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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2012
Share-Based Compensation |
Share-Based Compensation | (5) Share-Based Compensation Prior to CVR's initial public offering, CVR's subsidiaries were held and operated by CALLC, a limited liability company. 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 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. In addition, in connection with the transfer of the managing general partner of the Nitrogen Fertilizer Partnership to CALLC III in October 2007, CALLC III issued non-voting override units to certain management members of CALLC III. For the years ended December 31, 2011 and 2010, CVR, CALLC, CALLC II accounted 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 was allocated non-cash share-based compensation expense from CALLC, CALLC II and CALLC III. 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. In May 2011, CALLC sold into the public market its remaining shares of CVR's common stock, pursuant to a registered public offering. As a result, CALLC and CALLC II ceased to be stockholders of the Company. Subsequent to CALLC II's divestiture of its ownership interest in the Company in February 2011 and CALLC's divestiture of its ownership interest in the Company in May 2011, no additional share-based compensation expense was incurred with respect to override units and phantom units. The final fair values of the override units of CALLC and CALLC II were derived based upon the values resulting from the proceeds received associated with each entity's respective divestiture of its ownership in CVR. These values were utilized to determine the related compensation expense for the unvested units. The final fair value of the CALLC III override units was derived based upon the proceeds received by CVR GP, LLC upon the purchase of the IDR's by the Nitrogen Fertilizer Partnership. These proceeds were subsequently distributed to the owners of CALLC III, which included the override unitholders. This value was utilized to determine the related compensation expense for the unvested units. No additional share-based compensation was incurred with respect to override units of CALLC III subsequent to June 30, 2011 due to the complete distribution of the value prior to July 1, 2011. 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 for the Year Ended December 31, |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | Benchmark Value (per Unit) |  | Original Awards Issued |  |  |
Award Type |  | Grant Date |  | 2011 |  | 2010 |
|  |  |  |  |  |  |  | (in thousands) |
Override Operating Units |  | $ | 11.31 |  |  | 919,630 |  | June 2005 |  | $ | — |  | $ | 338 |
Override Operating Units |  | $ | 34.72 |  |  | 72,492 |  | December 2006 |  |  | — |  |  | 13 |
Override Value Units(a) |  | $ | 11.31 |  |  | 1,839,265 |  | June 2005 |  |  | 4,960 |  |  | 17,586 |
Override Value Units(b) |  | $ | 34.72 |  |  | 144,966 |  | December 2006 |  |  | 451 |  |  | 581 |
Override Units(c) |  | $ | 10.00 |  |  | 642,219 |  | February 2008 |  |  | 184 |  |  | 772 |
|  |  |  |  |  |  |  | Total |  | $ | 5,595 |  | $ | 19,290 |
* As CVR Energy's common stock price increased or decreased, compensation expense associated with the unvested CALLC and CALLC II override units increased or was reversed in correlation with the calculation of the fair value under the probability-weighted expected return method. 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 December 31, 2012. Valuation Assumptions Significant assumptions used in the valuation of the Override Value Units (a) and (b) were as follows:
|  | (a) Override Value Units December 31, |  | (b) Override Value Units December 31, |
--- | --- | --- | --- | --- | ---
|  | 2010 |  | 2010 |
Estimated forfeiture rate |  |  | None |  |  | None |
Derived service period |  |  | 6 years |  |  | 6 years |
CVR Energy's closing stock price |  | $ | 15.18 |  | $ | 15.18 |
Estimated fair value (per unit) |  | $ | 22.39 |  | $ | 6.56 |
Marketability and minority interest discounts |  |  | 20.0 | % |  | 20.0 | %
Volatility |  |  | 43.0 | % |  | 43.0 | %
(c) Override Units — Using a probability-weighted expected return method that utilized CALLC III's cash flow projections which includes 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 Energy also recognized income equal to the amount that its interest in the investee's net book value has 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 were subject to a forfeiture schedule. Significant assumptions used in the valuation were as follows:
