As filed with the Securities and Exchange Commission on December 20, 2010

Registration No. 333-      

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

CVR PARTNERS, LP

(Exact Name of Registrant as Specified in Its Charter)

 

 

2277 Plaza Drive, Suite 500

Sugar Land, Texas 77479

(281) 207-3200

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

John J. Lipinski

2277 Plaza Drive, Suite 500

Sugar Land, Texas 77479

(281) 207-3200

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

With a copy to:

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”), check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

PROSPECTUS (Subject to Completion)
Dated December 20, 2010

 

Common Units
Representing Limited Partner Interests

 

 

CVR Partners, LP

 

 

This is the initial public offering of our common units representing limited partner interests.

 

Prior to this offering, there has been no public market for our common units. We anticipate that the initial public offering price for our common units will be between $      and $      per unit. We intend to apply to list our common units on the New York Stock Exchange under the symbol “UAN.”

 

 

 

We have granted the underwriters an option to purchase up to an additional      common units from us to cover over-allotments, if any, at the initial public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus.

 

 

 

 

Investing in our common units involves risks. Please read “Risk Factors” beginning on page 19. These risks include the following:

 

 

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

 

 

 

 

The underwriters expect to deliver the common units to purchasers on or about          , 2011.

 

 

 

 

 

 

 

 

The date of this prospectus is          , 2011.

 

 

 

 

[pictures of nitrogen
fertilizer plant]

TABLE OF CONTENTS

 

 

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume the information appearing in this prospectus is accurate as of the date on the front cover page of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

 

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering, or possession or distribution of this prospectus, in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the common units and the distribution of this prospectus outside of the United States.

 

Industry and Market Data

 

The data included in this prospectus regarding the nitrogen fertilizer industry, including trends in the market and our position and the position of our competitors within the nitrogen fertilizer industry, is based on a variety of sources, including independent industry publications, government publications and other published independent sources, information obtained from customers, distributors, suppliers, trade and business organizations and publicly available information (including the reports and other information our competitors file with the SEC, which we did not participate in preparing and as to which we make no representation), as well as our good faith estimates, which have been derived from management’s knowledge and experience in the areas in which our business operates. Estimates of market size and relative positions in a market are difficult to develop and inherently uncertain. Accordingly, investors should not place undue weight on the industry and market share data presented in this prospectus. Any data sourced from Pike & Fischer’s ‘‘Green Markets’’ newsletter has been approved by BNA Subsidiaries, LLC and is re-used here with the express written permission of BNA Subsidiaries, LLC.

 

PROSPECTUS SUMMARY

 

Overview

 

Our Competitive Strengths

				($ per ton, unless otherwise noted)
				CVR Partners’ Ammonia Cost Advantage																	CVR Partners’ UAN Cost Advantage
Illustrative				Illustrative Competitor								CVR Partners									Illustrative Competitor								CVR Partners
Natural Gas								Total													Competitor
Delivered								Competitor								Ammonia					Ammonia				Total								UAN
Price				Gas				Ammonia				Ammonia				Cost					cost per ton				Competitor				UAN				Cost
($/MMbtu)				Cost(a)				Costs(b)(c)(e)				Costs(d)(e)				Advantage					UAN(f)				UAN Costs(c)(e)(g)				Costs(e)(f)(h)				Advantage
$	4.00			$	132			$	193			$	189			$	4				$	65			$	98			$	87			$	11
	4.50				149				210				189				21					72				105				87				18
	5.50				182				243				189				54					85				118				87				31
	6.50				215				276				189				87					99				132				87				45
	7.50				248				309				189				120					113				146				87				58

(a)		Assumes 33 MMbtu of natural gas to produce a ton of ammonia, based on Blue Johnson.
(b)		Assumes $27 per ton operating cost for ammonia, based on Blue Johnson.
(c)		Assumes incremental $34 per ton transportation cost from the U.S. Gulf Coast to the mid-continent for ammonia and $15 per ton for UAN, based on recently published rail and pipeline tariffs.
(d)		CVR Partners’ ammonia cost consists of $30 per ton of ammonia in pet coke costs and $159 per ton of ammonia in operating costs for the year ended December 31, 2009.
(e)		The cost data included in this chart for an illustrative competitor assumes property taxes, whereas the cost data included for CVR Partners includes the cost of our property taxes other than property taxes currently in dispute. CVR Partners is currently disputing the amount of property taxes which it has been required to pay in recent years. For information on the effect of disputed property taxes on our actual production costs, see product production cost data and footnote 8 under “— Summary Historical and Pro Forma Consolidated Financial Information.” See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Comparability — Fertilizer Plant Property Taxes.”
(f)		Each ton of UAN contains approximately 0.41 tons of ammonia. Illustrative competitor UAN cost per ton data removes $34 per ton in transportation costs for ammonia.
(g)		Assumes $18 per ton cash conversion cost to UAN, based on Blue Johnson.
(h)		CVR Partners’ UAN conversion cost was $13 per ton for the year ended December 31, 2009. $7.80 per ton of ammonia production costs are not transferable to UAN costs.

	•	Cost Advantage.  We operate the only nitrogen fertilizer production facility in North America that uses pet coke gasification to produce nitrogen fertilizer, which has historically given us a cost advantage over competitors that use natural gas-based production methods. Our costs are approximately 72% fixed and relatively stable, which allows us to benefit directly from increases in nitrogen fertilizer prices. Our fixed costs consist primarily of electrical energy, employee labor, maintenance, including contract labor, and outside services. Our variable costs consist primarily of pet coke. Our pet coke costs have historically remained relatively stable, averaging $26 per ton since we began operating under our current structure in October 2007, with a high of $31 per ton for 2008 and a low of $19 per ton for the nine months ended September 30, 2010. Third-party pet coke prices have averaged $41 per ton over the last five years, with a high of $49 per ton for 2007 and a low of $34 per ton for 2006. Substantially all of our nitrogen fertilizer competitors use natural gas as their primary raw material feedstock (with natural gas constituting approximately 85-90% of their production costs based on historical data) and are therefore heavily impacted by changes in natural gas prices.
	•	Premium Product Focus.  We focus on producing higher margin, higher growth UAN nitrogen fertilizer. Historically, UAN has accounted for over 80% of our product tons sold. UAN commands a price premium

		over ammonia and urea on a nutrient ton basis. Unlike ammonia and urea, UAN is easier to apply and can be applied throughout the growing season to crops directly or mixed with crop protection products, which reduces energy and labor costs for farmers. In addition, UAN is safer to handle than ammonia. The convenience of UAN has made it the fastest growing fertilizer among nitrogen fertilizer products in the United States, increasing its market share from 15% in 2001 to 17% in 2009. We currently upgrade 64% of our ammonia production into UAN and plan to expand our upgrading capacity to have the flexibility to upgrade all of our ammonia production into UAN.

	•	Strategically Located Asset.  We have a significant transportation cost advantage when compared to our out-of-region competitors in serving the attractive U.S. farm belt agricultural market. In 2010, approximately 45% of the corn planted in the United States was grown within a $35/UAN ton freight train rate of our nitrogen fertilizer plant. We are therefore able to cost-effectively sell substantially all of our products in the higher margin agricultural market, whereas a significant portion of our competitors’ revenues are derived from the lower margin industrial market. Our location on Union Pacific’s main line increases our transportation cost advantage by lowering the costs of bringing our products to customers. Our products leave the plant either in trucks for direct shipment to customers (in which case we incur no transportation cost) or in railcars for destinations located principally on the Union Pacific Railroad. We do not incur any intermediate transfer, storage, barge freight or pipeline freight charges. We estimate that our plant enjoys a transportation cost advantage of approximately $25 per ton over competitors located in the U.S. Gulf Coast, based on a comparison of our actual transportation costs and recently published rail and pipeline tariffs.

 

Our Business Strategy

	•	Pay Out All of the Available Cash We Generate Each Quarter.  Our strategy is to pay out all of the available cash we generate each quarter. We expect that holders of our common units will receive a greater percentage of our operating cash flow when compared to our publicly traded corporate competitors across the broader fertilizer sector, such as Agrium, CF Industries, Potash Corporation and Yara. These companies have provided an average dividend yield of 0.1%, 0.3%, 0.3% and 1.6%, respectively, as of November 30, 2010,

		compared to our expected distribution yield of     % (calculated by dividing our forecasted distribution for the year ending December 31, 2011 of $      per common unit by the mid-point of the price range on the cover page of this prospectus). The board of directors of our general partner will adopt a policy under which we will distribute all of the available cash we generate each quarter, as described in “Our Cash Distribution Policy and Restrictions On Distributions” on page 56. We do not intend to maintain excess distribution coverage for the purpose of maintaining stability or growth in our quarterly distributions or otherwise to reserve cash for future distributions, and we do not intend to incur debt to pay quarterly distributions. Unlike many publicly traded partnerships that have economic general partner interests and incentive distribution rights that entitle the general partner to receive disproportionate percentages of cash distributions as distributions increase (often up to 50%), our general partner will have a non-economic interest and no incentive distribution rights, and will therefore not be entitled to receive cash distributions. Our common unitholders will receive 100% of our cash distributions.

	•	Pursue Growth Opportunities.  We are well positioned to grow organically, through acquisitions, or both.

	•	Expand UAN Capacity.  We intend to move forward with an expansion of our nitrogen fertilizer plant that is designed to increase our UAN production capacity by 400,000 tons, or approximately 50%, per year. This expansion, for which approximately $30 million had been spent as of September 30, 2010, will allow us the flexibility to upgrade all of our ammonia production when market conditions favor UAN. We expect that this additional UAN production capacity will improve our margins, as UAN has historically been a higher margin product than ammonia. We expect that the UAN expansion will take 18 to 24 months to complete and will be funded with a portion of the net proceeds from this offering and term loan borrowings.
	•	Selectively Pursue Accretive Acquisitions.  We intend to evaluate strategic acquisitions within the nitrogen fertilizer industry and to focus on disciplined and accretive investments that leverage our core strengths. We have no agreements, understandings or financings with respect to any acquisitions at the present time.

	•	Continue to Focus on Safety and Training.  We intend to continue our focus on safety and training in order to increase our facility’s reliability and maintain our facility’s high on-stream availability. We have developed a series of comprehensive safety programs, involving active participation of employees at all levels of the organization, that are aimed at preventing recordable incidents. In 2009, our nitrogen fertilizer plant had a recordable incident rate of 1.76, which was our lowest recordable incident rate in over five years. The recordable incident rate reflects the number of recordable incidents per 200,000 hours worked.
	•	Continue to Enhance Efficiency and Reduce Operating Costs.  We are currently engaged in certain projects that will reduce overall operating costs, increase efficiency, and utilize byproducts to generate incremental revenue. For example, we have built a low btu gas recovery pipeline between our nitrogen fertilizer plant and CVR Energy’s crude oil refinery, which will allow us to sell off-gas, a byproduct produced by our fertilizer plant, to the refinery. We expect to start up this pipeline no later than the first quarter of 2011. In addition, we have formulated a plan to address the carbon dioxide, or CO2, released by our nitrogen fertilizer plant. To that end, we have signed a letter of intent with a third party with expertise in CO2capture and storage systems to develop plans whereby we may, in the future, either sell up to 850,000 tons per year of high purity CO2produced by our nitrogen fertilizer plant to oil and gas exploration and production companies to enhance oil recovery or pursue an economic means of geologically sequestering such CO2.
	•	Provide High Level of Customer Service.  We focus on providing our customers with the highest level of service. The nitrogen fertilizer plant has demonstrated consistent levels of production while operating at close to full capacity. Substantially all of our product shipments are targeted to freight advantaged destinations located in the U.S. farm belt, allowing us to quickly and reliably service customer demand. Furthermore, we maintain our own fleet of railcars capable of safely transporting UAN and ammonia, which helps us ensure prompt delivery. As a result of these efforts, many of our largest customers have been our customers since the plant came online in 2000, and our customer retention rate year to year has been consistently high. We believe a continued focus on customer service will allow us to maintain relationships with existing customers and grow our business.

