NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Formation of the Partnership, Organization and Nature of Business
CVR Refining, LP and subsidiaries (referred to as "CVR Refining" or the "Partnership") is an independent petroleum refiner and marketer of high value transportation fuels. The Partnership owns a complex full coking medium-sour crude oil refinery in Coffeyville, Kansas and a complex crude oil refinery in Wynnewood, Oklahoma. As of
December 31, 2016
, Coffeyville Resources, LLC (referred to as "CRLLC") a wholly-owned subsidiary of CVR Energy, Inc. (referred to as "CVR Energy"), owns
100%
of the Partnership's non-economic general partner interest and approximately
66%
of the Partnership's outstanding limited partner interests. As of
December 31, 2016
, Icahn Enterprises L.P. ("IEP") and its affiliates own approximately
82%
of CVR Energy's outstanding shares.
In preparation for the initial public offering (the "Initial Public Offering") of CVR Refining, on December 31, 2012, CRLLC contributed all of its interests in the operating subsidiaries which constitute its petroleum refining and related logistics business, as well as Coffeyville Finance Inc. ("Coffeyville Finance"), a finance subsidiary formed to serve as a co-issuer of debt securities, to a newly-formed subsidiary, CVR Refining, LLC ("Refining LLC"). The operating subsidiaries that were contributed to Refining LLC include the following entities: Wynnewood Energy Company, LLC ("WEC"); Wynnewood Refining Company, LLC ("WRC"); Coffeyville Resources Refining & Marketing, LLC ("CRRM"); Coffeyville Resources Crude Transportation, LLC ("CRCT"); Coffeyville Resources Terminal, LLC ("CRT"); and Coffeyville Resources Pipeline, LLC ("CRP"). The entities that were contributed by CRLLC to Refining LLC in connection with the Initial Public Offering are referred to herein as the "Refining Subsidiaries." CVR Refining Holdings, LLC ("CVR Refining Holdings"), a wholly-owned subsidiary of CRLLC, contributed its
100%
membership interest in Refining LLC to the Partnership on December 31, 2012. In connection with the closing of the Initial Public Offering, CVR Refining Holdings and its subsidiary were issued a designated number of common units of the Partnership, which represented approximately
81%
of the Partnership's outstanding limited partner interests. CRLLC retained its other assets, including its ownership interests in CVR Partners, LP ("CVR Partners"), a NYSE traded manufacturer of nitrogen fertilizer, and its general partner.
The contribution of the refining subsidiaries as discussed above by CRLLC to Refining LLC was not considered a business combination accounted for under the purchase method as it was a transfer of assets under common control and, accordingly, balances were transferred at their historical cost.
Initial Public Offering of CVR Refining, LP
On January 23, 2013, the Partnership completed the Initial Public Offering. The Partnership sold
24,000,000
common units at a price of
$25.00
per unit. Of the common units issued,
4,000,000
units were purchased by an affiliate of IEP. Additionally, on January 30, 2013, the underwriters closed their option to purchase an additional
3,600,000
common units at a price of
$25.00
per unit. The common units, which are listed on the NYSE, began trading on January 17, 2013 under the symbol "CVRR." In connection with the Initial Public Offering, the Partnership paid approximately
$32.5 million
in underwriting fees and incurred approximately
$3.9 million
of other offering costs.
The net proceeds to CVR Refining from the Initial Public Offering of approximately
$653.6 million
, after deducting underwriting discounts and commissions and offering expenses, have been utilized as follows: approximately
$253.0 million
was used to repurchase CRLLC's
10.875%
senior secured notes due 2017 (including accrued interest); approximately
$54.0 million
was used to fund the turnaround expenses at the Wynnewood refinery that were incurred during the fourth quarter of 2012; approximately
$85.1 million
was distributed to CRLLC; approximately
$160.0 million
was used to fund certain maintenance and environmental capital expenditures through 2014; and the balance of the proceeds of approximately
$101.5 million
was allocated to be utilized for general corporate purposes.
Prior to the closing of the Initial Public Offering, the Partnership distributed approximately
$150.0 million
of cash on hand to CRLLC. Immediately subsequent to the closing of the Initial Public Offering and through May 19, 2013, common units held by public security holders represented approximately
19%
of all outstanding limited partner interests (this number includes the common units held by an affiliate of IEP, representing approximately
3%
of all outstanding limited partner interests) and CVR Refining Holdings held common units approximating
81%
of all outstanding limited partner interests.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Underwritten Offering
On May 20, 2013, the Partnership completed an underwritten offering (the "Underwritten Offering") by selling
12,000,000
common units to the public at a price of
$30.75
per unit. American Entertainment Properties Corporation ("AEPC"), an affiliate of IEP, also purchased an additional
2,000,000
common units at the public offering price in a privately negotiated transaction with a CVR Energy subsidiary, which was completed on May 29, 2013. In connection with the Underwritten Offering, on June 10, 2013, the Partnership sold an additional
1,209,236
common units to the public at a price of
$30.75
per unit in connection with a partial exercise by the underwriters of their option to purchase additional common units. The transactions described in this paragraph are collectively referred to as the “Transactions.” In connection with the Transactions, the Partnership paid approximately
$12.2 million
in underwriting fees and approximately
$0.4 million
in offering costs.
CVR Refining utilized net proceeds of approximately
$394.0 million
from the Underwritten Offering (including net proceeds from the exercise of the underwriters' option) to redeem
13,209,236
common units from CVR Refining Holdings, an indirect wholly-owned subsidiary of CVR Energy. The Partnership did not receive any of the proceeds from the sale of common units by a CVR Energy subsidiary to AEPC.
Immediately following the closing of the Transactions and prior to June 30, 2014, public security holders held approximately
29%
of all outstanding limited partner interests (including common units owned by affiliates of IEP, representing approximately
4%
of all outstanding limited partner interests), and CVR Refining Holdings held approximately
71%
of all outstanding limited partner interests.
Second Underwritten Offering
On June 30, 2014, the Partnership completed a second underwritten offering (the "Second Underwritten Offering") by selling
6,500,000
common units to the public at a price of
$26.07
per unit. The Partnership paid approximately
$5.3 million
in underwriting fees and approximately
$0.5 million
in offering costs. CVR Refining utilized net proceeds of approximately
$164.1 million
from the Second Underwritten Offering to redeem
6,500,000
common units from CVR Refining Holdings. Immediately subsequent to the closing of the Second Underwritten Offering and through July 23, 2014, public security holders held approximately
33%
of all outstanding limited partner interests, and CVR Refining Holdings held approximately
67%
of all outstanding limited partner interests.
On July 24, 2014, the Partnership sold an additional
589,100
common units to the public at a price of
$26.07
per unit in connection with the underwriters' exercise of their option to purchase additional common units. The Partnership utilized net proceeds of approximately
$14.9 million
from the underwriters' exercise of their option to purchase additional common units to redeem an equal amount of common units from CVR Refining Holdings. Additionally, on July 24, 2014, CVR Refining Holdings sold
385,900
common units to the public at a price of
$26.07
per unit in connection with the underwriters' exercise of their remaining option to purchase additional common units. CVR Refining Holdings received net proceeds of
$9.7 million
.
IEP Sale of CVR Refining Units
On August 2, 2016, an affiliate of IEP sold
250,000
common units of CVR Refining. As a result of this transaction, CVR Refining GP, LLC ("CVR Refining GP") and its affiliates collectively own
69.99%
of CVR Refining. Pursuant to CVR Refining’s partnership agreement, in certain circumstances, CVR Refining GP has the right to purchase all, but not less than all, of CVR Refining common units held by unaffiliated unit holders at a price not less than their then-current market price, as calculated pursuant to the terms of such partnership agreement (the “Call Right”). Pursuant to the terms of the partnership agreement, because CVR Refining GP and its affiliates’ holdings were reduced to less than
70.0%
, the ownership threshold for the application of such Call Right was permanently reduced from
95%
to
80%
. Accordingly, if at any time CVR Refining GP and its affiliates own more than
80%
of CVR Refining common units, it will have the right, but not the obligation, to exercise such Call Right.
As of
December 31, 2016
, public security holders held approximately
34%
of all outstanding limited partner interests (including common units owned by affiliates of IEP, representing approximately
3.9%
of all outstanding limited partner interests), and CVR Refining Holdings held approximately
66%
of all outstanding limited partner interests. In addition, CVR Refining Holdings owns
100%
of the Partnership's general partner, CVR Refining GP which holds a non-economic general partner interest.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Management and Operations
The Partnership entered into a services agreement on December 31, 2012, pursuant to which the Partnership and its general partner obtain certain management and other services from CVR Energy. The Partnership's general partner manages the Partnership's activities subject to the terms and conditions specified in the Partnership's partnership agreement. The operations of the general partner, in its capacity as general partner, are managed by its board of directors. Actions by the general partner that are made in its individual capacity are made by CVR Refining Holdings as the sole member of the Partnership's general partner and not by the board of directors of the general partner. The members of the board of directors of the Partnership's general partner are not elected by the Partnership's unitholders and are not subject to re-election on a regular basis. The officers of the general partner manage the day-to-day affairs of the business.
The Partnership has adopted a policy pursuant to which it will distribute all of the available cash it generates each quarter. The available cash for distribution for each quarter will be determined by the board of directors of the Partnership's general partner following the end of such quarter and will generally be distributed within
60 days
of quarter end. The partnership agreement does not require that the Partnership make cash distributions on a quarterly basis or at all, and the board of directors of the general partner of the Partnership can change the distribution policy at any time.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying Partnership consolidated financial statements include the accounts of CVR Refining and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Partnership considers all highly liquid money market accounts and debt instruments with original maturities of three months or less to be cash equivalents. Under the Partnership's cash management system, checks issued but not presented to banks frequently result in book overdraft balances for accounting purposes and are classified within accounts payable in the Consolidated Balance Sheets. The change in book overdrafts are reported in the Consolidated Statements of Cash Flows as a component of operating cash flows for accounts payable as they do not represent bank overdrafts. The amount of these checks included in accounts payable as of
December 31, 2016
and
2015
was
$11.1 million
and
$22.0 million
, respectively.
Accounts Receivable, net
CVR Refining grants credit to its customers. Credit is extended based on an evaluation of a customer's financial condition; generally, collateral is not required. Accounts receivable are due on negotiated terms and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than their contractual payment terms are considered past due. CVR Refining determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts are past due, the customer's ability to pay its obligations to CVR Refining, and the condition of the general economy and the industry as a whole. CVR Refining writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Amounts collected on accounts receivable are included in net cash provided by operating activities in the Consolidated Statements of Cash Flows. At
December 31, 2016
and 2015,
one
customer individually represented greater than 10% of the total net accounts receivable balance. The largest concentration of credit for any one customer at
December 31, 2016
and
2015
was approximately
11%
and
10%
, respectively, of the net accounts receivable balance.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories
Inventories consist primarily of domestic and foreign crude oil, blending stock and components, work-in-progress and refined fuels and by-products. Inventories are valued at the lower of the first-in, first-out ("FIFO") cost, or market for refined fuels and byproducts for all periods presented. Refinery unfinished and finished products inventory values were determined using the ability-to-bear process, whereby raw materials and production costs are allocated to work-in-process and finished products based on their relative fair values. Other inventories, including other raw materials, spare parts, and supplies, are valued at the lower of moving-average cost, which approximates FIFO, or market. The cost of inventories includes inbound freight costs. Due to the crude pricing environment and subsequent reduction in sales prices for refined products at the end of 2014, the Partnership recorded a lower of FIFO costs or market adjustment of approximately
$36.8 million
as of December 31, 2014. The inventory adjustment is included in cost of materials and other in the Consolidated Statement of Operations.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of prepayments for crude oil deliveries to the Partnership's refineries for which title had not transferred, non-trade accounts receivable, current portions of prepaid insurance, deferred financing costs, derivative agreements and other general current assets.
Property, Plant, and Equipment
Additions to property, plant and equipment, including capitalized interest and certain costs allocable to construction and property purchases, are recorded at cost. Capitalized interest is added to any capital project over
$1.0 million
in cost which is expected to take more than
six months
to complete. Depreciation is computed using principally the straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing depreciation for such assets are as follows:
|
|
|
|
|
Asset
|
Range of Useful
Lives, in Years
|
Improvements to land
|
15
|
to
|
30
|
Buildings
|
20
|
to
|
30
|
Machinery and equipment
|
5
|
to
|
30
|
Automotive equipment
|
5
|
to
|
15
|
Furniture and fixtures
|
3
|
to
|
10
|
Leasehold improvements are depreciated or amortized on the straight-line method over the shorter of the contractual lease term or the estimated useful life of the asset. Expenditures for routine maintenance and repair costs are expensed when incurred. Such expenses are reported in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations.
Deferred Financing Costs
Deferred financing costs associated with debt issuances are amortized to interest expense and other financing costs using the effective-interest method over the life of the debt. Additionally, any underwriting and original issue discount and premium related to debt issuances are amortized to interest expense and other financing costs using the effective-interest method over the life of the debt. Deferred financing costs related to the Partnership's Amended and Restated ABL Credit Facility are amortized to interest expense and other financing costs using the straight-line method through the termination date of the facility.