|  | December 31,
--- | --- | ---
|  | 2010
Estimated forfeiture rate |  | None
Derived Service Period |  | Forfeiture schedule
Estimated fair value (per unit) |  | $2.60
Marketability and minority interest discounts |  | 10.0%
Volatility |  | 47.6%
Phantom Unit Plans CVR, through CRLLC, had two Phantom Unit Appreciation Plans (the "Phantom Unit Plans") whereby directors, employees, and service providers were eligible to be awarded phantom points at the discretion of CVR's board of directors or its compensation committee. Holders of service phantom points received distributions when CALLC and CALLC II holders of override operating units received distributions. Holders of performance phantom points received distributions when CALLC and CALLC II holders of override value units receive distributions. In November 2010, through a registered offering of CVR common stock, CALLC and CALLC II sold into the public market common shares of CVR. As a result of this offering, the Company made a payment to phantom unit holders totaling approximately $3.6 million. 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. There was no compensation expense for the year ended December 31, 2012 related to the Phantom Unit Plans. Compensation expense for the years ended December 31, 2011 and 2010 related to the Phantom Unit Plans was approximately $10.6 million and $15.5 million, respectively. The Phantom Unit Plans were terminated in December 2012. 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 December 31, 2012. Using the Company's closing stock price at December 31, 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:
|  | December 31, 2010 |
--- | --- | --- | ---
Service Phantom interest (per point) |  | $ | 14.64 |
Performance Phantom interest (per point) |  | $ | 21.25 |
Long-Term Incentive Plan — CVR Energy CVR has a Long-Term Incentive Plan ("LTIP"), which permits the grant of options, stock appreciation rights, restricted shares, restricted stock units, dividend equivalent rights, share awards and performance awards (including performance share units, performance units and performance-based restricted stock). As of December 31, 2012, only restricted shares of CVR common stock, restricted stock units 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. A summary of the principal features of the LTIP is provided below. Shares Available for Issuance. The LTIP authorizes a share pool of 7,500,000 shares of the Company's common stock, 1,000,000 of which may be issued in respect of incentive stock options. Whenever any outstanding award granted under the LTIP expires, is canceled, is settled in cash or is otherwise terminated for any reason without having been exercised or payment having been made in respect of the entire award, the number of shares available for issuance under the LTIP is increased by the number of shares previously allocable to the expired, canceled, settled or otherwise terminated portion of the award. As of December 31, 2012, 6,787,341 shares of common stock were available for issuance under the LTIP. Restricted Shares A summary of restricted stock and restricted stock units (collectively "restricted shares") grant activity and changes during the years ended December 31, 2012, 2011 and 2010 is presented below:
|  | Restricted Shares |  | Weighted- Average Grant-Date Fair Value |  | Aggregate Intrinsic Value |
--- | --- | --- | --- | --- | --- | --- | ---
|  |  |  |  |  | (in thousands) |
Non-vested at December 31, 2009 |  |  | 177,060 |  | $ | 6.59 |  | $ | 1,215 |
Granted |  |  | 1,307,378 |  |  | 11.42 |  |  |  |
Vested |  |  | (113,457 | ) |  | 9.79 |  |  |  |
Forfeited |  |  | (1,799 | ) |  | 4.14 |  |  |  |
Non-vested at December 31, 2010 |  |  | 1,369,182 |  | $ | 10.94 |  | $ | 20,784 |
Granted |  |  | 826,959 |  |  | 18.79 |  |  |  |
Vested |  |  | (557,355 | ) |  | 11.83 |  |  |  |
Forfeited |  |  | (4,632 | ) |  | 8.67 |  |  |  |
Non-vested at December 31, 2011 |  |  | 1,634,154 |  | $ | 14.61 |  | $ | 30,608 |
Granted |  |  | 318,508 |  |  | 43.66 |  |  |  |
Vested |  |  | (740,811 | ) |  | 13.59 |  |  |  |
Forfeited |  |  | (66,240 | ) |  | 16.54 |  |  |  |
Non-vested at December 31, 2012 |  |  | 1,145,611 |  | $ | 23.24 |  | $ | 55,894 |