 

Industry Overview

About Us

Risk Factors

 

THE OFFERING

Issuer		CVR Partners, LP, a Delaware limited partnership.
Common units offered to the public		common units.
Option to purchase additional common units from us		If the underwriters exercise their option to purchase additional common units in full, we will issue           common units to the public.
Units outstanding after this offering		common units (excluding           common units which are subject to issuance under our long-term incentive plan). If the underwriters do not exercise their option to purchase additional common units, we will issue           common units to Coffeyville Resources upon the option’s expiration. If and to the extent the underwriters exercise their option to purchase additional common units, the number of common units purchased by the underwriters pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Coffeyville Resources. Accordingly, the exercise of the underwriters’ option will not affect the total number of common units outstanding.
		In addition, our general partner will own a non-economic general partner interest in us which will not entitle it to receive distributions.
Use of Proceeds		We estimate that the net proceeds to us in this offering, after deducting underwriting discounts and commissions and the estimated expenses of this offering, will be approximately $      million (based on an assumed initial public offering price of $      per common unit, the mid-point of the price range set forth on the cover page of this prospectus). We intend to use:
		• approximately $      million to make a special distribution to Coffeyville Resources;
		• approximately $26.0 million to purchase (and subsequently extinguish) the incentive distribution rights, or IDRs, currently owned by our general partner;
		• approximately $      million to pay financing fees resulting from our new credit facility; and
		• the balance for general partnership purposes, including the intended UAN expansion.
		If the underwriters exercise their option to purchase           additional common units in full, the additional net proceeds would be approximately $      million (based upon the mid-point of the price range set forth on the cover page of this prospectus). The net proceeds from any exercise of such option will be paid as a special distribution to Coffeyville Resources. See “Use of Proceeds.”
Cash Distributions		Within 45 days after the end of each quarter, beginning with the first full quarter following the closing date of this offering, we expect to make cash distributions to unitholders of record on the applicable record date.

		The board of directors of our general partner will adopt a policy pursuant to which we will distribute all of the available cash we generate each quarter. Available cash for each quarter will be determined by the board of directors of our general partner following the end of such quarter. We expect that available cash for each quarter will generally equal our cash flow from operations for the quarter, less cash needed for maintenance capital expenditures, debt service and other contractual obligations, and reserves for future operating or capital needs that the board of directors of our general partner deems necessary or appropriate. We do not intend to maintain excess distribution coverage for the purpose of maintaining stability or growth in our quarterly distribution or otherwise to reserve cash for distributions, and we do not intend to incur debt to pay quarterly distributions. We expect to finance substantially all of our growth externally, either by debt issuances or additional issuances of equity.
		Because our policy will be to distribute all the available cash we generate each quarter, without reserving cash for future distributions or borrowing to pay distributions during periods of low cash flow from operations, our unitholders will have direct exposure to fluctuations in the amount of cash generated by our business. We expect that the amount of our quarterly distributions, if any, will vary based on our operating cash flow during such quarter. Our quarterly cash distributions, if any, will not be stable and will vary from quarter to quarter as a direct result of variations in our operating performance and cash flow caused by fluctuations in the price of nitrogen fertilizers and in the amount of forward and prepaid sales we have in any given quarter. Such variations in the amount of our quarterly distributions may be significant. Unlike most publicly traded partnerships, we will not have a minimum quarterly distribution or employ structures intended to consistently maintain or increase distributions over time. The board of directors of our general partner may change our distribution policy at any time and from time to time. Our partnership agreement does not require us to pay cash distributions on a quarterly or other basis.
		Based upon our forecast for the year ending December 31, 2011, and assuming the board of directors of our general partner declares distributions in accordance with our cash distribution policy, we expect that our aggregate distributions for the year ending December 31, 2011 will be approximately $115.5 million. See “Our Cash Distribution Policy and Restrictions on Distributions — Forecasted Available Cash.” Unanticipated events may occur which could materially adversely affect the actual results we achieve during the forecast period. Consequently, our actual results of operations, cash flows, need for reserves and financial condition during the forecast period may vary from the forecast, and such variations may be material. Prospective investors are cautioned not to place undue reliance on our forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition. In addition, the board of directors of our general partner may be required to or elect to eliminate our distributions at any time during periods of reduced prices or demand for our nitrogen fertilizer products, among other reasons. Please see “Risk Factors.”

		From time to time we make prepaid sales, whereby we receive cash during one quarter in respect of product to be produced and sold in a future quarter but we do not record revenue in respect of the related product sales until the quarter when product is delivered. All cash on our balance sheet in respect of prepaid sales on the date of the closing of this offering will not be distributed to Coffeyville Resources at the closing of this offering but will be reserved for distribution to holders of common units.
		For a calculation of our ability to make distributions to unitholders based on our pro forma results of operations for the twelve months ended September 30, 2010, please read “Our Cash Distribution Policy and Restrictions on Distributions” on page 56. Our pro forma available cash generated during the four quarter period ended September 30, 2010 would have been $39.3 million. See “Our Cash Distribution Policy and Restrictions on Distributions — Pro Forma Available Cash.”
Incentive Distribution Rights		None.
Subordination Period		None.
Issuance of additional units		Our partnership agreement authorizes us to issue an unlimited number of additional units and rights to buy units for the consideration and on the terms and conditions determined by the board of directors of our general partner without the approval of our unitholders. See “Common Units Eligible for Future Sale” and “The Partnership Agreement — Issuance of Additional Partnership Interests.”
Limited voting rights		Our general partner manages and operates us. Unlike the holders of common stock in a corporation, you will have only limited voting rights on matters affecting our business. You will have no right to elect our general partner or our general partner’s directors on an annual or other continuing basis. Our general partner may be removed by a vote of the holders of at least 662/3% of the outstanding common units, including any common units owned by our general partner and its affiliates (including Coffeyville Resources, a wholly-owned subsidiary of CVR Energy), voting together as a single class. Upon completion of this offering, Coffeyville Resources will own an aggregate of approximately     % of our outstanding common units (approximately  % if the underwriters exercise their option to purchase additional common units in full). This will give Coffeyville Resources the ability to prevent removal of our general partner. See “The Partnership Agreement — Voting Rights.”
Call right		If at any time our general partner and its affiliates (including Coffeyville Resources) own more than  % of the common units, our general partner will have the right, but not the obligation, to purchase all, but not less than all, of the common units held by public unitholders at a price not less than their then-current market price, as calculated pursuant to the terms of our Partnership Agreement. See “The Partnership Agreement — Call Right.”
Estimated ratio of taxable income to distributions		We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending

		, you will be allocated, on a cumulative basis, an amount of U.S. federal taxable income for that period that will be     % or less of the cash distributed to you with respect to that period. For example, if you receive an annual distribution of $      per common unit, we estimate that your average allocable U.S. federal taxable income per year will be no more than $      per common unit. See “Material U.S. Federal Income Tax Consequences — Tax Consequences of Common Unit Ownership — Ratio of Taxable Income to Distributions.”
Material U.S. Federal Income Tax Consequences		For a discussion of material U.S. federal income tax consequences that may be relevant to prospective unitholders, see “Material U.S. Federal Income Tax Consequences.”
Exchange Listing		We intend to apply to list our common units on the New York Stock Exchange under the symbol “UAN.”
Risk Factors		See “Risk Factors” beginning on page 19 of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in our common units.

 

Organizational Structure

(1)

Assumes the underwriters do not exercise their option to purchase additional common units, which would instead be issued to Coffeyville Resources upon the option’s expiration. If and to the extent the underwriters exercise their option to purchase additional common units, the units purchased pursuant to such exercise will be issued to the public and the remainder, if any, will be issued to Coffeyville Resources. Accordingly, the exercise of the underwriters’ option will not affect the total number of units outstanding.

 

Summary Historical and Pro Forma Consolidated Financial Information

		Historical									Pro Forma
		Nine Months Ended									Nine Months Ended
		September 30,									September 30,
		2009				2010					2010
		(unaudited)									(unaudited)
		(dollars in millions, except per unit data and as otherwise indicated)
Statement of Operations Data:
Net sales		$	169.0			$	141.1				$	141.1
Cost of product sold(1)			34.6				27.7					27.7
Direct operating expenses(1)(2)			64.4				60.7					60.7
Selling, general and administrative expenses(1)(2)			14.1				8.8					8.8
Depreciation and amortization(4)			14.0				13.9					13.9
Operating income		$	41.9			$	30.0				$	30.0
Other income (expense)(5)			6.2				9.5					(0.1	)
Interest (expense) and other financing costs			—				—					(5.3	)
Income before income taxes		$	48.1			$	39.5				$	24.6
Income tax expense			—				—					—
Net income		$	48.1			$	39.5				$	24.6
Pro forma net income per common unit, basic and diluted
Pro forma number of common units, basic and diluted
Financial and Other Data:
Cash flows provided by operating activities			75.1				56.6
Cash flows (used in) investing activities			(11.7	)			(3.8	)
Cash flows (used in) financing activities			(60.8	)			(29.5	)
EBITDA(6)			55.9				43.8					43.8
Capital expenditures for property, plant and equipment			11.7				3.8					3.8
Key Operating Data:
Product pricing (plant gate) (dollars per ton)(7):
Ammonia		$	318			$	305				$	305
UAN			221				180					180
Product production cost (exclusive of depreciation expense) (dollars per ton)(8):
Ammonia		$	214.45			$	196.80
UAN			97.76				96.03
Pet coke cost (dollars per ton)(9):
Third party		$	37			$	40				$	40
CVR Energy			28				12					12
Production (thousand tons):
Ammonia (gross produced)(10)			323.4				322.9					322.9
Ammonia (net available for sale)(10)			117.3				117.9					117.9
UAN			501.2				500.5					500.5
On-stream factors(11):
Gasifier			96.8	%			95.8	%				95.8	%
Ammonia			95.9	%			94.6	%				94.6	%
UAN			93.3	%			92.2	%				92.2	%

