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Share-Based Compensation
 6 Months Ended
Jun. 30, 2011
Share-Based Compensation [Abstract]  
Share-Based Compensation
 
(3)   Share-Based Compensation
 
Prior to CVR’s initial public offering in October 2007, CVR’s subsidiaries were held and operated by Coffeyville Acquisition LLC (“CALLC”) and its subsidiaries. Management of CVR held an equity interest in CALLC. CALLC issued non-voting override units to certain management members who held common units of CALLC. There were no required capital contributions for the override operating units. In connection with CVR’s initial public offering in October 2007, CALLC was split into two entities: CALLC and Coffeyville Acquisition II LLC (“CALLC II”). In connection with this split, management’s equity interest in CALLC, including both their common units and non-voting override units, was split so that half of management’s equity interest was in CALLC and half was in CALLC II. CALLC was historically the primary reporting company and CVR’s predecessor. In addition, in connection with the transfer of the managing GP interest of the Partnership to CALLC III in October 2007, CALLC III issued non-voting override units to certain management members of CALLC III.
 
CVR, CALLC, CALLC II and CALLC III account for share-based compensation in accordance with standards issued by the FASB regarding the treatment of share-based compensation, as well as guidance regarding the accounting for share-based compensation granted to employees of an equity method investee. CVR has been allocated non-cash share-based compensation expense from CALLC, CALLC II and CALLC III.
 
In accordance with these standards, CVR, CALLC, CALLC II and CALLC III apply a fair-value based measurement method in accounting for share-based compensation. In addition, CVR recognizes the costs of the share-based compensation incurred by CALLC, CALLC II and CALLC III on its behalf, primarily in selling, general, and administrative expenses (exclusive of depreciation and amortization), and a corresponding capital contribution, as the costs are incurred on its behalf, following the guidance issued by the FASB regarding the accounting for equity instruments that are issued to other than employees, for acquiring, or in conjunction with selling goods or services, which requires remeasurement at each reporting period through the performance commitment period, or in CVR’s case, through the vesting period.
 
The fair value of the CALLC III override units for the three months ended June 30, 2011 was derived based upon the value, resulting from the proceeds received by the general partner upon the purchase of the IDR’s by the Partnership. These proceeds were subsequently distributed to the owners of CALLC III which includes the override unitholders. This value was utilized to determine the related compensation expense for the unvested units. For the three and six months ended June 30, 2010, the estimated fair value of the override units of CALLC III were determined using a probability-weighted expected return method which utilized CALLC III’s cash flow projections, which were considered representative of the nature of interests held by CALLC III in the Partnership.
 
In February 2011, CALLC and CALLC II sold into the public market 11,759,023 shares and 15,113,254 shares, respectively, of CVR’s common stock, pursuant to a registered public offering. As a result of this offering, CALLC reduced its beneficial ownership in the Company to approximately 9% of its outstanding shares and CALLC II was no longer a stockholder of the Company. Subsequent to CALLC II’s divestiture of its ownership interest in the Company, no additional share-based compensation expense was incurred with respect to override units and phantom units associated with CALLC II.
 
In May 2011, CALLC sold into the public market 7,998,179 shares of CVR’s common stock, pursuant to a registered public offering. As a result, CALLC is no longer a stockholder of the Company. Subsequent to CALLC’s divestiture of its ownership interest in the Company, no additional share-based compensation expense will be incurred with respect to override units and phantom units associated with CALLC.
 
The fair value of the override units of CALLC was derived based upon the value resulting from the proceeds received associated with CALLC’s divestiture of its ownership in CVR. This value was utilized to determine the related compensation expense for the unvested units. The probability-weighted expected return method was also used to determine the estimated fair value of the override units of CALLC and CALLC II for the three and six months ended June 30, 2010. The probability-weighted expected return method involves a forward-looking analysis of possible future outcomes, the estimation of ranges of future and present value under each outcome, and the application of a probability factor to each outcome in conjunction with the application of the current value of the Company’s common stock price with a Black-Scholes option pricing formula, as remeasured at each reporting date until the awards are vested.
 
The following table provides key information for the share-based compensation plans related to the override units of CALLC, CALLC II, and CALLC III. Compensation expense amounts are disclosed in thousands.
 
                                                         
                      Compensation Expense Increase
 		    Compensation Expense Increase
 		 
                      (Decrease) for the
 		    (Decrease) for the
 		 
    Benchmark
 		    Original
 		          Three Months Ended
 		    Six Months Ended
 		 
    Value
 		    Awards
 		          June 30,     June 30,  
Award Type   (per Unit)     Issued     Grant Date     2011     2010     2011     2010  
 
Override Operating Units(a)
  $ 11.31       919,630       June 2005     $ —     $ (78 )   $ —     $ 338  
Override Operating Units(b)
  $ 34.72       72,492       December 2006       —       (2 )     —       13  
Override Value Units(c)
  $ 11.31       1,839,265       June 2005       (27 )     (1,184 )     4,960       1,997  
Override Value Units(d)
  $ 34.72       144,966       December 2006       (64 )     (13 )     451       80  
Override Units(e)
  $ 10.00       138,281       October 2007       —       —       —       —  
Override Units(f)
  $ 10.00       642,219       February 2008       49       1       184       3  
                                                         
                      Total     $ (42 )   $ (1,276 )   $ 5,595     $ 2,431  
                                                         
 
Due to the divestiture of all ownership in CVR by CALLC and CALLC II and due to the purchase of IDRs from the general partner and the distribution to CALLC III, there is no associated unrecognized compensation expense as of June 30, 2011.
 