Through the LTIP, restricted shares have been granted to employees of the Company. Prior to the change of control as discussed in Note 3, the restricted shares, when granted, were historically 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 restricted shares generally vest over a three-year period. The change of control and related Transaction Agreement discussed in Note 3 triggered a modification to outstanding awards under the LTIP. Pursuant to the Transaction Agreement, all restricted shares scheduled to vest in 2012 were converted to restricted stock units whereby the recipient received cash settlement of the offer price of $30.00 per share in cash plus one CCP upon vesting. Restricted shares scheduled to vest in 2013, 2014 and 2015 were converted to restricted stock units whereby the awards will be settled in cash upon vesting in an amount equal to the lesser of the offer price or the fair market value as determined at the most recent valuation date of December 31 of each year. Additional share-based compensation of approximately $12.4 million was incurred to revalue the awards upon modification. For awards vesting subsequent to 2012, the awards will be remeasured at each subsequent reporting date until they vest. As a result of the modification of the awards, the classification changed from equity awards to liability awards. In December 2012, restricted stock units were granted to certain employees of CVR. The non-vested restricted stock units are expected to vest over three years on the basis of one-third of the award each year with the exception of awards granted to certain executive officers that vest over one year. Each restricted stock unit represents the right to receive, upon vesting, a cash payment equal to (a) the fair market value of one share of the Company's common stock, plus (b) the cash value of all dividends declared and paid by the Company per share of the Company's common stock from the grant date to and including the vesting date. The awards, which are liability-classified, will be remeasured at each subsequent reporting date until they vest. Additionally, the Company approved a discretionary award of up to 62,920 restricted stock units to Mr. Lipinski, Chief Executive Officer and President of the Company, on or before December 31, 2013. This discretionary award remains subject to the review and recommendation of the Compensation Committee and approval of the board of directors of the Company, and is conditioned on Mr. Lipinski continuing to be employed by the Company through December 31, 2013. As such, no expense related to this discretionary award was recorded during the year ended December 31 2012. To the extent awarded, the discretionary award will vest immediately, and include dividend equivalent rights for the time period commencing on December 28, 2012 through the date of the award. As of December 31, 2012, there was approximately $19.9 million of total unrecognized compensation cost related to non-vested restricted shares to be recognized over a weighted-average period of approximately one year. The aggregate fair value at the grant date of the shares that vested during the year ended December 31, 2012 was approximately $10.1 million. As of December 31, 2012, 2011 and 2010, unvested restricted shares outstanding had an aggregate fair value at grant date of approximately $26.6 million, $23.9 million and $15.0 million, respectively. Total compensation expense for the years ended December 31, 2012, 2011 and 2010 was approximately $36.9 million, $9.8 million and $2.4 million, respectively, related to the LTIP. As of December 31, 2012, the Company has a liability of $19.5 million for unvested restricted share awards, which is recorded in personnel accruals on the Consolidated Balance Sheet. For the year ended December 31, 2012, the Company paid cash of $22.2 million to settle liability-classified awards upon vesting. No cash was paid to settle restricted share awards in 2011 and 2010. Stock Options Activity and price information regarding CVR's stock options granted are summarized as follows:
|  | Shares |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term |
--- | --- | --- | --- | --- | --- | --- | ---
Outstanding, December 31, 2009 |  |  | 32,350 |  | $ | 19.08 |  |  | 8.21 |
Granted |  |  | — |  |  | — |  |  |  |
Exercised |  |  | — |  |  | — |  |  |  |
Forfeited |  |  | (3,149 | ) |  | 21.61 |  |  |  |
Expired |  |  | (6,301 | ) |  | 21.61 |  |  |  |
Outstanding, December 31, 2010 |  |  | 22,900 |  | $ | 18.03 |  |  | 8.35 |
Granted |  |  | — |  |  | — |  |  |  |
Exercised |  |  | — |  |  | — |  |  |  |
Forfeited |  |  | — |  |  | — |  |  |  |
Expired |  |  | — |  |  | — |  |  |  |
Outstanding, December 31, 2011 |  |  | 22,900 |  | $ | 18.03 |  |  | 7.35 |
Granted |  |  | — |  |  | — |  |  |  |
