estimated cash distributions | $ | 64.0 | ||
EBITDA | $ | 133.6 | ||
Subtract: | ||||
Excess of estimated cash available for distribution over estimated cash distributions | 64.0 | |||
Minimum Estimated Adjusted EBITDA necessary to pay estimated cash distributions at the minimum quarterly distribution rate. | $ | 69.6 |
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Twelve Months Ending | ||||
March 31, 2009 | ||||
(in millions, except | ||||
per unit data) | ||||
(unaudited) | ||||
Assuming full exercise of the underwriters’ option: | ||||
Annualized minimum quarterly cash distribution per unit | $ | 1.50 | ||
Minimum annual cash distributions to: | ||||
Publicly held common units | $ | 9.1 | ||
GP units held by our affiliates | $ | 28.1 | ||
Subordinated GP units held by our affiliates | $ | 24.0 | ||
Total | $ | 61.2 | ||
Excess of cash available for distributions over cash distributions | $ | 62.8 | ||
EBITDA | $ | 133.6 | ||
Subtract: | ||||
Excess of estimated cash available for distribution over estimated cash distributions | 62.8 | |||
Minimum Estimated Adjusted EBITDA necessary to pay estimated cash distributions at the minimum quarterly distribution rate | $ | 70.8 |
• | the effectiveness of our second amended and restated agreement of limited partnership; | |
• | our entering into the coke supply agreement; |
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• | the distribution by us of all of our cash on hand immediately prior to the completion of this offering, estimated to be $40.0 million, including the settlement of net intercompany balances at the time of such distribution, to our special general partner; | |
• | our entering into a new – year revolving secured credit facility, with no principal amount expected to be drawn upon the closing of this offering, and our payment of financing fees of approximately $2.5 million related thereto; | |
• | the contribution of 30,333 special LP units held by Coffeyville Resources to our special general partner; | |
• | the conversion of 30,303,000 special GP units and 30,333 special LP units held by our special general partner into 18,750,000 GP units and 16,000,000 subordinated GP units; | |
• | our issuance and sale of 5,250,000 common units to the public in this offering, at an assumed initial public offering price of $20.00 per common unit, and the use of proceeds thereof; | |
• | our payment of estimated underwriting commissions and other offering expenses in the aggregate of $11.6 million; and | |
• | our release from our guarantees under Coffeyville Resources’ credit facility and swap agreements with J. Aron. |
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• | no material nonperformance or credit-related defaults by suppliers, customers or vendors; | |
• | no new regulation or interpretation of existing regulations that, in either case, would be materially adverse to our business; | |
• | no material accidents, weather-related incidents, unscheduled turnarounds or other downtime or similar unanticipated events; | |
• | no material adverse change in the markets in which we operate resulting from substantially lower natural gas prices, reduced demand for nitrogen fertilizer products or significant changes in the market prices and supply levels of pet coke; | |
• | no material decreases in the prices we receive for our nitrogen fertilizer products; | |
• | no material changes to market or overall economic conditions; and | |
• | an annual inflation rate of 2.0% to 3.0%. |
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• | less the amount of cash reserves established by our managing general partner to: |
- | provide for the proper conduct of our business (including the satisfaction of obligations in respect of pre-paid fertilizer contracts, future capital expenditures, anticipated future credit needs and the payment of expenses and fees, including payments to our managing general partner); | |
- | comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which we or any of our subsidiaries is a party or by which we are bound or our assets are subject; and | |
- | provide funds for distributions in respect of any one or more of the next eight quarters, provided, however, that our managing general partner may not establish cash reserves pursuant to this clause if the effect of such reserves would be that we would be unable to distribute the minimum quarterly distribution on all common units and GP units and any cumulative common unit and GP unit arrearages thereon with respect to any such quarter; |
• | plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Working capital borrowings are generally borrowings that are used solely for working capital purposes or to make distributions to partners. |
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• | $60 million (as described below); plus | |
• | all of our cash receipts from and after the closing of this offering, excluding cash from “interim capital transactions” (as described below and excluding cash received by us or our subsidiaries in respect of accounts receivable existing as of the closing of this offering (which will be distributed to our special general partner)); plus | |
• | working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter; plus | |
• | cash distributions paid on equity interests issued by us to finance all or any portion of the construction, expansion or improvement of our facilities in respect of the period from such financing until the earlier to occur of the date the capital asset is put into service or the date it is abandoned or disposed of; plus | |
• | cash distributions paid on equity interests issued by us to pay the construction period interest on debt incurred, or to pay construction period distributions on equity issued, to finance the construction, expansion and improvement projects referred to above; less | |
• | all of our “operating expenditures” (as defined below) after the closing of this offering; less | |
• | the amount of cash reserves established by our managing general partner to provide funds for future operating expenditures (which does not include expansion capital expenditures). |
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• | repayments of working capital borrowings, if such working capital borrowings were outstanding for twelve months, not repaid, but deemed repaid, thus decreasing operating surplus at such time; | |
• | payments (including prepayments) of principal of and premium on indebtedness, other than working capital borrowings; | |
• | expansion capital expenditures; | |
• | investment capital expenditures; | |
• | payment of transaction expenses relating to “interim capital transactions”; or | |
• | distributions to partners. |
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• | borrowings other than working capital borrowings; | |
• | sales of our debt and equity interests other than for working capital purposes; and | |
• | sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or as part of the normal retirement or replacement of assets. |
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• | distributions of available cash from operating surplus on each of the outstanding common units, GP units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date; | |
• | the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units, GP units and subordinated units during those periods on a fully diluted basis; and | |
• | there are no arrearages in payment of the minimum quarterly distribution on the common units and GP units. |
• | , 2011 with respect to 25.0% of the subordinated units; and | |
• | , 2012 with respect to an additional 25.0% of the subordinated units. |
• | distributions of available cash from operating surplus on each of the outstanding common units, GP units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date; | |
• | the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units, GP units and subordinated units during those periods on a fully diluted basis; and | |
• | there are no arrearages in payment of the minimum quarterly distribution on the common units and GP units. |
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• | all subordinated units held by any person who did not, and whose affiliates did not, vote any of their units in favor of the removal of the managing general partner, will immediately convert into common units or GP units on a one-for-one basis; and | |
• | if all subordinated units convert as described in the immediately preceding bullet point, any existing arrearages in payment of the minimum quarterly distribution on the common units and GP units will be extinguished. |
• | operating surplus generated with respect to that period (which does not include the $60 million basket described in the first bullet point of the definition of operating surplus above); less | |
• | any net increase in working capital borrowings with respect to that period; less | |
• | the amount of the scheduled turnaround operating surplus associated with the most recent scheduled turnaround of each of our nitrogen fertilizer plant’s major units (or other material assets we acquire in the future) amortized with respect to that period, as described below; less | |
• | any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus | |
• | for any period in which a scheduled turnaround occurs, an amount that our managing general partner determines is the incremental operating surplus that we would have generated had the scheduled turnaround not been conducted during the period, which we refer to as the “scheduled turnaround operating surplus” and is described more fully below; plus | |
• | any net decrease in working capital borrowings with respect to that period; plus | |
• | any net increase in cash reserves for operating expenditures with respect to that period to the extent required by any debt instrument for the repayment of principal, interest or premium. |
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• | First, to the holders of common units and GP units, until each common unit and GP unit has received an amount equal to the minimum quarterly distribution, or MQD, of $0.375 per unit, plus any arrearages from prior quarters; | |
• | Second, to the holders of subordinated units, until each subordinated unit has received an amount equal to the MQD; and | |
• | Thereafter, to all unitholders, pro rata. |
• | First, to all common units and GP units, until each common unit and GP unit has received a total quarterly distribution equal to the MQD plus any arrearages from prior quarters; | |
• | Second, to all subordinated units, until each subordinated unit has received a total quarterly distribution equal to the MQD; | |
• | Third, to all units, pro rata, until each unit has received a total quarterly distribution equal to $0.4313 (excluding any distribution in respect of arrearages) (the “first target distribution”); | |
• | Fourth, (i) 13% to the managing general partner (in respect of its IDRs) and (ii) 87% to all units, pro rata, until each unit has received a total quarterly distribution equal to $0.4688 (excluding any distribution in respect of arrearages) (the “second target distribution”); | |
• | Fifth, (i) 23% to the managing general partner (in respect of its IDRs) and (ii) 77% to all units, pro rata, until each unit has received a total quarterly distribution equal to $0.5625 (excluding any distribution in respect of arrearages) (the “third target distribution”); and | |
• | Thereafter, (i) 48% to the managing general partner (in respect of its IDRs) and (ii) 52% to all units, pro rata. |
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• | First, to all units, until each unit has received a total quarterly distribution equal to the first target distribution ($0.4313); | |
• | Second, (i) 13% to the managing general partner (in respect of its IDRs) and (ii) 87% to all units, pro rata, until each unit has received a total quarterly distribution equal to the second target distribution ($0.4688); | |
• | Third, (i) 23% to the managing general partner (in respect of its IDRs) and (ii) 77% to all units, pro rata, until each unit has received a total quarterly distribution equal to the third target distribution ($0.5625); and | |
• | Thereafter, (i) 48% to the managing general partner (in respect of its IDRs) and (ii) 52% to all units, pro rata. |
Total Quarterly | Marginal Percentage Interest in Distributions | |||||||||
Distribution | Managing General | |||||||||
Target Amount | Unitholders | Partner | ||||||||
Minimum Quarterly Distribution | $0.375 | 100 | % | 0 | % | |||||
First Target Distribution | up to $0.4313 | 100 | % | 0 | % | |||||
Second Target Distribution | above $0.4313 up to $0.4688 | 87 | % | 13 | % | |||||
Third Target Distribution | above $0.4688 up to $0.5625 | 77 | % | 23 | % | |||||
Thereafter | above $0.5625 | 52 | % | 48 | % |
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• | First, to all unitholders, pro rata, until the minimum quarterly distribution is reduced to zero, as described below; | |
• | Second, to the common unitholders and GP unitholders, pro rata, until we have distributed for each common unit and GP unit an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units and GP units; and | |
• | Thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus. |
• | the minimum quarterly distribution; | |
• | the target distribution levels; and | |
• | the initial unit price, as described below under “— Distributions of Cash Upon Liquidation”. |
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• | First, to the managing general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances; | |
• | Second, to the common unitholders and GP unitholders, pro rata, until the capital account for each common unit and GP unit is equal to the sum of: |
(1) | the initial unit price; | |
(2) | the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and | |
(3) | any unpaid arrearages in payment of the minimum quarterly distribution; |
• | Third, to the subordinated unitholders, pro rata, until the capital account for each subordinated unit is equal to the sum of: |
(1) | the initial unit price; and | |
(2) | the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; |
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• | Fourth, to all unitholders, pro rata, until we allocate under this bullet point an amount per unit equal to: |
(1) | the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter since the closing of this offering; less | |
(2) | the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed to the unitholders, pro rata, for each quarter since the closing of this offering; |
• | Fifth, 87% to all unitholders, pro rata, and 13% to the holders of the IDRs, until we allocate under this bullet point an amount per unit equal to: |
(1) | the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter since the closing of this offering; less | |
(2) | the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 87% to the unitholders, pro rata, and 13% to the holders of the IDRs for each quarter since the closing of this offering; |
• | Sixth, 77% to all unitholders, pro rata, and 23% to the holders of the IDRs, until we allocate under this bullet point an amount per unit equal to: |
(1) | the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter since the closing of this offering; less | |
(2) | the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 77% to the unitholders, pro rata, and 23% to the holders of the IDRs for each quarter since the closing of this offering; and |
• | Thereafter, 52% to all unitholders, pro rata, and 48% to the holders of the IDRs. |
• | First, to holders of subordinated units in proportion to the positive balances in their capital accounts, until the capital accounts of the subordinated unitholders have been reduced to zero; | |
• | Second, to the holders of common units and GP units in proportion to the positive balances in their capital accounts, until the capital accounts of the common unitholders and GP unitholders have been reduced to zero; and | |
• | Thereafter, 100% to our managing general partner. |
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Original Predecessor | Immediate Predecessor | Successor | ||||||||||||||||||||||||||||
Year | 62 Days | 304 Days | 174 Days | 191 Days | Year | Year | ||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
December 31, | March 2, | December 31, | June 23, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2003 | 2004 | 2004 | 2005 | 2005 | 2006 | 2007 | ||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(dollars in millions, except per unit data and as otherwise indicated) | ||||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||||
Net sales | $ | 100.9 | $ | 19.4 | $ | 91.4 | $ | 76.7 | $ | 96.8 | $ | 170.0 | $ | 187.4 | ||||||||||||||||
Cost of product sold (exclusive of depreciation and amortization) | 21.9 | 4.1 | 18.8 | 9.8 | 19.2 | 33.4 | 33.1 | |||||||||||||||||||||||
Direct operating expenses (exclusive of depreciation and amortization)(1) | 53.0 | 8.4 | 44.3 | 26.0 | 29.1 | 63.6 | 66.7 | |||||||||||||||||||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization)(1) | 10.1 | 3.2 | 5.0 | 5.1 | 4.6 | 12.9 | 20.4 | |||||||||||||||||||||||
Net costs associated with flood(2) | — | — | — | — | — | — | 2.4 | |||||||||||||||||||||||
Depreciation and amortization(3) | 1.2 | 0.2 | 0.9 | 0.3 | 8.4 | 17.1 | 16.8 | |||||||||||||||||||||||
Impairment, and other charges(4) | 6.9 | — | — | — | — | — | — | |||||||||||||||||||||||
Operating income | $ | 7.8 | $ | 3.5 | $ | 22.4 | $ | 35.5 | $ | 35.5 | $ | 43.0 | 48.0 | |||||||||||||||||
Miscellaneous income (expense)(5) | — | — | (0.7 | ) | (2.0 | ) | 0.4 | (6.9 | ) | 0.2 | ||||||||||||||||||||
Interest expense and other financing costs | (0.5 | ) | — | (0.9 | ) | (0.8 | ) | (14.8 | ) | (23.5 | ) | (23.6 | ) | |||||||||||||||||
Gain (loss) on derivatives | — | — | — | — | 4.9 | 2.1 | (0.5 | ) | ||||||||||||||||||||||
Income before income taxes | $ | 7.3 | $ | 3.5 | $ | 20.8 | $ | 32.7 | $ | 26.0 | $ | 14.7 | $ | 24.1 | ||||||||||||||||
Income tax expense | — | — | — | — | — | — | — | |||||||||||||||||||||||
Net income(6) | $ | 7.3 | $ | 3.5 | $ | 20.8 | $ | 32.7 | $ | 26.0 | $ | 14.7 | $ | 24.1 | ||||||||||||||||
Pro forma net income per unit(7): | ||||||||||||||||||||||||||||||
Common unit, basic and diluted | $ | 1.01 | ||||||||||||||||||||||||||||
GP unit, basic and diluted | $ | 1.01 | ||||||||||||||||||||||||||||
Subordinated unit, basic and diluted | — | |||||||||||||||||||||||||||||
Pro forma weighted average number of units: | ||||||||||||||||||||||||||||||
Common unit, basic and diluted | 5,250,000 | |||||||||||||||||||||||||||||
GP unit, basic and diluted | 18,750,000 | |||||||||||||||||||||||||||||
Subordinated unit, basic and diluted | 16,000,000 | |||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | — | $ | 14.5 | ||||||||||||||||||||
Working capital(8) | 12.0 | (3.5 | ) | (2.5 | ) | (0.5 | ) | 7.5 | ||||||||||||||||||||||
Total assets | 33.9 | 37.1 | 423.7 | 416.1 | 429.9 | |||||||||||||||||||||||||
Liabilities subject to compromise(9) | 9.2 | — | — | — | — | |||||||||||||||||||||||||
Total debt, including current portion | — | — | — | — | — | |||||||||||||||||||||||||
Partners capital/divisional equity | 16.1 | 15.7 | 400.5 | 397.6 | 400.5 | |||||||||||||||||||||||||
Financial and Other Data: | ||||||||||||||||||||||||||||||
Cash flows provided by operating activities | 15.4 | 12.8 | 25.3 | 24.3 | 45.3 | 34.1 | 46.5 | |||||||||||||||||||||||
Cash flows (used in) investing activities | (0.3 | ) | — | (2.7 | ) | (1.4 | ) | (2.0 | ) | (13.3 | ) | (6.5 | ) | |||||||||||||||||
Cash flows (used in) financing activities | (15.0 | ) | (12.8 | ) | (22.6 | ) | (22.9 | ) | (43.3 | ) | (20.8 | ) | (25.5 | ) | ||||||||||||||||
Capital expenditures for property, plant and equipment | 0.3 | — | 2.7 | 1.4 | 2.0 | 13.3 | 6.5 | |||||||||||||||||||||||
Net distribution to parent | $ | 15.0 | $ | 12.8 | $ | 22.6 | $ | 22.9 | $ | 43.3 | $ | 20.8 | $ | 31.5 | ||||||||||||||||
Key Operating Data: | ||||||||||||||||||||||||||||||
Production volume: | ||||||||||||||||||||||||||||||
Ammonia (tons in thousands) | 335.7 | 56.4 | 252.8 | 193.2 | 220.0 | 369.3 | 326.7 | |||||||||||||||||||||||
UAN (tons in thousands) | 510.6 | 93.4 | 439.2 | 309.9 | 353.4 | 633.1 | 576.9 | |||||||||||||||||||||||
On-stream factors(10): | ||||||||||||||||||||||||||||||
Gasifier | 90.1 | % | 93.5 | % | 92.2 | % | 97.4 | % | 98.7 | % | 92.5 | % | 90.0 | % | ||||||||||||||||
Ammonia | 89.6 | % | 80.9 | % | 79.7 | % | 95.0 | % | 98.3 | % | 89.3 | % | 87.7 | % | ||||||||||||||||
UAN | 81.6 | % | 88.7 | % | 82.2 | % | 93.9 | % | 94.8 | % | 88.9 | % | 78.7 | % |
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(1) | ||
(1) | Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) for the 191 days ended December 31, 2005, the year ended December 31, 2006 and the year ended December 31, 2007 include a charge related to CVR Energy’s share-based compensation expense allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). We are not responsible for the payment of cash related to any share-based compensation allocated to us by CVR Energy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies —Share-Based Compensation.” The charges were: |
191 Days ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2005 | 2006 | 2007 | ||||||||||
(in millions) | ||||||||||||
Direct operating expenses (exclusive of depreciation and amortization) | $ | 0.1 | $ | 0.8 | $ | 1.2 | ||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization) | 0.2 | 3.2 | 9.7 | |||||||||
Total | $ | 0.3 | $ | 4.0 | $ | 10.9 |
(2) | Total gross costs recorded as a result of the flood damage to our nitrogen fertilizer plant for the year ended December 31, 2007 were approximately $5.8 million, including approximately $0.8 million recorded for depreciation for temporarily idle facilities, $0.7 million for internal salaries and $4.3 million for other repairs and related costs. An insurance receivable of approximately $3.3 million was also recorded for the year December 31, 2007 for the probable recovery of such costs under CVR Energy’s insurance policies. |