		Historical													Pro Forma
		Year Ended				Year Ended				Year Ended					Year Ended
		December 31,				December 31,				December 31,					December 31,
		2007				2008				2009					2009
															(unaudited)
		(dollars in millions, except per unit data and as otherwise indicated)
Statement of Operations Data:
Net sales		$	187.4			$	263.0			$	208.4				$	208.4
Cost of product sold(1)			33.1				32.6				42.2					42.2
Direct operating expenses (exclusive of depreciation and amortization)(1)(2)			66.7				86.1				84.5					84.5
Selling, general and administrative expenses (exclusive of depreciation and amortization)(1)(2)			20.4				9.5				14.1					14.1
Net costs associated with flood(3)			2.4				—				—					—
Depreciation and amortization(4)			16.8				18.0				18.7					18.7
Operating income		$	48.0			$	116.8			$	48.9				$	48.9
Other income (expense)(5)			0.2				2.1				9.0					—
Interest (expense) and other financing costs			(23.6	)			—				—					(7.1	)
Gain (loss) on derivatives			(0.5	)			—				—					—
Income before income taxes		$	24.1			$	118.9			$	57.9				$	41.8
Income tax expense			—				—				—					—
Net income		$	24.1			$	118.9			$	57.9				$	41.8
Pro forma net income per common unit, basic and diluted
Pro forma number of common units, basic and diluted
Financial and Other Data:
Cash flows provided by operating activities			46.5				123.5				85.5
Cash flows (used in) investing activities			(6.5	)			(23.5	)			(13.4	)
Cash flows (used in) financing activities			(25.5	)			(105.3	)			(75.8	)
EBITDA(6)			65.0				134.9				67.6					67.6
Capital expenditures for property, plant and equipment			6.5				23.5				13.4					13.4
Key Operating Data:
Product pricing (plant gate) (dollars per ton)(7):
Ammonia		$	376			$	557			$	314				$	314
UAN			209				303				198					198
Product production cost (exclusive of depreciation expense) (dollars per ton)(8):
Ammonia		$	170.74			$	246.39			$	206.92
UAN			76.97				96.78				94.92
Pet coke cost (dollars per ton)(9):
Third party			49				39				37					37
CVR Energy			17				30				22					22
Production (thousand tons):
Ammonia (gross produced)(10)			326.7				359.1				435.2					435.2
Ammonia (net available for sale)(10)			91.8				112.5				156.6					156.6
UAN			576.9				599.2				677.7					677.7
On-stream factors(11):
Gasifier			90.0	%			87.8	%			97.4	%				97.4	%
Ammonia			87.7	%			86.2	%			96.5	%				96.5	%
UAN			78.7	%			83.4	%			94.1	%				94.1	%

		Historical													Pro Forma
										Nine Months					Nine Months
		Year Ended				Year Ended				Ended					Ended
		December 31,				December 31,				September 30,					September 30,
		2008				2009				2010					2010
										(unaudited)					(unaudited)
		(in millions)
Balance Sheet Data:
Cash and cash equivalents		$	9.1			$	5.4			$	28.8				$	132.9
Working capital			60.4				135.5				187.2					130.3
Total assets			499.9				551.5				595.7					541.8
Total debt including current portion			—				—				—					125.0
Partners’ capital			458.8				519.9				560.7					381.7

(1)		Amounts shown are exclusive of depreciation and amortization
(2)		Our direct operating expenses (exclusive of depreciation and amortization) and selling, general and administrative expenses (exclusive of depreciation and amortization) for the nine months ended September 30, 2009 and 2010 and for the years ended December 31, 2007, 2008 and 2009 include a charge related to CVR Energy’s share-based compensation expense allocated to us by CVR Energy for financial reporting purposes in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 718 Compensation — Stock Compensation, or ASC 718. These charges will continue to be attributed to us following the closing of this offering. We are not responsible for the payment of cash related to any share-based compensation allocated to us by CVR Energy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Share-Based Compensation.” The charges were:

		Historical																					Pro Forma
														Nine Months													Nine Months
		Year Ended				Year Ended				Year Ended				Ended									Year Ended				Ended
		December 31,				December 31,				December 31,				September 30,									December 31,				September 30,
		2007				2008				2009				2009				2010					2009				2010
														(unaudited)									(unaudited)
		(in millions)
Direct operating expenses (exclusive of depreciation and amortization)		$	1.2			$	(1.6	)		$	0.2			$	0.6			$	0.2				$	0.2			$	0.2
Selling, general and administrative expenses (exclusive of depreciation and amortization)			9.7				(9.0	)			3.0				5.2				1.1					3.0				1.1
Total		$	10.9			$	(10.6	)		$	3.2			$	5.8			$	1.3				$	3.2			$	1.3

(3)		Total gross costs recorded as a result of the flood damage to our nitrogen fertilizer plant for the year ended December 31, 2007 were approximately $5.8 million, including approximately $0.8 million recorded for depreciation for temporarily idle facilities, $0.7 million for internal salaries and $4.3 million for other repairs and related costs. An insurance receivable of approximately $3.3 million was also recorded for the year ended December 31, 2007 for the probable recovery of such costs under CVR Energy’s insurance policies.
(4)		Depreciation and amortization is comprised of the following components as excluded from direct operating expenses and selling, general and administrative expenses and as included in net costs associated with flood:

		Historical																					Pro Forma
														Nine Months													Nine Months
		Year Ended				Year Ended				Year Ended				Ended									Year Ended				Ended
		December 31,				December 31,				December 31,				September 30,									December 31,				September 30,
		2007				2008				2009				2009				2010					2009				2010
														(unaudited)									(unaudited)
		(in millions)
Depreciation and amortization excluded from direct operating expenses		$	16.8			$	18.0			$	18.7			$	14.0			$	13.9				$	18.7			$	13.9
Depreciation and amortization excluded from selling, general and administrative expenses			—				—				—				—				—					—				—
Depreciation included in net costs associated with flood			0.8				—				—				—				—					—				—
Total depreciation and amortization		$	17.6			$	18.0			$	18.7			$	14.0			$	13.9				$	18.7			$	13.9

(5)		Other income (expense) is comprised of the following components included in our consolidated statement of operations:

		Historical																					Pro Forma
		Year				Year				Year				Nine Months													Nine Months
		Ended				Ended				Ended				Ended									Year Ended				Ended
		December 31,				December 31,				December 31,				September 30,									December 31,				September 30,
		2007				2008				2009				2009				2010					2009				2010
														(unaudited)									(unaudited)
		(in millions)
Interest income(a)		$	0.3			$	2.0			$	9.0			$	6.2			$	9.6				$	—			$	—
Loss on extinguishment of debt			(0.2	)			—				—				—				—					—				—
Other income (expense)			0.1				0.1				—				—				(0.1	)				—				(0.1	)
Other income (expense)		$	0.2			$	2.1			$	9.0			$	6.2			$	9.5				$	—			$	(0.1	)

(a)		Interest income for the years ended December 31, 2008 and 2009 and the nine months ended September 30, 2009 and 2010 is primarily attributable to a due from affiliate balance owed to us by Coffeyville Resources as a result of affiliate loans. Prior to the closing of this offering, the due from affiliate balance will be distributed to Coffeyville Resources. Accordingly, such amounts will no longer be owed to us.

(6)		EBITDA is defined as net income plus interest expense and other financing costs, income tax expense and depreciation and amortization, net of interest income.
		EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:

	•	the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; and
	•	our operating performance and return on invested capital compared to those of other publicly traded limited partnerships, without regard to financing methods and capital structure.

		EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. In addition, EBITDA presented by other companies may not be comparable to our presentation, since each company may define these terms differently.

		Historical																				Pro Forma
		Year				Year				Year																Nine Months
		Ended				Ended				Ended				Nine Months Ended								Year Ended				Ended
		December 31,				December 31,				December 31,				September 30,								December 31,				September 30,
		2007				2008				2009				2009				2010				2009				2010
														(unaudited)								(unaudited)
		(in millions)
Net income		$	24.1			$	118.9			$	57.9			$	48.1			$	39.5			$	41.8			$	24.6
Add:
Interest expense and other financing costs			23.6				—				—				—				—				7.1				5.3
Interest income			(0.3	)			(2.0	)			(9.0	)			(6.2	)			(9.6	)			—				—
Income tax expense			—				—				—				—				—				—				—
Depreciation and amortization			17.6				18.0				18.7				14.0				13.9				18.7				13.9
EBITDA		$	65.0			$	134.9			$	67.6			$	55.9			$	43.8			$	67.6			$	43.8

(7)		Plant gate price per ton represents net sales less freight costs and hydrogen revenue (from hydrogen sales to CVR Energy’s refinery) divided by product sales volume in tons in the reporting period. Plant gate price per ton is shown in order to provide a pricing measure that is comparable across the fertilizer industry.
(8)		Product production cost per ton (exclusive of depreciation expense) includes the total amount of operating expenses incurred during the production process (including raw material costs) in dollars per product ton divided by the total number of tons produced. This amount includes the full amount of property taxes paid in each period. CVR Partners is currently disputing the amount of property taxes which it has been required to pay in recent years. Excluding the amount of property tax which CVR Partners is disputing, (i) for the nine months ended September 30, 2009 and 2010, the product production cost per ton (exclusive of depreciation expense) for ammonia would have been $194.82 and $170.88, respectively, and for UAN would have been $89.69 and $85.42, respectively, (ii) for the year ended December 31, 2009, the product production cost per ton (exclusive of depreciation expense) for ammonia would have been $188.70 and for UAN would have been $87.44, and (iii) for the year ended December 31, 2008, the product production cost per ton (exclusive of depreciation expense) for ammonia would have been $222.37 and for UAN would have been $86.89. For a discussion of the property tax dispute, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Comparability — Fertilizer Plant Property Taxes.” We have not included product production costs for the year ended December 31, 2007, as the costs are not comparable and therefore we do not believe the information is meaningful to an investor.
(9)		We use 1.1 tons of pet coke to produce 1.0 tons of ammonia.

(10)		The gross tons produced for ammonia represent the total ammonia produced, including ammonia produced that was upgraded into UAN. The net tons available for sale represent the ammonia available for sale that was not upgraded into UAN.
(11)		On-stream factor is the total number of hours operated divided by the total number of hours in the reporting period. Excluding the impact of the Linde, Inc., or Linde, air separation unit outage in 2009, the on-stream factors for the nine months ended September 30, 2009 would have been 99.4% for gasifier, 98.5% for ammonia and 95.8% for UAN. Excluding the impact of the Linde air separation unit outage in 2010, the on-stream factors for the nine months ended September 30, 2010 would have been 97.7% for gasifier, 96.7% for ammonia and 94.3% for UAN. Excluding the Linde air separation unit outage in 2009, the on-stream factors would have been 99.3% for gasifier, 98.4% for ammonia and 96.1% for UAN for the year ended December 31, 2009. Excluding the turnaround performed in 2008 the on-stream factors would have been 91.7% for gasifier, 90.2% for ammonia and 87.4% for UAN for the year ended December 31, 2008. Excluding the impact of the flood in 2007 the on-stream factors would have been 94.6% for gasifier, 92.4% for ammonia and 83.9% for UAN for the year ended December 31, 2007.

 

You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our common units. If any of the following risks and uncertainties develops into an actual event, our business, financial condition, cash flows or results of operations could be materially adversely affected. In that case, we might not be able to pay distributions on our common units, the trading price of our common units could decline, and you could lose all or part of your investment. Although many of our business risks are comparable to those faced by a corporation engaged in a similar business, limited partner interests are inherently different from the capital stock of a corporation and involve additional risks described below.

 

We may not have sufficient available cash to pay any quarterly distribution on our common units. For the twelve months ended September 30, 2010, on a pro forma basis, our annual distribution would have been $      per unit, significantly less than the $      per unit distribution we project that we will be able to pay for the year ended December 31, 2011.