Planned Major Maintenance Costs
The direct-expense method of accounting is used for planned major maintenance activities. Maintenance costs are recognized as expense when maintenance services are performed. The required frequency of planned major maintenance activities varies by unit for the refineries, but generally is every
four
to
five years
. Costs associated with these turnaround activities were included in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended
December 31, 2016
,
2015
and 2014, the Partnership incurred the following major scheduled turnaround expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Coffeyville refinery(1)
|
$
|
31.5
|
|
|
$
|
102.2
|
|
|
5.5
|
|
Wynnewood refinery(2)
|
—
|
|
|
—
|
|
|
1.3
|
|
Total major scheduled turnaround expenses
|
$
|
31.5
|
|
|
$
|
102.2
|
|
|
$
|
6.8
|
|
|
|
(1)
|
The Coffeyville refinery completed the first phase of its most recent major scheduled turnaround in November 2015. The second phase of the Coffeyville turnaround was completed during the first quarter of 2016. During the outage at the Coffeyville refinery as discussed in
Note 6 ("Insurance Claims")
, the Partnership accelerated certain planned turnaround activities scheduled for 2015 and incurred turnaround expenses for the year ended December 31, 2014.
|
|
|
(2)
|
During the fluid catalytic cracking unit ("FCCU") outage at the Wynnewood refinery, the Partnership accelerated certain planned turnaround activities previously scheduled for 2016 and incurred turnaround expenses for the year ended December 31, 2014. The next turnaround for the Wynnewood refinery will be performed as a two phase turnaround. The first phase is scheduled to begin in the second half of 2017, with the second phase to begin in the second half of 2018. Additionally, certain planned turnaround activities will be accelerated in the first quarter of 2017 on the hydrocracker unit for a catalyst change-out.
|
Cost Classifications
Cost of materials and other includes cost of crude oil, other feedstocks, blendstocks, purchased refined products, renewable identification numbers ("RINs") and transportation and distribution costs.
Direct operating expenses (exclusive of depreciation and amortization) includes direct costs of labor, maintenance and services, energy and utility costs, property taxes, environmental compliance costs as well as chemicals and catalysts and other direct operating expenses. Direct operating expenses also include allocated share-based compensation from CVR Energy and its subsidiaries as discussed in
Note 3 ("Share-Based Compensation")
. Direct operating expenses excluded depreciation and amortization of approximately
$126.3 million
,
$128.0 million
and
$120.9 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Selling, general and administrative expenses (exclusive of depreciation and amortization) consist primarily of direct and allocated legal expenses, treasury, accounting, marketing, human resources, information technology and maintaining the corporate and administrative offices in Texas and Kansas. Selling, general and administrative expenses also include allocated share-based compensation from CVR Energy and its subsidiaries as discussed in
Note 3 ("Share-Based Compensation")
. Selling, general and administrative expenses excluded depreciation and amortization of approximately
$2.7 million
,
$2.2 million
and
$1.6 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Income Taxes
CVR Refining is treated as a partnership for U.S. federal income tax purposes. The income tax liability of the common unitholders is not reflected in the consolidated financial statements of the Partnership. Generally, each common unitholder is required to take into account its respective share of CVR Refining's income, gains, loss and deductions. The Partnership is not subject to income taxes, except for a franchise tax in the State of Texas.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 740,
Income Taxes
, taxes based on income like the Texas franchise tax are accounted for using the liability method under which deferred income taxes are recognized for the future tax effects of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities using the enacted statutory tax rates in effect at the end of the period. A valuation allowance for deferred tax assets is recorded when it is more likely than not that the benefit from the deferred tax asset will not be realized. As of
December 31, 2016
and
2015
, the Partnership has no material tax balances associated with the Texas franchise tax.
Segment Reporting
The Partnership accounts for segment reporting in accordance with ASC Topic 280,
Segment Reporting,
which established standards for entities to report information about the operating segments and geographic areas in which they operate. CVR Refining only operates
one
segment and all of its operations are located in the United States.
Impairment of Long-Lived Assets
CVR Refining accounts for long-lived assets in accordance with accounting standards issued by the FASB regarding the treatment of the impairment or disposal of long-lived assets. As required by this standard, CVR Refining reviews long-lived assets (excluding intangible assets with indefinite lives) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less cost to sell.
Revenue Recognition
Revenues for products sold are recorded upon delivery of the products to customers, which is the point at which title is transferred, the customer has assumed the risk of loss, and payment has been received or collection is reasonably assured. Excise and other taxes collected from customers and remitted to governmental authorities are not included in reported revenues.
Non-monetary product exchanges and certain buy/sell crude oil transactions which are entered into in the normal course of business are included on a net cost basis in operating expenses on the Consolidated Statements of Operations.
The Partnership also engages in trading activities, whereby the Partnership enters into agreements to purchase and sell refined products with third parties. The Partnership acts as a principal in these transactions, taking title to the products in purchases from counterparties, and accepting the risks and rewards of ownership. The Partnership records revenue for the gross amount of the sales transactions, and records costs of purchases as an operating expense in the accompanying consolidated financial statements.
Shipping Costs
Pass-through finished goods delivery costs reimbursed by customers are reported in net sales, while an offsetting expense is included in cost of materials and other.
Derivative Instruments and Fair Value of Financial Instruments
The Partnership uses futures contracts, options, and forward contracts primarily to reduce exposure to changes in crude oil prices and finished goods product prices to provide economic hedges of inventory positions. Although management considers these derivatives economic hedges, these derivative instruments do not qualify as hedges for hedge accounting purposes under ASC Topic 815,
Derivatives and Hedging
, and accordingly are recorded at fair value in the balance sheet. Changes in the fair value of these derivative instruments are recorded into earnings as a component of other income (expense) in the period of change. The estimated fair values of forward and swap contracts are based on quoted market prices and assumptions for the estimated forward yield curves of related commodities in periods when quoted market prices are unavailable. See
Note 13 ("Derivative Financial Instruments")
for further discussion.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other financial instruments consisting of cash and cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates fair value, as a result of the short-term nature of the instruments. See
Note 7 ("Long-Term Debt")
for further discussion of the fair value of the debt instruments.
Share-Based Compensation
The Partnership has recorded share-based compensation expense related to the CVR Refining, LP Long-Term Incentive Plan (the "CVR Refining LTIP") and has been allocated share-based compensation expense from CVR Energy and CRLLC. The Partnership and CVR Energy account for share-based compensation in accordance with ASC Topic 718,
Compensation — Stock Compensation
("ASC 718"). ASC 718 requires that compensation costs relating to share-based payment transactions be recognized in a company's financial statements. ASC 718 applies to transactions in which an entity exchanges its equity instruments for goods or services and also may apply to liabilities an entity incurs for goods or services that are based on the fair value of those equity instruments.
Environmental Matters
Liabilities related to future remediation costs of past environmental contamination of properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, internal and third-party assessments of contamination, available remediation technology, site-specific costs, and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change and such accruals can take into account the legal liability of other parties. Environmental expenditures are capitalized at the time of the expenditure when such costs provide future economic benefits.
Use of Estimates
The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"), using management's best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments.
Allocation of Costs
CVR Energy and its subsidiaries provide a variety of services to CVR Refining, including cash management and financing services, employee benefits provided through CVR Energy's benefit plans, administrative services provided by CVR Energy's employees and management, insurance and office space leased in CVR Energy's headquarters building and other locations. As such, the accompanying consolidated financial statements include costs that have been incurred by CVR Energy and CRLLC on behalf of CVR Refining. These amounts incurred by CVR Energy are then billed or allocated to CVR Refining and are properly classified on the Consolidated Statements of Operations as either direct operating expenses (exclusive of depreciation and amortization) or as selling, general and administrative expenses (exclusive of depreciation and amortization). The billing and allocation of such costs are governed and billed in accordance with the services agreement entered into between the Partnership and CVR Energy on December 31, 2012. The services agreement provides guidance for the treatment of certain general and administrative expenses and certain direct operating expenses incurred on the Partnership's behalf. Such expenses include, but are not limited to, salaries, benefits, share-based compensation expense, insurance, accounting, tax, legal and technology services. Costs which are specifically incurred on behalf of CVR Refining are billed directly to CVR Refining. See
Note 14 ("Related Party Transactions")
for a detailed discussion of the billing procedures and the basis for calculating the charges for specific products and services.
Subsequent Events
The Partnership evaluated subsequent events, if any, that would require an adjustment to the Partnership's consolidated financial statements or require disclosure in the notes to the consolidated financial statements through the date of issuance of the consolidated financial statements.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, creating a new topic, FASB ASC Topic 606, "
Revenue from Contracts with Customers
" ("ASU 2014-09"), which supersedes revenue recognition requirements in FASB ASC Topic 605, “
Revenue Recognition
.” This ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In addition, an entity is required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard was originally effective for interim and annual periods beginning after December 15, 2016 and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. On July 9, 2015, the FASB approved a one-year deferral of the effective date making the standard effective for interim and annual periods beginning after December 15, 2017. The FASB will continue to permit entities to adopt the standard on the original effective date if they choose. The Partnership has developed an implementation plan to adopt the new standard. As part of this plan, the Partnership is currently assessing the impact of the new guidance on its business processes, business and accounting systems, and consolidated financial statements and related disclosures, which involves review of existing revenue streams, evaluation of accounting policies and identification of the types of arrangements where differences may arise in the conversion to the new standard. The Partnership expects to complete the assessment phase of its implementation plan within the next several months after which the Partnership will initiate the design and implementation phases of the plan, including implementing any changes to existing business processes and systems to accommodate the new standard, during 2017. The Partnership will adopt this standard as of January 1, 2018 using the modified retrospective application method. To date, the Partnership has not identified any material differences in its existing revenue recognition methods that would require modification under the new standard.
In April 2015, the FASB issued ASU 2015-03,
"Simplifying the Presentation of Debt Issuance Costs"
("ASU 2015-03")
.
The new standard requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The standard is effective for interim and annual periods beginning after December 15, 2015 and is required to be applied on a retrospective basis. Early adoption is permitted. The Partnership adopted ASU 2015-03 as of January 1, 2016 and applied the standard retrospectively to the Consolidated Balance Sheets. Refer to
Note 7 ("Long-Term Debt")
for further details.
In February 2016, the FASB issued ASU 2016-02, “
Leases
” (“ASU 2016-02”). The new standard revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The standard is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. At adoption, ASU 2016-02 will be applied using a modified retrospective application method. The Partnership is currently evaluating the standard and the impact on its consolidated financial statements and footnote disclosures.
(3) Share-Based Compensation
Certain employees of CVR Refining and employees of CVR Energy and its subsidiaries who perform services for CVR Refining participate in the equity compensation plans of CVR Refining's affiliates. Accordingly, CVR Refining has recorded compensation expense for these plans in accordance with Staff Accounting Bulletin ("SAB") Topic 1-B, "
Allocations of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity
," and in accordance with guidance regarding the accounting for share-based compensation granted to employees of an equity method investee. All compensation expense related to these plans for full-time employees of CVR Refining has been attributed
100%
to CVR Refining. For employees of CVR Energy performing services for CVR Refining, CVR Refining recorded share-based compensation relative to the percentage of time spent by each employee providing services to CVR Refining as compared to the total calculated share-based compensation by CVR Energy.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Partnership has been allocated share-based compensation expense for restricted stock units, performance units and incentive units from CVR Energy. The Partnership is not responsible for payment of cash related to any restricted stock units allocated to the Partnership by CVR Energy; however, the Partnership is responsible for payment of cash on both the performance units and incentive units. For restricted stock units, the Partnership recognizes the costs of the share-based compensation incurred by CVR Energy on its behalf in selling, general and administrative expenses (exclusive of depreciation and amortization) and direct operating expenses (exclusive of depreciation and amortization) and a corresponding increase or decrease to partners' capital, as the costs are incurred on the Partnership's 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. For performance units and incentive units, the Partnership recognizes the costs of the share-based compensation incurred by CVR Energy on its behalf in selling, general and administrative expenses (exclusive of depreciation and amortization) and direct operating expenses (exclusive of depreciation and amortization), and a corresponding increase or decrease to accrued expenses and other current liabilities.
Long-Term Incentive Plan — CVR Energy
CVR Energy has a Long-Term Incentive Plan ("CVR Energy LTIP") that permits the grant of options, stock appreciation rights, restricted shares, restricted share units, dividend equivalent rights, share awards and performance awards (including performance share units, performance units and performance based restricted stock). As of
December 31, 2016
, only performance units under the CVR Energy LTIP remain outstanding. Individuals who are eligible to receive awards and grants under the CVR Energy LTIP include CVR Energy's or its subsidiaries' (including CVR Refining) employees, officers, consultants and directors.
Restricted Stock Units
Through the CVR Energy LTIP, shares of restricted stock and restricted stock units (collectively "restricted shares") have been granted to employees of CVR Energy and CVR Refining. Restricted shares, when granted, were historically valued at the closing market price of CVR Energy's common stock on the date of issuance. These restricted shares were generally graded-vesting awards, which vested over a
three
-year period. Compensation expense was recognized on a straight-line basis over the vesting period of the respective tranche of the award. The change of control of CVR Energy in 2012 triggered a modification to outstanding awards under the CVR Energy LTIP converting the awards to restricted stock units whereby the recipient received cash settlement of the offer price of
$30.00
per share in cash plus
one
contingent cash payment right ("CCP") upon vesting. The CCPs expired on August 19, 2013. Restricted shares that vested in 2013, 2014 and 2015 were converted to restricted stock units whereby the awards were settled in cash upon vesting in an amount equal to the lesser of the offer price or the fair market value of CVR Energy's common stock as determined at the most recent valuation date of December 31 of each year. The awards were remeasured at each subsequent reporting date until they vested.
In December 2012 and during 2013, restricted stock units and dividend equivalent rights were granted to certain employees of CVR Energy and its subsidiaries (including CVR Refining). The awards vested over
three
years with one-third of the award vesting each year with the exception of awards granted to certain executive officers that vested over
one year
. The award granted in December 2012 to Mr. Lipinski, CVR Energy's Chief Executive Officer and President, was canceled in connection with the issuance of certain performance unit awards as discussed further below. Each restricted stock unit and dividend equivalent right represented the right to receive, upon vesting, a cash payment equal to (i) the fair market value of
one
share of the CVR Energy's common stock, plus (ii) the cash value of all dividends declared and paid per share of CVR Energy's common stock from the grant date to and including the vesting date. The awards were remeasured each subsequent reporting date until they vest.
