CVR Partners Quarterly Net Income Tops $38 Million

CVR Partners, LP

The following tables summarize the financial data and key operating statistics for CVR Partners, LP (the "Partnership") for the three and six months ended June 30, 2011 and 2010.  Select balance sheet data is as of June 30, 2011 and December 31, 2010. 

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

(in millions)  

(unaudited)

Consolidated Statement of Operations Data:

Net sales

$   80.7

$ 56.3

$ 138.1

$ 94.6

Cost of product sold — Affiliates*

2.9

1.1

4.3

2.1

Cost of product sold — Third parties*

6.8

10.8

12.9

14.8

Direct operating expenses — Affiliates*

0.2

0.5

0.8

1.0

Direct operating expenses — Third parties*

22.1

20.8

44.5

42.5

Insurance recovery - business interruption

—

—

(2.9)

—

Selling, general and administrative expenses — Affiliates*

3.3

1.5

9.7

4.4

Selling, general and administrative expenses — Third parties*

1.4

0.4

3.4

1.0

Depreciation and amortization

4.7

4.7

9.3

9.3

    Operating income

$   39.3

$ 16.5

$   56.1

$ 19.5

Interest expense and other financing costs  

(1.2)

—

(1.2)

—

Interest income  

—

3.5

—

6.6

Other income (expense), net

0.1

(0.1)

—

(0.1)

Income before income tax expense

$   38.2

-

$ 19.9

$   54.9

-

$ 26.0

Income tax expense

—

—

—

—

    Net income

$   38.2

$  -

$ 19.9

$   54.9

$  -

$ 26.0

_______________

* Amounts shown are exclusive of depreciation and amortization.

Net income subsequent to initial public offering
  (April 13, 2011 through June 30, 2011) **

$   30.8

$   30.8

Net income per common unit - basic **

$   0.42

$   0.42

Net income per common unit - diluted **

$   0.42

$   0.42

Weighted average, number of common units outstanding (in thousands):

  Basic  

73,001

73,001

  Diluted  

73,044

73,044

**

Reflective of net income per common unit since closing the Partnership's initial public offering ("Offering") on April 13, 2011. The Partnership has omitted net income per unit for the periods in 2010 because the Partnership operated under a different capital structure prior to the closing of the Offering and, as a result, the per unit data would not be meaningful to investors. Based upon the full quarter's net income, net income per common unit would have been $0.52 per common unit.

As of June 30,

As of December 31,

2011

2010

(in millions)

(unaudited)

Balance Sheet Data:

Cash and cash equivalents

$                      229.8

$                        42.7

Working capital

231.6

27.1

Total assets

640.7

452.2

Total debt

125.0

—

Partners' capital

484.2

402.2

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

(in millions)

  (unaudited)

Other Financial Data:

Cash flows provided by (used in) operating activities

$        18.0

$         (3.6)

$        50.2

$        29.6

Cash flows used in investing activities

(4.0)

(0.8)

(5.8)

(1.9)

Cash flows provided by (used in) financing activities

144.4

4.4

142.6

(29.5)

  Net cash flow

$      158.4

$              —

$      187.0

$         (1.8)

Capital expenditures

$          4.0

$          0.8

$          6.0

$          2.0

Three Months Ended
June 30,

Six Months Ended
June 30,

2011

2010

2011

2010

(in millions)

(unaudited)

Non-GAAP Measures:

Reconciliation of Net Income to Adjusted Net Income and to Adjusted EBITDA:

Net Income

$        38.2

$        19.9

$        54.9

$        26.0

  Adjustments:

     Share-based compensation (1)

0.9

(0.5)

5.5

0.6

        Adjusted net income (2)

$        39.1

$        19.4

$        60.4

26.6

   Major scheduled turnaround expense

—

—

—

—

   Depreciation and amortization

4.7

4.7

9.3

9.3

   Interest (income) expense

1.2

(3.5)

1.2

(6.6)

        Adjusted EBITDA (3)

$        45.0

$        20.6

$        70.9

$        29.3

Three Month Ended

June 30, 2011

(in millions)