 

We may not have sufficient available cash each quarter to enable us to pay any distributions to our common unitholders. Furthermore, our partnership agreement does not require us to pay distributions on a quarterly basis or otherwise. For the twelve months ended September 30, 2010, on a pro forma basis, our annual distribution would have been $      per unit, significantly less than the $      per unit distribution we project that we will to be able to pay for the year ended December 31, 2011. Our expected aggregate annual distribution amount for the year 2011 is based on an assumed increase in the average sales prices of ammonia and UAN for the year 2011 over September 2010 prices of 72% and 50%, respectively. If our price assumptions prove to be inaccurate, our actual annual distribution for 2011 will be significantly lower than our expected 2011 annual distribution, or we may not be able to pay a distribution at all. The amount of cash we will be able to distribute on our common units principally depends on the amount of cash we generate from our operations, which is directly dependent upon the operating margins we generate, which have been volatile historically. Our operating margins are significantly affected by the market-driven UAN and ammonia prices we are able to charge our customers and our pet coke-based gasification production costs, as well as seasonality, weather conditions, governmental regulation, unscheduled maintenance or downtime at our facilities and global and domestic demand for nitrogen fertilizer products, among other factors. In addition:

 

 

 

For a description of additional restrictions and factors that may affect our ability to make cash distributions, see “Our Cash Distribution Policy and Restrictions on Distributions.”

 

The amount of our quarterly cash distributions, if any, will vary significantly both quarterly and annually and will be directly dependent on the performance of our business. Unlike most publicly traded partnerships, we will not have a minimum quarterly distribution or employ structures intended to consistently maintain or increase distributions over time.

 

Investors who are looking for an investment that will pay regular and predictable quarterly distributions should not invest in our common units. We expect our business performance will be more seasonal and volatile, and our cash flows will be less stable, than the business performance and cash flows of most publicly traded partnerships. As a result, our quarterly cash distributions will be volatile and are expected to vary quarterly and annually. Unlike most publicly traded partnerships, we will not have a minimum quarterly distribution or employ structures intended to consistently maintain or increase distributions over time. The amount of our quarterly cash distributions will be directly dependent on the performance of our business, which has been volatile historically as a result of volatile nitrogen fertilizer and natural gas prices, and seasonal and global fluctuations in demand for nitrogen fertilizer products. Because our quarterly distributions will be subject to significant fluctuations directly related to the cash we generate after payment of our fixed and variable expenses, future quarterly distributions paid to our unitholders will vary significantly from quarter to quarter and may be zero. Given the seasonal nature of our business, we expect that our unitholders will have direct exposure to fluctuations in the price of nitrogen fertilizers. In addition, from time to time we make prepaid sales, whereby we receive cash in respect of product to be delivered in a future quarter but do not record revenue in respect of such sales until product is delivered. The cash from prepaid sales increases our operating cash flow in the quarter when the cash is received.

 

The board of directors of our general partner may modify or revoke our cash distribution policy at any time at its discretion.

 

The board of directors of our general partner will adopt a cash distribution policy pursuant to which we will distribute all of the available cash we generate each quarter to unitholders of record on a pro rata basis. However, the board may change such policy at any time at its discretion and could elect not to make distributions for one or more quarters. Our partnership agreement does not require us to make any distributions at all. Accordingly, investors are cautioned not to place undue reliance on the permanence of such a policy in making an investment decision. Any modification or revocation of our cash distribution policy could substantially reduce or eliminate the amounts of distributions to our unitholders.

 

None of the proceeds of this offering will be available to pay distributions.

 

We will pay a substantial portion of the proceeds from this offering, including all proceeds from the exercise of the underwriters’ over-allotment option, after deducting underwriting discounts and commissions, to our direct parent, Coffeyville Resources. In addition, we intend to use net proceeds from this offering that we retain to fund our planned UAN expansion. Consequently, none of the proceeds from this offering will be available to pay distributions to the public unitholders. See “Use of Proceeds.”

 

The assumptions underlying the forecast of available cash that we include in “Our Cash Distribution Policy and Restrictions on Distributions — Forecasted Available Cash” are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

 

Our forecast of available cash set forth in “Our Cash Distribution Policy and Restrictions on Distributions — Forecasted Available Cash” includes our forecast of results of operations and available cash for the year ending December 31, 2011. The forecast has been prepared by the management of CVR Energy on our behalf. Neither our

independent registered public accounting firm nor any other independent accountants have examined, compiled or performed any procedures with respect to the forecast, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for the forecast. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties, including those discussed in this section, that could cause actual results to differ materially from those forecasted. If the forecasted results are not achieved, we would not be able to pay the forecasted annual distribution, in which event the market price of the common units may decline materially. Our actual results may differ materially from the forecasted results presented in this prospectus. In addition, based on our historical results of operations, which have been volatile, our annual distribution for the twelve months ended September 30, 2010, on a pro forma basis, would have been significantly less than the annual distribution we project that we will be able to pay for the year ended December 31, 2011. Investors should review the 2011 forecast of our results of operations together with the other information included elsewhere in this prospectus, including “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

The pro forma available cash information for the twelve months ended September 30, 2010 which we include in this prospectus does not necessarily reflect the actual cash that would have been available.

 

We have included in this prospectus pro forma available cash information for the twelve months ended September 30, 2010, which indicates the amount of cash that we would have had available for distribution during that period on a pro forma basis. This pro forma information is based on numerous estimates and assumptions, but our financial performance, had the Transactions (as defined on page 50 of this prospectus) occurred at the beginning of such twelve-month period, could have been materially different from the pro forma results. Accordingly, investors should review the unaudited pro forma information, including the related footnotes, together with the other information included elsewhere in this prospectus, including “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our actual results may differ, possibly materially, from those presented in the pro forma available cash information.

 

The nitrogen fertilizer business is, and nitrogen fertilizer prices are, cyclical and highly volatile and have experienced substantial downturns in the past. Cycles in demand and pricing could potentially expose us to significant fluctuations in our operating and financial results, and expose you to substantial volatility in our quarterly cash distributions and potential material reductions in the trading price of our common units.

 

We are exposed to fluctuations in nitrogen fertilizer demand in the agricultural industry. These fluctuations historically have had and could in the future have significant effects on prices across all nitrogen fertilizer products and, in turn, our financial condition, cash flows and results of operations, which could result in significant volatility or material reductions in the price of our common units or an inability to make quarterly cash distributions on our common units.

 

Nitrogen fertilizer products are commodities, the price of which can be highly volatile. The prices of nitrogen fertilizer products depend on a number of factors, including general economic conditions, cyclical trends in end-user markets, supply and demand imbalances, and weather conditions, which have a greater relevance because of the seasonal nature of fertilizer application. If seasonal demand exceeds our projections, our customers may acquire nitrogen fertilizer products from our competitors, and our profitability will be negatively impacted. If seasonal demand is less than we expect, we will be left with excess inventory that will have to be stored or liquidated.

 

Demand for nitrogen fertilizer products is dependent on demand for crop nutrients by the global agricultural industry. Nitrogen-based fertilizers are currently in high demand, driven by a growing world population, changes in dietary habits and an expanded use of corn for the production of ethanol. Supply is affected by available capacity and operating rates, raw material costs, government policies and global trade. A decrease in nitrogen fertilizer prices would have a material adverse effect on our business, cash flow and ability to make distributions.

The costs associated with operating our nitrogen fertilizer plant are largely fixed. If nitrogen fertilizer prices fall below a certain level, we may not generate sufficient revenue to operate profitably or cover our costs and our ability to make distributions will be adversely impacted.

 

Our nitrogen fertilizer plant has largely fixed costs compared to natural gas-based nitrogen fertilizer plants. As a result, downtime, interruptions or low productivity due to reduced demand, adverse weather conditions, equipment failure, a decrease in nitrogen fertilizer prices or other causes can result in significant operating losses. A decline in global nitrogen fertilizer prices has the effect of reducing the base sale price for nitrogen fertilizer products in the United States. Declines in the price of nitrogen fertilizer products could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Unlike our competitors, whose primary costs are related to the purchase of natural gas and whose costs are therefore largely variable, we have largely fixed costs that are not dependent on the price of natural gas because we use pet coke as the primary feedstock in our nitrogen fertilizer plant.

 

A decline in natural gas prices could impact our relative competitive position when compared to other nitrogen fertilizer producers.

 

Most nitrogen fertilizer manufacturers rely on natural gas as their primary feedstock, and the cost of natural gas is a large component of the total production cost for natural gas-based nitrogen fertilizer manufacturers. The dramatic increase in nitrogen fertilizer prices in recent years was not the direct result of an increase in natural gas prices, but rather the result of increased demand for nitrogen-based fertilizers due to historically low stocks of global grains and a surge in the prices of corn and wheat, the primary crops in our region. This increase in demand for nitrogen-based fertilizers has created an environment in which nitrogen fertilizer prices have disconnected from their traditional correlation with natural gas prices. A decrease in natural gas prices would benefit our competitors and could disproportionately impact our operations by making us less competitive with natural gas-based nitrogen fertilizer manufacturers. A decline in natural gas prices could impair our ability to compete with other nitrogen fertilizer producers who utilize natural gas as their primary feedstock, and therefore have a material adverse impact on the trading price of our common units. In addition, if natural gas prices in the United States were to decline to a level that prompts those U.S. producers who have permanently or temporarily closed production facilities to resume fertilizer production, this would likely contribute to a global supply/demand imbalance that could negatively affect nitrogen fertilizer prices and therefore have a material adverse effect on our results of operations, financial condition, cash flows, and ability to make cash distributions.

 

Any decline in U.S. agricultural production or limitations on the use of nitrogen fertilizer for agricultural purposes could have a material adverse effect on the market for nitrogen fertilizer, and on our results of operations, financial condition and ability to make cash distributions.

 

Conditions in the U.S. agricultural industry significantly impact our operating results. The U.S. agricultural industry can be affected by a number of factors, including weather patterns and field conditions, current and projected grain inventories and prices, domestic and international demand for U.S. agricultural products and U.S. and foreign policies regarding trade in agricultural products.

 

State and federal governmental policies, including farm and biofuel subsidies and commodity support programs, as well as the prices of fertilizer products, may also directly or indirectly influence the number of acres planted, the mix of crops planted and the use of fertilizers for particular agricultural applications. Developments in crop technology, such as nitrogen fixation, the conversion of atmospheric nitrogen into compounds that plants can assimilate, could also reduce the use of chemical fertilizers and adversely affect the demand for nitrogen fertilizer. In addition, from time to time various state legislatures have considered limitations on the use and application of chemical fertilizers due to concerns about the impact of these products on the environment.

A major factor underlying the current high level of demand for our nitrogen-based fertilizer products is the expanding production of ethanol. A decrease in ethanol production, an increase in ethanol imports or a shift away from corn as a principal raw material used to produce ethanol could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

A major factor underlying the current high level of demand for our nitrogen-based fertilizer products is the expanding production of ethanol in the United States and the expanded use of corn in ethanol production. Ethanol production in the United States is highly dependent upon a myriad of federal and state legislation and regulations, and is made significantly more competitive by various federal and state incentives. Such incentive programs may not be renewed, or if renewed, they may be renewed on terms significantly less favorable to ethanol producers than current incentive programs. Studies showing that expanded ethanol production may increase the level of greenhouse gases in the environment may reduce political support for ethanol production. The elimination or significant reduction in ethanol incentive programs, such as the 45 cents per gallon ethanol tax credit and the 54 cents per gallon ethanol import tariff, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Further, most ethanol is currently produced from corn and other raw grains, such as milo or sorghum — especially in the Midwest. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste and energy crops (plants grown for use to make biofuels or directly exploited for their energy content). This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Although current technology is not sufficiently efficient to be competitive, new conversion technologies may be developed in the future. If an efficient method of producing ethanol from cellulose-based biomass is developed, the demand for corn may decrease significantly, which could reduce demand for our nitrogen fertilizer products and have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Nitrogen fertilizer products are global commodities, and we face intense competition from other nitrogen fertilizer producers.