As of
December 31, 2016
, no restricted stock units were outstanding. Total compensation expense recorded for the years ended
December 31, 2016
,
2015
and
2014
was approximately
$0.0 million
,
$0.6 million
and
$2.2 million
, respectively. CVR Refining is not responsible for payment of CVR Energy restricted stock unit awards, and accordingly, the expenses recorded for the years ended
December 31, 2016
,
2015
and
2014
have been reflected as an increase to partners' capital.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Performance Unit Awards
In December 2013, CVR Energy entered into performance unit award agreements (the "2013 Performance Unit Award Agreements") with Mr. Lipinski. Certain of the 2013 Performance Unit Awards Agreements were entered into in connection with the cancellation of Mr. Lipinski's December 2012 restricted stock unit award, as discussed above. In accordance with accounting guidance related to the modification of share-based and other compensatory award arrangements, CVR Energy concluded that the cancellation and concurrent issuance of the performance awards created a substantive service period from the original grant date of the December 2012 restricted stock unit award through December 31, 2014, the end of the performance period for the related performance awards. Compensation cost for these awards was recognized over the substantive service period. Total compensation expense recorded for the years ended December 31, 2014 related to the performance unit awards was approximately
$1.9 million
. The Partnership was responsible for reimbursing CVR Energy for its allocated portion of the performance unit awards.
The Partnership reimbursed CVR Energy approximately
$3.4 million
for its allocated portion of the performance unit award payment during 2014. As of December 31, 2014, the Partnership had a liability of
$0.7 million
recorded in accrued expenses and other current liabilities on the Consolidated Balance Sheets for the final vested and unreimbursed 2013 Performance Unit Awards, which was paid in the first quarter of 2015.
In December 2015, CVR Energy entered into a performance unit award agreement (the "2015 Performance Unit Award Agreement") with Mr. Lipinski. The performance unit award of
3,500
performance units under the 2015 Performance Unit Award Agreement represents the right to receive, upon vesting, a cash payment equal to
$1,000
multiplied by the applicable performance factor. The performance factor is determined based on the level of attainment of the applicable performance objective, set forth as a percentage, which may range from
0
-
110%
.
Seventy-five percent
of the performance units attributable to the award are subject to a performance objective relating to the average barrels per day crude throughput during the performance cycle, and
25%
of the performance units attributable to the award are subject to a performance objective relating to the average gathered crude barrels per day during the performance cycle. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and therefore are considered reasonably possible of being achieved. The amount paid pursuant to the award, if any, will be paid following the end of the performance cycle for the award, but no later than March 6, 2017. The Partnership will be responsible for reimbursing CVR Energy for its allocated portion of the performance unit awards. Compensation cost for the 2015 Performance Unit Award Agreement totaling
$1.7 million
was recognized over the performance cycle from January 1, 2016 to December 31, 2016.
In December 2016, CVR Energy entered into a performance unit award agreement (the "2016 Performance Unit Award Agreement") with Mr. Lipinski. Compensation cost for the 2016 Performance Unit Award Agreement will be recognized over the performance cycle from January 1, 2017 to December 31, 2017. The performance unit award of
3,500
performance units under the 2016 Performance Unit Award Agreement represents the right to receive, upon vesting, a cash payment equal to
$1,000
multiplied by the applicable performance factor. The performance factor is determined based on the level of attainment of the applicable performance objective, set forth as a percentage, which may range from
0
-
110%
.
Seventy-five percent
of the performance units attributable to the award are subject to a performance objective relating to the average barrels per day crude throughput during the performance cycle, and
25%
of the performance units attributable to the award are subject to a performance objective relating to the average gathered crude barrels per day during the performance cycle. The performance objectives are set in accordance with approved levels of the business plan for the fiscal year during the performance cycle and therefore are considered reasonably possible of being achieved. The amount paid pursuant to the award, if any, will be paid following the end of the performance cycle for the award, but no later than March 6, 2018. The Partnership will be responsible for reimbursing CVR Energy for its allocated portion of the performance unit awards. Assuming a target performance threshold and that the allocation of costs from CVR Energy remains consistent with the allocation percentages in place at
December 31, 2016
, there was approximately
$1.7 million
of total unrecognized compensation cost related to the 2016 Performance Unit Award Agreement to be recognized over a period of
1.0 year
.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Incentive Unit Awards
In 2013 through 2016, CVR Energy granted awards of incentive units and distribution equivalent rights to certain employees of CRLLC, CVR Energy and CVR GP, LLC. The awards are generally graded-vesting awards, which are expected to vest over
three years
with one-third of the award vesting each year. Compensation expense is recognized on a straight-line basis over the vesting period of the respective tranche of the award. Each incentive unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of
one
unit of the Partnership's common units in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by the Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
Assuming the portion of time spent on CVR Refining related matters by CVR Energy employees providing services to CVR Refining remains consistent with the amount of services provided during
December 31, 2016
, there was approximately
$5.7 million
of total unrecognized compensation cost related to the incentive units and associated distribution equivalent rights to be recognized over a weighted-average period of approximately
1.7 years
. Inclusion of the vesting table is not considered meaningful due to changes in allocation percentages that occur from time to time. The unrecognized compensation expense has been determined by the number of incentive units and associated distribution equivalent rights and respective allocation percentages for individuals for whom, as of
December 31, 2016
, compensation expense has been allocated to the Partnership. Total compensation expense recorded for the years ended
December 31, 2016
,
2015
and 2014 related to the incentive unit awards was
$1.5 million
,
$3.8 million
and
$1.5 million
, respectively. The Partnership is responsible for reimbursing CVR Energy for its allocated portion of the incentive unit awards.
As of
December 31, 2016
and
2015
, the Partnership had a liability of
$1.5 million
and
$1.8 million
, respectively, for its allocated portion of non-vested incentive units and associated distribution equivalent rights, which is recorded in accrued expenses and other current liabilities on the Consolidated Balance Sheets. For the years ended
December 31, 2016
,
2015
and 2014, the Partnership reimbursed CVR Energy
$1.9 million
,
$2.4 million
and
$1.0 million
for its allocated portion of the incentive unit award payments.
Long-Term Incentive Plan — CVR Refining
In connection with the Initial Public Offering, on January 16, 2013, the board of directors of the general partner of the Partnership adopted the CVR Refining LTIP. Individuals who are eligible to receive awards under the CVR Refining LTIP include (i) employees of the Partnership and its subsidiaries, (ii) employees of the general partner, (iii) members of the board of directors of the general partner and (iv) certain employees, consultants and directors of CRLLC and CVR Energy who perform services for the benefit of the Partnership. The CVR Refining LTIP provides for the grant of options, unit appreciation rights, restricted units, phantom units, unit awards, substitute awards, other-unit based awards, cash awards, performance awards and distribution equivalent rights. The maximum number of common units issuable under the CVR Refining LTIP is
11,070,000
. As the phantom unit awards discussed below are cash-settled awards, they did not reduce the number of common units available for issuance under the plan. On August 14, 2013, the Partnership filed a Form S-8 to register the common units.
In 2013 through 2016, awards of phantom units and distribution equivalent rights were granted to employees of the Partnership and its subsidiaries, its general partner and certain employees of CRLLC and CVR Energy who perform services solely for the benefit of the Partnership. The awards are generally graded-vesting awards, which are expected to vest over
three years
with one-third of the award vesting each year. Compensation expense is recognized on a straight-line basis over the vesting period of the respective tranche of the award. Each phantom unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of
one
unit of the Partnership's common units in accordance with the award agreement, plus (ii) the per unit cash value of all distributions declared and paid by the Partnership from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of phantom unit activity and changes under the CVR Refining LTIP during the years ended
December 31, 2016
,
2015
and
2014
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
(in millions)
|
Non-vested at January 1, 2014
|
187,177
|
|
|
$
|
21.55
|
|
|
$
|
4.2
|
|
Granted
|
281,948
|
|
|
17.74
|
|
|
|
Vested
|
(61,002
|
)
|
|
21.55
|
|
|
|
Forfeited
|
(4,176
|
)
|
|
21.55
|
|
|
|
Non-vested at December 31, 2014
|
403,947
|
|
|
$
|
18.89
|
|
|
$
|
6.8
|
|
Granted
|
302,319
|
|
|
20.40
|
|
|
|
Vested
|
(136,531
|
)
|
|
19.26
|
|
|
|
Forfeited
|
(58,144
|
)
|
|
18.87
|
|
|
|
Non-vested at December 31, 2015
|
511,591
|
|
|
$
|
19.68
|
|
|
$
|
9.7
|
|
Non-vested at Granted
|
644,148
|
|
|
$
|
9.43
|
|
|
|
Vested
|
(218,351
|
)
|
|
19.78
|
|
|
|
Forfeited
|
(32,533
|
)
|
|
19.13
|
|
|
|
Non-vested at December 31, 2016
|
904,855
|
|
|
$
|
12.38
|
|
|
$
|
9.4
|
|
As of
December 31, 2016
, there was approximately
$8.1 million
of total unrecognized compensation cost related to the awards under the CVR Refining LTIP to be recognized over a weighted-average period of
1.8 years
. Total compensation expense recorded for the years ended
December 31, 2016
,
2015
and 2014 related to the awards under the CVR Refining LTIP was
$1.8 million
,
$4.6 million
and
$2.4 million
, respectively. As of
December 31, 2016
and
2015
, the Partnership had a liability of
$1.5 million
and
$2.3 million
, respectively, for non-vested phantom unit awards and associated distribution equivalent rights, which is recorded in personnel accruals and accrued expenses and other current liabilities on the Consolidated Balance Sheets. For the years ended
December 31, 2016
,
2015
and 2014, the Partnership paid cash of
$2.6 million
,
$3.3 million
and
$1.4 million
to settle liability-classified phantom unit awards and associated distribution equivalent rights upon vesting.
In December 2014, CVR Energy granted an award of
227,927
incentive units in the form of stock appreciation rights ("SARs") to an executive of CVR Energy. In April 2015, the award granted was canceled and replaced by an award of notional units in the form of SARs by CVR Refining pursuant to the CVR Refining LTIP. The replacement award is structured on the same economic and other terms as the incentive unit award and did not result in a material impact. Each SAR vests over
three years
and entitles the executive to receive a cash payment in an amount equal to the excess of the fair market value of
one
unit of the Partnership's common units for the first
ten
trading days in the month prior to vesting over the grant price of the SAR. The fair value will be adjusted to include all distributions declared and paid by the Partnership during the vesting period. The fair value of each SAR is estimated at the end of each reporting period using the Black-Scholes option-pricing model. Assumptions utilized to value the award have been omitted due to immateriality of the award. Total compensation expense during the years ended
December 31, 2016
,
2015
and 2014 and the liability related to the SARs as of
December 31, 2016
and
2015
were not material.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Finished goods
|
$
|
135.8
|
|
|
$
|
104.7
|
|
Raw materials and precious metals
|
89.7
|
|
|
72.6
|
|
In-process inventories
|
23.9
|
|
|
35.7
|
|
Parts and supplies
|
41.7
|
|
|
39.5
|
|
Total Inventories
|
$
|
291.1
|
|
|
$
|
252.5
|
|
(5) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Land and improvements
|
$
|
29.1
|
|
|
$
|
28.7
|
|
Buildings
|
47.3
|
|
|
47.8
|
|
Machinery and equipment
|
2,306.0
|
|
|
2,142.2
|
|
Automotive equipment
|
24.2
|
|
|
23.9
|
|
Furniture and fixtures
|
9.0
|
|
|
8.2
|
|
Leasehold improvements
|
0.8
|
|
|
0.8
|
|
Construction in progress
|
41.0
|
|
|
116.8
|
|
|
2,457.4
|
|
|
2,368.4
|
|
Accumulated depreciation
|
942.4
|
|
|
818.9
|
|
Total property, plant and equipment, net
|
$
|
1,515.0
|
|
|
$
|
1,549.5
|
|
Capitalized interest recognized as a reduction in interest expense for the years ended
December 31, 2016
,
2015
and
2014
totaled approximately
$5.0 million
,
$3.7 million
and
$9.4 million
, respectively. Land, buildings and equipment that are under a capital lease obligation had an original carrying value of approximately
$24.8 million
at both
December 31, 2016
and
2015
. Amortization of assets held under capital leases is included in depreciation expense.
(6) Insurance Claims
On July 29, 2014, the Coffeyville refinery experienced a fire at its isomerization unit.
Four
employees were injured in the fire, including
one
employee who was fatally injured. The fire was extinguished, and the refinery was subsequently shut down due to a failure of its plant-wide Distributed Control System, which was directly caused by the fire. The refinery returned to operations in mid-August, with all units except the isomerization unit in operation by August 23, 2014. The isomerization unit started operating on October 12, 2014. This interruption adversely impacted production of refined products for the Partnership in the third quarter of 2014. Total gross repair and other costs recorded related to the incident for the year ended December 31, 2014 were approximately
$6.3 million
.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Partnership is covered by property damage insurance policies at the time of the incident, which had an associated deductible of
$5.0 million
for the Coffeyville refinery. The Partnership anticipates amounts in excess of the
$5.0 million
deductible related to the isomerization unit fire incident will be recoverable under the property insurance policies. As of December 31, 2015 and 2014, the Partnership had an insurance receivable related to the incident of approximately
$1.2 million
and
$1.3 million
, respectively, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets. The recording of the receivable resulted in a reduction of direct operating expenses (exclusive of depreciation and amortization). The Partnership received the
$1.2 million
of insurance proceeds during the first quarter of 2016.
