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Property and Business Interruption Insurance Claims and Recoveries | 3 Months Ended
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Mar. 31, 2013
Property and Business Interruption Insurance Claims and Recoveries | Note 12: Property and Business Interruption Insurance Claims and Recoveries Pryor Facility Beginning on February 27, 2012, the Pryor Facility experienced downtime in the urea plant due to a damaged stainless steel liner within the urea reactor. As a result, the Pryor Facility was unable to produce urea ammonium nitrate (“UAN”) through early July 2012. Our insurance policy provides, for the policy period covering this claim, for repair or replacement cost coverage relating to property damage with a $1.0 million deductible and provides for business interruption coverage for certain lost profits and extra expense with a 30-day waiting period. A notice of insurance claims for property damage and business interruption was filed with the insurance carriers. After an initial investigation was performed by an insurance adjuster, we received a reservation of rights letter stating that some insurance policy exclusions could apply resulting in a full or partial denial as to our claims for property damage and/or business interruption. See additional information in Note 16-Subsequent Events. El Dorado Facility On May 15, 2012, the El Dorado Facility suffered significant damage when a reactor in its 98% strength nitric acid plant (“DSN plant”) exploded. No employees or individuals in the surrounding area were seriously injured as a result of the explosion. In addition, several other plants and infrastructure within the El Dorado Facility sustained various degrees of damage. Our insurance policy provides, for the policy period covering this claim, for repair or replacement cost coverage relating to property damage with a $1.0 million deductible and provides for business interruption coverage for certain lost profits and extra expense with a 30-day waiting period. A notice of insurance claims for property damage and business interruption was filed with the insurance carriers, but the total amounts have not been determined. The engineering firm representing our insurance carriers has determined that the DSN plant was not destroyed by the explosion and was repairable. However, we have concluded that due to the extensive damage, the DSN plant should not be repaired but should be replaced with a new 65% strength nitric acid plant and a separate nitric acid concentrator. The total amount of insurance recoveries relating to this event will be dependent on an estimate of the costs and the length of time to repair the damaged DSN plant as if it would have been repaired. The estimated cost to repair the DSN plant ranges from $48 million to $60 million but the length of time to repair has not yet been determined. Based upon our assessment that it was probable that the amount of coverage for property damages would exceed our property loss deductible, the net book value of the damaged property and other recoverable costs incurred through March 31, 2013, we recorded an insurance claim receivable relating to this event, which offset the loss on the disposal of the damaged property and certain repairs and clean-up costs incurred (“recoverable costs”). During 2012, our insurance carriers approved unallocated payments totaling $40 million (of which $20 million was paid in 2012 and $20 million was paid in January 2013). We received correspondence associated with the $20 million received in January 2013, which stated that our insurance carriers are still investigating the circumstances surrounding this event (including the cause of this event, scope of our losses and support for our claim) under a reservation of rights. For financial reporting purposes, we allocated $28.6 million to our property insurance claim and $11.4 million to our business interruption claim primarily based on the claims information provided to our insurance carriers as of that time in relation to our requests for insurance proceeds. The $28.6 million allocated to the property insurance claim was partially applied against the recoverable costs totaling $22.4 million. The insurance recovery in excess of the recoverable costs of $6.2 million was deferred (included in current liabilities at March 31, 2013) since it is considered a gain contingency. The deferred portion of this recovery, and any additional recoveries, will be recognized if, and when, realized or realizable and earned. The insurance recovery of $11.4 million allocated to the business interruption claim was applied against recoverable costs (primarily relating to additional expenses associated with purchased product sold to our customers while certain of our nitric and sulfuric acid plants were being repaired) totaling $8.0 million as a reduction to cost of sales ($7.3 million during the fourth quarter of 2012 and $0.7 million during the first quarter of 2013). The insurance recovery in excess of recoverable costs of $3.4 million was deferred (included in current liabilities at March 31, 2013) since a portion of this amount relates to recoverable costs, which we were unable to conclude that it was at least probable (for financial reporting purposes) that these costs would be approved and a portion of this amount relates to lost profits, which is considered a gain contingency. The deferred portion of this recovery, and any additional recoveries, will be recognized if, and when, realized or realizable and earned. As of March 31, 2013, there was no insurance claim receivable balance relating to this event. Cherokee Facility On November 13, 2012, a pipe ruptured within the Cherokee Facility causing damage primarily to the heat exchanger portion of its ammonia plant. No serious injuries or environmental impact resulted from the pipe rupture. As a result of the damage, the Cherokee Facility can only produce, on a limited basis, nitric acid and ammonium nitrate (“AN”) solution from purchased ammonia until the repairs are completed (See Note 16 – Subsequent Events). Our insurance policy provides, for the policy period covering this claim, for repair or replacement cost coverage relating to property damage with a $2.5 million deductible and provides for business interruption coverage for certain lost profits and extra expense with a 30-day waiting period. A notice of insurance claims for property damage and business interruption was filed with the insurance carriers, but the total amounts have not been determined but are expected to be substantial. Based upon our assessment that it was probable that the amount of coverage for property damages would exceed our property loss deductible, the net book value of the damaged property and other recoverable costs incurred through March 31, 2013, we recorded an insurance claim receivable relating to this event, which offset the loss on the disposal of the damaged property and other recoverable costs incurred. In March 2013, our insurance carriers approved payments relating to our business interruption claim totaling $15 million. Also see Note 16—Subsequent Events. We received correspondence associated with the approval, which stated that our insurance carriers are still investigating the circumstances surrounding this event (including the cause of this event, scope of our losses and support for our claim) under a reservation of rights. The business interruption insurance recovery of $15 million was applied against recoverable costs (primarily relating to additional expenses associated with purchased product sold or used in products sold to our customers while our facility is being repaired) totaling $10.1 million as a reduction to cost of sales (see Note 16—Subsequent Events). The insurance recovery in excess of recoverable costs of $4.9 million was not recognized since a portion of this amount relates to recoverable costs, which we were unable to conclude that it was at least probable (for financial reporting purposes) that these costs would be approved and a portion of this amount relates to lost profits, which is considered a gain contingency. The unrecognized portion of this recovery, and any additional recoveries, will be recognized if, and when, realized or realizable and earned. As of March 31, 2013, the balance of the insurance claim receivable relating to this event was $12.1 million, consisting of the recognized portion of the approved payments due from our insurance carriers discussed above and recoverable costs associated with our property insurance claim. It is possible that the actual development of the insurance claims discussed above could be different from our current allocations and estimates.

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- Definition A block of text that may be used to disclose all or part of the information relating to business interruption and property insurance claims. This may include the nature of the event resulting in the insurance claim, the aggregate amount of insurance recoveries recognized during the period, and the line item(s) in the statement of operations in which those insurance recoveries are classified. + References No definition available. + Details
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