 

Our business is subject to intense price competition from both U.S. and foreign sources, including competitors operating in the Persian Gulf, the Asia-Pacific region, the Caribbean, Russia and the Ukraine. Fertilizers are global commodities, with little or no product differentiation, and customers make their purchasing decisions principally on the basis of delivered price and availability of the product. Furthermore, in recent years the price of nitrogen fertilizer in the United States has been substantially driven by pricing in the global fertilizer market. We compete with a number of U.S. producers and producers in other countries, including state-owned and government-subsidized entities. Some competitors have greater total resources and are less dependent on earnings from fertilizer sales, which makes them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Competitors utilizing different corporate structures may be better able to withstand lower cash flows than we can as a limited partnership. Our competitive position could suffer to the extent we are not able to expand our own resources either through investments in new or existing operations or through acquisitions, joint ventures or partnerships. An inability to compete successfully could result in the loss of customers, which could adversely affect our sales and profitability, and our ability to make cash distributions.

 

Adverse weather conditions during peak fertilizer application periods may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions, because our agricultural customers are geographically concentrated.

 

Our sales of nitrogen fertilizer products to agricultural customers are concentrated in the Great Plains and Midwest states and are seasonal in nature. For example, we generate greater net sales and operating income in the first half of the year, which we refer to as the planting season, compared to the second half of the year. Accordingly, an adverse weather pattern affecting agriculture in these regions or during the planting season could have a negative effect on fertilizer demand, which could, in turn, result in a material decline in our net sales and margins and otherwise have a material adverse effect on our results of operations, financial condition and ability to make cash

distributions. Our quarterly results may vary significantly from one year to the next due largely to weather-related shifts in planting schedules and purchase patterns. In addition, given the seasonal nature of our business, we expect that our distributions will be volatile and will vary quarterly and annually.

 

Our business is seasonal, which may result in our carrying significant amounts of inventory and seasonal variations in working capital. Our inability to predict future seasonal nitrogen fertilizer demand accurately may result in excess inventory or product shortages.

 

Our business is seasonal. Farmers tend to apply nitrogen fertilizer during two short application periods, one in the spring and the other in the fall. The strongest demand for our products typically occurs during the planting season. In contrast, we and other nitrogen fertilizer producers generally produce our products throughout the year. As a result, we and our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales seasons. The seasonality of nitrogen fertilizer demand results in our sales volumes and net sales being highest during the North American spring season and our working capital requirements typically being highest just prior to the start of the spring season.

 

If seasonal demand exceeds our projections, we will not have enough product and our customers may acquire products from our competitors, which would negatively impact our profitability. If seasonal demand is less than we expect, we will be left with excess inventory and higher working capital and liquidity requirements.

 

The degree of seasonality of our business can change significantly from year to year due to conditions in the agricultural industry and other factors. As a consequence of our seasonality, we expect that our distributions will be volatile and will vary quarterly and annually.

 

Our operations are dependent on third-party suppliers, including Linde, which owns an air separation plant that provides oxygen, nitrogen and compressed dry air to our gasifiers, and the City of Coffeyville, which supplies us with electricity. A deterioration in the financial condition of a third-party supplier, a mechanical problem with the air separation plant, or the inability of a third-party supplier to perform in accordance with its contractual obligations could have a material adverse effect on our results of operations, financial condition and our ability to make cash distributions.

 

Our operations depend in large part on the performance of third-party suppliers, including Linde for the supply of oxygen, nitrogen and compressed dry air, and the City of Coffeyville for the supply of electricity. With respect to Linde, our operations could be adversely affected if there were a deterioration in Linde’s financial condition such that the operation of the air separation plant located adjacent to our nitrogen fertilizer plant was disrupted. Additionally, this air separation plant in the past has experienced numerous short term interruptions, causing interruptions in our gasifier operations. With respect to electricity, we recently settled litigation with the City of Coffeyville regarding the price they sought to charge us for electricity and entered into an amended and restated electric services agreement which gives us an option to extend the term of such agreement through June 30, 2024. Should Linde, the City of Coffeyville or any of our other third-party suppliers fail to perform in accordance with existing contractual arrangements, our operation could be forced to halt. Alternative sources of supply could be difficult to obtain. Any shutdown of our operations, even for a limited period, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our results of operations, financial condition and ability to make cash distributions may be adversely affected by the supply and price levels of pet coke. Failure by CVR Energy to continue to supply us with pet coke (to the extent third-party pet coke is unavailable or available only at higher prices), or CVR Energy’s imposition of an obligation to provide it with security for our payment obligations, could negatively impact our results of operations.

 

Our profitability is directly affected by the price and availability of pet coke obtained from CVR Energy’s crude oil refinery pursuant to a long-term agreement and pet coke purchased from third parties, both of which vary based on market prices. Pet coke is a key raw material used by us in the manufacture of nitrogen fertilizer products. If pet coke costs increase, we may not be able to increase our prices to recover these increased costs, because market prices for our nitrogen fertilizer products are not correlated with pet coke prices.

Based on our current output, we obtain most (over 70% on average during the last five years) of the pet coke we need from CVR Energy’s adjacent crude oil refinery, and procure the remainder on the open market. The price that we pay CVR Energy for pet coke is based on the lesser of a pet coke price derived from the price we receive for UAN (subject to a UAN-based price ceiling and floor) and a pet coke index price. In most cases, the price we pay CVR Energy will be lower than the price which we would otherwise pay to third parties. Pet coke prices could significantly increase in the future. Should CVR Energy fail to perform in accordance with our existing agreement, we would need to purchase pet coke from third parties on the open market, which could negatively impact our results of operations to the extent third-party pet coke is unavailable or available only at higher prices.

 

We may not be able to maintain an adequate supply of pet coke. In addition, we could experience production delays or cost increases if alternative sources of supply prove to be more expensive or difficult to obtain. We currently purchase 100% of the pet coke CVR Energy produces. Accordingly, if we increase our production, we will be more dependent on pet coke purchases from third-party suppliers at open market prices. There is no assurance that we would be able to purchase pet coke on comparable terms from third parties or at all.

 

Under our pet coke agreement with CVR Energy, we may become obligated to provide security for our payment obligations if, in CVR Energy’s sole judgment, there is a material adverse change in our financial condition or liquidity position or in our ability to pay for our pet coke purchases. See “Certain Relationships and Related Party Transactions — Agreements with CVR Energy — Coke Supply Agreement.”

 

We rely on third-party providers of transportation services and equipment, which subjects us to risks and uncertainties beyond our control that may have a material adverse effect on our results of operations, financial condition and ability to make distributions.

 

We rely on railroad and trucking companies to ship finished products to our customers. We also lease railcars from railcar owners in order to ship our finished products. These transportation operations, equipment and services are subject to various hazards, including extreme weather conditions, work stoppages, delays, spills, derailments and other accidents and other operating hazards.

 

These transportation operations, equipment and services are also subject to environmental, safety and other regulatory oversight. Due to concerns related to terrorism or accidents, local, state and federal governments could implement new regulations affecting the transportation of our finished products. In addition, new regulations could be implemented affecting the equipment used to ship our finished products.

 

Any delay in our ability to ship our finished products as a result of these transportation companies’ failure to operate properly, the implementation of new and more stringent regulatory requirements affecting transportation operations or equipment, or significant increases in the cost of these services or equipment could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our facility faces operating hazards and interruptions, including unscheduled maintenance or downtime. We could face potentially significant costs to the extent these hazards or interruptions cause a material decline in production and are not fully covered by our existing insurance coverage. Insurance companies that currently insure companies in our industry may cease to do so, may change the coverage provided or may substantially increase premiums in the future.

 

Our operations, located at a single location, are subject to significant operating hazards and interruptions. Any significant curtailing of production at our nitrogen fertilizer plant or individual units within our plant could result in materially lower levels of revenues and cash flow for the duration of any shutdown and materially adversely impact our ability to make cash distributions. Operations at our nitrogen fertilizer plant could be curtailed or partially or completely shut down, temporarily or permanently, as the result of a number of circumstances, most of which are not within our control, such as:

 

 

 

The magnitude of the effect on us of any shutdown will depend on the length of the shutdown and the extent of the plant operations affected by the shutdown. Our plant requires a scheduled maintenance turnaround every two years, which generally lasts up to three weeks and may have a material impact on our cash flows and ability to make cash distributions in the quarter or quarters in which it occurs. A major accident, fire, flood, or other event could damage our facility or the environment and the surrounding community or result in injuries or loss of life. For example, the flood that occurred during the weekend of June 30, 2007 shut down our facility for approximately two weeks and required significant expenditures to repair damaged equipment, and our UAN plant was out of service for approximately six weeks after the rupture of a high pressure vessel in September 2010, which is expected to have a significant impact on our revenues and cash flows for the fourth quarter of 2010. Based upon an internal review and investigation, we currently estimate that the costs to repair the damage caused by the incident are expected to be in the range of $8.0 million to $11.0 million and repairs are expected to be substantially complete prior to the end of December 2010. To the extent additional damage is discovered during the completion of repairs, the costs of repairs could increase or repairs could take longer to complete. Moreover, our facility is located adjacent to CVR Energy’s refining operations and a major accident or disaster at CVR Energy’s operations could adversely affect our operations. Scheduled and unscheduled maintenance could reduce our net income, cash flow and ability to make cash distributions during the period of time that any of our units is not operating. Any unscheduled future downtime could have a material adverse effect on our ability to make cash distributions to our unitholders.

 

If we experience significant property damage, business interruption, environmental claims or other liabilities, our business could be materially adversely affected to the extent the damages or claims exceed the amount of valid and collectible insurance available to us. We are currently insured under CVR Energy’s casualty, environmental, property and business interruption insurance policies. The property and business interruption insurance policies have a $1.0 billion limit, with a $2.5 million deductible for physical damage and a 45-day waiting period before losses resulting from business interruptions are recoverable. The policies also contain exclusions and conditions that could have a materially adverse impact on our ability to receive indemnification thereunder, as well as customary sub-limits for particular types of losses. For example, the current property policy contains a specific sub-limit of $150.0 million for damage caused by flooding. We are fully exposed to all losses in excess of the applicable limits and sub-limits and for losses due to business interruptions of fewer than 45 days.

 

Our management believes that we will continue to be covered under CVR Energy’s insurance policies following this offering. CVR Energy’s casualty insurance policy, which includes our environmental insurance coverage for sudden and accidental pollution events, expires on July 1, 2011, and its current property and business interruption insurance policies expire on November 1, 2011. We do not know whether we will be able to continue to be covered under CVR Energy’s insurance policies when these policies come up for renewal in 2011 or whether we will need to obtain separate insurance policies, or the terms or cost of insurance that CVR Energy or we will be able to obtain at such time. Market factors, including but not limited to catastrophic perils that impact our industry, significant changes in the investment returns of insurance companies, insurance company solvency trends and industry loss ratios and loss trends, can negatively impact the future cost and availability of insurance. There can be no assurance that CVR Energy or we will be able to buy and maintain insurance with adequate limits, reasonable pricing terms and conditions.

Our results of operations are highly dependent upon and fluctuate based upon business and economic conditions and governmental policies affecting the agricultural industry. These factors are outside of our control and may significantly affect our profitability.