During the outage at the Coffeyville refinery as discussed above, the Partnership accelerated certain planned turnaround activities scheduled for 2015 and incurred approximately
$5.5 million
in turnaround expenses for the year ended December 31, 2014.
(7) Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
6.5% Second Lien Senior Notes, due 2022
|
$
|
500.0
|
|
|
$
|
500.0
|
|
Intercompany credit facility
|
—
|
|
|
31.5
|
|
Capital lease obligations
|
46.9
|
|
|
48.5
|
|
Total debt
|
546.9
|
|
|
580.0
|
|
Unamortized debt issuance costs
|
(5.4
|
)
|
|
(6.2
|
)
|
Current portion of capital lease obligations
|
(1.8
|
)
|
|
(1.6
|
)
|
Long-term debt, net of current portion
|
$
|
539.7
|
|
|
$
|
572.2
|
|
During the first quarter of 2016, the Partnership adopted ASU 2015-03, which requires that costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. Prior to adoption of the ASU, all debt issuance costs were presented as assets. As a result of adoption of the standard, debt issuance costs of
$5.4 million
and
$6.2 million
were reclassified as a direct deduction from the carrying value of the related debt balances as of
December 31, 2016
and
December 31, 2015
, respectively, in the Condensed Consolidated Balance Sheets. Debt issuance costs related to the asset-based lending facilities continue to be presented as assets in the Condensed Consolidated Balance Sheets.
2022 Senior Notes
On October 23, 2012, Refining LLC and Coffeyville Finance completed a private offering of
$500.0 million
aggregate principal amount of
6.5%
Second Lien Senior Notes due 2022 (the "2022 Notes"). The 2022 Notes were issued at par. Refining LLC received approximately
$492.5 million
of cash proceeds, net of the underwriting fees, but before deducting other third-party fees and expenses associated with the offering. The 2022 Notes are unsecured and fully and unconditionally guaranteed by CVR Refining and each of Refining LLC's existing domestic subsidiaries on a joint and several basis. CVR Refining has
no
independent assets or operations and Refining LLC is a
100%
owned finance subsidiary of CVR Refining. CVR Energy, CVR Partners and their respective subsidiaries are not guarantors.
The net proceeds from the offering of the 2022 Notes were used to purchase all of the then outstanding First Lien Secured Notes due 2015 through a tender offer and settled redemption in the fourth quarter of 2012.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The debt issuance costs of the 2022 Notes totaled approximately
$8.7 million
and are being amortized over the term of the 2022 Notes as interest expense using the effective-interest amortization method. On September 17, 2013, Refining LLC and Coffeyville Finance consummated a registered exchange offer, whereby all
$500.0 million
of the outstanding 2022 Notes were exchanged for an equal principal amount of notes with identical terms that were registered under the Securities Act of 1933. The exchange offer fulfilled the Partnership's obligations contained in the registration rights agreement entered into in connection with the issuance of the 2022 Notes. The Partnership incurred approximately
$0.4 million
of debt registration costs related to the registration and exchange offer during the year ended December 31, 2013, which are being amortized over the term of the 2022 Notes as interest expense using the effective-interest amortization method.
The 2022 Notes mature on November 1, 2022, unless earlier redeemed or repurchased by the issuers. Interest is payable on the 2022 Notes semi-annually on May 1 and November 1 of each year, commencing on May 1, 2013.
The 2022 Notes contain customary covenants for a financing of this type that limit, subject to certain exceptions, the incurrence of additional indebtedness or guarantees, the creation of liens on assets, the ability to dispose of assets, the ability to make certain payments on contractually subordinated debt, the ability to merge, consolidate with or into another entity and the ability to enter into certain affiliate transactions. The 2022 Notes provide that the Partnership can make distributions to holders of its common units provided, among other things, it has a minimum fixed charge coverage ratio and there is no default or event of default under the 2022 Notes. As of
December 31, 2016
, the Partnership was in compliance with the covenants contained in the 2022 Notes.
Included in other current liabilities on the Consolidated Balance Sheets is accrued interest payable totaling approximately
$5.4 million
as of both
December 31, 2016
and
2015
related to the 2022 Notes. At
December 31, 2016
, the estimated fair value of the 2022 Notes was approximately
$496.3 million
. This estimate of fair value is Level 2 as it was determined by quotations obtained from a broker dealer who makes a market in these and similar securities.
Amended and Restated Asset Based (ABL) Credit Facility
On December 20, 2012, CRLLC, CVR Refining, Refining LLC and each of the operating subsidiaries of Refining LLC (collectively, the "Credit Parties") entered into an amended and restated ABL credit agreement (the "Amended and Restated ABL Credit Facility") with a group of lenders and Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent and collateral agent. The Amended and Restated ABL Credit Facility is scheduled to mature on December 20, 2017. Under the Amended and Restated ABL Credit Facility, the Partnership assumed CRLLC's position as borrower and CRLLC's obligations under the facility upon closing of the Initial Public Offering on January 23, 2013, as further discussed in
Note 1 ("Formation of the Partnership, Organization and Nature of Business")
.
The Amended and Restated ABL Credit Facility is a senior secured asset-based revolving credit facility in an aggregate principal amount of up to
$400.0 million
with an incremental facility, which permits an increase in borrowings of up to
$200.0 million
subject to receipt of additional lender commitments and certain other conditions. The proceeds of the loans may be used for capital expenditures and working capital and general corporate purposes of the Credit Parties and their subsidiaries. The Amended and Restated ABL Credit Facility provides for loans and letters of credit in an amount up to the aggregate availability under the facility, subject to meeting certain borrowing base conditions, with sub-limits of
10%
of the total facility commitment for swingline loans and
90%
of the total facility commitment for letters of credit.
Borrowings under the Amended and Restated ABL Credit Facility bear interest at either a base rate or LIBOR plus an applicable margin. The applicable margin is (i) (a)
1.75%
for
LIBOR
borrowings and (b)
0.75%
for
prime rate
borrowings, in each case if quarterly average excess availability exceeds
50%
of the lesser of the borrowing base and the total commitments and (ii) (a)
2.00%
for
LIBOR
borrowings and (b)
1.00%
for
prime rate
borrowings, in each case if quarterly average excess availability is less than or equal to
50%
of the lesser of the borrowing base and the total commitments. The Amended and Restated ABL Credit Facility also requires the payment of customary fees, including an unused line fee of (i)
0.40%
if the daily average amount of loans and letters of credit outstanding is less than
50%
of the lesser of the borrowing base and the total commitments and (ii)
0.30%
if the daily average amount of loans and letters of credit outstanding is equal to or greater than
50%
of the lesser of the borrowing base and the total commitments. The Partnership is also required to pay customary letter of credit fees equal to, for standby letters of credit, the applicable margin on
LIBOR
loans on the maximum amount available to be drawn under and, for commercial letters of credit, the applicable margin on
LIBOR
loans less
0.50%
on the maximum amount available to be drawn under, and customary facing fees equal to
0.125%
of the face amount of, each letter of credit.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Amended and Restated ABL Credit Facility also contains customary covenants for a financing of this type that limit the ability of the Credit Parties and their respective subsidiaries to, among other things, incur liens, engage in a consolidation, merger, purchase or sale of assets, pay dividends, incur indebtedness, make advances, investments and loans, enter into affiliate transactions, issue equity interests, or create subsidiaries and unrestricted subsidiaries. The Amended and Restated ABL Credit Facility also contains a fixed charge coverage ratio financial covenant, as defined under the facility. The Credit Parties were in compliance with the covenants of the Amended and Restated ABL Credit Facility as of
December 31, 2016
.
In connection with the Amended and Restated ABL Credit Facility, CRLLC and its subsidiaries incurred lender and other third-party costs of approximately
$2.1 million
for the year ended December 31, 2012, which are being deferred and amortized to interest expense and other financing costs using a straight-line method over the term of the amended facility. Additionally, in accordance with guidance provided by the FASB regarding the modification of revolving debt arrangements, the remaining approximately
$2.8 million
of unamortized deferred financing costs associated with the prior ABL credit facility will continue to be amortized over the term of the Amended and Restated ABL credit facility.
As of
December 31, 2016
, the Partnership had availability under the Amended and Restated ABL Credit Facility of
$312.4 million
and had letters of credit outstanding of approximately
$28.3 million
. There were
no
borrowings outstanding under the Amended and Restated ABL Credit Facility as of
December 31, 2016
. Availability under the Amended and Restated ABL Credit Facility was limited by borrowing base conditions as of
December 31, 2016
.
Intercompany Credit Facility
On January 23, 2013, prior to the closing of the Initial Public Offering, the Partnership entered into a new
$150.0 million
senior unsecured revolving credit facility (the "intercompany credit facility") with CRLLC as the lender, to be used to fund growth capital expenditures. The intercompany credit facility is for a term of
six years
and bears interest at a rate of
LIBOR
plus
3%
per annum, payable quarterly. On October 29, 2014, the Partnership entered into a first amendment to the intercompany credit facility with CRLLC to expand the borrowing capacity to
$250.0 million
.
The intercompany credit facility contains covenants that require the Partnership to, among other things, notify CRLLC of the occurrence of any default or event of default and provide CRLLC with information in respect of the Partnership's business and financial status as it may reasonably require, including, but not limited to, copies of its unaudited quarterly financial statements and its audited annual financial statements. The Partnership was in compliance with the covenants of the intercompany credit facility as of
December 31, 2016
.
In addition, the intercompany credit facility contains customary events of default, including, among others, failure to pay any sum payable when due; the occurrence of a default under other indebtedness in excess of
$25.0 million
; and the occurrence of an event that results in either (i) CRLLC no longer directly or indirectly controlling the general partner, or (ii) CRLLC and its affiliates no longer owning a majority of the Partnership's equity interests. On November 9, 2016, the Partnership paid the outstanding balance of
$31.5 million
under the intercompany credit facility. As of
December 31, 2016
, the Partnership had no borrowings outstanding and
$250.0 million
available under the intercompany credit facility. Accrued interest payable included in other current liabilities on the Consolidated Balance Sheets as of December 31, 2015 is not material.
Deferred Financing Costs
For the years ended
December 31, 2016
,
2015
and
2014
, amortization of deferred financing costs reported as interest expense and other financing costs totaled approximately
$1.9 million
,
$1.9 million
and
$1.9 million
, respectively.
Capital Lease Obligations
CVR Refining maintains
two
leases, accounted for as a capital lease and a financial obligation, which related to Magellan Pipeline Terminals, L.P. ("Magellan Pipeline") and Excel Pipeline LLC ("Excel Pipeline"). The underlying assets and related depreciation are included in property, plant and equipment. The capital lease, which relates to a sales-lease back agreement with Sunoco Pipeline, L.P. for its membership interest in the Excel Pipeline, has
154 months
remaining of its term and will expire in September 2029. The financing arrangement, which relates to the Magellan Pipeline terminals, bulk terminal and loading facility, has
153 months
remaining lease term and will expire in September 2029. As of
December 31, 2016
, the outstanding obligation associated with these arrangements totaled approximately
$46.9 million
, of which
$45.1 million
is included in long-term liabilities and
$1.8 million
is included in current liabilities in the Consolidated Balance Sheets.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future payments required under capital lease at
December 31, 2016
are as follows:
|
|
|
|
|
Year Ending December 31,
|
Capital Lease
|
|
(in millions)
|
2017
|
$
|
6.4
|
|
2018
|
6.5
|
|
2019
|
6.5
|
|
2020
|
6.5
|
|
2021
|
6.5
|
|
2022 and thereafter
|
50.8
|
|
Total future payments
|
83.2
|
|
Less: amount representing interest
|
36.3
|
|
Present value of future minimum payments
|
46.9
|
|
Less: current portion
|
1.8
|
|
Long-term portion
|
$
|
45.1
|
|
(8) Partners’ Capital and Partnership Distributions
The Partnership had
two
types of partnership interests outstanding at
December 31, 2016
:
|
|
•
|
a general partner interest, which is not entitled to any distributions, and which is held by the general partner.
|
At
December 31, 2016
, the Partnership had a total of
147,600,000
common units issued and outstanding, of which
97,315,764
common units were owned by CVR Refining Holdings representing approximately
66%
of the total Partnership common units outstanding.
The board of directors of the Partnership's general partner has adopted a policy for the Partnership to distribute all available cash generated on a quarterly basis. Cash distributions will be made to the common unitholders of record on the applicable record date, generally within
60 days
after the end of each quarter. Available cash for distribution for each quarter will be determined by the board of directors of the general partner following the end of such quarter. Available cash for distribution for each quarter will generally equal Adjusted EBITDA reduced for (i) cash needed for debt service, (ii) reserves for environmental and maintenance capital expenditures, (iii) reserves for major scheduled turnaround expenses and, (iv) to the extent applicable, reserves for future operating or capital needs that the board of directors of the general partner deems necessary or appropriate, if any. Adjusted EBITDA represents EBITDA (net
income before interest expense and other financing costs, net of interest income; income tax expense; and depreciation and amortization)
adjusted for (i) FIFO impact (favorable) unfavorable, (ii) share-based compensation, non-cash, (iii) loss on extinguishment of debt, (iv) major scheduled turnaround expenses (that many of our competitors capitalize and thereby exclude from their measures of EBITDA and adjusted EBITDA), (v) (gain) loss on derivatives, net, (vi) current period settlements on derivative contracts and (vii) flood insurance recovery. Available cash for distribution may be increased by the release of previously established cash reserves, if any, and other excess cash, at the discretion of the board of directors of the general partner. The board of directors of the general partner may modify the cash distribution policy at any time, and the partnership agreement does not require the board of directors of the general partner to make distributions at all.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of cash distributions paid to the Partnership's unitholders during the year ended December 31,
2015
for the respective quarters to which the distributions relate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
March 31, 2015
|
|
June 30, 2015
|
|
September 30, 2015
|
|
Total Cash
Distributions
Paid in 2015
|
|
(in millions, except per unit data)
|
Amount paid to CVR Refining Holdings, LLC and affiliates
|
$
|
38.2
|
|
|
$
|
78.5
|
|
|
$
|
101.2
|
|
|
$
|
104.4
|
|
|
$
|
322.3
|
|
Amounts paid to non-affiliates
|
16.4
|
|
|
33.7
|
|
|
43.4
|
|
|
44.7
|
|
|
138.2
|
|
Total amount paid
|
$
|
54.6
|
|
|
$
|
112.2
|
|
|
$
|
144.6
|
|
|
$
|
149.1
|
|
|
$
|
460.5
|
|
Per common unit
|
$
|
0.37
|
|
|
$
|
0.76
|
|
|
$
|
0.98
|
|
|
$
|
1.01
|
|
|
$
|
3.12
|
|
Common units outstanding
|
147.6
|
|
|
147.6
|
|
|
147.6
|
|
|
147.6
|
|
|
|
No distributions were paid during 2016.
