
(1)	Organization and History of the Company and Basis of Presentation

Organization

The “Company” or “CVR” may be used to refer to CVR Energy, Inc. and, unless the context otherwise requires, its subsidiaries.

The Company, through its wholly-owned subsidiaries, acts as an independent petroleum refiner and marketer of high value transportation fuels in the mid-continental United States. In addition, the Company, through its wholly-owned subsidiaries, owns the general partner and 69.8% of the common units of CVR Partners, LP, a publicly-traded partnership which acts as an independent producer and marketer of upgraded nitrogen fertilizer products in North America. The Company’s operations include two business segments: the petroleum segment and the nitrogen fertilizer segment.

CVR’s common stock is listed on the New York Stock Exchange under the symbol “CVI.” As of December 31, 2010, approximately 40% of its outstanding shares were beneficially owned by GS Capital Partners V, L.P. and related entities (“GS” or “Goldman Sachs Funds”) and Kelso Investment Associates VII, L.P. and related entities (“Kelso” or “Kelso Funds”). On February 8, 2011, GS and Kelso completed a registered public offering, whereby GS sold into the public market its remaining ownership interests in CVR and Kelso substantially reduced its interest in the Company. On May 26, 2011, Kelso completed a registered public offering, whereby Kelso sold into the public market its remaining ownership interests in CVR Energy.

Nitrogen Fertilizer Limited Partnership

In conjunction with the consummation of CVR’s initial public offering in 2007, CVR transferred Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”), its nitrogen fertilizer business, to a then newly created limited partnership, CVR Partners, LP (the “Partnership”), in exchange for a managing general partner interest (“managing GP interest”), a special general partner interest (“special GP interest,” represented by special GP units) and a de minimis limited partner interest (“LP interest,” represented by special LP units). This transfer was not considered a business combination as it was a transfer of assets among entities under common control and, accordingly, balances were transferred at their historical cost. CVR concurrently sold the managing GP interest, including the associated incentive distribution rights (“IDRs”), to Coffeyville Acquisition III LLC (“CALLC III”), an entity owned by its then controlling stockholders and senior management, at fair market value. The board of directors of CVR determined, after consultation with management, that the fair market value of the managing GP interest was $10.6 million. This interest has been classified as a noncontrolling interest included as a separate component of equity in the Condensed Consolidated Balance Sheets at December 31, 2010. In connection with the April 2011 initial public offering of the Partnership (the “Offering”), as discussed in further detail below, the IDRs were purchased by the Partnership and the IDRs were subsequently extinguished. In addition, the noncontrolling interest representing the managing GP interest was purchased by Coffeyville Resources, LLC (“CRLLC”), a subsidiary of CVR. The payment for the IDRs was paid to the owners of CALLC III, which included the Goldman Sachs Funds, the Kelso Funds and members of CVR senior management. As a result of the Offering, the Company recorded a noncontrolling interest for the common units sold into the public market which represented approximately a 30.2% interest in the Partnership at the time of the Offering. The Company’s noncontrolling interest reflected on the consolidated balance sheet of CVR will be impacted by the net income of, and distributions from the Partnership.

On April 13, 2011, the Partnership completed its initial public offering (the “Offering”) of 22,080,000 common units priced at $16.00 per unit (such amount includes common units issued pursuant to the exercise of the underwriters’ over-allotment option). The common units, which are listed on the New York Stock Exchange, began trading on April 8, 2011 under the symbol “UAN”.

At June 30, 2011, the Partnership had 73,002,956 common units outstanding, consisting of 22,082,956 common units owned by the public, representing 30.2% of the total Partnership units and 50,920,000 common units owned by CRLLC, representing 69.8% of the total Partnership units.

The gross proceeds to the Partnership from the Offering (including the gross proceeds from the exercise of the underwriter’s over-allotment option) were approximately $353.3 million before giving effect to underwriting discounts and commissions and offering expenses. In connection with the Offering, the Partnership paid approximately $24.7 million in underwriting fees and incurred approximately $4.4 million of other offering costs. Approximately $5.7 million of the underwriting fee was paid to an affiliate of GS, which was acting as a joint book-running manager for the Offering. Until completion of CVR’s February 2011 secondary offering, an affiliate of GS was a stockholder and related party of the Company. As a result of the Offering and as of the date of this Report, CVR indirectly owns 69.8% of the Partnership’s outstanding common units and 100% of the Partnership’s general partner, CVR GP, LLC, which only holds a non-economic interest.

In connection with the Offering, the Partnership’s limited partner interests were converted into common units, the Partnership’s special general partner interests were converted into common units, and the Partnership’s special general partner was merged with and into CRLLC, with CRLLC continuing as the surviving entity. In addition, as discussed above, the managing general partner sold its IDRs to the Partnership for $26.0 million, these interests were extinguished, and CALLC III sold the managing general partner to CRLLC for a nominal amount. As a result of the Offering, the Partnership has two types of partnership interests outstanding:


	•	common units representing limited partner interests; and

	•	a general partner interest, which is not entitled to any distributions, and which is held by the Partnership’s general partner.