Valuation Assumptions
 
Significant assumptions used in the valuation of the Override Operating Units (a) and (b) were as follows:
 
                 
    (a) Override Operating
 		  (b) Override
    Units
 		  Operating Units
    June 30, 2010   June 30, 2010
 
Estimated forfeiture rate
    None       None  
CVR closing stock price
  $ 7.52     $ 7.52  
Estimated weighted-average fair value (per unit)
  $ 13.02     $ 2.06  
Marketability and minority interest discounts
    20.0 %     20.0 %
Volatility
    54.5 %     54.5 %
 
As of June 30, 2010, all of the recipients of the override operating units were fully vested.
 
Significant assumptions used in the valuation of the Override Value Units (c) and (d) were as follows:
 
                 
    (c) Override Value
 		  (d) Override
    Units
 		  Value Units
    June 30, 2010   June 30, 2010
 
Estimated forfeiture rate
    None       None  
Derived service period
    6 years       6 years  
CVR closing stock price
  $ 7.52     $ 7.52  
Estimated weighted-average fair value (per unit)
  $ 7.12     $ 2.05  
Marketability and minority interest discounts
    20.0 %     20.0 %
Volatility
    54.5 %     54.5 %
 
(e) Override Units — Using a binomial and a probability-weighted expected return method which utilized CALLC III’s cash flow projections and included expected future earnings and the anticipated timing of IDRs, the estimated grant date fair value of the override units was approximately $3,000. As a non-contributing investor, CVR also recognized income equal to the amount that its interest in the investee’s net book value had increased (that is its percentage share of the contributed capital recognized by the investee) as a result of the disproportionate funding of the compensation cost. As of June 30, 2011 these units were fully vested.
 
(f) Override Units — Using a probability-weighted expected return method which utilized CALLC III’s cash flow projections and included expected future earnings and the anticipated timing of IDRs, the estimated grant date fair value of the override units was approximately $3,000. As a non-contributing investor, CVR also recognized income equal to the amount that its interest in the investee’s net book value had increased (that is its percentage share of the contributed capital recognized by the investee) as a result of the disproportionate funding of the compensation cost. Of the 642,219 units issued, 109,720 were immediately vested upon issuance and the remaining units are subject to a forfeiture schedule. Significant assumptions used in the valuation were as follows:
 
     
    June 30, 2010
 
Estimated forfeiture rate
  None
Derived Service Period
  Based on forfeiture schedule
Estimated fair value (per unit)
  $0.08
Marketability and minority interest discount
  20.0%
Volatility
  59.7%
 
Phantom Unit Appreciation Plans
 
CVR, through a wholly-owned subsidiary, has two Phantom Unit Appreciation Plans (the “Phantom Unit Plans”) whereby directors, employees, and service providers may be awarded phantom points at the discretion of the compensation committee. Holders of service phantom points have rights to receive distributions when holders of override operating units receive distributions. Holders of performance phantom points have rights to receive distributions when CALLC and CALLC II holders of override value units receive distributions. There are no other rights or guarantees and the plans expire on July 25, 2015, or at the discretion of CVR.
 
The expense associated with these awards is based on the current fair value of the awards which historically has been derived from a probability-weighted expected return method. The probability-weighted expected return method involves a forward-looking analysis of possible future outcomes, the estimation of ranges of future and present value under each outcome, and the application of a probability factor to each outcome in conjunction with the application of the current value of the Company’s common stock price with a Black-Scholes option pricing formula, as remeasured at each reporting date until the awards are settled.
 
CVR has recorded approximately $0 and approximately $18.7 million in personnel accruals as of June 30, 2011 and December 31, 2010, respectively. Compensation expense for the three months ended June 30, 2011 related to the Phantom Unit Plans was reversed by approximately $0.7 million. Compensation expense for the three months ended June 30, 2010 related to the Phantom Unit Plans was reversed by approximately $1.8 million. Compensation expense for the six months ended June 30, 2011 and 2010 related to the Phantom Unit Plans was approximately $10.6 million and $1.6 million, respectively.
 
As described above, in February 2011, CALLC and CALLC II completed a sale of CVR common stock into the public market pursuant to a registered public offering. As a result of this offering, the Company made a payment to phantom unitholders of approximately $20.1 million in the first quarter of 2011. As described above, in May 2011, CALLC completed an additional sale of CVR common stock into the public market pursuant to a registered public offering. As a result of this offering, the Company made a payment to phantom unitholders of approximately $9.2 million in the second quarter of 2011.
 