(9) Net Income per Common Unit
The Partnership's net income is allocated wholly to the common units as the general partner does not have an economic interest. Basic and diluted net income per common unit is calculated by dividing net income by the weighted-average number of common units outstanding during the period and, when applicable, giving effect to unvested common units granted under the CVR Refining LTIP. There were no dilutive awards outstanding during the years ended
December 31, 2016
,
2015
or
2014
as all unvested awards under the CVR Refining LTIP were liability-classified awards.
The following table illustrates the Partnership's calculation of net income per common unit for the years ended
December 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions, except per unit data)
|
Net income
|
$
|
15.3
|
|
|
$
|
291.2
|
|
|
$
|
358.7
|
|
Net income per common unit, basic and diluted
|
$
|
0.10
|
|
|
$
|
1.97
|
|
|
$
|
2.43
|
|
Weighted-average common units outstanding, basic and diluted
|
147.6
|
|
|
147.6
|
|
|
147.6
|
|
(10) Benefit Plans
A subsidiary of CVR Energy sponsors and administers
two
defined-contribution 401(k) plans, the CVR Energy 401(k) Plan and the CVR Energy 401(k) Plan for Represented Employees (the "Plans"), in which employees of the general partner, CVR Refining and its subsidiaries may participate. Participants in the Plans may elect to contribute a designated percentage of their eligible compensation in accordance with the Plans, subject to statutory limits. The Partnership provides a matching contribution of
100%
of the first
6%
of eligible compensation contributed by participants. Contributions for the represented plan are determined in accordance with provisions of negotiated labor contracts. Participants in both Plans are immediately vested in their individual contributions. Both Plans provide for a
three
-year vesting schedule for the Partnership's matching contributions and contain a provision to count service with predecessor organizations. The Partnership's contributions under the Plans for employees of CVR Refining were approximately
$5.5 million
,
$5.2 million
and
$4.7 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Commitments and Contingencies
The minimum required payments for CVR Refining's operating lease agreements and unconditional purchase obligations are as follows:
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
Operating
Leases
|
|
Unconditional
Purchase
Obligations
(1)
|
|
(in millions)
|
2017
|
$
|
0.6
|
|
|
$
|
128.0
|
|
2018
|
0.4
|
|
|
120.1
|
|
2019
|
0.2
|
|
|
119.7
|
|
2020
|
0.1
|
|
|
107.2
|
|
2021
|
—
|
|
|
97.2
|
|
Thereafter
|
0.2
|
|
|
637.6
|
|
|
$
|
1.5
|
|
|
$
|
1,209.8
|
|
|
|
(1)
|
This amount includes approximately
$733.7 million
payable ratably over
14 years
pursuant to petroleum transportation service agreements between CRRM and each of TransCanada Keystone Pipeline Limited Partnership and TransCanada Keystone Pipeline, LP (together "TransCanada"). The purchase obligation reflects the exchange rate between the Canadian dollar and the U.S. dollar as of
December 31, 2016
, where applicable. Under the agreements, CRRM receives transportation of at least
25,000
barrels per day of crude oil with a delivery point at Cushing, Oklahoma for a term of
20 years
on TransCanada's Keystone pipeline system. CRRM began receiving crude oil under the agreements in the first quarter of 2011.
|
CVR Refining leases various equipment, including real properties, under long-term operating leases expiring at various dates. For the years ended
December 31, 2016
,
2015
and
2014
, lease expense totaled approximately
$1.3 million
,
$1.7 million
and
$2.5 million
, respectively. The lease agreements have various remaining terms. Some agreements are renewable, at CVR Refining's option, for additional periods. It is expected, in the ordinary course of business, that leases will be renewed or replaced as they expire.
Additionally, in the normal course of business, CVR Refining has long-term commitments to purchase storage capacity and pipeline transportation services. For the years ended
December 31, 2016
,
2015
and
2014
, total expense of
$129.1 million
,
$125.0 million
and
$121.5 million
, respectively, was incurred related to long-term commitments.
Crude Oil Supply Agreement
On August 31, 2012, CRRM and Vitol Inc. ("Vitol"), entered into an Amended and Restated Crude Oil Supply Agreement (as amended, the "Vitol Agreement"). Under the Vitol Agreement, Vitol supplies the petroleum business with crude oil and intermediation logistics, which helps to reduce the Partnership's inventory position and mitigate crude oil pricing risk. The Vitol Agreement will automatically renew for successive
one
-year terms (each such term, a "Renewal Term") unless either party provides the other with notice of nonrenewal at least
180 days
prior to expiration of any Renewal Term. The Vitol Agreement currently extends through
December 31, 2017
.
Litigation
From time to time, CVR Refining is involved in various lawsuits arising in the normal course of business, including matters such as those described below under "Environmental, Health, and Safety ("EHS") Matters." Liabilities related to such litigation are recognized when the related costs are probable and can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. It is possible that management's estimates of the outcomes will change within the next year due to uncertainties inherent in litigation and settlement negotiations. In the opinion of management, the ultimate resolution of any other litigation matters is not expected to have a material adverse effect on the accompanying consolidated financial statements. There can be no assurance that management's beliefs or opinions with respect to liability for potential litigation matters will prove to be accurate.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Flood, Crude Oil Discharge and Insurance
Crude oil was discharged from CVR Refining's Coffeyville refinery on July 1, 2007, due to the short amount of time available to shut down and secure the refinery in preparation for the flood that occurred on June 30, 2007. On October 25, 2010, CVR Refining received a letter from the United States Coast Guard on behalf of the EPA seeking approximately
$1.8 million
in oversight cost reimbursement. CVR Refining responded by asserting defenses to the Coast Guard's claim for oversight costs. On September 23, 2011, the United States Department of Justice ("DOJ"), acting on behalf of the EPA and the United States Coast Guard, filed suit against CRRM in the United States District Court for the District of Kansas seeking recovery from CRRM related to alleged non-compliance with the Clean Air Act's Risk Management Program ("RMP"), the Clean Water Act ("CWA") and the Oil Pollution Act of 1990 ("OPA"). CRRM reached an agreement with the DOJ resolving its claims under CWA and the OPA. The agreement was memorialized in a Consent Decree that was filed with and approved by the Court on February 12, 2013 and March 25, 2013, respectively (the "2013 Consent Decree"). On April 19, 2013, CRRM paid a civil penalty (including accrued interest) in the amount of
$0.6 million
related to the CWA claims and reimbursed the Coast Guard for oversight costs under OPA in the amount of
$1.7 million
. The 2013 Consent Decree also requires CRRM to make small capital upgrades to the Coffeyville refinery crude oil tank farm, develop flood procedures and provide employee training the majority of which have already been completed.
The parties also reached an agreement to settle DOJ's claims related to the alleged non-compliance with RMP. The agreement was memorialized in a separate consent decree that was filed with and approved by the Court on May 21, 2013 and July 2, 2013, respectively (the "RMP Consent Decree"), and provided for a civil penalty of
$0.3 million
. On July 29, 2013, CRRM paid the civil penalty related to the RMP claims. In 2016, CRRM continued to implement the recommendations of several audits required by the RMP Consent Decree, which were related to compliance with RMP requirements.
CRRM sought insurance coverage for the crude oil release and for the ultimate costs for remediation and third-party property damage claims. On July 10, 2008, CRRM filed a lawsuit in the United States District Court for the District of Kansas against certain of its environmental insurance carriers requesting insurance coverage indemnification for the June/July 2007 flood and crude oil discharge losses. Each insurer reserved its rights under various policy exclusions and limitations and cited potential coverage defenses. The Court issued summary judgment opinions that eliminated the majority of the insurance defendants' reservations and defenses. CRRM has received
$25.0 million
of insurance proceeds under its primary environmental liability insurance policy, which constitutes full payment of the primary pollution liability policy limit. During the second quarter of 2015, CRRM entered into a settlement agreement and release with the insurance carriers involved in the lawsuit, pursuant to which (i) CRRM received settlement proceeds of approximately
$31.3 million
, (ii) the parties mutually released each other from all claims relating to the flood and crude oil discharge and (iii) all pending appeals have been dismissed. Of the settlement proceeds received,
$27.3 million
were recorded as a flood insurance recovery in the Consolidated Statements of Operations for the year ended December 31, 2015. The remaining
$4.0 million
of settlement proceeds reduced CVR Refining's
$4.0 million
receivable related to this matter, which had been included in other assets on the Consolidated Balance Sheets as of December 31, 2014.
Environmental, Health, and Safety ("EHS") Matters
CRRM, Coffeyville Resources Crude Transportation, LLC ("CRCT"), Coffeyville Resources Terminal, LLC ("CRT") and Wynnewood Refining Company, LLC ("WRC") are subject to various stringent federal, state, and local EHS rules and regulations. Liabilities related to EHS matters are recognized when the related costs are probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, existing technology, site-specific costs, and currently enacted laws and regulations. In reporting EHS liabilities, no offset is made for potential recoveries.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CRRM, CRCT, WRC and CRT own and/or operate manufacturing and ancillary operations at various locations directly related to petroleum refining and distribution. Therefore, CRRM, CRCT, WRC and CRT have exposure to potential EHS liabilities related to past and present EHS conditions at these locations. Under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), and related state laws, certain persons may be liable for the release or threatened release of hazardous substances. These persons include the current owner or operator of property where a release or threatened release occurred, any persons who owned or operated the property when the release occurred, and any persons who disposed of, or arranged for the transportation or disposal of, hazardous substances at a contaminated property. Liability under CERCLA is strict, and under certain circumstances, joint and several, so that any responsible party may be held liable for the entire cost of investigating and remediating the release of hazardous substances. Similarly, the Oil Pollution Act generally subjects owners and operators of facilities to strict, joint and several liability for all containment and clean-up costs, natural resource damages, and potential governmental oversight costs arising from oil spills into the waters of the United States, which has been broadly interpreted to include most water bodies including intermittent streams.
CRRM, CRCT, WRC and CRT are subject to extensive and frequently changing federal, state and local environmental and health and safety laws and regulations governing the emission and release of hazardous substances into the environment, the treatment and discharge of waste water and the storage, handling, use and transportation of petroleum and the characteristics and composition of gasoline and diesel fuels. The ultimate impact of complying with evolving laws and regulations is not always clearly known or determinable due in part to the fact that the Partnership's operations may change over time and certain implementing regulations for laws, such as the federal Clean Air Act, have not yet been finalized, are under governmental or judicial review or are being revised. These laws and regulations could result in increased capital, operating and compliance costs.
On August 1, 2016, CRCT received a Notice of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order (the "NOPV") from the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (the "PHMSA"). The NOPV alleges violations of the Pipeline Safety Regulations, Title 49, Code of Federal Regulations. The alleged violations include alleged failures (during various time periods) to (i) conduct quarterly notification drills, (ii) maintain certain required records, (iii) utilize certain required safety equipment (including line markers), (iv) take certain pipeline integrity management activities, (v) conduct certain cathodic protection testing, and (vi) make certain atmospheric corrosion inspections. The preliminary assessed civil penalty is approximately
$0.5 million
and the NOPV contained a compliance order outlining remedial compliance steps to be undertaken by CRCT. CRCT paid approximately
$160,000
of the preliminary assessed civil penalty, is contesting and requesting mitigation of the remainder, and is also requesting reconsideration of the proposed compliance order. Although CVR Refining cannot predict with certainty the ultimate resolution of the claims asserted, CVR Refining does not believe that the claims in the NOPV will have a material adverse effect on CVR Refining's business, financial condition or results of operations.
