CVR Energy Inc. (CVI)

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CVR Energy, Inc. (CVI)

Q2 2010 Earnings Call Transcript

August 05, 2010 01:00 pm

Executives

Stirling Pack - VP, IR

Jack Lipinski - Chairman, CEO & President

Ed Morgan - CFO

Stan Riemann - COO

Analysts

David Shapiro - Aegis Financials

Steven Carpell - Credit Suisse

Kathryn O’Connor - Deutsche Bank

Presentation

Operator

Greetings and welcome to the CVR Energy second quarter 2010 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stirling Pack, Vice President of Investor Relations for CVR Energy. Thank you Mr. Pack you may begin,

Stirling Pack

Thank you Jen, I appreciate it very much. Good afternoon everyone, we very much appreciate you being here for our call this afternoon. With me this afternoon is Jack Lipinski, our Chief Executive Officer; Ed Morgan, our Chief Financial Officer and Stan Riemann, our Chief Operating Officer.

Other officers of the company are present as well.

Prior to the discussion of our 2010 second quarter results, we are required to make the following Safe Harbor statement. In accordance with federal securities laws, the statements in this earnings call relating to matters that are not historical facts are forward-looking statements based on management’s beliefs and assumptions using currently available information and expectations as of this date that are not guarantees of future performance and do involve certain risks and uncertainties including those noted in our filings with the Securities & Exchange Commission.

This presentation also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures including reconciliation to the most directly comparable GAAP financial measures are included in our second quarter 2010 earnings release which we filed with the SEC yesterday after the close of the market. With the preliminary said, I’ll turn the call over to Jack Lipinski, our Chief Executive Officer. Jack?

Jack Lipinski

Thank you, Stirling and good morning all and thanks for joining us. Our results are available to you in a news release we issued last night. So today I would like to add a little color about the release and talk about the special items that affected our results. Ed will then talk in more detail about our financials and after Ed is done, he and I will join Stan Riemann, our Chief Operating Officer in taking your questions.

The highlight of our quarter was our successful high yield bond transaction. As the second quarter began, we completed two offerings at first and secondly in senior secured notes totaling $500 million. These notes with a blended interest rate of 9.84% give us enhanced flexibility and stability. These notes replaced the original term loans with which we launched our businesses. The expenses for this refinancing are among the several special items impacting second quarter results.

During the quarter, we also completed our Ultra Low Sulfur Gasoline projects. With the commissioning of the ULSG the company has now completed on-time and under budget the last major project in its five year of capital expansion plans. Also want to note that we recently expanded our crude oil intermediation agreement with Vitol Incorporated . The term will now run through December 31, 2012. This is a valuable intermediate credit intermediation facility, which allows us to actively finance the purchase for our crudes.

Last night after the market closed, we reported second quarter net income of $1.2 million or $0.01 per share. These results are not reflective of our actual performance, because they are impacted by a number of special items, including the negative impact of roughly $15 million in expenses associated with our bond offerings and related financing costs. In addition, we are a FIFO company, first in first out accounting and as the price of crude and products drop during the second quarter we realized a negative impact of $17.5 million. Unfortunately we had outages on our catalytic cracker and coker that resulted in additional maintenance expense of $3.4 million pretax or $0.03 per share.

These outages had the affect of reducing our crude throughputs for the quarter by 350,000 barrels and limited blending and processing

Limited blending and processing opportunities as well. You will recall that I mentioned this during our last earnings call. Ed will provide more details on these interactions a little more.

Despite the [nordish] and this quarters results, one-time impacts and try for adjustments our liquidities outcome. At the end of quarter we had $53.3 million in cash and approximately $34 million of additional paid cash tied up in excess inventory still to take advantage of the Contango.

This morning we had a $110 million in cash in the equivalent of $28 million of cash in excess inventory. And our revolver remains undrawn at $120 million. As we have three diversified complementary business, petroleum and nitrogen fertilizers. As I mentioned in our last quarterly call we had operational issues with our cat cracker and our coke grenade. At that time as a result of the outages we anticipated running between a 108 and 1,10,000 barrels per day for our crude throughput.

Actually we improved on that forecast because in June we increased crude runs to approximately 119,600 barrels a day which by the way is a monthly crude processing record for us.

For the full quarter, we averaged 113,400 barrels a day increase. Our ability to achieve these higher crude rates resulted from our prior expansion projects and opportunistic maintenance we performed during the first and second quarter. Margins improved enough that we chose run crude at the expense of outside feedstocks and blendstocks.

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