 

Our results of operations are highly dependent upon business and economic conditions and governmental policies affecting the agricultural industry, which we cannot control. The agricultural products business can be affected by a number of factors. The most important of these factors, for U.S. markets, are:

 

 

International market conditions, which are also outside of our control, may also significantly influence our operating results. The international market for nitrogen fertilizers is influenced by such factors as the relative value of the U.S. dollar and its impact upon the cost of importing nitrogen fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets, changes in the hard currency demands of certain countries and other regulatory policies of foreign governments, as well as the laws and policies of the United States affecting foreign trade and investment.

 

Ammonia can be very volatile and extremely hazardous. Any liability for accidents involving ammonia that cause severe damage to property or injury to the environment and human health could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. In addition, the costs of transporting ammonia could increase significantly in the future.

 

We manufacture, process, store, handle, distribute and transport ammonia, which can be very volatile and extremely hazardous. Major accidents or releases involving ammonia could cause severe damage or injury to property, the environment and human health, as well as a possible disruption of supplies and markets. Such an event could result in civil lawsuits, fines, penalties and regulatory enforcement proceedings, all of which could lead to significant liabilities. Any damage to persons, equipment or property or other disruption of our ability to produce or distribute our products could result in a significant decrease in operating revenues and significant additional cost to replace or repair and insure our assets, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. We periodically experience minor releases of ammonia related to leaks from heat exchangers and other equipment. We experienced more significant ammonia releases in August 2007 due to the failure of a high-pressure pump and in September 2010 due to a UAN vessel rupture. Similar events may occur in the future.

 

In addition, we may incur significant losses or costs relating to the operation of our railcars used for the purpose of carrying various products, including ammonia. Due to the dangerous and potentially toxic nature of the cargo, in particular ammonia, on board railcars, a railcar accident may result in fires, explosions and pollution. These circumstances may result in sudden, severe damage or injury to property, the environment and human health. In the event of pollution, we may be held responsible even if we are not at fault and we complied with the laws and regulations in effect at the time of the accident. Litigation arising from accidents involving ammonia may result in our being named as a defendant in lawsuits asserting claims for large amounts of damages, which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Given the risks inherent in transporting ammonia, the costs of transporting ammonia could increase significantly in the future. Ammonia is most typically transported by railcar. A number of initiatives are underway in the railroad and chemical industries that may result in changes to railcar design in order to minimize railway accidents involving hazardous materials. If any such design changes are implemented, or if accidents involving hazardous freight increase the insurance and other costs of railcars, our freight costs could significantly increase.

Environmental laws and regulations could require us to make substantial capital expenditures to remain in compliance or to remediate current or future contamination that could give rise to material liabilities.

 

Our operations are subject to a variety of federal, state and local environmental laws and regulations relating to the protection of the environment, including those governing the emission or discharge of pollutants into the environment, product specifications and the generation, treatment, storage, transportation, disposal and remediation of solid and hazardous waste and materials. Violations of these laws and regulations or permit conditions can result in substantial penalties, injunctive orders compelling installation of additional controls, civil and criminal sanctions, permit revocations or facility shutdowns.

 

In addition, new environmental laws and regulations, new interpretations of existing laws and regulations, increased governmental enforcement of laws and regulations or other developments could require us to make additional unforeseen expenditures. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. The requirements to be met, as well as the technology and length of time available to meet those requirements, continue to develop and change. These expenditures or costs for environmental compliance could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our facility operates under a number of federal and state permits, licenses and approvals with terms and conditions containing a significant number of prescriptive limits and performance standards in order to operate. Our facility is also required to comply with prescriptive limits and meet performance standards specific to chemical facilities as well as to general manufacturing facilities. All of these permits, licenses, approvals and standards require a significant amount of monitoring, record keeping and reporting in order to demonstrate compliance with the underlying permit, license, approval or standard. Incomplete documentation of compliance status may result in the imposition of fines, penalties and injunctive relief. Additionally, due to the nature of our manufacturing processes, there may be times when we are unable to meet the standards and terms and conditions of these permits and licenses due to operational upsets or malfunctions, which may lead to the imposition of fines and penalties or operating restrictions that may have a material adverse effect on our ability to operate our facilities and accordingly our financial performance.

 

Our business is subject to accidental spills, discharges or other releases of hazardous substances into the environment and neighboring areas. Past or future spills related to our nitrogen fertilizer plant or transportation of products or hazardous substances from our facility may give rise to liability (including strict liability, or liability without fault, and potential cleanup responsibility) to governmental entities or private parties under federal, state or local environmental laws, as well as under common law. For example, we could be held strictly liable under the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, for past or future spills without regard to fault or whether our actions were in compliance with the law at the time of the spills. Pursuant to CERCLA and similar state statutes, we could be held liable for contamination associated with the facility we currently own and operate, facilities we formerly owned or operated (if any) and facilities to which we transported or arranged for the transportation of wastes or by-products containing hazardous substances for treatment, storage, or disposal. The potential penalties and cleanup costs for past or future releases or spills, liability to third parties for damage to their property or exposure to hazardous substances, or the need to address newly discovered information or conditions that may require response actions could be significant and could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

In addition, we may incur liability for alleged personal injury or property damage due to exposure to chemicals or other hazardous substances located at or released from our facility. We may also face liability for personal injury, property damage, natural resource damage or for cleanup costs for the alleged migration of contamination or other hazardous substances from our facility to adjacent and other nearby properties.

 

We may incur future costs relating to the off-site disposal of hazardous wastes. Companies that dispose of, or arrange for the transportation or disposal of, hazardous substances at off-site locations may be held jointly and severally liable for the costs of investigation and remediation of contamination at those off-site locations, regardless of fault. We could become involved in litigation or other proceedings involving off-site waste disposal and the damages or costs in any such proceedings could be material.

We may be unable to obtain or renew permits necessary for our operations, which could inhibit our ability to do business.

 

We hold numerous environmental and other governmental permits and approvals authorizing operations at our nitrogen fertilizer facility. Expansion of our operations is also predicated upon securing the necessary environmental or other permits or approvals. A decision by a government agency to deny or delay issuing a new or renewed material permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations and on our business, financial condition, results of operations and ability to make cash distributions.

 

Environmental laws and regulations on fertilizer end-use and application and numeric nutrient water quality criteria could have a material adverse impact on fertilizer demand in the future.

 

Future environmental laws and regulations on the end-use and application of fertilizers could cause changes in demand for our products. In addition, future environmental laws and regulations, or new interpretations of existing laws or regulations, could limit our ability to market and sell our products to end users. From time to time, various state legislatures have proposed bans or other limitations on fertilizer products. In addition, a number of states have adopted or proposed numeric nutrient water quality criteria that could result in decreased demand for our fertilizer products in those states. Similarly, a new final Environmental Protection Agency, or EPA, rule establishing numeric nutrient criteria for certain Florida water bodies may require farmers to implement best management practices, including the reduction of fertilizer use, to reduce the impact of fertilizer on water quality. Any such laws, regulations or interpretations could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Climate change laws and regulations could have a material adverse effect on our results of operations, financial condition, and ability to make cash distributions.

 

Currently, various legislative and regulatory measures to address greenhouse gas emissions (including carbon dioxide, or CO₂, methane and nitrous oxides) are in various phases of discussion or implementation. These include proposed federal legislation and regulations and state actions to develop statewide or regional programs, which would require reductions in greenhouse gas emissions. At the federal legislative level, Congress could adopt some form of federal mandatory greenhouse gas emission reduction laws, although the specific requirements and timing of any such laws are uncertain at this time. In June 2009, the U.S. House of Representatives passed a bill that would create a nationwide cap-and-trade program designed to regulate emissions of CO₂, methane and other greenhouse gases. A similar bill was introduced in the U.S. Senate. Senate passage of such legislation does not appear likely at this time, though it could be adopted at a future date. It is also possible that the Senate may pass alternative climate change bills that do not mandate a nationwide cap-and-trade program and instead focus on promoting renewable energy and energy efficiency.

 

In the absence of congressional legislation curbing greenhouse gas emissions, the EPA is moving ahead administratively under its federal Clean Air Act authority. In October 2009, the EPA finalized a rule requiring certain large emitters of greenhouse gases to inventory and report their greenhouse gas emissions to the EPA. In accordance with the rule, we have begun monitoring our greenhouse gas emissions from our nitrogen fertilizer plant and will report the emissions to the EPA beginning in 2011. On December 7, 2009, the EPA finalized its “endangerment finding” that greenhouse gas emissions, including CO₂, pose a threat to human health and welfare. The finding allows the EPA to regulate greenhouse gas emissions as air pollutants under the federal Clean Air Act. In May 2010, the EPA finalized the “Greenhouse Gas Tailoring Rule,” which establishes new greenhouse gas emissions thresholds that determine when stationary sources, such as our nitrogen fertilizer plant, must obtain permits under the Prevention of Significant Deterioration, or PSD, and Title V programs of the federal Clean Air Act. The significance of the permitting requirement is that, in cases where a new source is constructed or an existing source undergoes a major modification, the facility would need to evaluate and install best available control technology, or BACT, for its greenhouse gas emissions. Phase-in permit requirements will begin for the largest stationary sources in 2011. We do not currently anticipate that our UAN expansion project will result in a significant increase in greenhouse gas emissions triggering the need to install BACT. However, beginning in July 2011, a major modification resulting in a significant expansion of production at our nitrogen fertilizer plant resulting in a

significant increase in greenhouse gas emissions may require us to install BACT for our greenhouse gas emissions. The EPA’s endangerment finding, the Greenhouse Gas Tailoring Rule and certain other greenhouse gas emission rules have been challenged and will likely be subject to extensive litigation. In addition, Senate bills to overturn the endangerment finding and bar the EPA from regulating greenhouse gas emissions, or at least to defer such action by the EPA under the federal Clean Air Act, are under consideration.

 

In addition to federal regulations, a number of states have adopted regional greenhouse gas initiatives to reduce CO₂ and other greenhouse gas emissions. In 2007, a group of Midwest states, including Kansas (where our nitrogen fertilizer facility is located), formed the Midwestern Greenhouse Gas Reduction Accord, which calls for the development of a cap-and-trade system to control greenhouse gas emissions and for the inventory of such emissions. However, the individual states that have signed on to the accord must adopt laws or regulations implementing the trading scheme before it becomes effective, and the timing and specific requirements of any such laws or regulations in Kansas are uncertain at this time.

 

The implementation of EPA regulations and/or the passage of federal or state climate change legislation will likely result in increased costs to (i) operate and maintain our facilities, (ii) install new emission controls on our facilities and (iii) administer and manage any greenhouse gas emissions program. Increased costs associated with compliance with any future legislation or regulation of greenhouse gas emissions, if it occurs, may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

In addition, climate change legislation and regulations may result in increased costs not only for our business but also for agricultural producers that utilize our fertilizer products, thereby potentially decreasing demand for our fertilizer products. Decreased demand for our fertilizer products may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

New regulations concerning the transportation of hazardous chemicals, risks of terrorism and the security of chemical manufacturing facilities could result in higher operating costs.

 

The costs of complying with regulations relating to the transportation of hazardous chemicals and security associated with our nitrogen fertilizer facility may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. Targets such as chemical manufacturing facilities may be at greater risk of future terrorist attacks than other targets in the United States. The chemical industry has responded to the issues that arose in response to the terrorist attacks on September 11, 2001 by starting new initiatives relating to the security of chemical industry facilities and the transportation of hazardous chemicals in the United States. Future terrorist attacks could lead to even stronger, more costly initiatives. Simultaneously, local, state and federal governments have begun a regulatory process that could lead to new regulations impacting the security of chemical plant locations and the transportation of hazardous chemicals. Our business could be materially adversely affected by the cost of complying with new regulations.