CRRM and CRT have agreed to perform corrective actions at the Coffeyville, Kansas refinery and the now-closed Phillipsburg, Kansas terminal facility, pursuant to Administrative Orders on Consent issued under the RCRA to address historical contamination by the prior owners (RCRA Docket No. VII-94-H-20 and Docket No. VII-95-H-11, respectively). WRC and the Oklahoma Department of Environmental Quality ("ODEQ") have entered into a Consent Order (Case No. 15-056) to resolve certain legacy environmental issues related to historical groundwater contamination and the operation of wastewater conveyance. As of
December 31, 2016
and
2015
, environmental accruals of approximately
$4.8 million
and
$3.6 million
, respectively, were reflected in the Consolidated Balance Sheets for probable and estimated costs for remediation of environmental contamination under the RCRA Administrative Orders and the ODEQ Consent Order, for which approximately
$0.2 million
and
$2.0 million
, respectively, are included in other current liabilities. Accruals were determined based on an estimate of payment costs through 2026, for which the scope of remediation was arranged with the EPA and ODEQ, and were discounted at the appropriate risk free rates at
December 31, 2016
and
2015
, respectively. The accruals include estimated closure and post-closure costs of approximately
$0.4 million
and
$0.4 million
for
two
landfills at
December 31, 2016
and
2015
, respectively.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated future payments for these required obligations are as follows:
|
|
|
|
|
Year Ending December 31,
|
Amount
|
|
(in millions)
|
2017
|
$
|
1.5
|
|
2018
|
1.6
|
|
2019
|
1.3
|
|
2020
|
0.1
|
|
2021
|
0.1
|
|
Thereafter
|
0.3
|
|
Undiscounted total
|
4.9
|
|
Less amounts representing interest at 1.47%
|
0.1
|
|
Accrued environmental liabilities at December 31, 2016
|
$
|
4.8
|
|
Management periodically reviews and, as appropriate, revises its environmental accruals. Based on current information and regulatory requirements, management believes that the accruals established for environmental expenditures are adequate.
Mobile Source Air Toxic II Emissions
In 2007, the EPA promulgated the Mobile Source Air Toxic II ("MSAT II") rule that requires the reduction of benzene in gasoline by 2011. The MSAT II projects for CRRM and WRC were completed within the compliance deadline of November 1, 2014. The projects were completed at a total cost of approximately
$48.3 million
and
$89.0 million
, excluding capitalized interest, by CRRM and WRC, respectively.
Tier 3 Motor Vehicle Emission and Fuel Standards
In April 2014, the EPA promulgated the Tier 3 Motor Vehicle Emission and Fuel Standards, which will require that gasoline contain no more than ten parts per million of sulfur on an annual average basis. Refineries must be in compliance with the more stringent emission standards by January 1, 2017; however, compliance with the rule is extended until January 1, 2020 for approved small volume refineries and small refiners. In March 2015, the EPA approved the Wynnewood refinery's application requesting "small volume refinery" status. In June 2016, because it exceeded the EPA’s specified throughput limit for a “small volume refinery.” the Wynnewood refinery became disqualified as a “small volume refinery.” Therefore, the Wynnewood refinery’s compliance deadline was accelerated to December 21, 2018. It is not anticipated that the refineries will require additional controls or capital expenditures to meet the anticipated new standard.
Renewable Fuel Standards
CVR Refining is subject to the Renewable Fuel Standard ("RFS") which requires refiners to either blend "renewable fuels" in with their transportation fuels or purchase renewable fuel credits, known as RINs, in lieu of blending. Due to mandates in the RFS requiring increasing volumes of renewable fuels to replace petroleum products in the U.S. transportation fuel market, there may be a decrease in demand for petroleum products. Beginning in 2011, the Coffeyville refinery was required to blend renewable fuels into its transportation fuel or purchase RINs in lieu of blending. In 2013, the Wynnewood refinery was subject to the RFS for the first time. CVR Refining is not able to blend the substantial majority of its transportation fuels and has to purchase RINs on the open market, as well as waiver credits for cellulosic biofuels from the EPA, in order to comply with the RFS.
The cost of RINs has been extremely volatile as the EPA's proposed renewable fuel volume mandates approached the "blend wall." The blend wall refers to the point at which the amount of ethanol blended into the transportation fuel supply exceeds the demand for transportation fuel containing such levels of ethanol. The blend wall is generally considered to be reached when more than 10% ethanol by volume ("E10 gasoline") is blended into transportation fuel.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On December 14, 2015, the EPA published in the Federal Register a final rule establishing the renewable fuel volume mandates for 2014, 2015 and 2016, and the biomass-based diesel mandate for 2017. On December 12, 2016, the EPA published in the Federal Register a final rule establishing the renewable fuel volume mandates for 2017, and the biomass-based diesel mandate for 2018. The volumes included in the EPA's final rule increase each year, but are lower, with the exception of the volumes for biomass-based diesel, than the volumes required by the Clean Air Act. The EPA used its waiver authorities to lower the volumes, but its decision to do so for the 2014-2016 compliance years has been challenged in the U.S. Court of Appeals for the District of Columbia Circuit. In addition, the EPA has articulated a policy to incentivize additional investments in renewable fuel blending and distribution infrastructure by increasing the price of RINs.
The cost of RINs for the years ended
December 31, 2016
,
2015
and
2014
was approximately
$205.9 million
,
$123.9 million
and
$127.2 million
, respectively. As of
December 31, 2016
and
2015
, CVR Refining's biofuel blending obligation was approximately
$186.2 million
and
$9.5 million
, respectively, which is recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets. The price of RINs has been extremely volatile and has increased over the last year. The future cost of RINs for the petroleum business is difficult to estimate. Additionally, the cost of RINs is dependent upon a variety of factors, which include the availability of RINs for purchase, the price at which RINs can be purchased, transportation fuel production levels, the mix of the petroleum business' petroleum products, as well as the fuel blending performed at its refineries and downstream terminals, all of which can vary significantly from period to period.
Coffeyville Second Consent Decree
In March 2004, CRRM and CRT entered into a Consent Decree (the "2004 Consent Decree") with the EPA and the Kansas Department of Health and Environment (the "KDHE") to resolve air compliance concerns raised by the EPA and KDHE related to Farmland Industries Inc.'s prior ownership and operation of the Coffeyville crude oil refinery and the now-closed Phillipsburg terminal facilities. Under the 2004 Consent Decree, CRRM agreed to reduce emissions of sulfur dioxide ("SO
2
"), nitrogen oxides and particulate matter from its FCCU by January 1, 2011. In addition, pursuant to the 2004 Consent Decree, CRRM and CRT assumed clean-up obligations at the Coffeyville refinery and the now-closed Phillipsburg terminal facilities.
In March 2012, CRRM entered into a second consent decree (the "Second Consent Decree") with the EPA and KDHE, which replaced the 2004 Consent Decree (other than certain financial assurance provisions associated with corrective action at the refinery and terminal under RCRA). The Second Consent Decree was entered by the U.S. District Court for the District of Kansas on April 19, 2012. The Second Consent Decree gave CRRM more time to install the FCCU controls from the 2004 Consent Decree and expands the scope of the settlement so that it is now considered a "global settlement" under the EPA's "National Petroleum Refining Initiative." Under the National Petroleum Refining Initiative, the EPA alleged industry-wide non-compliance with
four
"marquee" issues under the Clean Air Act: New Source Review, Flaring, Leak Detection and Repair, and Benzene Waste Operations NESHAP. The National Petroleum Refining Initiative has resulted in most U.S. refineries (representing more than
95%
of the U.S. refining capacity) entering into consent decrees requiring the payment of civil penalties and the installation of air pollution control equipment and enhanced operating procedures. Under the Second Consent Decree, CRRM was required to pay a civil penalty of approximately
$0.7 million
and complete the installation of FCCU controls required under the 2004 Consent Decree, add controls to certain heaters and boilers and enhance certain work practices relating to wastewater and fugitive emissions. In March 2016, the United States District Court for the District of Kansas approved a modification to the Second Consent Decree memorializing an agreement with the EPA and KDHE to modify provisions in the Second Consent Decree relating to the installation of controls to reduce air emissions of sulfur dioxide from the refinery's FCCU. Pursuant to the terms of the modification, CRRM is permitted to use alternative means of control to those currently specified in the Second Consent Decree provided it can meet the limits specified in the modification. As the modification does not require the controls specified in the Second Consent Decree, compliance costs have been reduced by approximately
$35.0 million
. The additional incremental capital expenditures associated with the Second Consent Decree are expected to be approximately
$6.0 million
.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
RCRA Compliance Matters
In January 2014, the EPA issued an inspection report to the Wynnewood refinery related to a RCRA compliance evaluation inspection conducted in March 2013. In February 2014, ODEQ notified WRC that it concurred with the EPA's inspection findings and would be pursuing enforcement. WRC and ODEQ entered into a Consent Order in June 2015 resolving all alleged non-compliance associated with the RCRA compliance evaluation inspection, as well as issues related to possible soil and groundwater contamination associated with the prior owner's operation of the refinery. The Consent Order requires WRC to take certain corrective actions, including specified groundwater remediation and monitoring measures pursuant to a work plan and replacement of a wastewater conveyance to be approved by ODEQ. ODEQ approved the work plan submitted by WRC on February 1, 2016 and the replacement of a wastewater conveyance on August 15, 2016. WRC is in the process of implementing the specified groundwater remediation and monitoring measures. The costs of complying with the Consent Order are estimated to be approximately
$3.9 million
.
Environmental expenditures are capitalized when such expenditures are expected to result in future economic benefits. For the years ended
December 31, 2016
,
2015
and
2014
, capital expenditures were approximately
$17.2 million
,
$34.7 million
and
$100.5 million
, respectively, and were incurred to improve the environmental compliance and efficiency of the operations.
CRRM, CRCT, WRC and CRT each believe it is in substantial compliance with existing EHS rules and regulations. There can be no assurance that the EHS matters described above or other EHS matters which may develop in the future will not have a material adverse effect on the business, financial condition, or results of operations.
Wynnewood Refinery Incident
On September 28, 2012, the Wynnewood refinery experienced an explosion in a boiler unit during startup after a short outage as part of the turnaround process.
Two
employees were fatally injured. Damage at the refinery was limited to the boiler. Additionally, there was no environmental impact. The refinery was in the final stages of shutdown for turnaround maintenance at the time of the incident. WRC completed an internal investigation of the incident and cooperated with OSHA in its investigation. OSHA also conducted a general inspection of the facility during the boiler incident investigation. In March 2013, OSHA completed its investigation and communicated its citations to WRC. OSHA also placed WRC in its Severe Violators Enforcement Program ("SVEP"). WRC is vigorously contesting the citations and OSHA's placement of WRC in the SVEP. Any penalties associated with OSHA's citations are not expected to have a material adverse effect on the consolidated financial statements.
Joint Venture Agreement
On September 19, 2016, Coffeyville Resources Pipeline, LLC ("CRPLLC"), an indirect wholly-owned subsidiary of CVR Refining, entered into an agreement with Velocity Central Oklahoma Pipeline LLC ("Velocity") related to their joint ownership of Velocity Pipeline Partners, LLC ("VPP"), which will construct, own and operate a crude oil pipeline. CRPLLC holds a
40%
interest in VPP. Velocity holds a
60%
interest in VPP and serves as the day-to-day operator of VPP. As of
December 31, 2016
, CRPLLC has contributed
$5.6 million
to VPP, which is recorded in other long-term assets on the Condensed Consolidated Balance Sheet, and expects to contribute a total of approximately
$9.3 million
during the pipeline construction.
(12) Fair Value Measurements
ASC Topic 820 —
Fair Value Measurements and Disclosures
("ASC 820") established a single authoritative definition of fair value when accounting rules require the use of fair value, set out a framework for measuring fair value and required additional disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount from the perspective of a market participant that holds the asset or owes the liability at the measurement date.
ASC 820 discusses valuation techniques, such as the market approach (prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets and liabilities such as a business), the income approach (techniques to convert future amounts to a single current amount based on market expectations about those future amounts including present value techniques and option pricing), and the cost approach (amount that would be required currently to replace the service capacity of an asset which is often referred to as a replacement cost).
ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities
|
|
|
•
|
Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)
|
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
•
|
Level 3 — Significant unobservable inputs (including CVR Refining's own assumptions in determining the fair value)
|
The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, as of
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in millions)
|
Location and Description
|
|
|
|
|
|
|
|
Other current assets (derivative agreements)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other current liabilities (derivative agreements)
|
—
|
|
|
(11.1
|
)
|
|
—
|
|
|
(11.1
|
)
|
Other current liabilities (biofuel blending obligation & benzene obligation)
|
—
|
|
|
(187.0
|
)
|
|
—
|
|
|
(187.0
|
)
|
Total Liabilities
|
$
|
—
|
|
|
$
|
(198.1
|
)
|
|
$
|
—
|
|
|
$
|
(198.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in millions)
|
Location and Description
|
|
|
|
|
|
|
|
Other current assets (derivative agreements)
|
$
|
—
|
|
|
$
|
44.7
|
|
|
$
|
—
|
|
|
$
|
44.7
|
|
Total Assets
|
$
|
—
|
|
|
$
|
44.7
|
|
|
$
|
—
|
|
|
$
|
44.7
|
|
Other current liabilities (derivative agreements)
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Other current liabilities (biofuel blending obligation)
|
—
|
|
|
(2.7
|
)
|
|
—
|
|
|
(2.7
|
)
|
Total Liabilities
|
$
|
—
|
|
|
$
|
(2.8
|
)
|
|
$
|
—
|
|
|
$
|
(2.8
|
)
|
As of
December 31, 2016
and
2015
, the only financial assets and liabilities that are measured at fair value on a recurring basis are CVR Refining's derivative instruments, uncommitted biofuel blending obligation and benzene obligations. Additionally, the fair value of the debt issuances is disclosed in
Note 7 ("Long-Term Debt")
. The commodity derivative contracts, the uncommitted biofuel blending obligation and the benzene obligation, which use fair value measurements and are valued using broker quoted market prices of similar instruments, are considered level 2 inputs. CVR Refining had no transfers of assets or liabilities between any of the above levels during the year ended
December 31, 2016
.