Exercised |  |  | (22,900 | ) |  |  |  |  |  |
Forfeited |  |  | — |  |  | — |  |  |  |
Expired |  |  | — |  |  | — |  |  |  |
Outstanding, December 31, 2012 |  |  | — |  |  | — |  |  | — |
There were no grants of stock options in 2012, 2011 and 2010. In May 2012, all outstanding stock options equaling an equivalent of 22,900 common shares were exercised. No unexercised stock options remain as of December 31, 2012. Total compensation expense for the years ended December 31, 2012, 2011 and 2010, related to the stock options was $0, $8,000 and $9,000, respectively. Long-Term Incentive Plan — CVR Partners In April 2011, the board of directors of its 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 (1) employees of the Nitrogen Fertilizer Partnership and its subsidiaries, (2) employees of its general partner, and (3) members of the board of directors of its general partner. 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. Through the CVR Partners LTIP, phantom and common units have been awarded to employees of the Nitrogen Fertilizer Partnership and its general partner and to members of the board of directors of its general partner. In December 2012, the board of directors of its general partner of the Nitrogen Fertilizer Partnership approved an amendment to modify the terms of certain phantom unit awards previously granted to employees of the Nitrogen Fertilizer Partnership and its subsidiaries. Prior the amendment, the phantom units, when granted, were valued at the closing market price of the Nitrogen Fertilizer Partnership's common units on the date of issuance and amortized to compensation expense on a straight-line basis over the vesting period of the units. These units generally vest over a three-year period. The amendment triggered a modification to the awards by providing the employee the phantom units would be settled in cash rather than common units of the Nitrogen Fertilizer Partnership. Additional share-based compensation incurred to revalue the unvested units upon modification was not material. For awards vesting subsequent to amendment, the awards will be remeasured at each subsequent reporting date until they vest. As a result of the modification of the awards to employees of the Nitrogen Fertilizer Partnership, the classification changed from an equity-classified award to a liability-classified award. A summary of common units and phantom units (collectively "units") activity and changes under the CVR Partners LTIP during the years ended December 31, 2012 and 2011 is presented below:
|  | Units |  | Weighted- Average Grant-Date Fair Value |  | Aggregate Intrinsic Value |
--- | --- | --- | --- | --- | --- | --- | ---
|  |  |  |  |  | (in thousands) |
Non-vested at April 13, 2011 |  |  | — |  | $ | — |  | $ | — |
Granted |  |  | 200,647 |  |  | 22.34 |  |  |  |
Vested |  |  | (36,076 | ) |  | 19.36 |  |  |  |
Forfeited |  |  | — |  |  | — |  |  |  |
Non-vested at December 31, 2011 |  |  | 164,571 |  | $ | 22.99 |  | $ | 4,085 |
Granted |  |  | 95,370 |  |  | 24.53 |  |  |  |
Vested |  |  | (58,129 | ) |  | 23.08 |  |  |  |
Forfeited |  |  | — |  |  | — |  |  |  |
Non-vested at December 31, 2012 |  |  | 201,812 |  | $ | 23.70 |  | $ | 5,094 |
As of December 31, 2012, there were 4,748,893 common units available for issuance under the CVR Partners LTIP. Unrecognized compensation expense associated with the unvested phantom units as of December 31, 2012 was approximately $3.6 million and is expected to be recognized over a weighted-average period of 1.6 years. Compensation expense recorded for the years ended December 31, 2012 and 2011 related to the awards under the CVR Partners LTIP was approximately $2.2 million and $1.2 million, respectively. Compensation expense related to the awards issued to employees and members of the board of directors of its general partner under the CVR Partners LTIP has been recorded in selling, general and administrative expenses (exclusive of depreciation and amortization). As of December 31, 2012, the Company has a liability of $0.2 million for unvested phantom unit awards related to employees of the Nitrogen Fertilizer Partnership and its subsidiaries for the CVR Partners LTIP, which is recorded in personnel accruals on the Consolidated Balance Sheet. For the year ended December 31, 2012, the Nitrogen Fertilizer Partnership paid cash of $0.3 million to settle liability-classified awards upon vesting.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 + Details
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