Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Effective January 1, 2019, the Company revised its accounting policy method for the costs of planned major maintenance activities (turnarounds) specific to the Petroleum Segment from being expensed as incurred (the direct expensing method) to the deferral method. Comparable prior period information has been recast to reflect this accounting change. The impact of adopting the new policy to account for turnaround expenses is reflected within a Current Report on Form 8-K filed by the Company with the SEC on June 12, 2019, which recast the December 31, 2018 audited information (the “Recast Form 8-K for 2018”). See Note 3 (“Recent Accounting Pronouncements and Accounting Changes”) for additional information. These condensed consolidated financial statements should be read in conjunction with the December 31, 2018 audited consolidated financial statements and notes thereto included in CVR Energy’s Annual Report on Form 10-K for the year ended December 31, 2018, as well as the Recast Form 8-K for 2018.

Our condensed consolidated financial statements include the consolidated results of CVR Partners, which is defined as a variable interest entity.

In the opinion of the Company’s management, the accompanying condensed consolidated financial statements reflect all adjustments that are necessary for fair presentation of the financial position and results of operations of the Company for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

Certain other reclassifications have been made within the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 to include gain (loss) on derivatives within the Cost of materials and other financial statement line item to conform with current presentation.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain 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. 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, 2019 or any other interim or annual period.

Recent Accounting Pronouncements and Accounting Changes

Recent Accounting Pronouncement - Adoption of New Lease Standard

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASU 2016-02”), creating a new topic, FASB ASC Topic 842, “Leases” (“Topic 842”), which supersedes lease requirements in FASB ASC Topic 840, “Leases.” The new standard revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability related to future lease payments and a right-of-use (“ROU”) asset representing its right to use of the underlying asset for the lease term on the condensed consolidated balance sheet. The ROU asset for operating leases is classified as Other long-term assets on the condensed consolidated balance sheet. The current and long-term operating lease liabilities are classified as Other current liabilities and Other long-term liabilities, respectively, on the condensed consolidated balance sheet. The ROU asset for finance leases is classified as Property, plant and equipment, net of accumulated depreciation and amortization on the condensed consolidated balance sheet. The current and long-term finance lease liabilities are classified as Other current liabilities and Long-term debt and finance lease obligations, respectively, on the condensed consolidated balance sheet.

We adopted Topic 842 as of January 1, 2019, electing the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. In connection with the adoption of Topic 842, we made the following elections:


•	Under the short-term lease exception provided for in Topic 842, only ROU assets and related lease liabilities for leases with a term greater than one year were and will be recognized;


•	The accounting treatment for existing land easements was carried forward;


•	Lease and non-lease components were and will not be bifurcated for all of the Company’s asset groups, respectively; and


•	The portfolio approach was, and will be, used in the selection of the discount rate used to calculate minimum lease payments and the related ROU asset and operating lease liability amounts.

The Company’s adoption of Topic 842 resulted in the recognition of additional ROU assets and lease liabilities of approximately $56 million as of January 1, 2019, in addition to the recognition of a finance lease asset of $26 million with an obligation of $23 million. There were no impacts to our condensed consolidated statements of operations or cash flows. See Note 6 (“Leases”) for further discussion.

Accounting Change - Turnaround Expenses

Effective January 1, 2019, the Company revised its accounting policy method for the costs of planned major maintenance activities (turnarounds) specific to the Petroleum Segment from being expensed as incurred (the direct expensing method) to the deferral method. Turnarounds are planned shutdowns of refinery processing units for significant overhaul and refurbishment. Under the deferral method, the costs of turnarounds are deferred and amortized on a straight-line basis generally over a four-year period of time, which represents the estimated time until the next turnaround occurs. The new method of accounting for turnarounds is considered preferable as it is more consistent with the accounting policy of our peer companies and better reflects the economic substance of the benefits earned from turnaround expenditures. The condensed consolidated balance sheet as of December 31, 2018, the condensed consolidated statement of operations for the three and nine months ended September 30, 2018, and the condensed consolidated statement of cash flows for the nine months ended September 30, 2018 have been retrospectively adjusted to apply the new method. These turnaround costs, and related accumulated amortization, are included in the condensed consolidated balance sheet as Other long-term assets. The amortization expense related to turnaround costs is included in Depreciation and amortization in the condensed consolidated statement of operations. The Nitrogen Fertilizer Segment will continue to follow the direct expensing method, therefore this change had no impact on the Nitrogen Fertilizer Segment’s current condensed consolidated financial statements.