(13) Derivative Financial Instruments
Gain (loss) on derivatives, net and current period settlements on derivative contracts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Current period settlements on derivative contracts
|
$
|
36.4
|
|
|
$
|
(26.0
|
)
|
|
$
|
122.2
|
|
Gain (loss) on derivatives, net
|
(19.4
|
)
|
|
(28.6
|
)
|
|
185.6
|
|
CVR Refining is subject to price fluctuations caused by supply conditions, weather, economic conditions, interest rate fluctuations and other factors. To manage price risk on crude oil and other inventories and to fix margins on certain future production, CVR Refining from time to time enters into various commodity derivative transactions.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CVR Refining has adopted accounting standards which impose extensive record-keeping requirements in order to designate a derivative financial instrument as a hedge. CVR Refining holds derivative instruments, such as exchange-traded crude oil futures and certain over-the-counter forward swap agreements, which it believes provide an economic hedge on future transactions, but such instruments are not designated as hedges for GAAP purposes. Gains or losses related to the change in fair value and periodic settlements of these derivative instruments are classified as gain (loss) on derivatives, net in the Consolidated Statements of Operations. There are no premiums paid or received at inception of the derivative contracts and upon settlement, there is no cost recovery associated with these contracts.
CVR Refining maintains a margin account to facilitate other commodity derivative activities. A portion of this account may include funds available for withdrawal. These funds are included in cash and cash equivalents within the Consolidated Balance Sheets. The maintenance margin balance is included within other current assets within the Consolidated Balance Sheets. Dependent upon the position of the open commodity derivatives, the amounts are accounted for as other current assets or other current liabilities within the Consolidated Balance Sheets. From time to time, CVR Refining may be required to deposit additional funds into this margin account. There were no open commodity positions as of
December 31, 2016
or
2015
. For the years ended
December 31, 2016
,
2015
and
2014
, CVR Refining recognized net
loss
of
$0.5 million
, a net gain of
$3.2 million
and a net gain of
$0.3 million
, respectively, which are recorded in gain (loss) on derivatives, net in the Consolidated Statements of Operations.
Commodity Swaps
CVR Refining enters into commodity swap contracts in order to fix the margin on a portion of future production. Additionally, CVR Refining may enter into price and basis swaps in order to fix the price on a portion of its commodity purchases and product sales. The physical volumes are not exchanged and these contracts are net settled with cash. The contract fair value of the commodity swaps is reflected on the Consolidated Balance Sheets with changes in fair value currently recognized in the Consolidated Statements of Operations. Quoted prices for similar assets or liabilities in active markets (Level 2) are considered to determine the fair values for the purpose of marking to market the hedging instruments at each period end. At
December 31, 2016
and
2015
, CVR Refining had open commodity hedging instruments consisting of
4.0 million
and
2.5 million
barrels of crack spreads, respectively, primarily to fix the margin on a portion of its future gasoline and distillate production. Additionally, at December 31, 2015, CVR Refining had open commodity hedging instruments consisting of 1.4 million barrels primarily to fix the price on a portion of its future crude oil purchases or the basis on a portion of its future product sales. The fair value of the outstanding contracts at
December 31, 2016
was a net unrealized
loss
of
$11.1 million
, of which the entire balance is included in other current
liabilities
. The fair value of the outstanding contracts at
December 31, 2015
was a net unrealized
gain
of
$44.6 million
, of which
$44.7 million
is included in current assets and
$0.1 million
is included in other current
liabilities
. For the years ended
December 31, 2016
,
2015
and
2014
, the Partnership recognized a net
loss
of
$18.9 million
,
$36.4 million
and a net gain of
$187.4 million
, respectively, which are recorded in gain (loss) on derivatives, net in the Consolidated Statements of Operations.
Counterparty Credit Risk
CVR Refining's exchange-traded crude oil futures and certain over-the-counter forward swap agreements are potentially exposed to concentrations of credit risk as a result of economic conditions and periods of uncertainty and illiquidity in the credit and capital markets. CVR Refining manages credit risk on its exchange-traded crude oil futures by completing trades with an exchange clearinghouse, which subjects the trades to mandatory margin requirements until the contract settles. CVR Refining also monitors the creditworthiness of its commodity swap counterparties and assesses the risk of nonperformance on a quarterly basis. Counterparty credit risk identified as a result of this assessment is recognized as a valuation adjustment to the fair value of the commodity swaps recorded in the Consolidated Balance Sheets. As of
December 31, 2016
, the counterparty credit risk adjustment was not material to the consolidated financial statements. Additionally, CVR Refining does not require any collateral to support commodity swaps into which it enters; however, it does have master netting arrangements that allow for the setoff of amounts receivable from and payable to the same party, which mitigates the risk associated with nonperformance.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Offsetting Assets and Liabilities
The commodity swaps and other commodity derivatives agreements discussed above include multiple derivative positions with a number of counterparties for which CVR Refining has entered into agreements governing the nature of the derivative transactions. Each of the counterparty agreements provides for the right to setoff each individual derivative position to arrive at the net receivable due from the counterparty or payable owed by CVR Refining. As a result of the right to setoff, CVR Refining's recognized assets and liabilities associated with the outstanding derivative positions have been presented net in the Consolidated Balance Sheets. In accordance with guidance issued by the FASB related to
"Disclosures about Offsetting Assets and Liabilities,"
the tables below outline the gross amounts of the recognized assets and liabilities and the gross amounts offset in the Consolidated Balance Sheets for the various types of open derivative positions.
The offsetting assets and liabilities for CVR Refining's derivatives as of
December 31, 2016
are recorded as current assets and current liabilities in prepaid expenses and other current assets and accrued expenses and other current liabilities, respectively, in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
Description
|
Gross
Current Liabilities
|
|
Gross
Amounts
Offset
|
|
Net
Current Liabilities
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
11.1
|
|
|
$
|
—
|
|
|
$
|
11.1
|
|
|
$
|
—
|
|
|
$
|
11.1
|
|
Total
|
$
|
11.1
|
|
|
$
|
—
|
|
|
$
|
11.1
|
|
|
$
|
—
|
|
|
$
|
11.1
|
|
The offsetting assets and liabilities for CVR Refining's derivatives as of
December 31, 2015
are recorded as current assets and non-current assets in prepaid expenses and other current assets and other long-term assets, respectively in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
Description
|
Gross Current Assets
|
|
Gross
Amounts
Offset
|
|
Net
Current Assets
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
44.8
|
|
|
$
|
(0.1
|
)
|
|
$
|
44.7
|
|
|
$
|
—
|
|
|
$
|
44.7
|
|
Total
|
$
|
44.8
|
|
|
$
|
(0.1
|
)
|
|
$
|
44.7
|
|
|
$
|
—
|
|
|
$
|
44.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
Description
|
Gross Current Liabilities
|
|
Gross
Amounts
Offset
|
|
Net
Current Liabilities
Presented
|
|
Cash
Collateral
Not Offset
|
|
Net
Amount
|
|
(in millions)
|
Commodity Swaps
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Total
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) Related Party Transactions
CVR Refining and CRRM are party to, or otherwise subject to certain agreements with CVR Energy and its subsidiaries (including CVR Partners and its subsidiary Coffeyville Resources Nitrogen Fertilizers, LLC ("CRNF")) that govern the business relationships among each party. The agreements are described as in effect at
December 31, 2016
. Amounts owed to CVR Refining and CRRM from CVR Energy and its subsidiaries with respect to these agreements are included in accounts receivable and prepaid expenses and other current assets on the Consolidated Balance Sheets. Conversely, amounts owed to CVR Energy and its subsidiaries by CVR Refining and CRRM with respect to these agreements are included in accounts payable, personnel accruals, accrued expenses and other current liabilities, long-term debt and other long-term liabilities, on CVR Refining's Consolidated Balance Sheets.
Feedstock and Shared Services Agreement
CRRM is party to a feedstock and shared services agreement with CRNF, under which the two parties provide feedstocks and other services to one another. These feedstocks and services are utilized in the respective production processes of CRRM's Coffeyville, Kansas refinery and CRNF's nitrogen fertilizer plant.
Pursuant to the feedstock agreement, CRRM and CRNF have agreed to transfer hydrogen to one another; provided, CRRM is not required to sell hydrogen to CRNF if such hydrogen is required for operation of CRRM's refinery, if such sale would adversely affect the Partnership's classification as a partnership for federal income tax purposes, or if such sale would not be in CRRM's best interest. Net monthly sales of hydrogen to CRNF have been reflected as net sales for CVR Refining. Net monthly receipts of hydrogen from CRNF have been reflected in cost of materials and other for CVR Refining. For the year ended
December 31, 2016
, the net sales generated from the sale of hydrogen to CRNF were approximately
$0.2 million
. For the years ended
December 31, 2016
,
2015
and
2014
, CVR Refining recognized
$3.2 million
,
$11.8 million
and
$10.1 million
, respectively, of cost of materials and other related to the purchase of excess hydrogen from the nitrogen fertilizer facility. At
December 31, 2016
, there was approximately
$0.1 million
of accounts receivable included in prepaid expenses and other current assets on the Consolidated Balance Sheet associated with hydrogen sales. At December 31,
2015
, there was approximately
$0.5 million
of payables included in accounts payable on the Consolidated Balance Sheet associated with unpaid balances related to hydrogen.
CRNF is also obligated to make available to CRRM any nitrogen produced by the Linde air separation plant that is not required for the operation of the nitrogen fertilizer plant, as determined by CRNF in a commercially reasonable manner. Direct operating expenses associated with nitrogen purchased by CRRM from CRNF for the years ended
December 31, 2015
and
2014
, were nominal and approximately
$1.0 million
, respectively, and were nominal for the year ended
December 31, 2016
.
No
amounts were paid by CRNF to CRRM for any of the years presented.
With respect to oxygen requirements, CRNF is obligated to provide CRRM oxygen produced by the Linde air separation plant and made available to CRNF to the extent that such oxygen is not required for operation of the nitrogen fertilizer plant. The oxygen is required to meet certain specifications and is to be purchased at a fixed price. CRRM purchased approximately
$0.3 million
of oxygen from CRNF for the year ended
December 31, 2016
.
The agreement also provides a mechanism pursuant to which CRNF transfers a tail gas stream to CRRM. For the years ended
December 31, 2016
,
2015
and
2014
CRRM recognized a nominal amount of direct operating expenses generated from the purchase of tail gas from CRNF. In April 2011, in connection with the tail gas stream, CRRM installed a pipe between the Coffeyville, Kansas refinery and the nitrogen fertilizer plant to transfer the tail gas. CRNF has agreed to pay CRRM the cost of installing the pipe over the next
three years
and in the fourth year provide an additional
15%
to cover the cost of capital. At both
December 31, 2016
and
2015
, a liability of approximately
$0.2 million
was included in other current liabilities. Additionally, at
December 31, 2016
and
2015
, a liability of approximately
$0.6 million
and
$0.8 million
, respectively, was included in other non-current liabilities in the Consolidated Balance Sheets.
The agreement has an initial term of
20 years
, ending in 2027, which will be automatically extended for successive
five
year renewal periods. Either party may terminate the agreement, effective upon the last day of a term, by giving notice no later than
three years
prior to a renewal date. The agreement will also be terminable by mutual consent of the parties or if one party breaches the agreement and does not cure within applicable cure periods and the breach materially and adversely affects the ability of the terminating party to operate its facility. Additionally, the agreement may be terminated in some circumstances if substantially all of the operations at the nitrogen fertilizer plant or the Coffeyville, Kansas refinery are permanently terminated, or if either party is subject to a bankruptcy proceeding or otherwise becomes insolvent.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At both
December 31, 2016
and
2015
, payables of approximately
$0.3 million
were included in accounts payable on the Consolidated Balance Sheets associated with amounts yet to be paid related to components of the feedstock and shared services agreement, other than amounts associated with hydrogen purchases discussed above. At
December 31, 2016
and
2015
, receivables of approximately
$0.9 million
and
$0.7 million
, respectively, were included in prepaid expenses and other current assets on the Consolidated Balance Sheets associated with receivables related to components of the feedstock and shared services agreement.
Coke Supply Agreement
CRRM is party to a coke supply agreement with CRNF pursuant to which CRRM supplies CRNF with pet coke. This agreement provides that CRRM must deliver to CRNF during each calendar year an annual required amount of pet coke equal to the lesser of (i)
100 percent
of the pet coke produced at CRRM's Coffeyville, Kansas petroleum refinery or (ii)
500,000
tons of pet coke. CRNF is also obligated to purchase this annual required amount. If during a calendar month CRRM produces more than
41,667
tons of pet coke, then CRNF will have the option to purchase the excess at the purchase price provided for in the agreement. If CRNF declines to exercise this option, CRRM may sell the excess to a third party.
The price CRNF pays pursuant to the pet coke supply agreement is based on the lesser of a pet coke price derived from the price received for urea ammonium nitrate ("UAN") (the "UAN-based price") or a pet coke price index. The UAN-based price begins with a pet coke price of
$25
per ton based on a price per ton for UAN that excludes transportation cost ("netback price") of
$205
per ton, and adjusts up or down
$0.50
per ton for every
$1.00
change in the netback price. The UAN-based price has a ceiling of
$40
per ton and a floor of
$5
per ton.
CRNF pays any taxes associated with the sale, purchase, transportation, delivery, storage or consumption of the pet coke. Amounts payable under the feedstock and shared services agreements can be offset with any amount receivable for pet coke.
The agreement has an initial term of
20 years
, ending in 2027, and will be automatically extended for successive
five
year renewal periods. Either party may terminate the agreement by giving notice no later than
three years
prior to a renewal date. The agreement is also terminable by mutual consent of the parties or if a party breaches the agreement and does not cure within applicable cure periods. Additionally, the agreement may be terminated in some circumstances if substantially all of the operations at the nitrogen fertilizer plant or the Coffeyville, Kansas refinery are permanently terminated, or if either party is subject to a bankruptcy proceeding or otherwise becomes insolvent.