(unaudited)

Cash flows from operations (4)

$            18.0

Adjustments

Less: Deferred revenue balance at June 30, 2011

(3.0)

Plus: Deferred revenue balance at March 31, 2011

26.7

Less: Maintenance capital expenditures, April 1 thru June 30, 2011

(3.0)

Available cash flow for full quarter

$            38.7

$     0.530

Less: Cash Flows from Operations April 1 through April 12, 2011

(3.9)

Less: Change in deffered revenue balance from March 31, 2011
   to April 12, 2011

(5.1)

Available cash flow for distribution after IPO (April 13 - June 30)

$            29.7

$     0.407

Common units outstanding

73,003

Three Months Ended

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

(unaudited)

Nitrogen Fertilizer Key Operating Statistics:

Production (thousand tons):

  Ammonia (gross produced) (5)

102.3

105.2

207.6

210.3

  Ammonia (net available for sale) (5)

28.2

38.7

63.4

76.9

  UAN

179.4

162.9

350.0

326.7

Petroleum coke consumed (thousand tons)

135.8

115.5

259.9

233.1

Petroleum coke (cost per ton)

$           30

$           17

$           23

$           15

Sales (thousand tons):

  Ammonia

33.6

50.6

60.9

81.8

  UAN

166.1

172.2

345.4

327.9

     Total sales

199.7

222.8

406.3

409.7

Product pricing (plant gate) (dollars per ton) (6):

  Ammonia

$         574

$         312

$         570

$         300

  UAN

$         300

$         205

$         252

$         187

On-stream factors (7):

  Gasification

99.3%

92.2%

99.6%

94.0%

  Ammonia

98.5%

90.4%

97.6%

92.3%

  UAN

97.6%

89.1%

95.4%

89.8%

Reconciliation to net sales (dollars in millions):

  Freight in revenue

$          5.4

$          5.2

$        10.2

$          8.8

  Hydrogen revenue

6.1

—

6.1

-

  Sales net plant gate

69.2

51.1

121.8

85.8

     Total net sales

$        80.7

$        56.3

$      138.1

$        94.6

Market Indicators:

Natural gas NYMEX (dollars per MMBtu)

$        4.38

$        4.35

$        4.29

$        4.67

Ammonia — Southern Plains (dollars per ton)

$         604

$         359

$         605

$         345

UAN — Mid Cornbelt (dollars per ton)

$         366

$         249

$         358

$         246

_______________

(1)

CVR Partners has been allocated non-cash share-based compensation expense from CVR Energy, Inc., its affiliates and former affiliates (collectively "CVR Energy").  CVR Energy accounts for share-based compensation in accordance with Accounting Standards Codification ("ASC") Topic 718 Compensation – Stock Compensation ("ASC 718") as well as guidance regarding the accounting for share-based compensation granted to employees of an equity method investee.  In accordance with ASC 718, CVR Energy applies a fair-value based measurement method in accounting for share-based compensation.  The Partnership recognizes the costs of the share-based compensation incurred by CVR Energy on its behalf, primarily in selling, general and administrative expenses (exclusive of depreciation and amortization), and a corresponding increase or decrease to Partners' Capital, as the costs are incurred on its behalf, following the guidance issued by the FASB regarding the accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling goods or services, which require remeasurement at each reporting period through the performance commitment period, or in the Partnership's case, through the vesting period. Costs are allocated by CVR Energy based upon the percentage of time a CVR Energy employee provides services to CVR Partners.  In accordance with a services agreement between the entities, CVR Partners will not be responsible for the payment of cash related to any share-based compensation allocated to it by CVR Energy.