The policy change for turnaround expenses retrospectively impacted the Company’s December 31, 2018 condensed consolidated balance sheet by increasing total assets by $93 million and total equity by $75 million. The adoption of Topic 842 on January 1, 2019 incrementally impacted the Company’s consolidated balance sheet as of that date. The following presents the financial statement line items impacted by the turnaround accounting change and the Company’s Topic 842 adoption as of the respective dates.

Effect of Topic 842 Adoption on Condensed Consolidated Balance Sheet as of January 1, 2019



(in millions)	December 31, 2018 As Stated (1)		Effect of Adoption of Topic 842 - Leases (Unaudited)				January 1, 2019 As Adjusted
Current assets:
Prepaid expenses and other current assets	$	76	$	(3	)	(2)	$	73
Total currents assets	1,293		(3		)		1,290
Property, plant and equipment, net	2,430		26			(3)	2,456
Other long-term assets	277		56			(4)	333
Total assets	$	4,000	$	79			$	4,079
Current liabilities:
Other current liabilities	$	176	$	16		(5)	$	192
Total current liabilities	496		16				512
Long-term debt and finance lease obligations	1,167		23			(3)	1,190
Other long-term liabilities	14		40			(5)	54
Total long-term liabilities	1,561		63				1,624
Equity:
Total liabilities and equity	$	4,000	$	79			$	4,079


(1)	Represents the retrospectively adjusted balance sheet amounts upon reflection of the turnaround accounting change, for which the Recast Form 8-K for 2018 was filed on June 12, 2019, prior to the adoption of Topic 842.


(2)	Represents lease prepayments reclassified to ROU assets.


(3)	The additional $26 million right-of-use asset and $23 million in lease liability represents a lease with a third-party that met the definition of a finance lease under ASC 842 as compared to an operating lease under ASC 840.


(4)	Represents recognition of initial ROU assets for operating leases, including the reclassification of certain lease prepayments as noted above.


(5)	Represents the initial recognition of lease liabilities.

Due to the retrospective adjustments for the turnaround accounting change, the three and nine months ended September 30, 2018 condensed consolidated statement of operations and the nine months ended September 30, 2018 condensed consolidated statement of cash flows have been recast. The impacts to previously reported amounts are shown below only for those line items impacted.

Effect of Turnaround Accounting on Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2018



(in millions)	As Previously Reported		Effect of Turnaround Accounting Change (Unaudited)			As Stated
Condensed Consolidated Statement of Operations
Direct operating expenses (exclusive of depreciation and amortization as reflected below)	$	121	$	(2	)	$	119
Depreciation and amortization	49		14			63
Income tax expense	35		(2		)	33
Net income	121		(11		)	110
Less: Net income attributable to noncontrolling interest	31		(2		)	29
Net income attributable to CVR Energy stockholders	$	90	$	(9	)	$	81

Effect of Turnaround Accounting on Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2018



(in millions)	As Previously Reported			Effect of Turnaround Accounting Change (Unaudited)			As Stated
Condensed Consolidated Statement of Operations
Direct operating expenses (exclusive of depreciation and amortization as reflected below)	$	394		$	(4	)	$	390
Depreciation and amortization	151			45			196
Income tax expense	73			(8		)	65
Net income	304			(33		)	271
Less: Net income attributable to noncontrolling interest	97			(11		)	86
Net income attributable to CVR Energy stockholders	$	207		$	(22	)	$	185

Condensed Consolidated Statement of Cash Flows
Net cash provided by operating activities	$	519		$	7		$	526
Net cash used by investing activities	$	(67	)	$	(7	)	$	(74	)

New Accounting Standards Issued But Not Yet Implemented

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The ASU eliminates such disclosures as the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. The ASU is effective for the Company beginning January

1, 2020, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance, but does not currently expect adoption will have a material impact on the Company’s disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40). This ASU addresses customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This standard is effective for the Company beginning January 1, 2020, with early adoption permitted. The amendments in this standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance on its consolidated financial statements, but does not currently expect adoption will have a material impact on the Company’s consolidated financial position or results of operations.