Net sales associated with the transfer of pet coke from CRRM to CRNF were approximately
$1.8 million
,
$6.8 million
and
$8.7 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Receivables of approximately
$0.1 million
and
$0.3 million
related to the coke supply agreement were included in accounts receivable on the Consolidated Balance Sheets at
December 31, 2016
and
2015
, respectively.
Environmental Agreement
CRRM entered into an environmental agreement with CRNF which provides for certain indemnification and access rights in connection with environmental matters affecting the Coffeyville, Kansas refinery and the nitrogen fertilizer plant. Generally, both CRRM and CRNF have agreed to indemnify and defend each other and each other's affiliates against liabilities associated with certain hazardous materials and violations of environmental laws that are a result of or caused by the indemnifying party's actions or business operations. This obligation extends to indemnification for liabilities arising out of off-site disposal of certain hazardous materials. Indemnification obligations of the parties will be reduced by applicable amounts recovered by an indemnified party from third parties or from insurance coverage.
The term of the agreement is for at least
20 years
, ending in 2027, or for so long as the feedstock and shared services agreement is in force, whichever is longer.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Services Agreement
CVR Refining obtains certain management and other services from CVR Energy pursuant to a services agreement between the Partnership, CVR Refining GP and CVR Energy. Under this agreement, the Partnership's general partner has engaged CVR Energy to provide certain services, including the following, among others:
|
|
•
|
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 will 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, SEC and securities exchange reporting, human resources, information technology, communications, insurance, tax, credit, finance, government and regulatory affairs;
|
|
|
•
|
recommendations on capital raising activities to the board of directors of the Partnership's 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, 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, including acquisitions, as may be agreed by CVR Energy and the Partnership's general partner from time to time.
|
As payment for services provided under the agreement, the Partnership, its general partner or subsidiaries must pay CVR Energy (i) all costs incurred by CVR Energy or its affiliates in connection with the employment of its employees who provide the Partnership services under the agreement on a full-time basis, but excluding certain share-based compensation; (ii) a prorated share of costs incurred by CVR Energy or its affiliates in connection with the employment of its employees who provide the Partnership services under the agreement on a part-time basis, but excluding certain share-based compensation, and such prorated share shall be determined by CVR Energy on a commercially reasonable basis, based on the percentage of total working time that such shared personnel are engaged in performing services for the Partnership; (iii) a prorated share of certain administrative costs, including office costs, services by outside vendors, other sales, general and administrative costs and depreciation and amortization; and (iv) various other administrative costs in accordance with the terms of the agreement, including travel, insurance, legal and audit services, government and public relations and bank charges.
Either CVR Energy or the Partnership's general partner may temporarily or permanently exclude any particular service from the scope of the agreement upon
180 days
' notice. CVR Energy or the Partnership's general partner may terminate the agreement upon at least
180 days
' notice, but not more than
one year
's notice. Furthermore, the Partnership's general partner may terminate the agreement immediately if CVR Energy becomes bankrupt or dissolves or commences liquidation or winding-up procedures.
In order to facilitate the carrying out of services under the agreement, CVR Refining and CVR Energy have granted one another certain royalty-free, non-exclusive and non-transferable rights to use one another's intellectual property under certain circumstances.
The agreement also contains an indemnity provision whereby the Partnership, its general partner, and our subsidiaries, as indemnifying parties, agree to indemnify CVR Energy and its affiliates (other than the indemnifying parties themselves) against losses and liabilities incurred in connection with the performance of services under the agreement or any breach of the agreement, unless such losses or liabilities arise from a breach of the agreement by CVR Energy or other misconduct on its part, as provided in the agreement. The agreement contains a provision stating that CVR Energy is an independent contractor under the agreement and nothing in the agreement may be construed to impose an implied or express fiduciary duty owed by CVR Energy, on the one hand, to the recipients of services under the agreement, on the other hand. The agreement prohibits recovery of lost profits or revenue, or special, incidental, exemplary, punitive or consequential damages from CVR Energy or certain affiliates.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net amounts incurred under the services agreement for the years ended
December 31, 2016
,
2015
and
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Direct operating expenses (exclusive of depreciation and amortization)
|
$
|
13.0
|
|
|
$
|
18.1
|
|
|
$
|
21.3
|
|
Selling, general and administrative expenses (exclusive of depreciation and amortization)
|
49.2
|
|
|
53.2
|
|
|
50.8
|
|
Total
|
$
|
62.2
|
|
|
$
|
71.3
|
|
|
$
|
72.1
|
|
At
December 31, 2016
and
2015
, payables and liabilities of
$11.9 million
and
$13.9 million
, respectively, were included in accounts payable, personnel accruals and accrued expenses and other current liabilities on the Consolidated Balance Sheets with respect to amounts billed in accordance with the services agreement.
Limited Partnership Agreement
In connection with the Initial Public Offering, CVR Refining GP and CVR Refining Holdings entered into the first amended and restated agreement of limited partnership of the Partnership, dated January 23, 2013.
The Partnership's general partner manages the Partnership's operations and activities as specified in the partnership agreement. The general partner of the Partnership is managed by its board of directors. CVR Refining Holdings has the right to select the directors of the general partner. Actions by the general partner that are made in its individual capacity are made by CVR Refining Holdings as the sole member of the general partner and not by its board of directors. The members of the board of directors of the general partner are not elected by the unitholders and are not subject to re-election on a regular basis by the unitholders. The officers of the general partner manage the day-to-day affairs of the Partnership's business.
The partnership agreement provides that the Partnership will reimburse its general partner for all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership (including salary, bonus, incentive compensation and other amounts paid to any person to perform services for the Partnership or for its general partner in connection with operating the Partnership). For the years ended
December 31, 2016
,
2015
and
2014
approximately
$6.9 million
,
$9.1 million
and
$6.0 million
were incurred under the partnership agreement, respectively.
Intercompany Credit Facility
On January 23, 2013, prior to the closing of the Initial Public Offering, the Partnership entered into a
$150.0 million
intercompany credit facility, with CRLLC as the lender, to be used to fund growth capital expenditures. On October 29, 2014, the Partnership entered into a first amendment to the intercompany credit facility with CRLLC to expand the borrowing capacity to
$250.0 million
. The intercompany credit facility is for a term of
six years
and bears interest at a rate of
LIBOR
plus
3%
per annum.
As of
December 31, 2016
, the Partnership had no borrowings outstanding. For the years ended
December 31, 2016
,
2015
and
2014
, the Partnership paid
$1.0 million
,
$1.0 million
and
$1.0 million
of interest to CRLLC. See
Note 7 ("Long-Term Debt")
for additional discussion of the intercompany credit facility.
Insight Portfolio Group
Insight Portfolio Group LLC ("Insight Portfolio Group") is an entity formed by Mr. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. In January 2013, CVR Energy acquired a minority equity interest in Insight Portfolio Group. The Partnership participates in Insight Portfolio Group's buying group through its relationship with CVR Energy. The Partnership may purchase a variety of goods and services as members of the buying group at prices and on terms that management believes would be more favorable than those which would be achieved on a stand-alone basis.
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Joint Venture Agreement
On September 19, 2016, CRPLLC entered into an agreement with Velocity related to their joint ownership of VPP. See
Note 11 ("Commitments and Contingencies")
for additional discussion of the joint venture.
(15) Major Customers and Suppliers
Sales to major customers were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Customer A
|
15
|
%
|
|
14
|
%
|
|
13
|
%
|
CRRM obtained crude oil from one third-party supplier under a long-term supply agreement during
2016
,
2015
and
2014
. Volume contracted as a percentage of the total crude oil purchases (in barrels) for each of the periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Supplier A
|
61
|
%
|
|
61
|
%
|
|
67
|
%
|
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Selected Quarterly Financial Information (unaudited)
Summarized quarterly financial data for
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Quarter
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(in millions, except per unit data)
|
Net sales
|
$
|
834.0
|
|
|
$
|
1,164.4
|
|
|
$
|
1,163.5
|
|
|
$
|
1,269.4
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
Cost of materials and other
|
722.3
|
|
|
941.9
|
|
|
987.5
|
|
|
1,107.5
|
|
Direct operating expenses (exclusive of depreciation and amortization as reflected below)
|
117.7
|
|
|
84.0
|
|
|
97.0
|
|
|
94.7
|
|
Depreciation and amortization
|
30.9
|
|
|
30.9
|
|
|
31.9
|
|
|
32.6
|
|
Cost of sales
|
870.9
|
|
|
1,056.8
|
|
|
1,116.4
|
|
|
1,234.8
|
|
Flood insurance recovery
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Selling, general and administrative (exclusive of depreciation and amortization as reflected below)
|
18.5
|
|
|
16.8
|
|
|
18.1
|
|
|
18.5
|
|
Depreciation and amortization
|
0.6
|
|
|
0.7
|
|
|
0.6
|
|
|
0.8
|
|
Total operating costs and expenses
|
890.0
|
|
|
1,074.3
|
|
|
1,135.1
|
|
|
1,254.1
|
|
Operating income (loss)
|
(56.0
|
)
|
|
90.1
|
|
|
28.4
|
|
|
15.3
|
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense and other financing costs
|
(10.8
|
)
|
|
(10.1
|
)
|
|
(10.8
|
)
|
|
(11.7
|
)
|
Interest income
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Gain (loss) on derivatives, net
|
(1.2
|
)
|
|
(1.9
|
)
|
|
(1.7
|
)
|
|
(14.6
|
)
|
Other income, net
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
Total other expense
|
(12.0
|
)
|
|
(12.0
|
)
|
|
(12.5
|
)
|
|
(26.0
|
)
|
Income (loss) before income tax expense
|
(68.0
|
)
|
|
78.1
|
|
|
15.9
|
|
|
(10.7
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss)
|
$
|
(68.0
|
)
|
|
$
|
78.1
|
|
|
$
|
15.9
|
|
|
$
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) per common unit - basic and diluted
|
$
|
(0.46
|
)
|
|
$
|
0.53
|
|
|
$
|
0.11
|
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
Weighted-average common units outstanding:
|
|
|
|
|
|
|
|
Basic and diluted
|
147.6
|
|
|
147.6
|
|
|
147.6
|
|
|
147.6
|
|
CVR REFINING, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
Quarter
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(in millions, except per unit data)
|
Net sales
|
$
|
1,304.4
|
|
|
$
|
1,547.5
|
|
|
$
|
1,361.6
|
|
|
$
|
948.3
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
Cost of materials and other
|
1,056.1
|
|
|
1,180.9
|
|
|
1,063.7
|
|
|
842.8
|
|
Direct operating expenses (exclusive of depreciation and amortization as reflected below)
|
87.0
|
|
|
90.3
|
|
|
112.6
|
|
|
188.7
|
|
Depreciation and amortization
|
33.5
|
|
|
33.6
|
|
|
29.4
|
|
|
31.5
|
|
Cost of sales
|
1,176.6
|
|
|
1,304.8
|
|
|
1,205.7
|
|
|
1,063.0
|
|
Flood insurance recovery
|
—
|
|
|
(27.3
|
)
|
|
—
|
|
|
—
|
|
Selling, general and administrative (exclusive of depreciation and amortization as reflected below)
|
18.1
|
|
|
18.6
|
|
|
18.2
|
|
|
20.2
|
|
Depreciation and amortization
|
0.5
|
|
|
0.6
|
|
|
0.5
|
|
|
0.6
|
|
Total operating costs and expenses
|
1,195.2
|
|
|
1,296.7
|
|
|
1,224.4
|
|
|
1,083.8
|
|
Operating income (loss)
|
109.2
|
|
|
250.8
|
|
|
137.2
|
|
|
(135.5
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
Interest expense and other financing costs
|
(11.3
|
)
|
|
(10.4
|
)
|
|
(10.4
|
)
|
|
(10.5
|
)
|
Interest income
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Gain on derivatives, net
|
(51.4
|
)
|
|
(12.6
|
)
|
|
11.8
|
|
|
23.6
|
|
Other expense, net
|
0.1
|
|
|
(0.1
|
)
|
|
0.2
|
|
|
0.1
|
|
Total other income
|
(62.5
|
)
|
|
(23.0
|
)
|
|
1.7
|
|
|
13.3
|
|
Income (loss) before income tax expense
|
46.7
|
|
|
227.8
|
|
|
138.9
|
|
|
(122.2
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss)
|
$
|
46.7
|
|
|
$
|
227.8
|
|
|
$
|
138.9
|
|
|
$
|
(122.2
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) per common unit - basic and diluted
|
$
|
0.32
|
|
|
$
|
1.54
|
|
|
$
|
0.94
|
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
Weighted-average common units outstanding:
|
|
|
|
|
|
|
|
Basic and diluted
|
147.6
|
|
|
147.6
|
|
|
147.6
|
|
|
147.6
|
|
Factors Impacting the Comparability of Quarterly Results of Operations
As discussed in
Note 2 ("Summary of Significant Accounting Policies")
, the Coffeyville refinery completed the second phase of its most recent major scheduled turnaround during the first quarter of 2016 at a total cost of approximately
$31.5 million
for the year ended December 31, 2016, of which approximately
$29.4 million
and
$2.1 million
were incurred in the first and second quarters of 2016, respectively. The Coffeyville refinery completed the first phase of its major scheduled turnaround in mid-November 2015 at a total cost of approximately
$102.2 million
of major scheduled turnaround expenses for the year ended December 31, 2015, of which approximately
$1.7 million
,
$15.6 million
and
$84.9 million
were incurred in the second, third and fourth quarters of 2015, respectively. These costs are included in direct operating expenses (exclusive of depreciation and amortization) in the Consolidated Statements of Operations.
As discussed in
Note 11 ("Commitments and Contingencies")
, CRRM received an insurance recovery from its environmental insurance carriers in the second quarter of 2015 as a result of the flood and crude oil discharge at the Coffeyville refinery on June/July 2007.