(3) | Depreciation and amortization is comprised of the following components as excluded from direct operating expenses and selling, general and administrative expenses and as included in net costs associated with flood: |
Original Predecessor | Immediate Predecessor | Successor | ||||||||||||||||||||||||||||
Year | 62 Days | 304 Days | 174 Days | 191 Days | Year | Year | ||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
December 31, | March 2, | December 31, | June 23, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2003 | 2004 | 2004 | 2005 | 2005 | 2006 | 2007 | ||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Depreciation and amortization excluded from direct operating expenses | $ | 1.2 | $ | 0.1 | $ | 0.9 | $ | 0.3 | $ | 8.3 | $ | 17.1 | $ | 16.8 | ||||||||||||||||
Depreciation and amortization excluded from selling, general and administrative expenses | — | 0.1 | — | — | 0.1 | — | — | |||||||||||||||||||||||
Depreciation included in net costs associated with flood | — | — | — | — | — | — | 0.8 | |||||||||||||||||||||||
Total depreciation and amortization | $ | 1.2 | $ | 0.2 | $ | 0.9 | $ | 0.3 | $ | 8.4 | $ | 17.1 | $ | 17.6 | ||||||||||||||||
(4) | During the year ended December 31, 2003, we recorded a charge of $5.7 million related to the asset impairment of the nitrogen fertilizer plant based on the then expected sales price of the assets in the Initial Acquisition. In addition, we recorded a charge of $1.2 million for the rejection of existing contracts while operating under Chapter 11 of the U.S. Bankruptcy Code. | |
(5) | Miscellaneous income (expense) is comprised of the following components included in our consolidated statement of operations: |
Original Predecessor | Immediate Predecessor | Successor | ||||||||||||||||||||||||||||
Year | 62 Days | 304 Days | 174 Days | 191 Days | Year | Year | ||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
December 31, | March 2, | December 31, | June 23, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2003 | 2004 | 2004 | 2005 | 2005 | 2006 | 2007 | ||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Interest income | $ | — | $ | — | $ | — | $ | — | $ | 0.5 | $ | 1.4 | $ | 0.3 | ||||||||||||||||
Loss on extinguishment of debt | — | — | (0.7 | ) | (1.2 | ) | — | (8.5 | ) | (0.2 | ) | |||||||||||||||||||
Other income (expense) | — | — | — | (0.8 | ) | (0.1 | ) | 0.2 | 0.1 | |||||||||||||||||||||
Miscellaneous income (expense) | $ | — | $ | — | $ | (0.7 | ) | $ | (2.0 | ) | $ | 0.4 | $ | (6.9 | ) | $ | 0.2 |
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(6) | The following are certain charges and costs that are meaningful to understanding our net income and in evaluating our performance: |
Original Predecessor | Immediate Predecessor | Successor | ||||||||||||||||||||||||||||
Year | 62 Days | 304 Days | 174 Days | 191 Days | Year | Year | ||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
December 31, | March 2, | December 31, | June 23, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2003 | 2004 | 2004 | 2005 | 2005 | 2006 | 2007 | ||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Impairment of property, plant and equipment(a) | $ | 5.7 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Loss on extinguishment of debt(b) | — | — | 0.7 | 1.2 | — | 8.5 | 0.2 | |||||||||||||||||||||||
Inventory fair market value adjustments | — | — | — | — | 0.7 | — | — | |||||||||||||||||||||||
Interest rate swap | — | — | — | — | 0.1 | (1.8 | ) | (1.4 | ) | |||||||||||||||||||||
Share-based compensation expense(c) | — | — | — | — | 0.3 | 4.0 | 10.9 |
(a) | During the year ended December 31, 2003, we recorded a charge of $5.7 million related to the asset impairment of our nitrogen fertilizer plant based on the expected sales price of the assets in the Initial Acquisition. | |
(b) | Represents our portion of (1) the write-off of deferred financing costs in connection with the refinancing of the senior secured credit facility of Coffeyville Resources, LLC on June 23, 2005, (2) the write-off in connection with the refinancing of the senior secured credit facility of Coffeyville Resources, LLC on December 28, 2006, and (3) the write-off in connection with the repayment and termination of three of the credit facilities of Coffeyville Resources, LLC and Coffeyville Refining & Marketing Holding, Inc., an indirect parent company of Coffeyville Resources, LLC and a subsidiary of CVR Energy, Inc., on October 26, 2007. | |
(c) | Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) include a charge related to CVR Energy’s share-based compensation expense allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). See Note 1 above. We are not responsible for the payment of cash related to any share-based compensation expense allocated to us by CVR Energy. |
(7) | We have omitted per unit data for Original Predecessor because, under Farmland’s cooperative structure, earnings of Original Predecessor were distributed as patronage dividends to members and associate members based on the level of business conducted with Original Predecessor as opposed to a common stockholder’s proportionate share of underlying equity in Original Predecessor. We have omitted earnings per share for Immediate Predecessor and for Successor through the date Coffeyville Resources Nitrogen Fertilizers, LLC, our operating subsidiary, was contributed to us because during those periods we operated under a divisional equity structure. We have omitted net income per unitholder for Successor during the period we operated as a partnership through the closing of this offering because during those periods we operated under a different capital structure than what we will operate under following the closing of this offering, and, therefore, the information is not meaningful. | |
(8) | Excludes liabilities subject to compromise due to Original Predecessor’s bankruptcy of $9.2 million as of December 31, 2003 in calculating Original Predecessor’s working capital. | |
(9) | While operating under Chapter 11 of the U.S. Bankruptcy Code, Original Predecessor’s financial statements were prepared in accordance withSOP 90-7 “Financial Reporting by Entities in Reorganization under Bankruptcy Code”.SOP 90-7 requires that pre-petition liabilities be segregated in the Balance Sheet. | |
(10) | On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period. Excluding the impact of turnarounds at the nitrogen fertilizer facility in the third quarter of 2004 and 2006, (i) the on-stream factors in 2004 would have been 95.6% for gasifier, 83.1% for ammonia and 86.7% for UAN, and (ii) the on-stream factors in 2006 would have been 97.1% for gasifier, 94.3% for ammonia and 93.6% for UAN. |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Original Predecessor | Immediate Predecessor | Successor | ||||||||||||||||||||||||||||
62 Days | 304 Days | 174 Days | 191 Days | Year | Year | |||||||||||||||||||||||||
Year Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
December 31, | March 2, | December 31, | June 23, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
Business Financial Results | 2003 | 2004 | 2004 | 2005 | 2005 | 2006 | 2007 | |||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Net sales | $ | 100.9 | $ | 19.4 | $ | 91.4 | $ | 76.7 | $ | 96.8 | $ | 170.0 | $ | 187.4 | ||||||||||||||||
Cost of product sold (exclusive of depreciation and amortization) | 21.9 | 4.1 | 18.8 | 9.8 | 19.2 | 33.4 | 33.1 | |||||||||||||||||||||||
Direct operating expenses (exclusive of depreciation and amortization)(1) | 53.0 | 8.4 | 44.3 | 26.0 | 29.1 | 63.6 | 66.7 | |||||||||||||||||||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization)(1) | 10.1 | 3.2 | 5.0 | 5.1 | 4.6 | 12.9 | 20.4 | |||||||||||||||||||||||
Net costs associated with flood(2) | — | — | — | — | — | — | 2.4 | |||||||||||||||||||||||
Depreciation and amortization(3) | 1.2 | 0.2 | 0.9 | 0.3 | 8.4 | 17.1 | 16.8 | |||||||||||||||||||||||
Impairment and other charges(4) | 6.9 | — | — | — | — | — | — | |||||||||||||||||||||||
Operating income | $ | 7.8 | $ | 3.5 | $ | 22.4 | $ | 35.5 | $ | 35.5 | $ | 43.0 | $ | 48.0 | ||||||||||||||||
Net income(5) | 7.3 | 3.5 | 20.8 | 32.7 | 26.0 | 14.7 | 24.1 |
(1) | Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) for the 191 days ended December 31, 2005, the year ended December 31, 2006 and the year ended December 31, 2007 include a charge related to CVR Energy’s share-based compensation expense allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). ’ We are not responsible for the payment of cash related to any share-based compensation allocated |
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to us by CVR Energy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies —Share-Based Compensation.” The charges were: |
191 Days ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2005 | 2006 | 2007 | ||||||||||
(in millions) | ||||||||||||
Direct operating expenses (exclusive of depreciation and amortization) | $ | 0.1 | $ | 0.8 | $ | 1.2 | ||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization) | 0.2 | 3.2 | 9.7 | |||||||||
Total | $ | 0.3 | $ | 4.0 | $ | 10.9 |
(2) | Total gross costs recorded as a result of the damage to the nitrogen fertilizer plant for the year ended December 31, 2007 were approximately $5.8 million, including approximately $0.8 million recorded for depreciation for temporarily idle facilities, $0.7 million for internal salaries and $4.3 million for other repairs and related costs. An insurance receivable of approximately $3.3 million was also recorded for the year December 31, 2007 for the probable recovery of such costs under CVR Energy’s insurance policies. | |
(3) | Depreciation and amortization is comprised of the following components as excluded from direct operating expense and selling, general and administrative expense and as included in net costs associated with flood: |
Original Predecessor | Immediate Predecessor | Successor | ||||||||||||||||||||||||||||
Year | 62 Days | 304 Days | 174 Days | 191 Days | Year | Year | ||||||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
December 31, | March 2, | December 31, | June 23, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2003 | 2004 | 2004 | 2005 | 2005 | 2006 | 2007 | ||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Depreciation and amortization excluded from direct operating | ||||||||||||||||||||||||||||||
expenses | $ | 1.2 | $ | 0.1 | $ | 0.9 | $ | 0.3 | $ | 8.3 | $ | 17.1 | $ | 16.8 | ||||||||||||||||
Depreciation and amortization excluded from selling, general and administrative expenses | — | 0.1 | — | — | 0.1 | — | — | |||||||||||||||||||||||
Depreciation included in net costs associated with flood | — | — | — | — | — | — | 0.8 | |||||||||||||||||||||||
Total depreciation and amortization | $ | 1.2 | $ | 0.2 | $ | 0.9 | $ | 0.3 | $ | 8.4 | $ | 17.1 | $ | 17.6 |
(4) | During the year ended December 31, 2003, we recorded a charge of $5.7 million related to the asset impairment of the nitrogen fertilizer plant based on the expected sales price of the assets in the Initial Acquisition. In addition, we recorded a charge of $1.2 million for the rejection of existing contracts while operating under Chapter 11 of the U.S. Bankruptcy Code. |
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(5) | The following are certain charges and costs incurred in each of the relevant periods that are meaningful to understanding our net income and in evaluating our performance due to their unusual or infrequent nature: |
Original Predecessor | Immediate Predecessor | Successor | ||||||||||||||||||||||||||||
62 Days | 304 Days | 174 Days | 191 Days | Year | Year | |||||||||||||||||||||||||
Year Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||||
December 31, | March 2, | December 31, | June 23, | December 31, | December 31, | December 31, | ||||||||||||||||||||||||
2003 | 2004 | 2004 | 2005 | 2005 | 2006 | 2007 | ||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||
Impairment of property, plant and equipment(a) | $ | 5.7 | $ | 0.0 | $ | 0.0 | $ | 0.0 | $ | 0.0 | $ | 0.0 | $ | 0.0 | ||||||||||||||||
Loss on extinguishment of debt(b) | — | — | 0.7 | 1.2 | — | 8.5 | 0.2 | |||||||||||||||||||||||
Inventory fair market value adjustment | — | — | — | — | 0.7 | — | — | |||||||||||||||||||||||
Interest rate swap | — | — | — | — | 0.1 | (1.8) | (1.4) | |||||||||||||||||||||||
Share-based compensation expense(c) | — | — | — | — | 0.3 | 4.0 | 10.9 |
(a) | During the year ended December 31, 2003, we recorded a charge of $5.7 million related to the asset impairment of our nitrogen fertilizer plant based on the expected sales price of the assets in the Initial Acquisition. | |
(b) | Represents our portion of (1) the write-off of deferred financing costs in connection with the refinancing of the senior secured credit facility of Coffeyville Resources, LLC on June 23, 2005, (2) the write-off in connection with the refinancing of the senior secured credit facility of Coffeyville Resources, LLC on December 28, 2006, and (3) the write-off in connection with the repayment and termination of three of the credit facilities of Coffeyville Resources, LLC and Coffeyville Refining & Marketing Holding, Inc., an indirect parent company of Coffeyville Resources, LLC and a subsidiary of CVR Energy, Inc., on October 26, 2007. | |
(c) | Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) include a charge related to CVR Energy’s share-based compensation expense allocated to us by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). See Note 1 above. We are not responsible for the payment of cash related to any share-based compensation expense allocated to us by CVR Energy. |
Annual Average for | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
Market Indicators | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||
Natural gas (dollars per MMBtu) | $ | 5.49 | $ | 6.18 | $ | 9.01 | $ | 6.98 | $ | 7.12 | ||||||||||
Ammonia — Southern Plains (dollars per ton) | 274 | 297 | 356 | 353 | 409 | |||||||||||||||
UAN — Corn Belt (dollars per ton) | 143 | 171 | 212 | 197 | 288 |
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Original | ||||||||||||||||||||
Predecessor | Immediate | |||||||||||||||||||
and | Predecessor | |||||||||||||||||||
Immediate | and | |||||||||||||||||||
Original | Predecessor | Successor | ||||||||||||||||||
Predecessor | Combined | Combined | Successor | |||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
Company Operating Statistics | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||
Production (thousand tons): | ||||||||||||||||||||
Ammonia | 335.7 | 309.2 | 413.2 | 369.3 | 326.7 | |||||||||||||||
UAN | 510.6 | 532.6 | 663.3 | 633.1 | 576.9 | |||||||||||||||
Total | 846.3 | 841.8 | 1,076.5 | 1,002.4 | 903.6 | |||||||||||||||
Sales (thousand tons): | ||||||||||||||||||||
Ammonia | 134.8 | 103.2 | 141.4 | 117.7 | 92.8 | |||||||||||||||
UAN | 528.9 | 528.8 | 639.1 | 644.6 | 576.4 | |||||||||||||||
Total | 663.7 | 632.0 | 780.5 | 762.3 | 669.2 | |||||||||||||||
Product price (plant gate) (dollars per ton)(1): | ||||||||||||||||||||
Ammonia | $ | 235 | $ | 265 | $ | 323 | $ | 339 | $ | 376 | ||||||||||
UAN | 107 | 136 | 173 | $ | 164 | $ | 209 | |||||||||||||
On-stream factor(2): | ||||||||||||||||||||
Gasifier | 90.1 | % | 92.4 | % | 98.1 | % | 92.5 | % | 90.0 | % | ||||||||||
Ammonia | 89.6 | % | 79.9 | % | 96.7 | % | 89.3 | % | 87.7 | % | ||||||||||
UAN | 81.6 | % | 83.3 | % | 94.3 | % | 88.9 | % | 78.7 | % | ||||||||||
Reconciliation to net sales (dollars in thousands): | ||||||||||||||||||||
Freight in revenue | $ | 12,535 | $ | 11,161 | $ | 14,780 | $ | 17,876 | $ | 14,338 | ||||||||||
Hydrogen Revenue | — | 318 | 2,721 | 6,820 | 17,812 | |||||||||||||||
Sales net plant gate | 88,373 | 99,388 | 156,011 | 145,334 | 155,299 | |||||||||||||||
Total net sales | $ | 100,908 | $ | 110,867 | $ | 173,512 | $ | 170,030 | $ | 187,449 |
(1) | Plant gate price per ton represents net sales less freight revenue divided by product sales volume in tons in the reporting period. Plant gate price per ton is shown in order to provide a pricing measure that is comparable across the fertilizer industry. | |
(2) | On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period. Excluding the impact of turnarounds at the nitrogen fertilizer facility in the third quarter of 2004 and 2006, (i) the on-stream factors in 2004 would have been 95.6% for gasifier, 83.1% for ammonia and 86.7% for UAN, and (ii) the on-stream factors in 2006 would have been 97.1% for gasifier, 94.3% for ammonia and 93.6% for UAN. |
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• | Officer and employee salaries and equity compensation; | |
• | Rent or depreciation; | |
• | Advertising; | |
• | Accounting, tax and legal and information technology services; | |
• | Other selling, general and administrative expenses; | |
• | Costs for defined contributions plans, medical, and other employee benefits; and | |
• | Financing costs, including interest, mark-to-market changes in interest rate swap, and losses on extinguishment of debt. |
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• | $25 Million Secured Facility. Coffeyville Resources entered into a new $25 million senior secured term loan. Interest was payable in cash, at the borrower’s option, at the base rate plus 1.00% or at the reserve adjusted eurodollar rate plus 2.00%. We were a guarantor under this facility. | |
• | $25 Million Unsecured Facility. Coffeyville Resources entered into a new $25 million senior unsecured term loan. Interest was payable in cash, at the borrower’s option, at the base rate plus 1.00% or at the reserve adjusted eurodollar rate plus 2.00%. We were a guarantor under this facility. | |
• | $75 Million Unsecured Facility Coffeyville Refining & Marketing Holdings, Inc. entered into a new $75 million senior unsecured term loan. Drawings could be made from time to time in amounts of at least $5 million. Interest accrued, at the borrower’s option, at the base rate plus 1.50% or at the reserve adjusted eurodollar rate plus 2.50%. Interest was paid by adding such interest to the principal amount of loans outstanding. In addition, a commitment fee equal to 1.00% accrued and was paid by adding such fees to the principal amount of loans outstanding. No amounts were ever drawn on this facility. |
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Actual | Estimated | ||||||||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | Cumulative | ||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||
Environmental and safety capital needs | $ | 0.1 | $ | 0.5 | $ | 2.0 | $ | 4.7 | $ | 2.6 | 2.7 | 3.8 | $ | 16.4 | |||||||||||||||||||
Sustaining capital needs | 6.6 | 3.9 | 8.9 | 3.2 | 4.5 | 4.8 | 4.3 | 36.2 | |||||||||||||||||||||||||
6.7 | 4.4 | 10.9 | 7.9 | 7.1 | 7.5 | 8.1 | 52.6 | ||||||||||||||||||||||||||
Major scheduled turnaround expenses | 2.6 | — | 2.8 | — | 2.6 | — | 2.8 | 10.8 | |||||||||||||||||||||||||
Total estimated maintenance capital spending | $ | 9.3 | $ | 4.4 | $ | 13.7 | $ | 7.9 | $ | 9.7 | $ | 7.5 | $ | 10.9 | $ | 63.4 |
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Payments Due by Period | ||||||||||||||||||||||||||||
Total | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Contractual Obligations | ||||||||||||||||||||||||||||
Operating leases(1) | $ | 8.5 | $ | 3.5 | $ | 2.8 | $ | 1.2 | $ | 0.7 | $ | 0.3 | $ | — | ||||||||||||||
Unconditional purchase obligations(2) | 71.6 | 5.5 | 5.5 | 5.6 | 5.7 | 5.8 | 43.5 | |||||||||||||||||||||
Unconditional purchase obligations with affiliates(3) | 221.1 | 10.0 | 10.8 | 10.0 | 11.3 | 11.3 | 167.7 | |||||||||||||||||||||
Environmental liabilities(4) | 0.2 | 0.2 | — | — | — | — | — | |||||||||||||||||||||
Total | $ | 301.4 | $ | 19.2 | $ | 19.1 | $ | 16.8 | $ | 17.7 | $ | 17.4 | $ | 211.2 | ||||||||||||||
(1) | We lease various facilities and equipment, primarily railcars, under non-cancelable operating leases for various periods. | |
(2) | The amount includes commitments under an electric supply agreement with the city of Coffeyville and a product supply agreement with the Linde Group. | |
(3) | The amount includes commitments under our20-year coke supply agreement with CVR Energy. | |
(4) | Represents our estimated remaining costs of remediation to address environmental contamination resulting from a reported release of UAN in 2005 pursuant to the State of Kansas Voluntary Cleanup and Property Redevelopment Program. |
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Ammonia | UAN 32 | |||||||
State | Quantity | Quantity(1) | ||||||
(thousands) | ||||||||
Texas | 2,125 | 850 | ||||||
Oklahoma | 95 | 200 | ||||||
Kansas | 395 | 690 | ||||||
Missouri | 325 | 230 | ||||||
Iowa | 710 | 900 | ||||||
Nebraska | 425 | 1,150 | ||||||
Minnesota | 310 | 200 |
(1) | UAN 32, which consists of 45% ammonium nitrate, 35% urea and 20% water, contains 32% nitrogen by weight and is the most common grade of UAN sold in the United States. |
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Natural Gas | Ammonia | UAN 32 | ||||||||||
Year | ($/MMBtu) | ($/ton) | ($/ton) | |||||||||
1990 | 1.78 | 125 | 90 | |||||||||
1991 | 1.53 | 130 | 97 | |||||||||
1992 | 1.73 | 134 | 95 | |||||||||
1993 | 2.11 | 139 | 102 | |||||||||
1994 | 1.94 | 197 | 108 | |||||||||
1995 | 1.69 | 238 | 132 | |||||||||
1996 | 2.50 | 217 | 129 | |||||||||
1997 | 2.48 | 220 | 116 | |||||||||
1998 | 2.16 | 162 | 96 | |||||||||
1999 | 2.32 | 145 | 86 | |||||||||
2000 | 4.32 | 208 | 115 | |||||||||
2001 | 4.04 | 262 | 144 | |||||||||
2002 | 3.37 | 191 | 108 | |||||||||
2003 | 5.49 | 292 | 141 | |||||||||
2004 | 6.18 | 326 | 170 | |||||||||
2005 | 9.02 | 394 | 210 | |||||||||
2006 | 6.98 | 379 | 196 | |||||||||
2007 | 7.12 | 469 | 290 |