Due to the divestiture of all ownership of CVR by CALLC and CALLC II and the associated payments to the holders of service and phantom performance points, there is no unrecognized compensation expense at June 30, 2011.
 
Using the Company’s closing stock price at June 30, 2010, to determine the Company’s equity value, through an independent valuation process, the service phantom interest and performance phantom interest were valued as follows:
 
         
    June 30, 2010
 
Service Phantom interest (per point)
  $ 12.46  
Performance Phantom interest (per point)
  $ 6.96  
 
Long-Term Incentive Plan
 
CVR has a Long-Term Incentive Plan (“LTIP”) which permits the grant of options, stock appreciation rights, restricted shares, restricted share units, dividend equivalent rights, share awards and performance awards (including performance share units, performance units and performance-based restricted stock). As of June 30, 2011, only restricted shares of CVR common stock and stock options had been granted under the LTIP. Individuals who are eligible to receive awards and grants under the LTIP include the Company’s employees, officers, consultants, advisors and directors.
 
Stock Options
 
As of June 30, 2011, there have been a total of 32,350 stock options granted, of which 26,168 have vested. However, 6,301 vested options have expired resulting in a net total of 19,867 outstanding options that have vested. Additionally, 3,149 unvested stock options were forfeited in the second quarter of 2010. There were 1,450 options that vested in the second quarter of 2011. There were no options forfeited or granted in the second quarter of 2011. The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model. As of June 30, 2011, there was approximately $1,600 of total unrecognized compensation cost related to stock options which will be fully recognized in the third quarter of 2011 upon vesting.
 
Restricted Stock
 
A summary of restricted stock grant activity and changes during the six months ended June 30, 2011 is presented below:
 
                 
          Weighted-
 		 
          Average
 		 
          Grant-Date
 		 
Restricted Stock   Shares     Fair Value  
 
Outstanding at January 1, 2011 (non-vested)
    1,369,182     $ 10.94  
Vested
    (21,854 )     15.25  
Granted
    13,521       19.97  
Forfeited
    (3,066 )     5.94  
                 
Outstanding at June 30, 2011 (non-vested)
    1,357,783     $ 10.97  
                 
 
Through the LTIP, restricted shares have been granted to employees of the Company. Restricted shares, when granted, are valued at the closing market price of CVR’s common stock on the date of issuance and amortized to compensation expense on a straight-line basis over the vesting period of the stock. These shares generally vest over a three-year period. As of June 30, 2011, there was approximately $8.9 million of total unrecognized compensation cost related to restricted shares to be recognized over a weighted-average period of approximately two years.
 
Compensation expense recorded for the three months ended June 30, 2011 and 2010 related to the restricted shares and stock options was approximately $2.5 million and $0.2 million, respectively. Compensation expense recorded for the six months ended June 30, 2011 and 2010 related to the restricted shares and stock options was approximately $4.7 million and $0.4 million, respectively.
 
CVR Partners’ Long-Term Incentive Plan
 
In connection with the Offering, the board of directors of the general partner adopted the CVR Partners, LP Long-Term Incentive Plan (“CVR Partners’ LTIP”). Individuals who are eligible to receive awards under the CVR Partners’ LTIP include CVR Partners’, its subsidiaries’ and its parent’s employees, officers, consultants and directors. The CVR Partners’ LTIP provides for the grant of options, unit appreciation rights, distribution equivalent rights, restricted units, phantom units and other unit-based awards, each in respect of common units. The maximum number of common units issuable under the CVR Partners’ LTIP is 5,000,000.
 
In connection with the Offering, 23,448 phantom units were granted to certain board members of the Partnership’s general partner. These phantom units are expected to vest six months following the grant date. These phantom unit awards granted to the directors of the general partner are considered non-employee equity-based awards since the directors are not elected by unitholders. These phantom unit director awards are required to be marked-to-market each reporting period until they are vested.
 
In June 2011, 50,659 phantom units were granted to an employee of the general partner. These phantom units are expected to vest over three years on the basis of one-third of the award each year. As this phantom award, which is an equity-based award, was granted to an employee of a subsidiary of the Company, it was valued at the closing unit price of the Partnership’s common units on the date of grant and will be amortized to compensation expense on a straight-line basis over the vesting period of the award.
 
In June 2011, 2,956 fully vested common units were granted to certain board members of the general partner. The fair value of these awards was calculated using the closing price of the Partnership’s common units on the date of grant. This amount was fully expensed at the time of grant.
 
Compensation expense recorded for the three months ended June 30, 2011 and 2010, related to the awards under the CVR Partners’ LTIP was approximately $0.3 million and $0, respectively. Compensation expense recorded for the six months ended June 30, 2011 and 2010, related to the awards under the CVR Partners’ LTIP was approximately $0.3 million and $0, respectively. Compensation expense associated with the awards under the CVR Partners’ LTIP has been recorded in selling, general and administrative expenses (exclusive of depreciation and amortization).
 
As of June 30, 2011, there were 4,922,937 common units available for issuance under the CVR Partners’ LTIP. Unrecognized compensation expense associated with the unvested phantom units at June 30, 2011 was approximately $1.2 million.