Three Months Ended
June 30,

Six Months Ended
June 30,

2011

2010

2011

2010

(in millions)

(unaudited)

Share-based compensation recorded in direct operating expenses:

$           —

$(0.1)

$0.4

$0.1

Share-based compensation recorded in selling, general and administrative  expenses:

0.9

(0.4)

5.1

0.5

Total share-based compensation

$         0.9

$(0.5)

$5.5

$0.6

(2)

Adjusted net income results from adjusting net income for items that the Partnership believes are needed in order to evaluate results in a more comparative analysis from period to period. For the three and six months ended June 30, 2011 and 2010, net income was adjusted for the impact of share-based compensation.  Adjusted net income is not a recognized term under GAAP and should not be substituted for net income as a measure of our performance but rather should be utilized as a supplemental measure of financial performance in evaluating our business. Management believes that adjusted net income provides relevant and useful information that enables external users of our financial statements, such as industry analysts, investors, lenders and rating agencies to better understand and evaluate our ongoing operating results and allow for greater transparency in the review of our overall financial, operational and economic performance.

(3)

Adjusted EBITDA is defined as net income before income tax expense, net interest (income) expense, depreciation and amortization expense and certain other items management believes affect the comparability of operating results.  For the three and six months ended June 30, 2011 and 2010, EBITDA was adjusted for the impact of share-based compensation.  Adjusted EBITDA is not a recognized term under GAAP and should not be substituted for net income as a measure of performance but should be utilized as a supplemental measure of performance in evaluating our business.  Management believes that adjusted EBITDA provides relevant and useful information that enables external users of our financial statements, such as industry analysts, investors, lenders and rating agencies to better understand and evaluate our ongoing operating results and allows for greater transparency in the reviewing of our overall financial, operational and economic performance.  Management believes it is appropriate to exclude certain items from EBITDA, such as share-based compensation and major scheduled turnaround expenses because management believes these items affect the comparability of operating results.

(4)

CVR Partners has announced a cash distribution of 40.7 cents per common unit for the second quarter of 2011. This distribution is based on our available cash flow and has been prorated for the portion of the quarter falling after the closing of CVR Partners' initial public offering on April 13, 2011. We expect that "available cash" for each quarter will generally be equal to our cash flow from operations for the quarter, less cash needed for maintenance capital expenditures, debt service and other contractual obligations, and reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate. Additionally, the Partnership retained the cash on hand associated with prepaid sales at the close of the Offering for future distributions to common unitholders based upon the recognition into income of the prepaid sales.

Available cash  is a significant performance metric used by senior management to compare cash flows generated by the Partnership (excluding maintenance capital expenditures, debt service and other contractual obligations, and reserves for future operating or capital needs as deemed appropriate by the board of directors) to the cash distributions expected to be paid to unitholders. Actual distributions are set by the board of directors of our general partner. The board of directors of our general partners may modify our cash distribution policy at any time, and our partnership agreement does not require us to make distributions at all.

Available cash is not a calculation based on GAAP.   Amounts derived in the calculation are derived from amounts separately presented in our consolidated financial statements; with the exception of maintenance capital spend.  The measure most directly comparable to available cash is operating cash flow for which we have reconciled to in this release. Available cash should not be considered in isolation or as an alternative to net income or operating income. It is presented here to support the quarterly distribution. CVR Partners' available cash may not be comparable to similarly titled measures of other entities.

(5)

The gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into UAN.  The net tons available for sale represent the ammonia available for sale that was not upgraded into UAN.

(6)

Plant gate sales per ton represent net sales less freight and hydrogen revenue divided by product sales volume in tons in the reporting period. Plant gate pricing per ton is shown in order to provide a pricing measure that is comparable across the fertilizer industry.

(7)

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 the Linde air separation unit outage, the on-stream factors would have been 97.8% for gasifier, 96.8% for ammonia and 95.3% for UAN for the three months ended June 30, 2010. There were no adjusting events to the on-stream factors for the three and six months ended June 30, 2011.    

Use of Non-GAAP Financial Measures

To supplement the actual results in accordance with GAAP for the applicable periods, the Partnership also uses non-GAAP measures as discussed above, which are adjusted for GAAP-based results.  The use of non-GAAP adjustments are not in accordance with or an alternative for GAAP.  The adjustments are provided to enhance an overall understanding of the Partnership's financial performance for the applicable periods and are indicators management believes are relevant and useful for planning and forecasting future periods.