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• | Regional Advantage and Strategic Asset Location. We are geographically advantaged to supply nitrogen fertilizer products to markets in Kansas, Missouri, Nebraska, Iowa, Illinois, Colorado and Texas without incurring intermediate storage, barge or pipeline freight charges. Because we do not incur these costs, we have a distribution cost advantage over U.S. Gulf Coast ammonia and UAN producers and importers, based on recent freight rates and pipeline tariffs for U.S. Gulf Coast importers. | |
• | High Quality Pet Coke Gasification Fertilizer Plant with Solid Track Record. Our nitrogen fertilizer plant, completed in 2000, is the newest nitrogen fertilizer facility in North America and utilizes less than 1% of the natural gas relative to natural gas-based fertilizer producers. (The percentage of natural gas used compared to the nitrogen fertilizer plant’s competitors was calculated using our own internal data regarding our own natural gas usage and industry data from Blue Johnson regarding typical natural gas usage by other ammonia manufacturers). |
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• | Expanding UAN Production. We are moving forward with an approximately $85 million nitrogen fertilizer plant expansion, of which approximately $8 million was incurred as of December 31, 2007. This expansion is expected to permit us to increase our UAN production |
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and to result in our UAN manufacturing facility consuming substantially all of our net ammonia production. We expect that this will help increase our margins because UAN has historically been a higher margin product than ammonia. The UAN expansion is expected to be completed in late 2009 or early 2010. We estimate it will result in an approximately 400,000 ton, or 50%, increase in our annual UAN production. |
• | Executing Several Efficiency-Based and Other Projects. We are currently engaged in several efficiency-based and other projects in order to reduce overall operating costs, incrementally increase our ammonia production and utilize byproducts to generate revenue. For example, by redesigning the system that segregates CO2 during the gasification process, we estimate that we will be able to produce approximately 25 tons per day of incremental ammonia, worth approximately $4 million per year at current market prices. We estimate that this project will cost approximately $7 million (of which none has yet been incurred) and will be completed in late 2009. We are also working with a company with expertise in CO2 capture and storage systems to develop plans whereby we may, in the future, either sell approximately 850,000 tons per year of high purity CO2 produced by our nitrogen fertilizer plant to oil and gas exploration and production companies to enhance oil recovery or pursue an economic means of geologically sequestering such CO2. | |
• | Evaluating Construction of a Third Gasifier Unit, and New Ammonia Unit and UAN Unit at Our Nitrogen Fertilizer Plant. We have engaged a major engineering firm to evaluate the construction and operation of an additional gasifier unit to produce a synthesis gas from pet coke. We expect that the addition of a third gasifier unit, together with additional ammonia and UAN units, to our operations could result, on a long-term basis, in an increase in UAN production of approximately 75,000 tons per month. This project is in its earliest stages of review and is still subject to numerous levels of internal analysis. |
• | Acquiring Assets From CVR Energy’s Petroleum Business. We may seek to purchase specific assets from CVR Energy and enter into agreements with CVR Energy for crude oil transportation, crude oil storage and asphalt and refined fuels terminaling services. Examples of assets that we may seek to acquire from CVR Energy include (1) a 25,000 bpd crude oil gathering pipeline operation serving central Kansas, northern Oklahoma, and southwestern Nebraska, (2) an asphalt and refined fuels storage and terminal operation in Phillipsburg, Kansas, and (3) a 145,000 bpd crude oil pipeline which transports crude oil from Caney, Kansas to its Coffeyville refinery and associated crude oil storage tanks with a capacity of approximately 1.2 million barrels. We currently have no agreements or understandings with respect to any acquisitions, and there can be no assurance that we will seek or be able to acquire any of these assets in the future or that, if acquired, we will be able to operate them profitably. | |
• | Providing Infrastructure Services to CVR Energy. We expect that over time, as CVR Energy grows, it will need incremental pipeline transportation and storage infrastructure services. We believe we will be well situated to meet these needs due to our relationship with CVR Energy and proximity to CVR Energy’s petroleum facilities, combined with management’s knowledge and expertise in hydrocarbon storage and related disciplines. We may seek to acquire new assets (including pipeline assets and storage facilities) in order to service this potential new source of revenue from CVR Energy. |
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Year Ended December 31, | ||||||||||||||||||||
2003 | 2004(1) | 2005 | 2006(1) | 2007 | ||||||||||||||||
Gasifier | 90.1 | % | 92.4 | % | 98.1 | % | 92.5 | % | 90.0 | % | ||||||||||
Ammonia | 89.6 | % | 79.9 | % | 96.7 | % | 89.3 | % | 87.7 | % | ||||||||||
UAN | 81.6 | % | 83.3 | % | 94.3 | % | 88.9 | % | 78.7 | % |
(1) | On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period. Excluding the impact of turnarounds at the nitrogen fertilizer facility in the third quarter of 2004 and 2006, (i) the on-stream factors in 2004 would have been 95.6% for gasifier, 83.1% for ammonia and 86.7% for UAN, and (ii) the on-stream factors in 2006 would have been 97.1% for gasifier, 94.3% for ammonia and 93.6% for UAN. |
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• | restrictions on operationsand/or the need to install enhanced or additional controls; | |
• | the need to obtain and comply with permits and authorizations; | |
• | liability for the investigation and remediation of contaminated soil and groundwater at current and former facilities (if any) and off-site waste disposal locations; and | |
• | specifications for the products we market, primarily UAN and ammonia. |
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• | services from CVR Energy’s employees in capacities equivalent to the capacities of corporate executive officers, including chief executive officer, chief operating officer, chief financial officer, general counsel, fertilizer general manager, and vice president for environmental, health and safety, except that those who serve in such capacities under the agreement serve us on a shared, part-time basis only, unless we and CVR Energy agree otherwise; | |
• | administrative and professional services, including legal, accounting services, human resources, insurance, tax, credit, finance, government affairs and regulatory affairs; | |
• | management of our property and the property of our operating subsidiary in the ordinary course of business; | |
• | recommendations on capital raising activities, including the issuance of debt or equity interests, the entry into credit facilities and other capital market transactions; | |
• | managing or overseeing litigation and administrative or regulatory proceedings, and establishing appropriate insurance policies for the Partnership, and providing safety and environmental advice; | |
• | recommending the payment of distributions; and |
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• | managing or providing advice for other projects as may be agreed by CVR Energy and our managing general partner from time to time. |
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• | Coffeyville Resources’ primary property damage and business interruption insurance program provided $300 million of coverage for flood-related damage, subject to a deductible of $2.5 million per “occurrence” and a45-day waiting period for business interruption loss. While we believe that property insurance should cover substantially all of the estimated total physical damage to our property, the insurance carriers have cited potential coverage limitations and defenses that might preclude such a result. | |
• | Coffeyville Resources’ builders’ risk policy provided coverage for property damage to buildings in the course of construction. Flood-related loss or damage is subject to a $100,000 deductible and sub-limit of $50 million. | |
• | Coffeyville Resources’ environmental insurance coverage program provided coverage for bodily injury, property damage, and cleanup costs resulting from new pollution conditions. At the time of the flood, the program included a primary policy with a $25 million aggregate limit of liability. This policy was subject to a $1 million self-insured retention. In addition, at the time of the flood Coffeyville Resources had a $25 million excess policy that was triggered by exhaustion of the primary policy. The excess policy covered bodily injury and property damage resulting from new pollution conditions, but did not cover cleanup costs. | |
• | Coffeyville Resources’ umbrella and excess liability coverage program provided $100 million of coverage excess of $5 million and other applicable insurance for third-party claims of property damage and bodily injury arising out of the discharge of pollutants. |
• | Crude Oil Gathering System. CVR Energy owns and operates a 25,000 bpd crude oil gathering system serving central Kansas, northern Oklahoma and southwestern Nebraska. The system has field offices in Bartlesville, Oklahoma and Plainville and Winfield, Kansas. The system is comprised of over 300 miles of feeder and trunk pipelines, 41 trucks, and associated storage facilities for gathering light, sweet Kansas and Oklahoma crude oils purchased from independent crude producers. CVR Energy also leases a section of a pipeline from Magellan Pipeline Company, L.P. | |
• | Phillipsburg Terminal. CVR Energy owns storage and terminaling facilities for asphalt and refined fuels in Phillipsburg, Kansas. The asphalt storage and terminaling facilities are used to |
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receive, store and redeliver asphalt for another oil company for a fee pursuant to an asphalt services agreement. |
• | Pipelines. CVR Energy owns a 145,000 bpd proprietary pipeline system that transports crude oil from Caney, Kansas to its Coffeyville refinery. Crude oils sourced outside of CVR Energy’s proprietary gathering system are delivered by common carrier pipelines into various terminals in Cushing, Oklahoma, where they are blended and then delivered to Caney, Kansas via a pipeline owned by Plains All American L.P. CVR Energy also owns associated crude oil storage tanks with a capacity of approximately 1.2 million barrels located right outside CVR Energy’s refinery. |
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• | appointment rights and consent rights for the termination of employment and compensation of the chief executive officer and chief financial officer of the managing general partner, not to be exercised unreasonably (approval for appointment of an officer is deemed given if the officer is an executive officer of CVR Energy); | |
• | the right to appoint two directors to the board of directors of the managing general partner and one such director to any committee thereof (subject to certain exceptions); | |
• | consent rights over any merger by us into another entity where: |
• | for so long as our special general partner and its affiliates own 50% or more of our units immediately prior to the merger, less than 60% of the equity interests of the resulting entity are owned by our pre-merger unitholders; | |
• | for so long as our special general partner and its affiliates own 25% or more of our units immediately prior to the merger, less than 50% of the equity interests of the resulting entity are owned by our pre-merger unitholders; and | |
• | for so long as our special general partner and its affiliates own more than 15% of our units immediately prior to the merger, less than 40% of the equity interests of the resulting entity are owned by our pre-merger unitholders; |
• | consent rights over any fundamental change in the conduct of our business; | |
• | consent rights over any purchase or sale, exchange or other transfer of assets or entities with a purchase/sale price equal to 50% or more of our asset value on the date of determination; and | |
• | consent rights over any incurrence of indebtedness or issuance of interests in us with rights to distribution or in liquidation ranking prior or senior to the GP units, in either case in excess of $125 million, increased by 80% of the purchase price for assets or entities whose purchase was approved by CVR Energy as described in the immediately preceding bullet point. |
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Name | Age | Position With Our Managing General Partner | ||||
John J. Lipinski | 56 | Chief Executive Officer, President and a Director | ||||
Stanley A. Riemann | 56 | Chief Operating Officer | ||||
James T. Rens | 41 | Chief Financial Officer and Treasurer | ||||
Edmund S. Gross | 57 | Senior Vice President, General Counsel and Secretary | ||||
Kevan A. Vick | 53 | Executive Vice President and Fertilizer General Manager | ||||
Christopher G. Swanberg | 49 | Vice President, Environmental, Health and Safety | ||||
Scott L. Lebovitz | 32 | Director | ||||
George E. Matelich | 51 | Director | ||||
Stanley de J. Osborne | 37 | Director | ||||
Kenneth A. Pontarelli | 37 | Director |
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• | CVR Energy makes available to our managing general partner the services of the CVR Energy employees who serve as our managing general partner’s executive officers; and | |
• | We, our managing general partner and our operating subsidiary, as the case may be, are obligated to reimburse CVR Energy for any allocated portion of the costs that CVR Energy incurs in providing compensation and benefits to such CVR Energy employees. |
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Name and Principal | Stock | All Other | ||||||||||||||||||||||
Position | Year | Salary | Bonus (1) | Awards (2) | Compensation (3) | Total (4) | ||||||||||||||||||
Kevan A. Vick, Executive Vice President and Fertilizer General Manager of CVR Energy, Inc. | 2007 | $ | 225,000 | $ | 87,560 | $ | 1,836,288 | $ | 14,203 | $ | 2,163,051 |
(1) | Bonuses are reported for the year in which they were earned, although a portion of Mr. Vick’s bonus was paid the following year. The amount shown includes a retention bonus in the amount of $52,560 and a discretionary bonus in the amount of $35,000. |
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(2) | The amount shown represents (a) the dollar amount of profits interests in Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC (entities which own shares of common stock of CVR Energy) granted during 2006 which is recognized by CVR Energy for financial reporting purposes for the year ended December 31, 2007 in accordance with FAS 123(R) in the amount of $1,836,087 and (b) the dollar amount of profits interests in Coffeyville Acquisition III (the entity which owns our managing general partner and the IDRs) granted to Mr. Vick in 2007 which is recognized by CVR Energy for financial reporting purposes for the year ended December 31, 2007 in accordance with FAS 123(R) in the amount of $201. Assumptions used in the calculation of these profits interests will be included in a footnote to the audited financial statements of CVR Energy for the year ended December 31, 2007. Mr. Vick will only receive cash in respect of his profits interests in Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC if either entity elects to sell any or all of its shares of common stock of CVR Energy and then elects to make distributions to their respective members. Mr. Vick will only receive cash in respect of his profits interests in Coffeyville Acquisition III if our managing general partner receives distributions in respect of its IDRs (which cannot occur until at least 2010), our managing general partner elects to make distributions to Coffeyville Acquisition III and Coffeyville Acquisition III elects to make distributions to its members. |
(3) | The amount shown represents (a) a CVR Energy contribution under CVR Energy’s 401(k) plan in 2007, (b) premiums paid by CVR Energy on behalf of Mr. Vick with respect to CVR Energy’s executive life insurance program in 2007 and (c) premiums paid by CVR Energy on behalf of Mr. Vick with respect to CVR Energy’s basic life insurance program in 2007. |
(4) | Pursuant to a services agreement we have with our managing general partner and CVR Energy, we are required to reimburse CVR Energy for all of these amounts paid to Mr. Vick other than the $1,836,288 ($1,836,087 and $201) in profits interests that were granted to Mr. Vick. |
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All Other Stock | ||||||||||||
Awards: Number of | Grant Date Fair | |||||||||||
Shares of Stock or | Value of Stock and | |||||||||||
Name | Grant Date | Units (1) | Option Awards (2) | |||||||||
Kevan A. Vick | October 16, 2007 | 10,066 | $ | 201 |
(1) | Represents the number of profits interests in Coffeyville Acquisition III granted to Mr. Vick on October 24, 2007. For a description of the Coffeyville Acquisition III limited liability company agreement, see “Executive Officers’ Interests in Coffeyville Acquisition III” below. |
(2) | The dollar amount shown reflects the fair value as of December 31, 2007 recognized by CVR Energy for financial reporting purposes in accordance with SFAS 123(R). Assumptions used in the calculation of this amount will be included in a footnote to the audited financial statements of CVR Energy for the year ended December 31, 2007. |
Stock Awards | ||||||||
Number of Shares or | Market Value of Shares or Units | |||||||
Units of Stock That | of Stock That | |||||||
Name | Have Not Vested (1) (2) | Have Not Vested (3) | ||||||
Kevan A. Vick | 26,986.875 | $ | 1,399,000 | |||||
71,965.500 | $ | 3,730,692 | ||||||
26,986.875 | $ | 1,399,000 | ||||||
71,965.500 | $ | 3,730,692 |
(1) | Represents profits interests in Coffeyville Acquisition LLC (35,982.50 operating units and 71,965.5 value units) and profits interests in Coffeyville Acquisition II LLC (35,982.50 operating units and 71,965.5 value units). |
(2) | The profits interests in Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC generally vest as follows: operating units generally become non-forfeitable in 25% annual increments beginning on the second anniversary of the date of grant, and value units are generally forfeitable upon termination of employment. |
(3) | The dollar amounts shown reflect the fair value as of December 31, 2007 based upon the valuation used by CVR Energy for financial reporting purposes. Assumptions used in the calculation of this amount will be included in a footnote to the audited financial statements of CVR Energy for the year ended December 31, 2007. |
Stock Awards | ||||||
Number of Shares | ||||||
Name | Acquired on Vesting | Value Realized on Vesting(1) | ||||
Kevan A. Vick | 8,995.625 | (2) | $345,522 | |||
8,995.625 | (3) | $345,522 | ||||
10,066 | (4) | $201 |
(1) | The dollar amounts shown are based on a valuation determined for purposes of SFAS 123(R) at the relevant vesting date of the respective override units. |
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(2) | Reflects override units (operating units) of Coffeyville Acquisition LLC which vested during the year ended December 31, 2007. |
(3) | Reflects override units (operating units) of Coffeyville Acquisition II LLC which vested during the year ended December 31, 2007. |
(4) | Reflects override units granted by Coffeyville Acquisition III to Mr. Vick during the year ended December 31, 2007 which automatically vested at the time of grant. |
• | Approximately 25% of all of the override units have been awarded to members of the CVR Energy management team. These override units automatically vested. These units will be owned by the members of CVR Energy’s management team even if they no longer perform services for CVR Energy or are no longer employed by CVR Energy. The following executive officers received the following grants of this category of override units: Mr. Lipinski (81,250), Mr. Riemann (30,000), Mr. Rens (16,634), Mr. Gross (8,786), Mr. Vick (13,405) and Mr. Swanberg (8,786). | |
• | Approximately 75% of the override units have been awarded to members of CVR Energy’s management team responsible for the growth of the nitrogen fertilizer business. Some portion of these units may be awarded to members of management added in the future. These units vest on a five-year schedule, with 33.3% vesting on the third anniversary of the closing date of this offering, an additional 33.4% vesting on the fourth anniversary of the closing date of this offering, and the remaining 33.3% vesting on the fifth anniversary of the closing date of this offering. Override units are entitled to distributions whether or not they have vested. Management members will forfeit unvested units if they are no longer employed by CVR Energy; however, if a management member has three full years of service with us following the completion of this offering, such management member may retire at age 62 and will be entitled to permanently retain all of his or her units whether or not they have vested pursuant to the vesting schedule described above. Units forfeited will be either retired or reissued to others (with a catchup payment provision); retired units will increase the unit values of all other units on a pro rata basis. The following executive officers received the following grants of this |