The proceeds from the Offering were utilized as follows:


	•	approximately $18.4 million was distributed to CRLLC to satisfy the Partnership’s obligation to reimburse it for certain capital expenditures made on behalf of the nitrogen fertilizer business prior to October 24, 2007;

	•	approximately $117.1 million was distributed to CRLLC through a special distribution in order to, among other things, fund the offer to purchase CRLLC’s senior secured notes required upon the consummation of the Offering;

	•	$26.0 million was used by the Partnership to purchase and extinguish the IDR’s owned by the general partner;

	•	approximately $4.8 million was used to pay financing fees and associated legal and professional fees resulting from the Partnership’s new credit facility; and

	•	the balance of the proceeds are being utilized by the Partnership for general partnership purposes, including the funding of the UAN expansion that is expected to require an investment of approximately $135.0 million, of which approximately $31.0 million had been spent as of the Offering date.

The Partnership intends to make quarterly cash distributions of all available cash generated each quarter beginning with the quarter ended June 30, 2011, covering the period from the closing of the Offering through June 30, 2011 to common unitholders. The available cash for each quarter will be determined by the board of directors of the Partnership’s general partner. The partnership agreement does not require that the Partnership make cash distributions on a quarterly or other basis. In connection with the Offering, the board of directors of the general partner adopted a distribution policy, which it may change at any time.

The Partnership is operated by CVR’s senior management (together with other officers of the general partner) pursuant to a services agreement among CVR, the general partner and the Partnership. The Partnership’s general partner, CVR GP, LLC, manages the operations and activities of the Partnership, subject to the terms and conditions specified in the partnership agreement. The operations of the general partner in its capacity as general partner are managed by its board of directors. Actions by the general partner that are made in its individual capacity will be made by CRLLC as the sole member of the general partner and not by the board of directors of the general partner. The general partner is not elected by the common unitholders and is not subject to re-election on a regular basis. The officers of the general partner manage the day-to-day affairs of the business of the Partnership. CVR, the Partnership, their respective subsidiaries and the general partner are parties to a number of agreements to regulate certain business relations between them. Certain of these agreements were amended in connection with the Offering.

Basis of Consolidation

Prior to the Offering of the Partnership, management had determined that the Partnership was a variable interest entity (“VIE”) and as such evaluated the qualitative criteria under Accounting Standards Codification (“ASC”) Topic 810-10 — Consolidations-Variable Interest Entities (“ASC 810-10”), to make a determination whether CVR Partners should be consolidated on the Company’s financial statements. ASC 810-10 requires the primary beneficiary of a variable interest entity’s activities to consolidate the VIE. The primary beneficiary is identified as the enterprise that has a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. The standard requires an ongoing analysis to determine whether the variable interest gives rise to a controlling financial interest in the VIE.

Subsequent to the Offering of the Partnership, the Partnership is no longer considered a VIE. The consolidation of the Partnership is based upon the fact that the general partner is owned by CRLLC, a wholly-owned subsidiary of CVR; and, therefore, CVR has the ability to control the activities of the Partnership. Additionally, the Partnership’s general partner manages the operations and activities of the Partnership, subject to the terms and conditions specified in the partnership agreement. The operations of the general partner in its capacity as general partner are managed by its board of directors. Actions by the general partner that are made in its individual capacity will be made by CRLLC as the sole member of the general partner and not by the board of directors of the general partner. The general partner is not elected by the common unitholders of the Partnership and is not subject to re-election on a regular basis. The officers of the general partner manage the day-to-day affairs of the business. All but one of the officers of the general partner are also officers of CVR. Based upon the general partnership’s role and rights as afforded by the partnership agreement and the limited rights afforded to the limited partners the consolidated financial statements of CVR will include the assets, liabilities, cash flows, revenues and expenses of the Partnership.

The limited rights of the common unitholders of the Partnership are demonstrated by the fact that the common unitholders have no right to elect the general partner or the general partner’s directors on an annual or other continuing basis. The general partner can only be removed by a vote of the holders of at least 662/3% of the outstanding common units, including any common units owned by the general partner and its affiliates (including CRLLC, a wholly-owned subsidiary of CVR) voting together as a single class.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements include the accounts of CVR and its majority-owned direct and indirect subsidiaries. The ownership interests of noncontrolling investors in its subsidiaries are recorded as a noncontrolling interest included as a separate component of equity for all periods presented. All intercompany account balances and transactions have been eliminated in consolidation. Certain information and footnotes required for complete financial statements under GAAP have been condensed or omitted pursuant to SEC rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2010 audited consolidated financial statements and notes thereto included in CVR’s Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the SEC on March 7, 2011.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary to fairly present the financial position of the Company as of June 30, 2011 and December 31, 2010, the results of operations of the Company for the three and six months ended June 30, 2011 and 2010, and cash flows for the six months ended June 30, 2011 and 2010.

Results of operations and cash flows for the interim periods presented are not necessarily indicative of the results that will be realized for the year ending December 31, 2011 or any other interim period. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

The Company evaluated subsequent events, if any, that would require an adjustment or would require disclosure to the Company’s condensed consolidated financial statements through the date of issuance of these condensed consolidated financial statements.