 

Our plans to address our CO₂production may not be successful.

 

We have signed a letter of intent with a third party with expertise in CO₂ capture and storage systems to develop plans whereby we may, in the future, either sell up to 850,000 tons per year of high purity CO₂ produced by our nitrogen fertilizer plant to oil and gas exploration and production companies to enhance oil recovery or pursue an economic means of geologically sequestering such CO₂. We cannot guarantee that this proposed CO₂ capture and storage system will be constructed successfully or at all or, if constructed, that it will provide an economic benefit and will not result in economic losses or additional costs that may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Due to our lack of asset diversification, adverse developments in the nitrogen fertilizer industry could adversely affect our results of operations and our ability to make distributions to our unitholders.

 

We rely exclusively on the revenues generated from our nitrogen fertilizer business. An adverse development in the nitrogen fertilizer industry would have a significantly greater impact on our operations and cash available for distribution to holders of common units than it will on other companies with a more diverse asset and product base. The largest publicly traded companies with which we compete sell a more varied range of fertilizer products.

Our business depends on significant customers, and the loss of one or several significant customers may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our business has a high concentration of customers. In the aggregate, our top five ammonia customers represented 62.1%, 54.7%, and 43.9%, respectively, of our ammonia sales, and our top five UAN customers represented 38.7%, 37.2%, and 44.2%, respectively, of our UAN sales, for the years ended December 31, 2007, 2008 and 2009. Given the nature of our business, and consistent with industry practice, we do not have long-term minimum purchase contracts with any of our customers. The loss of one or several of these significant customers, or a significant reduction in purchase volume by any of them, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

There is no assurance that our competitors’ transportation costs will not decline, reducing our transportation cost advantage.

 

Our nitrogen fertilizer plant is located within the U.S. farm belt, where the majority of the end users of our nitrogen fertilizer products grow their crops. Accordingly, we currently have a transportation cost advantage over many of our competitors, who produce fertilizer outside of this region and incur greater costs in transporting their products over longer distances via rail, ships and pipelines. There can be no assurance that our competitors’ transportation costs will not decline or that additional pipelines will not be built, lowering the price at which our competitors can sell their products, which would have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

We are subject to strict laws and regulations regarding employee and process safety, and failure to comply with these laws and regulations could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our facility is subject to the requirements of the federal Occupational Safety and Health Act, or OSHA, and comparable state statutes that regulate the protection of the health and safety of workers. In addition, OSHA requires that we maintain information about hazardous materials used or produced in our operations and that we provide this information to employees, state and local governmental authorities, and local residents. Failure to comply with OSHA requirements, including general industry standards, record keeping requirements and monitoring and control of occupational exposure to regulated substances, could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions if we are subjected to significant fines or compliance costs.

 

Instability and volatility in the global capital and credit markets could negatively impact our business, financial condition, results of operations and cash flows.

 

The global capital and credit markets have experienced extreme volatility and disruption over the past two years. Our results of operations, financial condition and ability to make cash distributions could be negatively impacted by the difficult conditions and extreme volatility in the capital, credit and commodities markets and in the global economy. These factors, combined with declining business and consumer confidence and increased unemployment, precipitated an economic recession in the United States and globally during 2009 and 2010. The difficult conditions in these markets and the overall economy affect us in a number of ways. For example:

 

 

Our acquisition and expansion strategy involves significant risks.

 

One of our business strategies is to pursue acquisitions and expansion projects (including expanding our UAN capacity). However, acquisitions and expansions involve numerous risks and uncertainties, including intense competition for suitable acquisition targets, the potential unavailability of financial resources necessary to consummate acquisitions and expansions, difficulties in identifying suitable acquisition targets and expansion projects or in completing any transactions identified on sufficiently favorable terms; and the need to obtain regulatory or other governmental approvals that may be necessary to complete acquisitions and expansions. In addition, any future acquisitions and expansions may entail significant transaction costs, tax consequences and risks associated with entry into new markets and lines of business.

 

We intend to move forward with an expansion of our nitrogen fertilizer plant, which will allow us the flexibility to upgrade all of our ammonia production to UAN. This expansion is premised in large part on the historically higher margin that we have received for UAN compared to ammonia. If the premium that UAN currently earns over ammonia decreases, this expansion project may not yield the economic benefits and accretive effects that we currently anticipate.

 

In addition to the risks involved in identifying and completing acquisitions described above, even when acquisitions are completed, integration of acquired entities can involve significant difficulties, such as:

 

 

In addition, in connection with any potential acquisition or expansion project, we will need to consider whether the business we intend to acquire or expansion project we intend to pursue (including the project relating to CO₂ sequestration or sale) could affect our tax treatment as a partnership for U.S. federal income tax purposes. If we are otherwise unable to conclude that the activities of the business being acquired or the expansion project would not affect our treatment as a partnership for U.S. federal income tax purposes, we could seek a ruling from the Internal Revenue Service, or IRS. Seeking such a ruling could be costly or, in the case of competitive acquisitions, place us in a competitive disadvantage compared to other potential acquirers who do not seek such a ruling. If we are unable to conclude that an activity would not affect our treatment as a partnership for U.S. federal income tax purposes, we could choose to acquire such business or develop such expansion project in a corporate subsidiary, which would subject the income related to such activity to entity-level taxation. See “— Tax Risks — Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for U.S. federal income tax purposes or if we were to become subject to additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to our unitholders would be substantially reduced” and “Material U.S. Federal Income Tax Consequences — Partnership Status.”

 

Failure to manage acquisition and expansion growth risks could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. There can be no assurance that we will be able

to consummate any acquisitions or expansions, successfully integrate acquired entities, or generate positive cash flow at any acquired company or expansion project.

 

We rely primarily on the executive officers of CVR Energy to manage most aspects of our business and affairs pursuant to a services agreement, which CVR Energy can terminate at any time following the one year anniversary of this offering.

 

Our future performance depends to a significant degree upon the continued contributions of CVR Energy’s senior management team. We have entered into a services agreement with our general partner and CVR Energy whereby CVR Energy has agreed to provide us with the services of its senior management team as well as accounting, business operations, legal, finance and other key back-office and mid-office personnel. Following the one year anniversary of this offering, CVR Energy can terminate this agreement at any time, subject to a 180-day notice period. The loss or unavailability to us of any member of CVR Energy’s senior management team could negatively affect our ability to operate our business and pursue our business strategies. We do not have employment agreements with any of CVR Energy’s officers and we do not maintain any key person insurance. We can provide no assurance that CVR Energy will continue to provide us the officers that are necessary for the conduct of our business nor that such provision will be on terms that are acceptable. If CVR Energy elected to terminate the agreement on 180 days’ notice following the one year anniversary of this offering, we might not be able to find qualified individuals to serve as our executive officers within such 180-day period.

 

In addition, pursuant to the services agreement we are responsible for a portion of the compensation expense of such executive officers according to the percentage of time such executive officers spent working for us. However, the compensation of such executive officers is set by CVR Energy, and we have no control over the amount paid to such officers. The services agreement does not contain any cap on the amounts we may be required to pay CVR Energy pursuant to this agreement.

 

A shortage of skilled labor, together with rising labor costs, could adversely affect our results of operations and cash available for distribution to our unitholders.

 

Efficient production of nitrogen fertilizer using modern techniques and equipment requires skilled employees. Our nitrogen fertilizer facility relies on gasification technology that requires special expertise to operate efficiently and effectively. To the extent that the services of our key technical personnel become unavailable to us for any reason, we would be required to hire other personnel. We may not be able to locate or employ such qualified personnel on acceptable terms or at all. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. If we are unable to find qualified employees, or if the cost to find qualified employees increases materially, our results of operations and cash available for distribution to our unitholders could be adversely affected.

 

If licensed technology were no longer available, our business may be adversely affected.

 

We have licensed, and may in the future license, a combination of patent, trade secret and other intellectual property rights of third parties for use in our business. In particular, the gasification process we use to convert pet coke to high purity hydrogen for subsequent conversion to ammonia is licensed from General Electric. The license, which is fully paid, grants us perpetual rights to use the pet coke gasification process on specified terms and conditions and is integral to the operations of our facility. If this, or any other license agreements on which our operations rely were to be terminated, licenses to alternative technology may not be available, or may only be available on terms that are not commercially reasonable or acceptable. In addition, any substitution of new technology for currently-licensed technology may require substantial changes to manufacturing processes or equipment and may have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

We may face third-party claims of intellectual property infringement, which if successful could result in significant costs for our business.

 

There are currently no claims pending against us relating to the infringement of any third-party intellectual property rights. However, in the future we may face claims of infringement that could interfere with our ability to use technology that is material to our business operations. Any litigation of this type, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources, either of which could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions. In the event a claim of infringement against us is successful, we may be required to pay royalties or license fees for past or continued use of the infringing technology, or we may be prohibited from using the infringing technology altogether. If we are prohibited from using any technology as a result of such a claim, we may not be able to obtain licenses to alternative technology adequate to substitute for the technology we can no longer use, or licenses for such alternative technology may only be available on terms that are not commercially reasonable or acceptable to us. In addition, any substitution of new technology for currently licensed technology may require us to make substantial changes to our manufacturing processes or equipment or to our products, and could have a material adverse effect on our results of operations, financial condition and ability to make cash distributions.

 

Our new credit facility may contain significant limitations on our business operations, including our ability to make distributions and other payments.

 

Upon the closing of this offering, we expect to enter into a new credit facility. We anticipate that as of September 30, 2010, on a pro forma basis after giving effect to this offering and the use of the estimated proceeds hereof and the establishment of our new credit facility, we would have had $125.0 million of term loan debt outstanding and incremental borrowing capacity of approximately $25.0 million under the revolving credit facility. We and our subsidiary may be able to incur significant additional indebtedness in the future. We anticipate that both our ability to make distributions to holders of our common units and our ability to borrow under this new credit facility to fund distributions (if we elected to do so) will be subject to covenant restrictions under the agreement governing this new credit facility. If we were unable to comply with any such covenant restrictions in any quarter, our ability to make distributions to unitholders would be curtailed or limited.

 

In addition, we will be subject to covenants contained in our new credit facility and any agreement governing other future indebtedness. These covenants may include, among others, restrictions on certain payments, the granting of liens, the incurrence of additional indebtedness, dividend restrictions affecting subsidiaries, asset sales, transactions with affiliates and mergers, acquisitions and consolidations. Any failure to comply with these covenants could result in a default under our new credit facility. Upon a default, unless waived, the lenders under our new credit facility would have all remedies available to a secured lender, and could elect to terminate their commitments, cease making further loans, cause their loans to become due and payable in full, institute foreclosure proceedings against our or our subsidiary’s assets, and force us and our subsidiary into bankruptcy or liquidation.

 

Borrowings under our new credit facility will bear interest at variable rates. If market interest rates increase, such variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow and ability to make cash distributions.

 

Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of our operating assets, properties and systems software, as well as to provide capacity for the growth of our business, depends on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors.

 

If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection.

We are a holding company and depend upon our subsidiary for our cash flow.