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category of override units: Mr. Lipinski (219,378), Mr. Riemann (75,000), Mr. Rens (48,750), Mr. Gross (22,500), Mr. Vick (45,000) and Mr. Swanberg (11,250). |
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Estimated Dollar Value of | ||||||||
Name | Total Severance Payments | Medical Benefits | ||||||
Kevan A. Vick (severance if terminated without cause or resigns for good reason) | $ | 225,000 | $ | 11,998 |
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• | each of our managing general partner’s directors; | |
• | each of our managing general partner’s executive officers; | |
• | each of our general partners; | |
• | each unitholder known by us to beneficially hold five percent or more of our outstanding units; and | |
• | all of our managing general partner’s named executive officers and directors as a group. |
Common Units | Subordinate GP | Percentage of | ||||||||||||||||||
and GP Units to be | Units to be | Total Units | ||||||||||||||||||
Beneficially Owned | Beneficially Owned | to be | ||||||||||||||||||
Following this | Following this | Beneficially | ||||||||||||||||||
Name of | Offering(1) | Offering | Owned(2) | |||||||||||||||||
Beneficial Owner | Number | Percent | Number | Percent | Percent | |||||||||||||||
CVR Special GP, LLC(3) | 18,750,000 | 46.9 | % | 16,000,000 | 100 | % | 86.9 | % | ||||||||||||
CVR GP, LLC(4) | — | — | — | — | — | |||||||||||||||
John J. Lipinski | — | — | — | — | — | |||||||||||||||
Stanley A. Riemann | — | — | — | — | — | |||||||||||||||
James T. Rens | — | — | — | — | — | |||||||||||||||
Edmund S. Gross | — | — | — | — | — | |||||||||||||||
Kevan A. Vick | — | — | — | — | — | |||||||||||||||
Christopher Swanberg | — | — | — | — | — | |||||||||||||||
Scott L. Lebovitz | — | — | — | — | — | |||||||||||||||
George E. Matelich | — | — | — | — | — | |||||||||||||||
Stanley de J. Osborne | — | — | — | — | — | |||||||||||||||
Kenneth A. Pontarelli | — | — | — | — | — | |||||||||||||||
All directors and executive officers of our managing general partner as a group (10 persons) | — | — | — | — | — |
* | Less than 1% | |
(1) | Based on 5,250,000 common units, 18,750,000 GP units and 16,000,000 subordinated GP units outstanding following this offering. The underwriters have an option to purchase up to an additional 787,500 common units from us in this offering. If the underwriters exercise this option in full, (a) the percentage of common units and GP units owned by CVR Special GP, LLC will be reduced to 46.0%, and (b) the percentage of total units beneficially owned by CVR Special GP, LLC will be reduced to 85.2%. | |
(2) | All units other than those owned by CVR Special GP, LLC are common units. | |
(3) | CVR Special GP, LLC is an indirect wholly-owned subsidiary of CVR Energy, a publicly traded company. The directors of CVR Energy are Wesley Clark, John J. Lipinski, Regis B. Lippert, Scott L. Lebovitz, George E. Matelich, Stanley de J. Osborne, Kenneth A. Pontarelli and Mark Tomkins. |
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The units owned by CVR Special GP, as reflected in the table, are GP units and subordinated GP units. The GP units and subordinated GP units automatically convert into common units and subordinated LP units, respectively, when they are sold to an unaffiliated third party. The GP units are convertible into common units at any time at the election of our special general partner. |
(4) | CVR GP, LLC is a wholly-owned direct subsidiary of Coffeyville Acquisition III. The Goldman Sachs Funds collectively own 49.32% of the outstanding common units of Coffeyville Acquisition III and the Kelso Funds collectively own 48.55% of the outstanding common units of Coffeyville Acquisition III. The common units of Coffeyville Acquisition III held by the Goldman Sachs Funds consist of: (1) 275,263.698 common units held by GS Capital Partners V Fund, L.P., (2) 142,189.757 common units held by GSCP V Offshore Coffeyville Holdings, L.P., (3) 94,391.723 common units held by GSCP V Institutional Coffeyville Holdings, L.P. and (4) 10,913.240 common units held by GSCP V GmbH Coffeyville Holdings, L.P. The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. may be deemed to beneficially own indirectly, in the aggregate, all of the common units of Coffeyville Acquisition III owned by the Goldman Sachs Funds because affiliates of Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. are the general partner, managing general partner, managing partner, managing member or member of the Goldman Sachs Funds. Goldman, Sachs & Co. is a direct and indirect wholly owned subsidiary of The Goldman Sachs Group, Inc. Goldman, Sachs & Co. is the investment manager of certain of the Goldman Sachs Funds. Kenneth A. Pontarelli is a partner managing director of Goldman, Sachs & Co. and Scott L. Lebovitz is a managing director of Goldman, Sachs & Co. Mr. Pontarelli, Mr. Lebovitz, The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. each disclaims beneficial ownership of the common units of Coffeyville Acquisition III owned directly or indirectly by the Goldman Sachs Funds, except to the extent of their pecuniary interest therein, if any. The common units of Coffeyville Acquisition III held by the Kelso Funds consist of: (1) 412,448.563 common units held by KIA VII CVR Holdco, LLC and (2) 102,130.120 common units held by KEP Fertilizer, LLC. KIA VII CVR Holdco, LLC and KEP Fertilizer, LLC, due to their common control, could be deemed to beneficially own each of the other’s common units of Coffeyville Acquisition III but each disclaims such beneficial ownership. Mr. Matelich and Mr. Osborne are managing members of KIA VII CVR Holdco, LLC and KEP Fertilizer, LLC. Each disclaims beneficial ownership of the common units of Coffeyville Acquisition III owned directly or indirectly by the Kelso Funds, except to the extent of their pecuniary interest therein, if any. |
Shares Beneficially | ||||||||
Owned As of | ||||||||
February 1, 2008 | ||||||||
Name and Address | Number | Percent | ||||||
John J. Lipinski(a) | 247,471 | * | ||||||
Stanley A. Riemann(b) | – | – | ||||||
James T. Rens(c) | – | – | ||||||
Edmund S. Gross(d) | 1,000 | * | ||||||
Kevan A. Vick(e) | 1,000 | * | ||||||
Christopher G. Swanberg(f) | 1,000 | * | ||||||
Scott L. Lebovitz(g) | 31,433,360 | 36.5 | % | |||||
George E. Matelich(h) | 31,433,360 | 36.5 | % | |||||
Stanley de J. Osborne(h) | 31,433,360 | 36.5 | % | |||||
Kenneth A. Pontarelli(g) | 31,433,360 | 36.5 | % | |||||
All directors and executive officers, as a group (10 persons) | 63,117,461 | 73.3 | % |
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(a) | Mr. Lipinski also indirectly owns 158,285 shares of common stock of CVR Energy through his interests in common units of Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC but does not have the power to vote or dispose of these additional shares. | |
(b) | Mr. Riemann indirectly owns 97,408 shares of common stock of CVR Energy through his interests in common units of Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC but does not have the power to vote or dispose of these shares. | |
(c) | Mr. Rens indirectly owns 60,879 shares of common stock of CVR Energy through his interests in common units of Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC but does not have the power to vote or dispose of these shares. | |
(d) | Mr. Gross also indirectly owns 7,305 shares of common stock of CVR Energy through his interests in common units of Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC but does not have the power to vote or dispose of these additional shares. | |
(e) | Mr. Vick also indirectly owns 60,880 shares of common stock of CVR Energy through his interests in common units of Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC but does not have the power to vote or dispose of these additional shares. | |
(f) | Mr. Swanberg also indirectly owns 6,087 shares of common stock of CVR Energy through his interests in common units of Coffeyville Acquisition LLC and Coffeyville Acquisition II LLC but does not have the power to vote or dispose of these additional shares. | |
(g) | Represents shares owned by Coffeyville Acquisition II LLC which is controlled by the Goldman Sachs Funds. Messrs. Pontarelli and Lebovitz are the sole directors of Coffeyville Acquisition II LLC. GS Capital Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V GmbH & Co. KG and GS Capital Partners V Institutional, L.P. (collectively, the “Goldman Sachs Funds”) are members of Coffeyville Acquisition II LLC and own substantially all of the common units of Coffeyville Acquisition II LLC. The Goldman Sachs Funds’ common units in Coffeyville Acquisition II LLC correspond to 31,125,918 shares of common stock of CVR Energy. The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. may be deemed to beneficially own indirectly, in the aggregate, all of the common stock of CVR Energy owned by Coffeyville Acquisition II LLC through the Goldman Sachs Funds because (i) affiliates of Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. are the general partner, managing general partner, managing partner, managing member or member of the Goldman Sachs Funds and (ii) the Goldman Sachs Funds control Coffeyville Acquisition II LLC and have the power to vote or dispose of the common stock of CVR Energy owned by Coffeyville Acquisition II LLC. Goldman, Sachs & Co. is a direct and indirect wholly owned subsidiary of The Goldman Sachs Group, Inc. Goldman, Sachs & Co. is the investment manager of certain of the Goldman Sachs Funds. Shares of CVR Energy that may be deemed to be beneficially owned by the Goldman Sachs Funds consist of: (1) 16,389,665 shares of common stock that may be deemed to be beneficially owned by GS Capital Partners V Fund, L.P. and its general partner, GSCP V Advisors, L.L.C., (2) 8,466,218 shares of common stock that may be deemed to be beneficially owned by GS Capital Partners V Offshore Fund, L.P. and its general partner, GSCP V Offshore Advisors, L.L.C., (3) 5,620,242 shares of common stock that may be deemed to be beneficially owned by GS Capital Partners V Institutional, L.P. and its general partner, GS Advisors V, L.L.C., and (4) 649,793 shares of common stock that may be deemed to be beneficially owned by GS Capital Partners V GmbH & Co. KG and its general partner, Goldman, Sachs Capital Management GP GmbH. Kenneth A. Pontarelli is a partner managing director of Goldman, Sachs & Co. and Scott L. Lebovitz is a managing director of Goldman, Sachs & Co. Mr. Pontarelli, Mr. Lebovitz, The Goldman Sachs Group, Inc. and Goldman, Sachs & Co. each disclaims beneficial ownership of the shares of common stock of CVR Energy owned directly or indirectly by the Goldman Sachs Funds, except to the extent of their pecuniary interest therein, if any. Coffeyville Acquisition II LLC |
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may elect to sell its shares of CVR Energy at any time, subject to the180-daylock-up agreement entered into in connection with CVR Energy’s initial public offering. | ||
(h) | Represents shares owned by Coffeyville Acquisition LLC which is controlled by the Kelso Funds. Messrs. Matelich and Osborne are the sole directors of Coffeyville Acquisition LLC. Kelso Investment Associates VII, L.P. (“KIA VII”), a Delaware limited partnership, and KEP VI, LLC (“KEP VI”), a Delaware limited liability company, are members of Coffeyville Acquisition LLC and own substantially all of the common units of Coffeyville Acquisition LLC. KIA VII owns common units of Coffeyville Acquisition LLC that correspond to 24,557,883 shares of common stock of CVR Energy, and KEP VI owns common units in Coffeyville Acquisition LLC that correspond to 6,081,000 shares of common stock of CVR Energy. KIA VII and KEP VI, due to their common control, could be deemed to beneficially own each of the other’s shares of common stock of CVR Energy but each disclaims such beneficial ownership. Messrs. Berney, Bynum, Connors, Goldberg, Loverro, Matelich, Moore, Nickell, Osborne, Wahrhaftig and Wall may be deemed to share beneficial ownership of shares of common stock of CVR Energy owned of record or beneficially owned by KIA VII, KEP VI and Coffeyville Acquisition LLC by virtue of their status as managing members of KEP VI and of Kelso GP VII, LLC, a Delaware limited liability company, the principal business of which is serving as the general partner of Kelso GP VII, L.P., a Delaware limited partnership, the principal business of which is serving as the general partner of KIA VII. Each of Messrs. Berney, Bynum, Connors, Goldberg, Loverro, Matelich, Moore, Nickell, Osborne, Wahrhaftig and Wall share investment and voting power with respect to the ownership interests owned by KIA VII, KEP VI and Coffeyville Acquisition LLC but disclaim beneficial ownership of such interests. Coffeyville Acquisition LLC may elect to sell its shares of CVR Energy at any time, subject to the180-daylock-up agreement entered into in connection with CVR Energy’s initial public offering. |
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The consideration received by our managing general partner as well as our special general partner and its affiliates for the contribution of assets and liabilities to us in October 2007 | • 30,333,333 special units, which will be converted in connection with this offering into 18,750,000 GP units and 16,000,000 subordinated GP units. | |
• The managing general partner interest in us. | ||
• The IDRs. | ||
• Our agreement, contingent on our completing an initial public or private offering, to reimburse Coffeyville Resources for certain capital expenditures made on our behalf, estimated to be approximately $18.4 million. |
Distribution of cash on hand immediately prior to the completion of this offering to our special general partner | • We will distribute all of our cash on hand as of the closing of this offering, estimated to be $40.0 million, including the settlement of net intercompany balances at the time of such distribution, to our special general partner. | |
Reimbursement to Coffeyville Resources for capital expenditures it made on our behalf | • We will use approximately $18.4 million of the proceeds of this offering to reimburse Coffeyville Resources for certain capital expenditures made on our behalf prior to October 24, 2007. |
Distribution of available cash to our managing general partner and our special general partner and their affiliates | We will generally make cash distributions of all available cash to the unitholders pro rata, including the special general partner, as the holder of 18,750,000 GP units and 16,000,000 subordinated GP units. Assuming we have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units for four quarters, our special general partner would receive $52.1 million on its GP units and subordinated GP units for such four-quarter period. |
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In addition, after we have distributed all aggregate adjusted operating surplus through December 31, 2009, and if quarterly distributions exceed the target distribution levels, then our managing general partner will be entitled to increasing percentages of the distributions, up to 48% of the distributions above the highest target level, pursuant to its IDRs. | ||
Distribution of cash received in respect of our pre-IPO account receivables | We will distribute all cash received by us or our subsidiaries in respect of accounts receivable existing as of the closing of this offering ($2.8 million as of December 31, 2007) to our special general partner. | |
Payments to our managing general partner and its affiliates | We will reimburse our managing general partner and its affiliates for all expenses incurred on our behalf. In addition we will reimburse CVR Energy for certain operating expenses and for the provision of various general and administrative services for our benefit under the services agreement. | |
Withdrawal or removal of our managing general partner | If our managing general partner withdraws or is removed, its managing general partner interest and its IDRs (as well as any IDRs owned by its affiliates) will either be sold to the new managing general partner for cash or converted into common units for an amount equal to the fair market value of that interest. See “The Partnership Agreement — Withdrawal or Removal of Our Managing General Partner”. |
Liquidation | Upon our liquidation, the partners, including our managing general partner, will be entitled to receive liquidating distributions according to their respective capital account balances. |
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• | any refinery restricted business acquired as part of a business or package of assets if a majority of the value of the total assets or business acquired is not attributable to a refinery restricted business, as determined in good faith by our managing general partner’s board of directors; however, if at any time we complete such an acquisition, we must, within 365 days of the closing of the transaction, offer to sell the refinery-related assets to CVR Energy for their fair market value plus any additional tax or other similar costs that would be required to transfer the refinery-related assets to CVR Energy separately from the acquired business or package of assets; | |
• | engaging in any refinery restricted business subject to the offer to CVR Energy described in the immediately preceding bullet point pending CVR Energy’s determination whether to accept such offer and pending the closing of any offers CVR Energy accepts; | |
• | engaging in any refinery restricted business if CVR Energy has previously advised us that it has elected not to cause it to acquire or seek to acquire such business; or | |
• | acquiring up to 9.9% of any class of securities of any publicly traded company that engages in any refinery restricted business. |
• | any fertilizer restricted business acquired as part of a business or package of assets if a majority of the value of the total assets or business acquired is not attributable to a fertilizer restricted business, as determined in good faith by CVR Energy’s board of directors, as applicable; however, if at any time CVR Energy completes such an acquisition, it must, within 365 days of the closing of the transaction, offer to sell the fertilizer-related assets to us for their fair market value plus any additional tax or other similar costs that would be required to transfer the fertilizer-related assets to us separately from the acquired business or package of assets; | |
• | engaging in any fertilizer restricted business subject to the offer to us described in the immediately preceding bullet point pending our determination whether to accept such offer and pending the closing of any offers the we accept; | |
• | engaging in any fertilizer restricted business if we have previously advised CVR Energy that we have elected not to acquire such business; or | |
• | acquiring up to 9.9% of any class of securities of any publicly traded company that engages in any fertilizer restricted business. |
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• | services from CVR Energy’s employees in capacities equivalent to the capacities of corporate executive officers, except that those who serve in such capacities under the agreement shall serve us on a shared, part-time basis only, unless we and CVR Energy agree otherwise; | |
• | administrative and professional services, including legal, accounting services, human resources, insurance, tax, credit, finance, government affairs and regulatory affairs; | |
• | management of our property and the property of our operating subsidiary in the ordinary course of business; | |
• | recommendations on capital raising activities to the board of directors of our managing general partner, including the issuance of debt or equity interests, the entry into credit facilities and other capital market transactions; | |
• | managing or overseeing litigation and administrative or regulatory proceedings, and establishing appropriate insurance policies for us, and providing safety and environmental advice; | |
• | recommending the payment of distributions; and | |
• | managing or providing advice for other projects, including acquisitions, as may be agreed by CVR Energy and our managing general partner from time to time. |
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Contributing Parties | Amount Contributed | |||
The Goldman Sachs Funds | $ | 5,227,584 | ||
The Kelso Funds | 5,145,787 | |||
John J. Lipinski | 68,146 | |||
Stanley A. Riemann | 16,359 | |||
James T. Rens | 10,225 | |||
Edmund S. Gross | 1,227 | |||
Robert W. Haugen | 4,090 | |||
Wyatt E. Jernigan | 4,090 | |||
Kevan A. Vick | 10,225 | |||
Christopher G. Swanberg | 1,022 | |||
Wesley Clark | 10,225 | |||
Others | 101,020 | |||
Total Contribution: | $ | 10,600,000 | ||
• | commodity derivative contracts in the form of three swap agreements for the period from July 1, 2005 through June 30, 2010; | |
• | a crude oil supply agreement effective from December 30, 2005 through December 31, 2008; |
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• | certain crude oil, heating oil, and gasoline option agreements on May 16, 2005, which expired unexercised on June 16, 2005; | |
• | a purchase, storage and sale agreement for gathered crude oil, dated March 20, 2007; and | |
• | deferral agreements which deferred payment of $123.7 million owed to J. Aron until August 31, 2008. |
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• | approved by the conflicts committee of the board of directors of our managing general partner, although our managing general partner is not obligated to seek such approval; | |
• | approved by the vote of a majority of the outstanding common units and GP units, excluding any units owned by the managing general partner or any of its affiliates, although our managing general partner is not obligated to seek such approval; | |
• | on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or | |
• | fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us. |
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• | permits our managing general partner to make a number of decisions in its individual capacity, as opposed to its capacity as managing general partner, thereby entitling our managing general partner to consider only the interests and factors that it desires, and imposes no duty or obligation on our managing general partner to give any consideration to any interest of, or factors affecting, our common unitholders; | |
• | provides that our general partners shall not have any liability to us or our unitholders for decisions made in their capacities as general partners so long as they acted in good faith, meaning they believed that the decision was in the best interests of our partnership; | |
• | generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our managing general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us, as determined by our managing general partner in good faith, and that, in determining whether a transaction or resolution is “fair and reasonable”, our managing general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; | |
• | provides that our general partners and their officers and directors will not be liable for monetary damages to us or our limited partners for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or its officers or directors acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and | |
• | provides that in resolving conflicts of interest, it will be presumed that in making its decision, the managing general partner or its conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. |
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• | the expenses associated with being a public company and other general and administrative expenses; | |
• | interest expense and other financing costs related to current and future indebtedness; | |
• | amount and timing of asset purchases and sales; | |
• | cash expenditures; | |
• | borrowings; | |
• | issuance of additional units; and | |
• | the creation, reduction, or increase of reserves in any quarter. |
• | enabling our general partners or their affiliates to receive distributions on any subordinated units held by them or the IDRs; or | |
• | hastening the expiration of the subordination period. |
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• | on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or | |
• | “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us). |
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• | the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into securities of the partnership, and the incurring of any other obligations; | |
• | the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over our business or assets; | |
• | the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of our assets or the merger or other combination of us with or into another person; | |
• | the negotiation, execution and performance of any contracts, conveyances or other instruments; | |
• | the distribution of partnership cash; |
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• | the selection and dismissal of employees and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring; | |
• | the maintenance of insurance for our benefit and the benefit of our partners; | |
• | the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any further limited or general partnerships, joint ventures, corporations, limited liability companies or other relationships; | |
• | the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense and the settlement of claims and litigation; | |
• | the indemnification of any person against liabilities and contingencies to the extent permitted by law; | |
• | the purchase, sale or other acquisition or disposition of our securities, or the issuance of additional options, rights, warrants and appreciation rights relating to our securities; and | |
• | the entering into of agreements with any of its affiliates to render services to us or to itself in the discharge of its duties as our managing general partner. |
• | the fiduciary duties imposed on our general partners by the Delaware Act; | |
• | material modifications of these duties contained in our partnership agreement; and | |
• | certain rights and remedies of limited partners contained in the Delaware Act. |
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State law fiduciary duty standards | Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present. | |
Partnership agreement modified standards | Our partnership agreement contains provisions that waive or consent to conduct by our general partners and their affiliates that might otherwise raise issues as to compliance with fiduciary duties or applicable law. For example, our partnership agreement provides that when either of our general partners is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under applicable law. In addition, when either of our general partners is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our general partners would otherwise be held. | |
Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of our managing general partner must be: | ||
• on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or | ||
• “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us). | ||
All conflicts of interest disclosed in this prospectus (including our agreements and other arrangements with CVR Energy) have been approved by all of our partners under the terms of our partnership agreement. | ||
If our managing general partner does not seek approval from the conflicts committee of its board of directors or the common unitholders and GP unitholders, and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, the board of directors, which may include board members affected by the conflict of interest, acted in good faith, and in any proceeding |
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brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partners would otherwise be held. | ||
In addition to the other more specific provisions limiting the obligations of our general partners, our partnership agreement further provides that our general partners and their officers and directors will not be liable for monetary damages to us or our limited partners for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the general partner or its officers and directors acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such person’s conduct was unlawful. | ||
Rights and remedies of limited partners | The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of our partnership agreement. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of it and all other similarly situated limited partners to recover damages from a general partner for violations of its fiduciary duties to the limited partners. |
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• | appointment rights and consent rights for the termination of employment and compensation of the chief executive officer and chief financial officer of the managing general partner, not to be exercised unreasonably (CVR Energy’s approval for appointment of an officer is deemed given if the officer is an executive officer of CVR Energy); | |
• | the right to appoint two directors to the board of directors of the managing general partner and one such director to any committee thereof (subject to certain exceptions); | |
• | consent rights over any merger by us into another entity where: |
• | for so long as our special general partner and its affiliates own 50% or more of our units immediately prior to the merger, less than 60% of the equity interests of the resulting entity are owned by our pre-merger unitholders; | |
• | for so long as our special general partner and its affiliates own 25% or more of our units immediately prior to the merger, less than 50% of the equity interests of the resulting entity are owned by our pre-merger unitholders; and | |
• | for so long as our special general partner and its affiliates own more than 15% of our units immediately prior to the merger, less than 40% of the equity interests of the resulting entity are owned by our pre-merger unitholders; |
• | consent rights over any fundamental change in the conduct of our business; | |
• | consent rights over any purchase or sale, exchange or other transfer of assets or entities with a purchase/sale price equal to 50% or more of our asset value on the date of determination; and | |
• | consent rights over any incurrence of indebtedness or issuance of interests in us with rights to distribution or in liquidation ranking prior or senior to the GP units, in either case in excess of $125 million, increased by 80% of the purchase price for assets or entities whose purchase was approved by us as described in the immediately preceding bullet point. |
• | surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges; |
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• | special charges for services requested by a holder of a common unit; and | |
• | other similar fees or charges. |
• | represents that the transferee has the capacity, power and authority to become bound by our partnership agreement; | |
• | automatically agrees to be bound by the terms and conditions of, and is deemed to have executed, our partnership agreement; and | |
• | gives the consents and approvals contained in our partnership agreement, such as the approval of all transactions and agreements entered into in connection with our formation and this offering. |
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• | with regard to distributions of available cash, see “How We Make Cash Distributions”; | |
• | with regard to the fiduciary duties of our general partners, see “Conflicts of Interest and Fiduciary Duties”; | |
• | with regard to the authority of our general partners to manage our business and activities, please read “Management — Management of CVR Partners, LP” and “Description of Our Units — Our Other Units — Special General Partner Rights”; | |
• | with regard to the transfer of common units, see “Description of Our Units — Transfer of Common Units”; and | |
• | with regard to allocations of taxable income and taxable loss, see “Material Tax Consequences”. |
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• | during the subordination period, both (1) the approval of a majority of the common units and GP units, excluding those units held by our managing general partner and its affiliates, voting as a class, and (2) the approval of a majority of the subordinated units, voting as a separate class; and | |
• | after the subordination period, the approval of a majority of the common units and GP units, voting as a class. |
Issuance of additional units | No approval right. See “— Issuance of Additional Partnership Interests”. | |
Amendment of our partnership agreement | Certain amendments may be made by our managing general partner without the approval of the common unitholders. Other amendments generally require the approval of a unit majority. See “— Amendment of Our Partnership Agreement”. | |
Merger of our partnership or the sale of all or substantially all of our assets | Unit majority in certain circumstances. See “— Merger, Sale or Other Disposition of Assets”. | |
Dissolution of our partnership | Unit majority. See “— Termination and Dissolution”. | |
Continuation of our partnership upon dissolution | Unit majority. See “— Termination and Dissolution”. | |
Withdrawal of our managing general partner | Under most circumstances, the approval of a majority of the common units and GP units, excluding units held by our |
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managing general partner and its affiliates, is required for the withdrawal of our managing general partner prior to June 30, 2017. See “— Withdrawal or Removal of Our Managing General Partner”. | ||
Removal of our managing general partner | Not less than 80% of the outstanding units, voting as a single class, including units held by our managing general partner and its affiliates (i) for cause prior to October 26, 2012 or (ii) with or without cause (as defined in our partnership agreement) on or after October 26, 2012. See “— Withdrawal or Removal of Our Managing General Partner”. | |
Transfer of the managing general partner interest | Our managing general partner may transfer all, but not less than all, of its managing general partner interest in us without a vote of any unitholders and without the approval of our special general partner, to an affiliate or to another person (other than an individual) in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to, such person. The approval of a majority of the common units and GP units, excluding units held by our managing general partner and its affiliates, voting as a class, and the approval of our special general partner, is required in other circumstances for a transfer of the managing general partner interest to a third party prior to October 26, 2017. See “— Transfer of Managing General Partner Interests”. | |
Transfer of ownership interests in our managing general partner | No approval required at any time. See “— Transfer of Managing General Partner Interests — Transfer of Ownership Interests in Our Managing General Partner”. |
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• | to remove or replace our managing general partner; | |
• | to approve some amendments to our partnership agreement; or | |
• | to take other action under our partnership agreement; |
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• | a change in our name, the location of our principal place of business, our registered agent or our registered office; | |
• | the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement; | |
• | a change that our managing general partner determines to be necessary or appropriate for us to qualify or to continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or to ensure that neither we nor any of our subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes (to the extent not already so treated or taxed); | |
• | an amendment that is necessary, in the opinion of our counsel, to prevent us or our general partners, CVR Energy (for so long as CVR Energy continues to own our special general partner) or their directors, officers, agents, or trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisers Act of 1940, or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed; | |
• | an amendment that our managing general partner determines to be necessary or appropriate for the authorization of additional partnership interests or rights to acquire partnership interests, as otherwise permitted by our partnership agreement; | |
• | any amendment expressly permitted in our partnership agreement to be made by our managing general partner acting alone; | |
• | an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our partnership agreement; |
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• | any amendment that our managing general partner determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by our partnership agreement; | |
• | a change in our fiscal year or taxable year and related changes; | |
• | mergers with or conveyances to another limited liability entity that is newly formed and has no assets, liabilities or operations at the time of the merger or conveyance other than those it receives by way of the merger or conveyance; or | |
• | any other amendments substantially similar to any of the matters described above. |
• | do not adversely affect in any material respect the partners considered as a whole or any particular class of partners; | |
• | are necessary or appropriate to satisfy any requirements, conditions, or guidelines contained in any opinion, directive, order, ruling, or regulation of any federal or state agency or judicial authority or contained in any federal or state statute; | |
• | are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline, or requirement of any securities exchange on which the limited partner interests are or will be listed for trading; | |
• | are necessary or appropriate for any action taken by our managing general partner relating to splits or combinations of units under the provisions of our partnership agreement; or | |
• | are required to effect the intent expressed in this prospectus or the intent of the provisions of our partnership agreement or are otherwise contemplated by our partnership agreement. |
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• | the action would not result in the loss of limited liability under Delaware law of any limited partner; and | |
• | neither our partnership nor any of our subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to continue (to the extent not already so treated or taxed). |
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• | all subordinated units held by any person who did not, and whose affiliates did not, vote any units in favor of the removal of the managing general partner, will immediately convert into GP units or common units on a one-for-one basis; and | |
• | if all subordinated units convert as described in the immediately preceding bullet point, any existing arrearages in payment of the minimum quarterly distribution on the common units and GP units will be extinguished. |
• | an affiliate of our managing general partner (other than an individual), or |
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• | another entity as part of the merger or consolidation of our managing general partner with or into another entity or the transfer by our managing general partner of all or substantially all of its assets to another entity, |
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• | 1% of the total number of the class of securities outstanding; or | |
• | the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale. |
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• | gross income from operations exceeds the amount required to make minimum quarterly distributions on all units, yet we only distribute the minimum quarterly distributions on all units; or | |
• | we make a future offering of common units and use the proceeds of this offering in a manner that does not produce substantial additional deductions during the period described above, such as to repay indebtedness outstanding at the time of this offering or to acquire property that is not eligible for depreciation or amortization for federal income tax purposes or that is depreciable or amortizable at a rate significantly slower than the rate applicable to our assets at the time of this offering. |
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• | interest on indebtedness properly allocable to property held for investment; | |
• | our interest expense attributed to portfolio income; and | |
• | the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income. |
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• | his relative contributions to us; |
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• | the interests of all the partners in profits and losses; | |
• | the interest of all the partners in cash flow; and | |
• | the rights of all the partners to distributions of capital upon liquidation. |
• | any of our income, gain, loss or deduction with respect to those units would not be reportable by the unitholder; | |
• | any cash distributions received by the unitholder as to those units would be fully taxable; and | |
• | all of these distributions would appear to be ordinary income. |
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• | a short sale; | |
• | an offsetting notional principal contract; or | |
• | a futures or forward contract with respect to the partnership interest or substantially identical property. |
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2. | a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing; or |
(c) | the amount and description of units held, acquired or transferred for the beneficial owner; and | |
(d) | specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. |
(2) | as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return. |
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• | accuracy-related penalties with a broader scope, significantly narrower exceptions, and potentially greater amounts than described above at “— Accuracy-Related Penalties”, | |
• | for those persons otherwise entitled to deduct interest on federal tax deficiencies, nondeductibility of interest on any resulting tax liability and | |
• | in the case of a listed transaction, an extended statute of limitations. |
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• | whether the investment is prudent under Section 404(a)(1)(B) of ERISA; | |
• | whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; and | |
• | whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment return. |
(a) | the equity interests acquired by employee benefit plans are publicly offered securities — i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, freely transferable and registered under some provisions of the federal securities laws; | |
(b) | the entity is an “operating company”, meaning it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority-owned subsidiary or subsidiaries; or | |
(c) | there is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of each class of equity interest is held by the employee benefit plans referred to above and IRAs. |
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Number of | ||
Underwriters | Common Units | |
Total | ||
5,250,000 | ||
No Exercise | Full Exercise | |||||||
Per Common Unit | $ | $ | ||||||
Total | $ | $ |
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• | the history and prospects for our industry; | |
• | our historical performance, including our net sales, net income, margins and certain other financial information; | |
• | estimates of our business potential and earnings prospects; | |
• | an assessment of our management; | |
• | investor demand for our common units; | |
• | market valuations of companies that we and the representatives believe to be comparable; and | |
• | prevailing securities markets at the time of the offering. |
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224
Unaudited Pro Forma Consolidated Financial Statements: | ||||
P-1 | ||||
P-2 | ||||
P-3 | ||||
P-4 | ||||
Audited Consolidated Financial Statements: | ||||
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 |
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Pro Forma | ||||||||||||
Year Ended | Year Ended | |||||||||||
December 31, | Pro Forma | December 31, | ||||||||||
2007 | Adjustments | 2007 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 14,471,901 | $ | (16,613,652 | )(a) | $ | 72,426,728 | |||||
2,142,301 | (a) 105,000,000 (b) (11,600,000)(c) (2,525,000)(d) (18,448,822)(e) 2,816,631 (f) (2,816,631)(f) | |||||||||||
Accounts receivable, net of allowance for doubtful accounts of $14,619 | 2,816,631 | (2,816,631 | )(f) | — | ||||||||
Inventories | 16,153,467 | 16,153,467 | ||||||||||
Due from affiliate | 2,142,301 | (2,142,301 | )(a) | — | ||||||||
Prepaid expenses and other current assets | 1,068,225 | 841,667 | (d) | 1,909,892 | ||||||||
Insurance receivable | 139,346 | 139,346 | ||||||||||
Total current assets | 36,791,871 | 53,837,562 | 90,629,433 | |||||||||
Property, plant, and equipment, net of accumulated depreciation | 352,013,053 | 352,013,053 | ||||||||||
Intangible assets, net | 81,492 | 81,492 | ||||||||||
Goodwill | 40,968,463 | 40,968,463 | ||||||||||
Otherlong-term assets | — | 1,683,333 | (d) | 1,683,333 | ||||||||
Total assets | $ | 429,854,879 | $ | 55,520,895 | $ | 485,375,774 | ||||||
LIABILITIES AND PARTNERS’ CAPITAL | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 7,778,741 | $ | $ | 7,778,741 | |||||||
Personnel accruals | 1,370,816 | 1,370,816 | ||||||||||
Deferred revenue | 13,161,103 | 13,161,103 | ||||||||||
Accrued expenses and other current liabilities | 6,971,504 | 6,971,504 | ||||||||||
Total current liabilities | 29,282,164 | — | 29,282,164 | |||||||||
Long-term liabilities: | ||||||||||||
Deferred income taxes | 32,500 | 32,500 | ||||||||||
Other accrued long-term liabilities | 46,986 | 46,986 | ||||||||||
Total long-term liabilities | 79,486 | — | 79,486 | |||||||||
Commitments and contingencies | — | — | — | |||||||||
Partners’ capital: | ||||||||||||
Special GP units, 30,303,000 units issued and outstanding at December 31, 2007 | 396,242,212 | (16,597,038 | )(a) | — | ||||||||
(18,430,373 | )(e) (361,214,801)(g) | |||||||||||
Special LP units, 30,333 units issued and outstanding at December 31, 2007 | 396,638 | (16,614 | )(a) | — | ||||||||
(18,449 | )(e) (361,575)(g) | |||||||||||
Managing general partner interest | 3,854,379 | (3,854,379 | )(h) | — | ||||||||
Total partners’ capital | $ | 400,493,229 | $ | (400,493,229 | ) | $ | — | |||||
PRO FORMA PARTNERS’ CAPITAL | ||||||||||||
Unitholders’ equity: | ||||||||||||
Equity held by public: | ||||||||||||
Common units: 5,250,000 common units issued and outstanding | — | 105,000,000 | (b) | 93,400,000 | ||||||||
(11,600,000 | )(c) | |||||||||||
Equity held by general partners: | ||||||||||||
GP units: 18,750,000 GP units issued and outstanding | — | (1,521,628 | )(f) | 193,812,736 | ||||||||
195,334,364 | (g) | |||||||||||
Subordinated GP units: 16,000,000 subordinated GP units issued and outstanding | — | (1,295,003 | )(f) | 164,947,009 | ||||||||
166,242,012 | (g) | |||||||||||
Managing general partner interest | — | 3,854,379 | (h) | 3,854,379 | ||||||||
Total pro forma partners’ capital | — | 456,014,124 | 456,014,124 | |||||||||
Total liabilities and partners’ capital | $ | 429,854,879 | $ | 55,520,895 | $ | 485,375,774 | ||||||
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Actual | Pro Forma | |||||||||||
Year Ended | Year Ended | |||||||||||
December 31, | Pro Forma | December 31, | ||||||||||
2007 | Adjustments | 2007 | ||||||||||
Net sales | $ | 187,449,468 | $ | $ | 187,449,468 | |||||||
Operating costs and expenses: | ||||||||||||
Cost of product sold (exclusive of depreciation and amortization) | 33,095,121 | 2,472,506 | (i) | 35,567,627 | ||||||||
Direct operating expenses (exclusive of depreciation and amortization) | 66,662,894 | 66,662,894 | ||||||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization) | 20,382,918 | (160,446 | ) (j) | 20,222,472 | ||||||||
Net costs associated with flood | 2,431,957 | — | 2,431,957 | |||||||||
Depreciation and amortization | 16,819,147 | — | 16,819,147 | |||||||||
Total operating costs and expenses | 139,392,037 | 2,312,060 | 141,704,097 | |||||||||
Operating income | 48,057,431 | (2,312,060 | ) | 45,745,371 | ||||||||
Other income (expense): | ||||||||||||
Interest expense and other financing costs | (23,598,544 | ) | 23,584,600 | (j) | (855,611 | ) | ||||||
(841,667 | )(k) | |||||||||||
Interest income | 270,162 | (252,697 | )(j) | 17,465 | ||||||||
Gain (loss) on derivatives | (456,583 | ) | 456,583 | (j) | — | |||||||
Loss on extinguishment of debt | (177,653 | ) | 177,653 | (j) | — | |||||||
Other income | 61,604 | — | 61,604 | |||||||||
Total other income (expense) | (23,901,014 | ) | 23,124,472 | (776,542 | ) | |||||||
Income before income taxes | $ | 24,156,417 | $ | 20,812,412 | $ | 44,968,829 | ||||||
Income tax expense | 29,500 | — | 29,500 | |||||||||
Net income | $ | 24,126,917 | $ | 20,812,412 | $ | 44,939,329 | ||||||
Pro forma net income information: | ||||||||||||
Net income allocated to common units | $ | 5,277,763 | $ | 7,875,000 | ||||||||
Net income allocated to GP units | 18,849,154 | 28,125,000 | ||||||||||
Net income allocated to subordinated GP units | — | 8,939,329 | ||||||||||
Net income allocated to managing general partner | — | — | ||||||||||
Basic and diluted net income per common unit | $ | 1.01 | $ | 1.50 | ||||||||
Basic and diluted net income per GP unit | $ | 1.01 | $ | 1.50 | ||||||||
Basic and diluted net income per subordinated GP unit | — | $ | 0.56 |
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(1) | Basis of Presentation |
• | the effectiveness of the Partnership’s second amended and restated agreement of limited partnership; | |
• | the Partnership’s entering into the coke supply agreement; | |
• | the distribution by the Partnership of all of its cash on hand immediately prior to the completion of the initial public offering to the Partnership’s special general partner (for purposes of the pro forma balance sheet at December 31, 2007, this amount is limited to the cash on hand at December 31, 2007 of $14.5 million, exclusive of petty cash), including the settlement of net intercompany balances at the time of such distribution; | |
• | the Partnership’s entering into a new – year revolving secured credit facility, with no principal amount expected to be drawn upon the closing of the initial public offering, and the Partnership’s payment of financing fees of approximately $2.5 million related thereto; | |
• | the distribution of approximately $18.4 million to reimburse CRLLC for certain capital expenditures it made on the Partnership’s behalf prior to October 24, 2007; | |
• | the collection of existing net accounts receivable and subsequent distribution of the related cash to the Partnership’s special general partner; | |
• | the contribution of 30,333 special LP units held by Coffeyville Resources, LLC (CRLLC) to CVR Special GP, LLC, the Partnership’s special general partner; | |
• | the conversion of 30,303,000 special GP units and 30,333 special LP units held by the Partnership’s special general partner into 18,750,000 GP units and 16,000,000 subordinated GP units; | |
• | the Partnership’s issuance and sale of 5,250,000 common units to the public in the initial public offering, at an assumed initial public offering price of $20.00 per common unit, and the use of proceeds thereof; | |
• | the payment by the Partnership of estimated underwriting commissions and other offering expenses in the aggregate amount of $11.6 million; and |
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• | the Partnership’s release from its guarantees under CRLLC’s credit facility and swap agreements with J. Aron. |
• | common units representing limited partner interests, all of which the Partnership will sell in the initial public offering (approximately 13% of all of the Partnership’s outstanding units); | |
• | GP units representing special general partner interests, all of which will be held by the Partnership’s special general partner (approximately 47% of all of the Partnership’s outstanding units); | |
• | subordinated GP units representing special general partner interests, all of which will be held by the Partnership’s special general partner (40% of all of the Partnership’s outstanding units); | |
• | incentive distribution rights representing limited partner interests, all of which will be held by the Partnership’s managing general partner; and | |
• | a managing general partner interest, which is not entitled to any distributions, which is held by the Partnership’s managing general partner. |
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(3) | Pro Forma Adjustments and Assumptions |
P-6
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(4) | Pro Forma Net Income Per Unit |
P-7
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CVR GP, LLC
The Managing General Partner of CVR Partners, LP:
February 26, 2008
F-1
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Successor | ||||||||
December 31, | December 31, | |||||||
2006 | 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 550 | $ | 14,471,901 | ||||
Accounts receivable, net of allowance for doubtful accounts of $42,816 and $14,619, respectively | 3,321,253 | 2,816,631 | ||||||
Inventories | 14,103,758 | 16,153,467 | ||||||
Due from affiliate | — | 2,142,301 | ||||||
Prepaid expenses and other current assets | 589,732 | 1,068,225 | ||||||
Insurance receivable | — | 139,346 | ||||||
Total current assets | 18,015,293 | 36,791,871 | ||||||
Property, plant, and equipment, net of accumulated depreciation | 357,044,252 | 352,013,053 | ||||||
Intangible assets, net | 100,655 | 81,492 | ||||||
Goodwill | 40,968,463 | 40,968,463 | ||||||
Total assets | $ | 416,128,663 | $ | 429,854,879 | ||||
LIABILITIES AND PARTNERS’ CAPITAL/DIVISIONAL EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 6,162,938 | $ | 7,778,741 | ||||
Personnel accruals | 2,686,495 | 1,370,816 | ||||||
Deferred revenue | 8,812,350 | 13,161,103 | ||||||
Accrued expenses and other current liabilities | 805,715 | 6,971,504 | ||||||
Total current liabilities | 18,467,498 | 29,282,164 | ||||||
Long-term liabilities: | ||||||||
Deferred income taxes | 27,500 | 32,500 | ||||||
Other accrued long-term liabilities | — | 46,986 | ||||||
Total long-term liabilities | 27,500 | 79,486 | ||||||
Commitments and contingencies | ||||||||
Partners’ capital/divisional equity: | ||||||||
Divisional equity | 397,633,665 | — | ||||||
Special GP unitholders, 30,303,000 units issued and outstanding | — | 396,242,212 | ||||||
Special LP unitholders, 30,333 units issued and outstanding | — | 396,638 | ||||||
Managing general partner’s interest | — | 3,854,379 | ||||||
Total partners’ capital/divisional equity | 397,633,665 | 400,493,229 | ||||||
Total liabilities and partners’ capital/divisional equity | $ | 416,128,663 | $ | 429,854,879 | ||||
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Immediate | |||||||||||||||||
Predecessor | Successor | ||||||||||||||||
174 Days | 191 Days | ||||||||||||||||
Ended | Ended | Year Ended | Year Ended | ||||||||||||||
June 23, | December 31, | December 31, | December 31, | ||||||||||||||
2005 | 2005 | 2006 | 2007 | ||||||||||||||
Net sales | $ | 76,719,172 | $ | 96,792,958 | $ | 170,029,957 | $ | 187,449,468 | |||||||||
Operating costs and expenses: | |||||||||||||||||
Cost of product sold (exclusive of depreciation and amortization) | 9,849,842 | 19,248,596 | 33,401,674 | 33,095,121 | |||||||||||||
Direct operating expenses (exclusive of depreciation and amortization) | 26,019,736 | 29,135,779 | 63,610,773 | 66,662,894 | |||||||||||||
Selling, general and administrative expenses | 5,051,954 | 4,594,588 | 12,903,004 | 20,382,918 | |||||||||||||
(exclusive of depreciation and amortization) | |||||||||||||||||
Net costs associated with flood | — | — | — | 2,431,957 | |||||||||||||
Depreciation and amortization | 316,446 | 8,360,911 | 17,125,898 | 16,819,147 | |||||||||||||
Total operating costs and expenses | 41,237,978 | 61,339,874 | 127,041,349 | 139,392,037 | |||||||||||||
Operating income | 35,481,194 | 35,453,084 | 42,988,608 | 48,057,431 | |||||||||||||
Other income (expense): | |||||||||||||||||
Interest expense and other financing costs | (756,846 | ) | (14,791,272 | ) | (23,502,265 | ) | (23,598,544 | ) | |||||||||
Interest income | 47,631 | 501,991 | 1,379,129 | 270,162 | |||||||||||||
Gain (loss) on derivatives | — | 4,852,817 | 2,145,387 | (456,583 | ) | ||||||||||||
Loss on extinguishment of debt | (1,240,454 | ) | — | (8,480,747 | ) | (177,653 | ) | ||||||||||
Other income (expense) | (782,255 | ) | 4,024 | 180,680 | 61,604 | ||||||||||||
Total other income (expense) | (2,731,924 | ) | (9,432,440 | ) | (28,277,816 | ) | (23,901,014 | ) | |||||||||
Income before income taxes | 32,749,270 | 26,020,644 | 14,710,792 | 24,156,417 | |||||||||||||
Income tax expense | — | — | 27,500 | 29,500 | |||||||||||||
Net income | $ | 32,749,270 | $ | 26,020,644 | $ | 14,683,292 | $ | 24,126,917 | |||||||||
Unaudited pro forma net income information (Note 4): | |||||||||||||||||
Net income allocated to common units | $ | 5,277,763 | |||||||||||||||
Net income allocated to GP units | 18,849,154 | ||||||||||||||||
Net income allocated to subordinated GP units | — | ||||||||||||||||
Net income allocated to managing general partner | — | ||||||||||||||||
Basic and diluted net income per common unit | $ | 1.01 | |||||||||||||||
Basic and diluted net income per GP unit | $ | 1.01 | |||||||||||||||
Basic and diluted net income per subordinated GP unit | — |
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Total | ||||||||||||||||||||||||
Special | Special | Managing | Partners’ | |||||||||||||||||||||
General | Limited | General | Total | Capital/ | ||||||||||||||||||||
Divisional | Partner’s | Partner’s | Partner’s | Partners’ | Divisional | |||||||||||||||||||
Immediate Predecessor | Equity | Interest | Interest | Interest | Capital | Equity | ||||||||||||||||||
Balance at January 1, 2005 | $ | 15,741,980 | $ | — | $ | — | $ | — | $ | — | $ | 15,741,980 | ||||||||||||
Net income | 32,749,270 | — | — | — | — | 32,749,270 | ||||||||||||||||||
Net distributions to parent | (22,902,690 | ) | — | — | — | — | (22,902,690 | ) | ||||||||||||||||
Balance at June 23, 2005 | $ | 25,588,560 | $ | — | $ | — | $ | — | $ | — | $ | 25,588,560 | ||||||||||||
Successor | ||||||||||||||||||||||||
Acquisition of Immediate Predecessor at June 23, 2005, including step-up in basis of $391,881,153 due to Successor acquisition and change in control | $ | 417,469,713 | — | — | — | — | $ | 417,469,713 | ||||||||||||||||
Net income | 26,020,644 | — | — | — | — | 26,020,644 | ||||||||||||||||||
Share based compensation expense | 270,072 | — | — | — | — | 270,072 | ||||||||||||||||||
Net distributions to parent | (43,267,038 | ) | — | — | — | — | (43,267,038 | ) | ||||||||||||||||
Balance at December 31, 2005 | 400,493,391 | — | — | — | — | 400,493,391 | ||||||||||||||||||
Net income | 14,683,292 | — | — | — | — | 14,683,292 | ||||||||||||||||||
Share-based compensation expense | 3,259,881 | — | — | — | — | 3,259,881 | ||||||||||||||||||
Net distributions to parent | (20,802,899 | ) | — | — | — | — | (20,802,899 | ) | ||||||||||||||||
Balance at December 31, 2006 | 397,633,665 | — | — | — | — | 397,633,665 | ||||||||||||||||||
Net income | 17,033,827 | 7,085,997 | 7,093 | — | 7,093,090 | 24,126,917 | ||||||||||||||||||
Share-based compensation expense | 2,154,080 | 8,053,217 | 8,061 | — | 8,061,278 | 10,215,358 | ||||||||||||||||||
Net distributions to parent, including distributions of certain working capital | (31,483,711 | ) | — | — | — | — | (31,483,711 | ) | ||||||||||||||||
Contribution of CRNF from CRLLC to CVR Partners, LP for partners’ interest | (385,337,861 | ) | 381,102,998 | 381,484 | 3,853,379 | 385,337,861 | — | |||||||||||||||||
Cash contribution for partners’ interest | — | — | — | 1,000 | 1,000 | 1,000 | ||||||||||||||||||
Balance at December 31, 2007 | $ | — | $ | 396,242,212 | $ | 396,638 | $ | 3,854,379 | $ | 400,493,229 | $ | 400,493,229 | ||||||||||||
F-4
Table of Contents
Immediate | |||||||||||||||||
Predecessor | Successor | ||||||||||||||||
174 Days | 191 Days | ||||||||||||||||
Ended | Ended | Year Ended | Year Ended | ||||||||||||||
June 23, | December 31, | December 31, | December 31, | ||||||||||||||
2005 | 2005 | 2006 | 2007 | ||||||||||||||
Cash flows from operating activities: | |||||||||||||||||
Net income | $ | 32,749,270 | $ | 26,020,644 | $ | 14,683,292 | $ | 24,126,917 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
Depreciation and amortization | 316,446 | 8,360,911 | 17,125,897 | 17,645,458 | |||||||||||||
Provision for doubtful accounts | — | 82,498 | (39,682 | ) | 14,619 | ||||||||||||
Loss on disposition of fixed assets | — | — | 1,056,792 | 47,252 | |||||||||||||
Share-based compensation | — | 270,072 | 4,032,341 | 10,926,143 | |||||||||||||
Changes in assets and liabilities, net of effect of step-up in basis for Successor: | |||||||||||||||||
Accounts receivable | (1,285,626 | ) | (2,748,588 | ) | 719,811 | (3,981,846 | ) | ||||||||||
Inventories | 614,293 | 2,675,582 | 2,058,690 | (2,049,709 | ) | ||||||||||||
Due from affiliate | — | — | — | (2,142,301 | ) | ||||||||||||
Prepaid expenses and other current assets | (406,748 | ) | (433,375 | ) | (31,659 | ) | (221,776 | ) | |||||||||
Insurance receivable | — | — | — | (3,347,207 | ) | ||||||||||||
Accounts payable | 2,792,145 | (1,642,309 | ) | 87,449 | 1,309,576 | ||||||||||||
Deferred revenue | (9,073,050 | ) | 11,449,382 | (3,217,637 | ) | 4,348,753 | |||||||||||
Accrued expenses and other current liabilities | (884,398 | ) | 1,545,381 | (2,442,213 | ) | (226,095 | ) | ||||||||||
Other accrued long-term liabilities | (484,720 | ) | (295,776 | ) | — | 46,986 | |||||||||||
Deferred income taxes | — | — | 27,500 | 5,000 | |||||||||||||
Net cash provided by operating activities | 24,337,612 | 45,284,422 | 34,060,581 | 46,501,770 | |||||||||||||
Cash flows from investing activities: | |||||||||||||||||
Capital expenditures | (1,434,922 | ) | (2,017,384 | ) | (13,257,682 | ) | (6,487,456 | ) | |||||||||
Net cash used in investing activities | (1,434,922 | ) | (2,017,384 | ) | (13,257,682 | ) | (6,487,456 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||||
Deferred costs of IPO | — | — | — | (256,717 | ) | ||||||||||||
Net divisional equity distribution | (22,902,690 | ) | (43,267,038 | ) | (20,802,899 | ) | (25,287,246 | ) | |||||||||
Partners’ cash contribution | — | — | — | 1,000 | |||||||||||||
Net cash used in financing activities | (22,902,690 | ) | (43,267,038 | ) | (20,802,899 | ) | (25,542,963 | ) | |||||||||
Net increase in cash and cash equivalents | — | — | — | 14,471,351 | |||||||||||||
Cash and cash equivalents, beginning of period | 550 | 550 | 550 | 550 | |||||||||||||
Cash and cash equivalents, end of period | $ | 550 | $ | 550 | $ | 550 | $ | 14,471,901 | |||||||||
Supplemental disclosures | |||||||||||||||||
Non-cash investing and financing activities: | |||||||||||||||||
Accrual of construction in progress additions | $ | (42,103 | ) | $ | — | $ | 30,877 | $ | 6,154,892 | ||||||||
Step-up in basis with change in control | $ | — | $ | 391,881,153 | $ | — | $ | — | |||||||||
Distribution of working capital to parent | $ | — | $ | — | $ | — | $ | 6,196,465 |
F-5
Table of Contents
(1) | Formation of the Partnership, Organization and Nature of Business |
F-6
Table of Contents
Assets acquired | ||||
Cash | $ | 550 | ||
Accounts receivable | 1,335,292 | |||
Inventories | 18,838,030 | |||
Prepaid expenses and other current assets | 124,698 | |||
Intangibles, contractual agreements | 145,400 | |||
Goodwill | 40,968,463 | |||
Property, plant, and equipment | 368,237,164 | |||
Total assets acquired | $ | 429,649,597 | ||
Liabilities assumed | ||||
Accounts payable | $ | 7,686,921 | ||
Accrued expenses and other current liabilities | 4,197,187 | |||
Other accrued long-term liabilities | 295,776 | |||
Total liabilities assumed | $ | 12,179,884 | ||
(2) | Basis of Presentation |
F-7
Table of Contents
(3) | Summary of Significant Accounting Policies |
F-8
Table of Contents
Range of Useful | ||
Asset | Lives, in Years | |
Improvements to land | 15 to 20 | |
Buildings | 20 to 30 | |
Machinery and equipment | 5 to 30 | |
Automotive equipment | 5 | |
Furniture and fixtures | 3 to 7 |
F-9
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F-10
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F-11
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F-12
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• | Officer and employee salaries and share-based compensation | |
• | Rent or depreciation | |
• | Advertising | |
• | Accounting, tax, legal and information technology services | |
• | Other selling, general and administrative expenses | |
• | Costs for defined contribution plans, medical and other employee benefits | |
• | Financing costs, including interest, mark-to-market changes in interest rate swap, and losses on extinguishment of debt |
F-13
Table of Contents
Immediate | |||||||||||||||||
Predecessor | Successor | ||||||||||||||||
174 Days | 191 Days | Year | Year | ||||||||||||||
Ended | Ended | Ended | Ended | ||||||||||||||
June 23, | December 31, | December 31, | December 31, | ||||||||||||||
2005 | 2005 | 2006 | 2007 | ||||||||||||||
Direct operating expenses (exclusive of depreciation and amortization) | $ | 616,363 | $ | 1,001,491 | $ | 2,120,923 | $ | 2,449,218 | |||||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization) | 3,864,369 | 3,154,242 | 9,180,998 | 10,080,235 | |||||||||||||
Interest expense and other financing costs | 741,090 | 14,793,520 | 23,502,266 | 23,584,600 | |||||||||||||
Interest income | (47,631 | ) | (501,990 | ) | (1,379,129 | ) | (252,697 | ) | |||||||||
(Gain) loss on derivatives | — | (4,852,817 | ) | (2,145,388 | ) | 456,583 | |||||||||||
Loss on extinguishment of debt | 1,240,455 | — | 8,480,747 | 177,653 | |||||||||||||
$ | 6,414,646 | $ | 13,594,446 | $ | 39,760,417 | $ | 36,495,592 | ||||||||||
F-14
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(4) | Pro Forma Information (unaudited) |
F-15
Table of Contents
(5) | Partners’ Capital |
• | 5,250,000 common units representing limited partner interests, all of which the Partnership will sell in the initial public offering; | |
• | 18,750,000 GP units representing special general partner interests, all of which will be held by the Partnership’s special general partner; | |
• | 18,000,000 subordinated GP units representing special general partner interests, all of which will be held by the Partnership’s special general partner; | |
• | incentive distribution rights representing limited partner interests, all of which will be held by the Partnership’s managing general partner; and | |
• | a managing general partner interest, which is not entitled to any distributions, which is held by the Partnership’s managing general partner. |
• | First, to the holders of common units and GP units until each common unit and GP unit has received a minimum quarterly distribution of $0.375 plus any arrearages from prior quarters; | |
• | Second, to the holders of subordinated units, until each subordinated unit has received a minimum quarterly distribution of $0.375; and | |
• | Third, to all unitholders, pro rata, until each unit has received a quarterly distribution of $0.4313. |
F-16
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F-17
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(6) | Inventories |
December 31, | December 31, | |||||||
2006 | 2007 | |||||||
Finished goods | $ | 2,804 | $ | 2,859 | ||||
Raw materials and catalysts | 4,066 | 4,704 | ||||||
Parts and supplies | 7,234 | 8,590 | ||||||
$ | 14,104 | $ | 16,153 | |||||
(7) | Property, Plant, and Equipment |
December 31, | December 31, | |||||||
2006 | 2007 | |||||||
Land and improvements | $ | 706 | $ | 1,147 | ||||
Buildings | 650 | 650 | ||||||
Machinery and equipment | 379,339 | 381,685 | ||||||
Automotive equipment | 267 | 297 | ||||||
Furniture and fixtures | 186 | 209 | ||||||
Construction in progress | 1,262 | 11,012 | ||||||
$ | 382,410 | $ | 395,000 | |||||
Accumulated depreciation | 25,366 | 42,987 | ||||||
$ | 357,044 | $ | 352,013 | |||||
(8) | Goodwill and Intangible Assets |
F-18
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Contractual | ||||
Year Ending December 31, | Agreements | |||
2008 | $ | 15 | ||
2009 | 10 | |||
2010 | 10 | |||
2011 | 10 | |||
2012 | 6 | |||
Thereafter | 30 | |||
$ | 81 | |||
(9) | Flood |
F-19
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(10) | Income Taxes |
(11) | Benefit Plans |
(12) | Share-based Compensation |
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Estimated forfeiture rate | None | |
Explicit service period | Based on forfeiture schedule below | |
October 16, 2007 (date of modification) estimated fair value | $39.53 | |
December 31, 2007 estimated fair value | $51.84 per share | |
Marketability and minority interest discounts | $9.14 per share (15% discount) | |
Volatility | 35.8% |
F-21
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Estimated forfeiture rate | None | |
Explicit service period | Based on forfeiture schedule below | |
October 16, 2007 (date of modification) estimated fair value | $20.34 | |
December 31, 2007 estimated fair value | $32.65 per share | |
Marketability and minority interest discounts | $5.76 per share (15% discount) | |
Volatility | 35.8% |
Forfeiture | ||
Minimum Period Held | Percentage | |
2 years | 75% | |
3 years | 50% | |
4 years | 25% | |
5 years | 0% |
F-22
Table of Contents
• Estimated forfeiture rate | None | |
• Derived service period | 6 years | |
• October 16, 2007 (date of modification) estimated fair value | $39.53 | |
• December 31, 2007 estimated fair value | $51.84 per share | |
• Marketability and minority interest discounts | $9.14 per share (15% discount) | |
• Volatility | 35.8% |
Estimated forfeiture rate | None | |
Derived service period | 6 years | |
October 16, 2007 (date of modification) estimated fair value | $20.34 | |
December 31, 2007 estimated fair value | $32.65 per share | |
Marketability and minority interest discounts | $5.76 per share (15% discount) | |
Volatility | 35.8% |
F-23
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Forfeiture | ||
Minimum Period Held | Percentage | |
2 years | 75% | |
3 years | 50% | |
4 years | 25% | |
5 years | 0% |
Override | Override | |||||||
Operating Units | Value Units | |||||||
Year ending December 31, 2008 | 2,058,123 | 4,422,143 | ||||||
Year ending December 31, 2009 | 1,067,545 | 4,422,143 | ||||||
Year ending December 31, 2010 | 317,971 | 4,422,143 | ||||||
Year ending December 31, 2011 | — | 1,864,074 | ||||||
$ | 3,443,639 | $ | 15,130,503 | |||||
F-24
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Estimated forfeiture rate | None | |
Explicit Service Period | Based on forfeiture schedule above | |
December 31, 2007 estimated fair value | $0.02 per share | |
Marketability and minority interest discount | $0.00 per share (15% discount) | |
Volatility | 34.7% |
(13) | Commitments and Contingent Liabilities |
Operating | Unconditional | |||||||
Year Ending December 31, | Leases | Purchase Obligations | ||||||
2008 | $ | 3,507,184 | $ | 15,492,354 | ||||
2009 | 2,762,547 | 16,316,790 | ||||||
2010 | 1,224,648 | 15,580,568 | ||||||
2011 | 726,793 | 16,971,022 | ||||||
2012 | 270,873 | 17,075,060 | ||||||
Thereafter | 7,450 | 211,204,704 | ||||||
$ | 8,499,495 | $ | 292,640,498 | |||||
F-25
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F-26
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Year Ending December 31, | Amount | |||
(in thousands) | ||||
2008 | $ | 170 | ||
2009 | 10 | |||
2010 | 40 | |||
Undiscounted total | $ | 220 | ||
Less amounts representing interest at 3.52% | 3 | |||
Accrued environmental liabilities at December 31, 2007 | $ | 217 | ||
F-27
Table of Contents
(14) | Related Party Transactions |
F-28
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F-29
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• | services from CVR Energy’s employees in capacities equivalent to the capacities of corporate executive officers, except that those who serve in such capacities under the agreement shall serve the Partnership on a shared, part-time basis only, unless the Partnership and CVR Energy agree otherwise; | |
• | administrative and professional services, including legal, accounting services, human resources, insurance, tax, credit, finance, government affairs and regulatory affairs; |
F-30
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• | management of the Partnership’s property and the property of its operating subsidiary in the ordinary course of business; | |
• | recommendations on capital raising activities to the board of directors of the Partnership’s managing general partner, including the issuance of debt or equity interests, the entry into credit facilities and other capital market transactions; | |
• | managing or overseeing litigation and administrative or regulatory proceedings, and establishing appropriate insurance policies for the Partnership, and providing safety and environmental advice; | |
• | recommending the payment of distributions; and | |
• | managing or providing advice for other projects as may be agreed by CVR Energy and its managing general partner from time to time. |
F-31
Table of Contents
(15) | Major Customers and Suppliers |
174-Day | 191-Day | |||||||||||||||
Period | Period | |||||||||||||||
Ended | Ended | Year Ended | Year Ended | |||||||||||||
June 23, | December 31, | December 31, | December 31, | |||||||||||||
2005 | 2005 | 2006 | 2007 | |||||||||||||
Nitrogen Fertilizer | ||||||||||||||||
Customer A | 17 | % | 9 | % | 6 | % | 3 | % | ||||||||
Customer B | 9 | % | 9 | % | 7 | % | 18 | % | ||||||||
26 | % | 18 | % | 13 | % | 21 | % | |||||||||
174-Day | 191-Day | |||||||||||||||
Period | Period | |||||||||||||||
Ended | Ended | Year Ended | Year Ended | |||||||||||||
June 23, | December 31, | December 31, | December 31, | |||||||||||||
2005 | 2005 | 2006 | 2007 | |||||||||||||
Supplier | 4 | % | 5 | % | 7 | % | 5 | % | ||||||||
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Table of Contents
Page | ||||||||
ARTICLE I DEFINITIONS | ||||||||
Section 1.1 | Definitions | A-1 | ||||||
Section 1.2 | Construction | A-18 | ||||||
ARTICLE II ORGANIZATION | ||||||||
Section 2.1 | Formation | A-18 | ||||||
Section 2.2 | Name | A-18 | ||||||
Section 2.3 | Registered Office; Registered Agent; Principal Office; Other Offices | A-18 | ||||||
Section 2.4 | Purpose and Business | A-19 | ||||||
Section 2.5 | Powers | A-19 | ||||||
Section 2.6 | Power of Attorney | A-19 | ||||||
Section 2.7 | Term | A-20 | ||||||
Section 2.8 | Title to Partnership Assets | A-20 | ||||||
ARTICLE III RIGHTS OF LIMITED PARTNERS | ||||||||
Section 3.1 | Limitation of Liability | A-21 | ||||||
Section 3.2 | Management of Business | A-21 | ||||||
Section 3.3 | Outside Activities of the Limited Partners | A-21 | ||||||
Section 3.4 | Rights of Limited Partners | A-21 | ||||||
ARTICLE IV CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS | ||||||||
Section 4.1 | Certificates | A-22 | ||||||
Section 4.2 | Mutilated, Destroyed, Lost or Stolen Certificates | A-22 | ||||||
Section 4.3 | Record Holders | A-23 | ||||||
Section 4.4 | Transfer Generally | A-23 | ||||||
Section 4.5 | Registration and Transfer of Limited Partner Interests | A-24 | ||||||
Section 4.6 | Registration and Transfer of the Special General Partner Interest | A-24 | ||||||
Section 4.7 | Transfer of the Managing General Partner Interest | A-25 | ||||||
Section 4.8 | Transfer of Incentive Distribution Rights | A-26 | ||||||
Section 4.9 | Restrictions on Transfers | A-26 | ||||||
Section 4.10 | Eligible Holders | A-27 | ||||||
Section 4.11 | Redemption of Partnership Interests of Ineligible Holders | A-27 | ||||||
ARTICLE V CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS | ||||||||
Section 5.1 | Contributions by the General Partners and their Affiliates | A-28 | ||||||
Section 5.2 | Interest and Withdrawal | A-29 | ||||||
Section 5.3 | Capital Accounts | A-29 | ||||||
Section 5.4 | Issuances of Additional Partnership Interests | A-31 | ||||||
Section 5.5 | Conversion of Special Units | A-32 | ||||||
Section 5.6 | Conversion of Subordinated Units | A-32 |
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Page | ||||||||
Section 5.7 | Conversion of GP Units and Subordinated GP Units into Common Units and Subordinated LP Units | A-33 | ||||||
Section 5.8 | Preemptive Right | A-34 | ||||||
Section 5.9 | Splits and Combinations | A-34 | ||||||
Section 5.10 | Fully Paid and Non-Assessable Nature of Limited Partner Interests | A-35 | ||||||
ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS | ||||||||
Section 6.1 | Allocations for Capital Account Purposes | A-35 | ||||||
Section 6.2 | Allocations for Tax Purposes | A-41 | ||||||
Section 6.3 | Requirement and Characterization of Distributions; Distributions to Record Holders | A-42 | ||||||
Section 6.4 | Distributions of Available Cash from Operating Surplus | A-43 | ||||||
Section 6.5 | Distributions of Non-IDR Surplus Amount | A-44 | ||||||
Section 6.6 | Distributions of Available Cash from Capital Surplus | A-44 | ||||||
Section 6.7 | Adjustment of Minimum Quarterly Distribution and Target Distribution Levels | A-44 | ||||||
Section 6.8 | Special Provisions Relating to the Holders of Subordinated Units | A-45 | ||||||
Section 6.9 | Special Provisions Relating to the Holders of Incentive Distribution Rights | A-45 | ||||||
Section 6.10 | Entity Level Taxation | A-46 | ||||||
Section 6.11 | Distributions in Connection with Initial Offering; Pre-Closing Receivables | A-46 | ||||||
Section 6.12 | Limitation on Increases in Distributions | A-46 | ||||||
ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS | ||||||||
Section 7.1 | Management | A-46 | ||||||
Section 7.2 | Certificate of Limited Partnership | A-48 | ||||||
Section 7.3 | Restrictions on the General Partners’ Authority; Management Rights of Special General Partner | A-49 | ||||||
Section 7.4 | Reimbursement of the General Partners | A-50 | ||||||
Section 7.5 | Outside Activities | A-51 | ||||||
Section 7.6 | Loans from the General Partners; Loans or Contributions from the Partnership or Group Members | A-52 | ||||||
Section 7.7 | Indemnification | A-53 | ||||||
Section 7.8 | Liability of Indemnitees | A-54 | ||||||
Section 7.9 | Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties | A-55 | ||||||
Section 7.10 | Other Matters Concerning the General Partners | A-56 | ||||||
Section 7.11 | Purchase or Sale of Partnership Interests | A-57 | ||||||
Section 7.12 | Registration Rights of the General Partners and their Affiliates | A-57 | ||||||
Section 7.13 | Reliance by Third Parties | A-59 | ||||||
ARTICLE VIII BOOKS, RECORDS, ACCOUNTING AND REPORTS | ||||||||
Section 8.1 | Records and Accounting | A-59 | ||||||
Section 8.2 | Fiscal Year | A-59 | ||||||
Section 8.3 | Reports | A-60 | ||||||
Section 8.4 | Access of Special General Partner to Partnership Information | A-60 |
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Page | ||||||||
ARTICLE IX TAX MATTERS | ||||||||
Section 9.1 | Tax Returns and Information | A-60 | ||||||
Section 9.2 | Tax Elections | A-60 | ||||||
Section 9.3 | Tax Controversies | A-61 | ||||||
Section 9.4 | Withholding | A-61 | ||||||
ARTICLE X ADMISSION OF PARTNERS | ||||||||
Section 10.1 | Admission of Limited Partners | A-61 | ||||||
Section 10.2 | Admission of Successor Managing General Partner | A-62 | ||||||
Section 10.3 | Amendment of Agreement and Certificate of Limited Partnership | A-62 | ||||||
ARTICLE XI WITHDRAWAL OR REMOVAL OF PARTNERS | ||||||||
Section 11.1 | Withdrawal of the Managing General Partner | A-62 | ||||||
Section 11.2 | Removal of the Managing General Partner | A-64 | ||||||
Section 11.3 | Interest of Departing General Partner and Successor Managing General Partner | A-64 | ||||||
Section 11.4 | Termination of Subordination Period, Conversion of Subordinated Units and Extinguishment of Cumulative Common Unit and GP Unit Arrearages | A-65 | ||||||
Section 11.5 | Withdrawal of Limited Partners or Special General Partner | A-65 | ||||||
ARTICLE XII DISSOLUTION AND LIQUIDATION | ||||||||
Section 12.1 | Dissolution | A-66 | ||||||
Section 12.2 | Continuation of the Business of the Partnership After Dissolution | A-66 | ||||||
Section 12.3 | Liquidator | A-67 | ||||||
Section 12.4 | Liquidation | A-67 | ||||||
Section 12.5 | Cancellation of Certificate of Limited Partnership | A-68 | ||||||
Section 12.6 | Return of Contributions | A-68 | ||||||
Section 12.7 | Waiver of Partition | A-68 | ||||||
Section 12.8 | Capital Account Restoration | A-68 | ||||||
ARTICLE XIII AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE | ||||||||
Section 13.1 | Amendments to be Adopted Solely by the Managing General Partner | A-68 | ||||||
Section 13.2 | Amendment Procedures | A-69 | ||||||
Section 13.3 | Amendment Requirements | A-70 | ||||||
Section 13.4 | Special Meetings | A-70 | ||||||
Section 13.5 | Notice of a Meeting | A-70 | ||||||
Section 13.6 | Record Date | A-71 | ||||||
Section 13.7 | Adjournment | A-71 | ||||||
Section 13.8 | Waiver of Notice; Approval of Meeting; Approval of Minutes | A-71 | ||||||
Section 13.9 | Quorum and Voting | A-71 | ||||||
Section 13.10 | Conduct of a Meeting | A-72 | ||||||
Section 13.11 | Action Without a Meeting | A-72 | ||||||
Section 13.12 | Right to Vote and Related Matters | A-72 |
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Page | ||||||||
ARTICLE XIV MERGER | ||||||||
Section 14.1 | Authority | A-73 | ||||||
Section 14.2 | Procedure for Merger or Consolidation | A-73 | ||||||
Section 14.3 | Approval by Partners of Merger or Consolidation | A-74 | ||||||
Section 14.4 | Certificate of Merger | A-75 | ||||||
Section 14.5 | Amendment of Partnership Agreement | A-75 | ||||||
Section 14.6 | Effect of Merger | A-75 | ||||||
ARTICLE XV RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS | ||||||||
Section 15.1 | Right to Acquire Limited Partner Interests | A-75 | ||||||
ARTICLE XVI GENERAL PROVISIONS | ||||||||
Section 16.1 | Addresses and Notices | A-76 | ||||||
Section 16.2 | Further Action | A-77 | ||||||
Section 16.3 | Binding Effect | A-77 | ||||||
Section 16.4 | Integration | A-77 | ||||||
Section 16.5 | Creditors | A-77 | ||||||
Section 16.6 | Waiver | A-77 | ||||||
Section 16.7 | Counterparts | A-77 | ||||||
Section 16.8 | Applicable Law | A-78 | ||||||
Section 16.9 | Invalidity of Provisions | A-78 | ||||||
Section 16.10 | Consent of Partners | A-78 | ||||||
Section 16.11 | Facsimile Signatures | A-78 | ||||||
Section 16.12 | Third Party Beneficiaries | A-78 |
A-iv
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PARTNERSHIP OF CVR PARTNERS, LP
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By: |
By: | Coffeyville Resources, LLC, its sole member | |
By: |
Title: | Chief Financial Officer and Treasurer |
By: |
Title: | Chief Financial Officer and Treasurer |
By: |
Title: | Chief Financial Officer and Treasurer |
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Adjusted operating surplus | For any period, operating surplus generated during that period, as adjusted to: | |
(a) decrease operating surplus by: | ||
(1) any net increase in working capital borrowings with respect to that period; | ||
(2) any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; and | ||
(3) a portion (based upon the duration of the period for which Adjusted Operating Surplus is being calculated compared to the length of the period through the expected completion of the next scheduled turnaround for the particular plant, unit or other material asset) of the amount of the Scheduled Turnaround Operating Surplus (as defined in (b)(3) below) associated with the most recent scheduled turnaround of each unit, plant or other material asset. | ||
(b) increase operating surplus by: | ||
(1) any net decrease in working capital borrowings with respect to that period; | ||
(2) any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium; and | ||
(3) if a scheduled turnaround occurs during the period, an amount that the managing general partner determines is the incremental operating surplus that would have been generated if the scheduled turnaround had not been conducted during the period (the Scheduled Turnaround Operating Surplus). | ||
Adjusted operating surplus does not include that portion of operating surplus included in clause (a)(1) of the definition of operating surplus or cash received by CVR Partners, LP or its subsidiaries in respect of accounts receivable existing as of the closing of this initial public offering. | ||
Available Cash | For any quarter ending prior to liquidation: | |
(a) the sum of: | ||
(1) all cash and cash equivalents of CVR Partners, LP and its subsidiaries on hand at the end of that quarter; and |
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(2) all additional cash and cash equivalents of CVR Partners, LP and its subsidiaries on hand on the date of determination of available cash for that quarter resulting from working capital borrowings made after the end of that quarter; | ||
(b) less the amount of cash reserves established by our managing general partner to: | ||
(1) provide for the proper conduct of the business of CVR Partners, LP and its subsidiaries (including reserves for the satisfaction of obligations in respect of pre-paid fertilizer contracts, future capital expenditures, anticipated future credit needs of CVR Partners, LP and its subsidiaries and the payment of expenses and fees, including payments to CVR GP, LLC) after that quarter; | ||
(2) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which CVR Partners, LP or any of its subsidiaries is a party or by which it is bound or its assets are subject; and | ||
(3) provide funds for distributions for any one or more of the next eight quarters; | ||
provided, however, that our managing general partner may not establish cash reserves pursuant to clause (3) above if the effect of such reserves would be that CVR Partners, LP would be unable to distribute the minimum quarterly distribution on all common units and GP units and any cumulative common unit and GP unit arrearages thereon with respect to any quarter for which available cash is being distributed; and provided, further, that disbursements made by CVR Partners, LP or any of its subsidiaries or cash reserves established, increased or reduced after the end of that quarter but on or before the date of determination of available cash for that quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining available cash, within that quarter if our managing general partner so determines. | ||
Available cash will not include cash received by CVR Partners, LP or our subsidiaries in respect of accounts receivable existing as of the closing of this initial public offering. | ||
Capacity | Capacity is defined as the throughput a process unit is capable of sustaining, either on a calendar or stream day basis. The throughput may be expressed in terms of maximum sustainable, nameplate or economic capacity. The maximum sustainable or nameplate capacities may not be the most economical. The economic capacity is the throughput that generally provides the greatest economic benefit based |
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on considerations such as feedstock costs, product values and downstream unit constraints. | ||
Capital surplus | All available cash distributed by CVR Partners, LP from any source will be treated as distributed from operating surplus until the sum of all available cash distributed since the closing of this offering equals the operating surplus as of the end of the quarter before that distribution. Any excess available cash will be deemed to be capital surplus. | |
Capital surplus will generally be generated only by: | ||
• borrowings other than working capital borrowings; | ||
• sales of CVR Partners, LP’s debt and equity interests other than for working capital purposes; and | ||
• sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or as part of the normal retirement or replacement of assets. | ||
Catalyst | A substance that alters, accelerates, or instigates chemical changes, but is neither produced, consumed nor altered in the process. | |
Closing price | The last sale price on a day, regular way, or in case no sale takes place on that day, the average of the closing bid and asked prices on that day, regular way, as reported in the principal consolidated transaction reporting system for limited partner interests listed on the principal national securities exchange on which the respective limited partner interests are listed. If the limited partner interests of that class are not listed on any national securities exchange, the last quoted price on that day. If no quoted price exists, the average of the high bid and low asked prices on that day in the over-the-counter market, as reported by the New York Stock Exchange or any other system then in use. If on any day the limited partner interests of that class are not quoted by any organization of that type, the average of the closing bid and asked prices on that day as furnished by a professional market maker making a market in the limited partner interests of the class selected by our managing general partner. If on that day no market maker is making a market in the limited partner interests of that class, the fair value of the limited partner interests on that day as determined by our managing general partner. | |
Corn belt | The primary corn producing region of the United States, which includes Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, Ohio and Wisconsin. | |
Cumulative common unit and GP unit arrearage | The amount by which the minimum quarterly distribution for a quarter during the subordination period exceeds the distribution of available cash from operating surplus actually made for that quarter on a common unit and a GP unit, |
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cumulative for that quarter and all prior quarters during the subordination period. | ||
Ethanol | A clear, colorless, flammable oxygenated hydrocarbon. Ethanol is typically produced chemically from ethylene, or biologically from fermentation of various sugars from carbohydrates found in agricultural crops and cellulosic residues from crops or wood. It is used in the United States as a gasoline octane enhancer and oxygenate. | |
Expansion capital expenditures | Cash capital expenditures for acquisitions or capital improvements. Expansion capital expenditures include the cash cost of equity and debt capital in respect of construction of a capital asset. | |
Farm belt | Refers to the states of Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Texas and Wisconsin. | |
Feedstocks | Petroleum products, such as crude oil and natural gas liquids, that are processed and blended into refined products. | |
Fluxant | Material added to coke to aid in the removal of coke metal impurities from the gasifier. The material consists of a mixture of fly ash and sand. | |
Incentive distribution rights, or IDRs | Non-voting limited partner interests (issued to and currently held by our managing general partner), which confer upon the holder the rights and obligations specifically provided in the amended and restated partnership agreement. | |
Incentive distributions | Any amount of cash distributed in respect of the incentive distribution rights. | |
Interim capital transactions | The following transactions if they occur prior to liquidation: | |
(a) borrowings, refinancing or refunding of indebtedness (other than working capital borrowings and other than for items purchased on open account or for a deferred purchase price in the ordinary course of business) by CVR Partners, LP or any subsidiary; | ||
(b) sales of equity interests and debt securities of CVR Partners, LP or any subsidiary; and | ||
(c) sales or other voluntary or involuntary dispositions of any assets of CVR Partners, LP or any subsidiary (other than sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business, and sales or other dispositions of assets as a part of normal retirements or replacements of assets). | ||
Investment capital expenditures | Capital expenditures expected by the managing general partner, at the time of incurrence, to be of such a short term duration as not to be appropriately categorized as expansion capital expenditures or maintenance capital expenditures. | |
Maintenance capital expenditures | Cash capital expenditures (including expenditures for the addition or improvement to our capital assets or for the |
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acquisition of existing, or the construction of new, capital assets) if such expenditure is made to maintain the operating capacity (or productivity) or capital base of CVR Partners, LP. Maintenance capital expenditures include the cash cost of equity and debt capital in respect of construction of a capital asset. Maintenance capital expenditures do not include expansion capital expenditures or investment capital expenditures. | ||
MMBtu | One million British thermal units: a measure of energy. One Btu of heat is required to raise the temperature of one pound of water one degree Fahrenheit. | |
Non-IDR Surplus Amount | The adjusted operating surplus during the period from the closing of this offering through December 31, 2009. | |
Operating expenditures | All cash expenditures of CVR Partners, LP and its subsidiaries, including taxes, reimbursements or payments of expenses of the managing general partner, repayment of working capital borrowings, debt service payments and capital expenditures, provided that operating expenditures do not include: | |
(a) Repayments of working capital borrowings deducted from Operating Surplus pursuant to clause (b)(3) of that definition. | ||
(b) Payments (including prepayments) of principal of and premium on indebtedness other than working capital borrowings. | ||
(c) Expansion capital expenditures or investment capital expenditures. | ||
(d) Payment of transaction expenses relating to interim capital transactions. | ||
(e) Distributions to partners. | ||
Where capital expenditures are made in part for acquisitions or capital improvements and in part for other purposes, our managing general partner shall determine the allocation between the amounts paid for each. | ||
Operating surplus | For any period prior to liquidation, on a cumulative basis and without duplication: | |
(a) the sum of: | ||
(1) $60 million; | ||
(2) all cash receipts of CVR Partners, LP and its subsidiaries for the period beginning as of the closing of this initial public offering and ending on the last day of that period, other than cash receipts from interim capital transactions; | ||
(3) all cash receipts of CVR Partners, LP and its subsidiaries after the end of that period but on or before the date of determination of operating surplus |
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for the period resulting from working capital borrowings; | ||
(4) distributions paid on our equity interests issued in connection with the construction of a capital improvement or replacement asset and paid in respect of the period beginning on the date that we enter into a binding obligation to commence construction of such capital improvement or replacement asset and ending on the earlier to occur of the date that such capital improvement or replacement asset commences commercial service or the date that it is abandoned or disposed of (equity issued to fund the construction period interest payments on debt incurred, or construction period distributions on equity issued, to finance the construction of a capital improvement or replacement asset shall also be deemed to be equity issued to finance the construction of a capital improvement or replacement asset or purposes of this clause); less | ||
(b) the sum of: | ||
(1) operating expenditures for the period beginning on the closing of this initial public offering and ending with the last day of that period; | ||
(2) the amount of cash reserves established by our managing general partner to provide funds for future operating expenditures; and | ||
(3) all working capital borrowings not repaid within twelve months after having been incurred; | ||
provided however, that disbursements made (including contributions to CVR Partners, LP and any subsidiary or disbursements on behalf of CVR Partners, LP or any subsidiary) or cash reserves established, increased or reduced after the end of that period but on or before the date of determination of available cash for that period shall be deemed to have been made, established, increased or reduced for purposes of determining operating surplus, within that period if the managing general partner’s board of directors so determines. | ||
Operating surplus will not include cash received by CVR Partners, LP or our subsidiaries in respect of accounts receivable existing as of the closing of this initial public offering. | ||
Pet coke | A coal-like substance that is produced during the refining process. | |
Plant gate price | The unit price of fertilizer, in dollars per ton, offered on a delivered basis, and excluding shipment costs. | |
Recordable incident | An injury, as defined by OSHA. All work-related deaths and illnesses, and those work-related injuries which result in loss of consciousness, restriction of work or motion, transfer to another job, or require medical treatment beyond first aid. |
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Recordable injury rate | The number of recordable injuries per 200,000 hours rate worked. | |
Refined products | Petroleum products, such as gasoline, diesel fuel and jet fuel, that are produced by a refinery. | |
Single train UAN facility | A UAN facility in which the urea, nitric acid and ammonium nitrate sections of the plant are integrated with each other and operate simultaneously as opposed to a multi-train UAN plant where the urea, nitric acid and ammonium nitrate plants are separate and distinct. | |
Slag | A glasslike substance removed from the gasifier containing the metal impurities originally present in pet coke. | |
Slurry | A byproduct of the fluid catalytic cracking process that is sold for further processing or blending with fuel oil. | |
Spot market | A market in which commodities are bought and sold for cash and delivered immediately. | |
Subordination period | The subordination period will generally extend from the closing of this initial public offering until the first to occur of: | |
(a) the second business day following the distribution of available cash to partners in respect of any quarter ending on or after , 2013, in respect of which: | ||
(1) distributions of available cash from operating surplus on each of the outstanding common units, GP units and subordinated units equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units, GP units and subordinated units for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date; | ||
(2) the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the common units, GP units and subordinated units that were outstanding during those periods on a fully diluted basis; and | ||
(3) there are no outstanding cumulative common unit and GP unit arrearages; or | ||
(b) the date on which the managing general partner is removed as managing general partner of CVR Partners, LP upon the requisite vote by the limited partners under circumstances where cause does not exist and units held by our special general partner and its affiliates are not voted in favor of the removal. | ||
Syngas | A mixture of gases (largely carbon monoxide and hydrogen) that results from heating coal in the presence of steam. | |
Throughput | The volume processed through a unit or a refinery. | |
Ton | One ton is equal to 2,000 pounds. |
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Turnaround | A periodically required standard procedure to refurbish and maintain a facility that involves the shutdown and inspection of major processing units. | |
UAN | UAN is a solution of urea and ammonium nitrate in water used as a fertilizer. | |
Utilization | Ratio of total throughput to rated capacity. | |
Working capital borrowings | Borrowings used exclusively for working capital purposes or to pay distributions to partners made pursuant to a credit agreement, commercial paper facility or other arrangement provided that when incurred it is the intent of the borrower to repay such borrowings within twelve months from other than additional working capital borrowings. | |
Wheat belt | The primary wheat producing region of the United States, which includes Kansas, North Dakota, Oklahoma, South Dakota and Texas. |
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Page | ||||
Prospectus Summary | 1 | |||
Risk Factors | 21 | |||
Cautionary Note Regarding Forward-Looking Statements | 52 | |||
Use of Proceeds | 54 | |||
Capitalization | 55 | |||
Dilution | 56 | |||
Our Cash Distribution Policy and Restrictions on Distributions | 58 | |||
How We Make Cash Distributions | 74 | |||
Selected Historical Consolidated Financial Information | 87 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 92 | |||
Industry Overview | 118 | |||
Business | 122 | |||
Management | 138 | |||
Security Ownership of Certain Beneficial Owners and Management | 152 | |||
Certain Relationships and Related Party Transactions | 156 | |||
Conflicts of Interest and Fiduciary Duties | 174 | |||
Description of Our Units | 184 | |||
The Partnership Agreement | 187 | |||
Units Eligible for Future Sale | 202 | |||
Material Tax Consequences | 204 | |||
Investment in CVR Partners, LP by Employee Benefit Plans | 220 | |||
Underwriting | 221 | |||
Legal Matters | 223 | |||
Experts | 223 | |||
Where You Can Find More Information | 224 | |||
Index to Consolidated Financial Statements | 225 | |||
Appendix A — Form of Second Amended and Restated Agreement of Limited Partnership of CVR Partners, LP | A-1 | |||
Appendix B — Glossary of Selected Terms | B-1 |
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Item 13. | Other Expenses of Issuance and Distribution. |
SEC registration fee | $ | 4,746 | ||
FINRA filing fee | 12,575 | |||
The New York Stock Exchange listing fee | 150,000 | |||
Accounting fees and expenses | 850,000 | |||
Legal fees and expenses | 2,250,000 | |||
Printing and engraving expenses | 850,000 | |||
Blue Sky qualification fees and expenses | 10,000 | |||
Transfer agent and registrar fees and expenses | 10,000 | |||
Miscellaneous expenses | 112,679 | |||
Total | $ | 4,250,000 | ||
Item 14. | Indemnification of Directors and Officers. |
Item 15. | Recent Sales of Unregistered Securities. |
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Item 16. | Exhibits and Financial Statement Schedules. |
Number | Exhibit Title | |||
1 | .1** | Form of Underwriting Agreement. | ||
3 | .1* | Certificate of Limited Partnership of CVR Partners, LP | ||
3 | .2* | Second Amended and Restated Agreement of Limited Partnership of CVR Partners, LP (incorporated by reference to Appendix A to the Prospectus contained within the Registrant’sForm S-1). | ||
3 | .3* | Certificate of Formation of CVR GP, LLC | ||
3 | .4* | Amended and Restated Limited Liability Company Agreement of CVR GP, LLC | ||
3 | .5* | Certificate of Formation of CVR Special GP, LLC | ||
3 | .6* | Amended and Restated Limited Liability Company Agreement of CVR Special GP, LLC | ||
4 | .1** | Specimen certificate for the common units | ||
5 | .1** | Form of opinion of Fried, Frank, Harris, Shriver & Jacobson LLP as to the legality of the securities being registered | ||
8 | .1** | Form of opinion of Vinson & Elkins L.L.P. relating to tax matters | ||
10 | .1 | License Agreement For Use of the Texaco Gasification Process, Texaco Hydrogen Generation Process, and Texaco Gasification Power Systems, dated as of May 30, 1997 by and between Texaco Development Corporation and Farmland Industries, Inc., as amended (incorporated by reference to Exhibit 10.4 to Amendment No. 5 of theForm S-1 filed by CVR Energy, Inc. on April 18, 2007) (certain portions of this exhibit have been omitted pursuant to a request for confidential treatment) | ||
10 | .2 | Amended and RestatedOn-Site Product Supply Agreement dated as of June 1, 2005, between The BOC Group, Inc. (n/k/a The Linde Group) and Coffeyville Resources Nitrogen Fertilizers, LLC. (incorporated by reference to Exhibit 10.6 to Amendment No. 5 of theForm S-1 filed by CVR Energy, Inc. on April 18, 2007) (certain portions of this exhibit have been omitted pursuant to a request for confidential treatment). | ||
10 | .3 | Electric Services Agreement dated January 13, 2004, between Coffeyville Resources Nitrogen Fertilizers, LLC and the City of Coffeyville, Kansas. (incorporated by reference to Exhibit 10.15 to Amendment No. 2 of theForm S-1 filed by CVR Energy, Inc. on December 18, 2006) | ||
10 | .4 | Coke Supply Agreement, dated as of October 25, 2007, by and between Coffeyville Resources Refining & Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers, LLC. (incorporated by reference to Exhibit 10.5 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .5 | Cross Easement Agreement, dated as of October 25, 2007, by and between Coffeyville Resources Refining & Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers, LLC. (incorporated by reference to Exhibit 10.6 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .6 | Environmental Agreement, dated as of October 25, 2007, by and between Coffeyville Resources Refining & Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers, LLC. (incorporated by reference to Exhibit 10.7 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) |
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Number | Exhibit Title | |||
10 | .7 | Feedstock and Shared Services Agreement, dated as of October 25, 2007, by and between Coffeyville Resources Refining & Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers, LLC. (incorporated by reference to Exhibit 10.8 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .8 | Raw Water and Facilities Sharing Agreement, dated as of October 25, 2007, by and between Coffeyville Resources Refining & Marketing, LLC and Coffeyville Resources Nitrogen Fertilizers, LLC. (incorporated by reference to Exhibit 10.9 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .9 | Services Agreement, dated as of October 25, 2007, by and among CVR Partners, LP, CVR GP, LLC, CVR Special GP, LLC, and CVR Energy, Inc. (incorporated by reference to Exhibit 10.10 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .10 | Omnibus Agreement, dated as of October 24, 2007 by and among CVR Energy, Inc., CVR GP, LLC, CVR Special GP, LLC and CVR Partners, LP. (incorporated by reference to Exhibit 10.11 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .11 | Registration Rights Agreement, dated as of October 24, 2007, by and among the CVR Partners, LP, CVR Special GP, LLC and Coffeyville Resources, LLC. (incorporated by reference to Exhibit 10.24 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .12 | Contribution, Conveyance and Assumption Agreement, dated as of October 24, 2007, by and among Coffeyville Resources, LLC, CVR GP, LLC, CVR Special GP, LLC, and CVR Partners, LP. (incorporated by reference to Exhibit 10.26 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .13 | Limited Liability Company Agreement of Coffeyville Acquisition III LLC, dated as of October 16, 2007 (incorporated by reference to Exhibit 10.18 of theForm 10-Q filed by CVR Energy, Inc. on December 6, 2007) | ||
10 | .14** | CVR Partners, LP Long-Term Incentive Plan | ||
10 | .15** | Form of Credit Agreement | ||
10 | .16** | Form of Indemnity and Transition Services Agreement | ||
21 | .1* | List of Subsidiaries of CVR Partners, LP | ||
23 | .1* | Consent of KPMG LLP. | ||
23 | .2** | Consent of Fried, Frank, Harris, Shriver & Jacobson LLP (included in Exhibit 5.1). | ||
23 | .3** | Consent of Vinson & Elkins L.L.P. (included in Exhibit 8.1). | ||
23 | .4* | Consent of Blue Johnson & Associates. | ||
24 | .1 | Power of Attorney (included on signature page). |
* | Included with this filing | |
** | To be provided by amendment. |
Item 17. | Undertakings. |
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By: | CVR GP, LLC, its managing general partner | |
By: | /s/ John J. Lipinski |
Signature | Title | Date | ||||
/s/ John J. Lipinski John J. Lipinski | Chief Executive Officer, President and a director of CVR GP, LLC (Principal Executive Officer) | February 27, 2008 | ||||
/s/ James T. Rens James T. Rens | Chief Financial Officer and Treasurer of CVR GP, LLC (Principal Financial and Accounting Officer) | February 27, 2008 | ||||
/s/ Scott L. Lebovitz Scott L. Lebovitz | Director of CVR GP, LLC | February 27, 2008 | ||||
/s/ George E. Matelich George E. Matelich | Director of CVR GP, LLC | February 27, 2008 |
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Signature | Title | Date | ||||
/s/ Stanley de J. Osborne Stanley de J. Osborne | Director of CVR GP, LLC | February 27, 2008 | ||||
/s/ Kenneth A. Pontarelli Kenneth A. Pontarelli | Director of CVR GP, LLC | February 27, 2008 |
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