 

We are a holding company. All of our operations are conducted and all of our assets are owned by Coffeyville Resources Nitrogen Fertilizers, LLC, our wholly-owned subsidiary and our sole direct or indirect subsidiary. Consequently, our cash flow and our ability to meet our obligations or to make cash distributions in the future will depend upon the cash flow of our subsidiary and the payment of funds by our subsidiary to us in the form of dividends or otherwise. The ability of our subsidiary to make any payments to us will depend on its earnings, the terms of its indebtedness, including the terms of any credit facilities, and legal restrictions. In particular, future credit facilities incurred at our subsidiary may impose significant limitations on the ability of our subsidiary to make distributions to us and consequently our ability to make distributions to our unitholders. See also “— We may not have sufficient available cash to pay any quarterly distribution on our common units. For the twelve months ended September 30, 2010, on a pro forma basis, our annual distribution would have been $      per unit, significantly less than the $      per unit distribution we project that we will be able to pay for the year ended December 31, 2011.”

 

We have never operated as a stand-alone company.

 

Because we have never operated as a stand-alone company, it is difficult for you to evaluate our business and results of operations to date and to assess our future prospects and viability. Our nitrogen fertilizer facility commenced operations in 2000 and was operated as one of eight fertilizer facilities within Farmland until March 2004. Since March 2004, we have been operated as part of a larger company together with a petroleum refining company. The financial information reflecting our business contained in this prospectus, including our historical financial information as well as the pro forma financial information included herein, do not necessarily reflect what our operating performance would have been had we been a stand-alone company during the periods presented.

 

We will incur increased costs as a result of being a publicly traded partnership.

 

As a publicly traded partnership, we will incur significant legal, accounting and other expenses that we did not incur prior to this offering. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, as well as rules implemented by the SEC and the New York Stock Exchange, require, or will require, publicly traded entities to adopt various corporate governance practices that will further increase our costs. Before we are able to make distributions to our unitholders, we must first pay our expenses, including the costs of being a public company and other operating expenses. As a result, the amount of cash we have available for distribution to our unitholders will be affected by our expenses, including the costs associated with being a publicly traded partnership. We estimate that we will incur approximately $3.5 million of estimated incremental costs per year, some of which will be direct charges associated with being a publicly traded partnership, and some of which will be allocated to us by CVR Energy; however, it is possible that our actual incremental costs of being a publicly traded partnership will be higher than we currently estimate.

 

Prior to this offering, we have not filed reports with the SEC. Following this offering, we will become subject to the public reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We expect these requirements will increase our legal and financial compliance costs and to make compliance activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have at least three independent directors and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal control over financial reporting. In addition, we will incur additional costs associated with our publicly traded company reporting requirements.

 

As a publicly traded partnership we qualify for, and are relying on, certain exemptions from the New York Stock Exchange’s corporate governance requirements.

 

As a publicly traded partnership, we qualify for, and are relying on, certain exemptions from the New York Stock Exchange’s corporate governance requirements, including:

 

 

 

As a result of these exemptions, our general partner’s board of directors will not be comprised of a majority of independent directors, our general partner’s compensation committee may not be comprised entirely of independent directors and our general partner’s board of directors may not establish a nominating/corporate governance committee. Accordingly, unitholders will not have the same protections afforded to equityholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange. See “Management.”

 

We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.

 

We are in the process of evaluating our internal controls systems to allow management to report on, and our independent auditors to audit, our internal controls over financial reporting. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and under current rules will be required to comply with Section 404 in our annual report for the year ended December 31, 2012 (subject to any change in applicable SEC rules). Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board, or PCAOB, rules and regulations that remain unremediated. Although we produce our financial statements in accordance with GAAP, our internal accounting controls may not currently meet all standards applicable to companies with publicly traded securities. As a publicly traded partnership, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

 

If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities such as the SEC. If we do not implement improvements to our disclosure controls and procedures or to our internal controls in a timely manner, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal controls over financial reporting pursuant to an audit of our internal controls over financial reporting. This may subject us to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements. We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal controls, if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the price of our common units. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate, we may face restricted access to the capital markets and the price of our common units may be adversely affected.

 

Our relationship with CVR Energy and its financial condition subjects us to potential risks that are beyond our control.

 

Due to our relationship with CVR Energy, adverse developments or announcements concerning CVR Energy could materially adversely affect our financial condition, even if we have not suffered any similar development. The ratings assigned to CVR Energy’s senior secured indebtedness are below investment grade. Downgrades of the credit ratings of CVR Energy could increase our cost of capital and collateral requirements, and could impede our access to the capital markets.

 

The credit and business risk profiles of CVR Energy may be factors considered in credit evaluations of us. This is because we rely on CVR Energy for various services, including management services and the supply of pet coke. Another factor that may be considered is the financial condition of CVR Energy, including the degree of its financial leverage and its dependence on cash flow from us to service its indebtedness. The credit and risk profile of CVR

Energy could adversely affect our credit ratings and risk profile, which could increase our borrowing costs or hinder our ability to raise capital.

 

If we were to seek a credit rating in the future, our credit rating may be adversely affected by the leverage of CVR Energy, as credit rating agencies may consider the leverage and credit profile of CVR Energy and its affiliates because of their ownership interest in and joint control of us and the strong operational links between CVR Energy’s refining business and us. Any adverse effect on our credit rating would increase our cost of borrowing or hinder our ability to raise financing in the capital markets, which would impair our ability to grow our business and make cash distributions to unitholders.

 

The board of directors of our general partner will adopt a policy to distribute all of the available cash we generate each quarter, which could limit our ability to grow and make acquisitions.

 

The board of directors of our general partner will adopt a policy to distribute all of the available cash we generate each quarter to our unitholders. As a result, our general partner will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow.

 

In addition, because the board of directors of our general partner will adopt a policy to distribute all of the available cash we generate each quarter, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units will decrease the amount we distribute on each outstanding unit. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, would reduce the available cash that we have to distribute to our unitholders.

 

Our general partner, an indirect wholly-owned subsidiary of CVR Energy, has fiduciary duties to CVR Energy and its stockholders, and the interests of CVR Energy and its stockholders may differ significantly from, or conflict with, the interests of our public common unitholders.

 

Our general partner is responsible for managing us. Although our general partner has fiduciary duties to manage us in a manner beneficial to us and the common unitholders, the fiduciary duties are specifically limited by the express terms of our partnership agreement, and the directors and officers of our general partner also have fiduciary duties to manage our general partner in a manner beneficial to CVR Energy and its stockholders. The interests of CVR Energy and its stockholders may differ from, or conflict with, the interests of our common unitholders. In resolving these conflicts, our general partner may favor its own interests, the interests of Coffeyville Resources, its sole member, or the interests of CVR Energy and holders of CVR Energy’s common stock over our interests and those of our common unitholders.

 

The potential conflicts of interest include, among others, the following:

 

 

 

See “Conflicts of Interest and Fiduciary Duties.”

 

Our partnership agreement limits the liability and reduces the fiduciary duties of our general partner and restricts the remedies available to us and our common unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

 

Our partnership agreement limits the liability and reduces the fiduciary duties of our general partner, while also restricting the remedies available to our common unitholders, for actions that, without these limitations and reductions, might constitute breaches of fiduciary duty. Delaware partnership law permits such contractual reductions of fiduciary duty. By purchasing common units, common unitholders consent to some actions that might otherwise constitute a breach of fiduciary or other duties applicable under state law. Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For example:

 

 

 

By purchasing a common unit, a unitholder will become bound by the provisions of our partnership agreement, including the provisions described above. See “Description of Our Common Units — Transfer of Common Units.”

 

CVR Energy has the power to appoint and remove our general partner’s directors.

 

Upon the consummation of this offering, CVR Energy, through its ownership of 100% of Coffeyville Resources, will have the power to elect all of the members of the board of directors of our general partner. Our general partner has control over all decisions related to our operations. See “Management — Management of CVR Partners, LP.” Our public unitholders do not have an ability to influence any operating decisions and will not be able to prevent us from entering into any transactions. Furthermore, the goals and objectives of CVR Energy, as the indirect owner of our general partner, may not be consistent with those of our public unitholders.

 

The Goldman Sachs Funds and the Kelso Funds, which own a substantial amount of CVR Energy’s common stock, may have conflicts of interest with the interests of our common unitholders.

 

The Goldman Sachs Funds and the Kelso Funds own approximately 40% of the common stock of CVR Energy, which indirectly owns our general partner and     % of our common units. Each has two directors currently serving on CVR Energy’s nine-member board of directors. Accordingly, the Goldman Sachs Funds and the Kelso Funds will have influence over the conduct of our business, including the selection of the members of the board of directors of our general partner (through their ownership of CVR Energy common stock) and our senior management team and determination of our business strategies, as well as potential mergers or acquisitions, assets sales and other significant corporate transactions. In addition, two nominees from each of the Goldman Sachs Funds and the Kelso Funds currently serve on the board of directors of our general partner. In general, the Goldman Sachs Funds and the Kelso Funds or their affiliates could pursue business interests, or exercise their rights through their board representation or as stockholders of CVR Energy, in ways that are detrimental to us, but beneficial to themselves or to other companies in which they invest or with whom they have a material relationship.

 

Common units are subject to our general partner’s call right.

 

If at any time our general partner and its affiliates own more than  % of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by public unitholders at a price not less than their then-current market price, as calculated pursuant to the terms of our partnership agreement. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your common units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and then exercising its call right. Our general partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. As a result, a common unitholder may have his common units purchased from him at an undesirable time or price. See “The Partnership Agreement — Call Right.”

Our unitholders have limited voting rights and are not entitled to elect our general partner or our general partner’s directors.

 

Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will have no right to elect our general partner or our general partner’s board of directors on an annual or other continuing basis. The board of directors of our general partner, including the independent directors, will be chosen entirely by CVR Energy as the indirect owner of the general partner and not by the common unitholders. Unlike publicly traded corporations, we will not hold annual meetings of our unitholders to elect directors or conduct other matters routinely conducted at such annual meetings of stockholders. Furthermore, even if our unitholders are dissatisfied with the performance of our general partner, they will have no practical ability to remove our general partner. As a result of these limitations, the price at which the common units will trade could be diminished.

 

Our public unitholders will not have sufficient voting power to remove our general partner without CVR Energy’s consent.

 

Following the closing of this offering, CVR Energy will indirectly own approximately     % of our common units (approximately     % if the underwriters exercise their option to purchase additional common units in full), which means holders of common units purchased in this offering will not be able to remove the general partner, under any circumstances, unless CVR Energy sells some of the common units that it owns or we sell additional units to the public.

 

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units (other than our general partner and its affiliates and permitted transferees).

 

Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, may not vote on any matter. Our partnership agreement also contains provisions limiting the ability of common unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the ability of our common unitholders to influence the manner or direction of management.

 

Cost reimbursements due to our general partner and its affiliates will reduce cash available for distribution to you.

 

Prior to making any distribution on our outstanding units, we will reimburse our general partner for all expenses it incurs on our behalf including, without limitation, our pro rata portion of management compensation and overhead charged by CVR Energy in accordance with our services agreement. The services agreement does not contain any cap on the amount we may be required to pay pursuant to this agreement. The payment of these amounts, including allocated overhead, to our general partner and its affiliates could adversely affect our ability to make distributions to you. See “Our Cash Distribution Policy and Restrictions on Distributions,” “Certain Relationships and Related Party Transactions” and “Conflicts of Interest and Fiduciary Duties — Conflicts of Interest.”

 

Limited partners may not have limited liability if a court finds that unitholder action constitutes control of our business.

 

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law and we conduct business in a number of other states, including Kansas, Nebraska and Texas. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the states in which we do business.

Limited partners could be liable for our obligations as if such limited partners were general partners if a court or government agency determined that: