e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007.
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR THE SECURITIES
EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 000-51734
Calumet Specialty Products Partners, L.P.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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37-1516132 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification Number) |
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2780 Waterfront Pkwy E. Drive, Suite 200 |
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Indianapolis, Indiana
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46214 |
(Address of principal executive officers)
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(Zip code) |
Registrants telephone number including area code (317) 328-5660
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
At August 1, 2007, the registrant had 16,366,000 common units and 13,066,000 subordinated
units outstanding.
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
FORM 10-Q JUNE 30, 2007 QUARTERLY REPORT
Table of Contents
2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements can be identified by the use of forward-looking terminology including
may, believe, expect, anticipate, estimate, continue, or other similar words. The
statements regarding (i) the Shreveport refinery expansion projects expected completion date, its
estimated cost, the resulting increases in production levels, our ability to amend our credit
facilities to permit increased capital expenditures associated with the expansion project and (ii)
expected settlements with the Louisiana Department of Environmental Quality (LDEQ) or other
environmental liabilities, as well as other matters discussed in this Form 10-Q that are not
purely historical data, are forward-looking statements. These statements discuss future
expectations or state other forward-looking information and involve risks and uncertainties. When
considering these forward-looking statements, unitholders should keep in mind the risk factors and
other cautionary statements included in this quarterly report and in our Annual Report on Form 10-K
filed on February 23, 2007. These risk factors and cautionary statements noted throughout this Form
10-Q could cause our actual results to differ materially from those contained in any
forward-looking statement. These factors include, but are not limited to:
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the overall demand for specialty hydrocarbon products, fuels and other refined products; |
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our ability to produce specialty products and fuels that meet our customers unique and precise specifications; |
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the results of our hedging activities; |
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the availability of, and our ability to consummate, acquisition or combination opportunities; |
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our access to capital to fund expansions or acquisitions and our ability to obtain debt
or equity financing on satisfactory terms; |
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successful integration and future performance of acquired assets or businesses; |
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environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves; |
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maintenance of our credit rating and ability to receive open credit from our suppliers; |
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demand for various grades of crude oil and resulting changes in pricing conditions; |
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fluctuations in refinery capacity; |
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the effects of competition; |
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continued creditworthiness of, and performance by, counterparties; |
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the impact of crude oil price fluctuations; |
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the impact of current and future laws, rulings and governmental regulations; |
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shortages or cost increases of power supplies, natural gas, materials or labor; |
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weather interference with business operations or project construction; |
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fluctuations in the debt and equity markets; and |
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general economic, market or business conditions. |
Other factors described herein, or factors that are unknown or unpredictable, could also have
a material adverse effect on future results. Please read Part I Item 3 Quantitative and
Qualitative Disclosures About Market Risk. Except as required by applicable securities laws, we do
not intend to update these forward-looking statements and information.
References in this Form 10-Q to Calumet, the Company, we, our, us or like terms
refer to Calumet Specialty Products Partners, L.P. and its subsidiaries. References to
Predecessor in this Form 10-Q refer to Calumet Lubricants Co., Limited Partnership. The results
of operations for the six months ended June 30, 2006 for Calumet include the results of operations
of the Predecessor for the period of January 1, 2006 through January 31, 2006.
3
PART I
Item 1. Financial Statements
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, 2007 |
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December 31, 2006 |
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(unaudited) |
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As adjusted, See Note 2 |
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(In thousands) |
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ASSETS |
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Current assets: |
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Cash |
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$ |
22,442 |
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$ |
80,955 |
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Accounts receivable: |
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Trade, less allowance for doubtful accounts of $782 and $782, respectively |
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127,815 |
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97,740 |
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Other |
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972 |
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1,260 |
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128,787 |
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99,000 |
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Inventories |
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102,451 |
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110,985 |
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Prepaid expenses |
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2,608 |
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1,506 |
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Derivative assets |
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40,802 |
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Deposits and other current assets |
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21 |
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1,961 |
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Total current assets |
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256,309 |
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335,209 |
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Property, plant and equipment, net |
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291,784 |
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191,732 |
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Other noncurrent assets, net |
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6,169 |
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4,710 |
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Total assets |
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$ |
554,262 |
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$ |
531,651 |
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LIABILITIES AND PARTNERS CAPITAL |
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Current liabilities: |
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Accounts payable |
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$ |
109,944 |
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$ |
78,752 |
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Accrued salaries, wages and benefits |
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4,301 |
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5,675 |
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Taxes payable |
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7,911 |
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7,038 |
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Other current liabilities |
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1,904 |
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2,424 |
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Current portion of long-term debt |
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1,903 |
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500 |
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Derivative liabilities |
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52,906 |
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2,995 |
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Total current liabilities |
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178,869 |
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97,384 |
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Long-term debt, less current portion |
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50,935 |
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49,000 |
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Total liabilities |
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229,804 |
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146,384 |
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Commitments and contingencies |
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Partners capital: |
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Common unitholders (16,366,000 units issued and outstanding) |
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290,426 |
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274,719 |
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Subordinated unitholders (13,066,000 units issued and outstanding) |
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54,863 |
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42,347 |
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General partners interest |
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16,038 |
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15,950 |
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Accumulated other comprehensive income (loss) |
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(36,869 |
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52,251 |
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Total partners capital |
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324,458 |
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385,267 |
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Total liabilities and partners capital |
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$ |
554,262 |
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$ |
531,651 |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June, 30 |
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2007 |
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2006 |
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2007 |
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2006 |
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As adjusted, See |
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As adjusted, See |
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Note 2 |
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Note 2 |
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(In thousands except per unit data) |
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Sales |
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$ |
421,726 |
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$ |
429,925 |
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$ |
772,839 |
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$ |
827,619 |
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Cost of sales |
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361,255 |
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371,465 |
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657,333 |
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717,910 |
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Gross profit |
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60,471 |
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58,460 |
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115,506 |
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109,709 |
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Operating costs and expenses: |
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Selling, general and administrative |
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6,435 |
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5,209 |
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11,834 |
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10,138 |
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Transportation |
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14,048 |
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14,595 |
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27,617 |
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28,502 |
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Taxes other than income taxes |
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884 |
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903 |
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1,796 |
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1,817 |
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Other |
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162 |
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168 |
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342 |
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284 |
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Operating income |
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38,942 |
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37,585 |
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73,917 |
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68,968 |
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Other income (expense): |
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Interest expense |
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(1,113 |
) |
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(2,157 |
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(2,128 |
) |
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(6,133 |
) |
Interest income |
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569 |
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51 |
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1,559 |
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245 |
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Debt extinguishment costs |
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(2,967 |
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Realized loss on derivative instruments |
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(4,052 |
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(12,741 |
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(5,788 |
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(15,821 |
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Unrealized gain (loss) on derivative instruments |
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3,285 |
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874 |
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(1,492 |
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(16,841 |
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Other |
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42 |
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(20 |
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(136 |
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(15 |
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Total other expense |
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(1,269 |
) |
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(13,993 |
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(7,985 |
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(41,532 |
) |
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Net income before income taxes |
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37,673 |
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23,592 |
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65,932 |
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27,436 |
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Income tax expense |
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255 |
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52 |
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305 |
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66 |
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Net income |
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$ |
37,418 |
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$ |
23,540 |
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$ |
65,627 |
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$ |
27,370 |
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Allocation of net income: |
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Net income applicable to Predecessor for the period through
January 31, 2006 |
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4,408 |
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Net income applicable to Calumet |
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37,418 |
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23,540 |
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65,627 |
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22,962 |
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Minimum quarterly distribution to common unitholders |
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(7,365 |
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(5,880 |
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(14,730 |
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(9,765 |
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General partners incentive distribution rights |
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(9,353 |
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(3,463 |
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(14,102 |
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(3,463 |
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General partners interest in net income |
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(297 |
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(264 |
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(594 |
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(252 |
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Common unitholders share of income in excess of minimum
quarterly distribution |
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(8,076 |
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(4,027 |
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(13,592 |
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(4,027 |
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Limited partners interest in net income |
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$ |
12,327 |
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$ |
9,906 |
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$ |
22,609 |
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$ |
5,455 |
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Basic and diluted net income per limited partner unit: |
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Common |
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$ |
0.94 |
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$ |
0.76 |
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$ |
1.73 |
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$ |
1.06 |
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Subordinated |
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$ |
0.94 |
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$ |
0.76 |
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$ |
1.73 |
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$ |
0.42 |
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Weighted average limited partner common units outstanding basic |
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16,366 |
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13,066 |
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16,366 |
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|
13,007 |
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Weighted average limited partner subordinated units outstanding
basic |
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13,066 |
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13,066 |
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13,066 |
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13,066 |
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Weighted average limited partner common units outstanding
diluted |
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16,368 |
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13,066 |
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16,368 |
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|
13,007 |
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Weighted average limited partner subordinated units outstanding
diluted |
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13,066 |
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13,066 |
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13,066 |
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13,066 |
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Cash distributions declared per common and subordinated unit |
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$ |
0.63 |
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$ |
0.45 |
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$ |
1.23 |
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$ |
0.75 |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
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Accumulated Other |
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Partners Capital |
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Comprehensive |
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General |
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Limited Partners |
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Income (Loss) |
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Partner |
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Common |
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Subordinated |
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Total |
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(In thousands) |
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Balance at December 31, 2006 (As Adjusted, See Note 2) |
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$ |
52,251 |
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$ |
15,950 |
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$ |
274,719 |
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$ |
42,347 |
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$ |
385,267 |
|
Comprehensive loss: |
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Net income |
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|
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|
|
2,114 |
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|
|
35,317 |
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|
28,196 |
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|
65,627 |
|
Cash flow hedge gain reclassified to net income |
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(5,221 |
) |
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(5,221 |
) |
Change in fair value of cash flow hedges |
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(83,899 |
) |
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|
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|
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|
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(83,899 |
) |
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Comprehensive loss |
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(23,493 |
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Amortization of phantom units |
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30 |
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|
30 |
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Distributions to partners |
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(2,026 |
) |
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(19,640 |
) |
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(15,680 |
) |
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(37,346 |
) |
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Balance at June 30, 2007 |
|
$ |
(36,869 |
) |
|
$ |
16,038 |
|
|
$ |
290,426 |
|
|
$ |
54,863 |
|
|
$ |
324,458 |
|
|
|
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|
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|
|
|
|
|
|
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See accompanying notes to unaudited condensed consolidated financial statements.
6
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
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For the Six Months Ended |
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|
June 30, |
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|
2007 |
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|
2006 |
|
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|
As adjusted, See |
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Note 2 |
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(In thousands) |
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Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,627 |
|
|
$ |
27,370 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
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|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,454 |
|
|
|
5,634 |
|
Amortization of turnaround costs |
|
|
1,862 |
|
|
|
1,514 |
|
Debt extinguishment costs |
|
|
|
|
|
|
2,967 |
|
Other non-cash activities |
|
|
47 |
|
|
|
252 |
|
Changes in assets and liabilities: |
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|
|
|
|
|
|
Accounts receivable |
|
|
(29,787 |
) |
|
|
(18,713 |
) |
Inventories |
|
|
8,534 |
|
|
|
3,855 |
|
Prepaid expenses |
|
|
(1,102 |
) |
|
|
7,593 |
|
Derivative activity |
|
|
1,593 |
|
|
|
18,462 |
|
Deposits and other current assets |
|
|
1,940 |
|
|
|
6,909 |
|
Other noncurrent assets |
|
|
(4,238 |
) |
|
|
2,947 |
|
Accounts payable |
|
|
31,207 |
|
|
|
42,799 |
|
Accrued salaries, wages and benefits |
|
|
(1,374 |
) |
|
|
(5,023 |
) |
Taxes payable |
|
|
873 |
|
|
|
1,060 |
|
Other current liabilities |
|
|
(520 |
) |
|
|
1,169 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
82,116 |
|
|
|
98,795 |
|
Investing activities |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(103,109 |
) |
|
|
(22,453 |
) |
Proceeds from disposal of property, plant and equipment |
|
|
49 |
|
|
|
80 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(103,060 |
) |
|
|
(22,373 |
) |
Financing activities |
|
|
|
|
|
|
|
|
Repayment of borrowings, net credit agreements with third parties |
|
|
(223 |
) |
|
|
(208,992 |
) |
Proceeds from initial public offering, net |
|
|
|
|
|
|
138,743 |
|
Contributions from Calumet GP, LLC |
|
|
|
|
|
|
375 |
|
Cash distribution to Calumet Holding, LLC |
|
|
|
|
|
|
(3,258 |
) |
Distributions to Predecessor partners |
|
|
|
|
|
|
(6,900 |
) |
Distributions to partners |
|
|
(37,346 |
) |
|
|
(8,000 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(37,569 |
) |
|
|
(88,032 |
) |
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(58,513 |
) |
|
|
(11,610 |
) |
Cash at beginning of period |
|
|
80,955 |
|
|
|
12,173 |
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
22,442 |
|
|
$ |
563 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
4,087 |
|
|
$ |
5,958 |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
100 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except operating, unit and per unit data)
1. Partnership Organization and Basis of Presentation
Calumet Specialty Products Partners, L.P. (Calumet, Partnership, or the Company) is a Delaware
limited partnership. The general partner is Calumet GP, LLC, a Delaware limited liability company.
On January 31, 2006, the Partnership completed the initial public offering of its common units. At
that time, substantially all of the assets and liabilities of Calumet Lubricants Co., Limited
Partnership and its subsidiaries (Predecessor) were contributed to Calumet. References to the
Predecessor in these unaudited condensed consolidated financial statements refer to Calumet
Lubricants Co., Limited Partnership and its subsidiaries. On July 5, 2006, the Partnership
completed a follow-on public offering of its common units. See Note 7 for further discussion of the
units sold and proceeds from these offerings. As of June 30, 2007, the Partnership had 16,366,000
common units, 13,066,000 subordinated units, and 600,653 general partner equivalent units
outstanding. The general partner owns 2% of Calumet while the remaining 98% is owned by limited
partners. Calumet is engaged in the production and marketing of crude oil-based specialty
lubricating oils, solvents, waxes and fuels. Calumet owns refineries located in Princeton,
Louisiana, Cotton Valley, Louisiana, and Shreveport, Louisiana, and a terminal located in Burnham,
Illinois.
The unaudited condensed consolidated financial statements of the Company as of June 30, 2007
and for the three and six months ended June 30, 2007 and 2006 included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in the consolidated financial statements
prepared in accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations, although the Company
believes that the following disclosures are adequate to make the information presented not
misleading. These unaudited condensed consolidated financial statements reflect all adjustments
that, in the opinion of management, are necessary to present fairly the results of operations for
the interim periods presented. All adjustments are of a normal nature, unless otherwise disclosed.
The results of operations for the three and six months ended June 30, 2007 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2007. These
unaudited condensed consolidated financial statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended December 31, 2006 filed on February 23,
2007.
2. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes (the Interpretation), an interpretation of FASB
Statement No. 109. The Interpretation clarifies the accounting for uncertainty in income taxes by
prescribing a recognition threshold and measurement methodology for the financial statement
recognition and measurement of a tax position to be taken or expected to be taken in a tax return.
The Interpretation is effective for fiscal years beginning after December 15, 2006. The Company
adopted the Interpretation on January 1, 2007. The adoption had no effect on the Companys
financial position, results of operations or cash flow. Interest and penalties related to income
taxes, if any, would be recorded in income tax expense on the unaudited condensed consolidated
statements of operations. The Company had no unrecognized tax benefits as of June 30, 2007 and
December 31, 2006. The Companys income taxes generally remain subject to examination by major tax
jurisdictions for a period of three years.
In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned
Major Maintenance Activities (the Position), which amends certain provisions in the AICPA
Industry Audit Guides, Audits of Airlines, and APB Opinion No. 28, Interim Financial Reporting. The
Position prohibits the use of the accrue-in-advance method of accounting for planned major
maintenance activities (turnaround costs) and requires the use of the direct expensing method,
built-in overhaul method, or deferral method. The Position is effective for fiscal years beginning
after December 15, 2006.
The Company adopted the Position on January 1, 2007 and began using the deferral method to
account for turnaround costs. Under this method, actual costs of an overhaul are capitalized as
incurred and amortized to cost of sales until the next overhaul date. Prior to the adoption of this
standard, the Company accrued for such overhaul costs in advance and recorded the charge to cost of
sales. As a result of the adoption of the Position, the Company has adjusted prior periods to
account for turnaround costs as capitalized costs, recorded in other noncurrent assets on the
consolidated balance sheets, in lieu of accrued turnaround costs. The cumulative effect of the
adoption of the Position on prior periods was to increase partners capital by $3,318 as of January
1, 2005. The adoption of the Position resulted in a net decrease in cost of sales of $385 and $684,
respectively, ($0.01 and $0.02, respectively, per limited partner unit) for the three and six
months ended June 30, 2006 from the amount previously reported.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (the
Statement). The Statement applies to assets and liabilities required or permitted to be measured
at fair value under other accounting pronouncements. The
8
Statement defines fair value, establishes a framework for measuring fair value, and expands
disclosure requirements about fair value, but does not provide guidance whether assets and
liabilities are required or permitted to be measured at fair value. The Statement is effective for
fiscal years beginning after November 15, 2007. The Company does not anticipate that this Statement
will have a material effect on its financial position, results of operations, or cash flow.
In April 2007, the FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB
Interpretation No. 39 (the Position), which amends certain aspects of FASB Interpretation Number
39, Offsetting of Amounts Related to Certain Contracts. The Position permits companies to offset
fair value amounts recognized for the right to reclaim cash collateral or the obligation to return
cash collateral against fair value amounts recognized for derivative instruments executed with the
same counterparty under a master netting arrangement. The Position is effective for fiscal years
beginning after November 15, 2007. The Company does not anticipate that the Position will have a
material effect on its financial position, results of operations, or cash flow.
3. Inventory
The cost of inventories is determined using the last-in, first-out (LIFO) method. Inventories
are valued at the lower of cost or market value.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Raw materials |
|
$ |
31,649 |
|
|
$ |
26,791 |
|
Work in process |
|
|
23,543 |
|
|
|
30,130 |
|
Finished goods |
|
|
47,259 |
|
|
|
54,064 |
|
|
|
|
|
|
|
|
|
|
$ |
102,451 |
|
|
$ |
110,985 |
|
|
|
|
|
|
|
|
The replacement cost of these inventories, based on current market values, would have been
$65,468 and $46,711 higher at June 30, 2007 and December 31, 2006, respectively.
4. Shreveport Refinery Expansion
The Company commenced an expansion project at its Shreveport refinery during the second
quarter of 2006. Through June 30, 2007, the Company had incurred capital expenditures of $155,037
(including capitalized interest of $3,856 related to the expansion project, which is recorded to
construction-in-progress, a component of property, plant and equipment. Total capital expenditures
incurred for this expansion project includes leased components for certain refinery operating units
that meet certain capital lease criteria. The Company capitalized a total of $3,537 related to this
capital lease, representing the present value of the related lease payments, within property, plant
and equipment on the condensed consolidated balance sheet. The Company also recorded a long-term
lease obligation related to this capital lease within long-term debt and current portion of
long-term debt on the condensed consolidated balance sheet.
Management has estimated that the Company will incur approximately $45,000 of additional
capital expenditures in 2007 related to the expansion project. The expansion project is expected to
be completed in the third quarter of 2007 with production ramping up in the fourth quarter of 2007.
Management continues to estimate the total cost of the Shreveport refinery expansion project will
be approximately $200,000.
5. Derivatives
The Company utilizes derivative instruments to minimize its price risk and volatility of cash
flows associated with the purchase of crude oil and natural gas, the sale of fuel products and
interest payments. In accordance with Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, which was amended in June 2000 by
SFAS No. 138 and in May 2003 by SFAS No. 149 (collectively referred to as SFAS 133), the Company
recognizes all derivative transactions as either assets or liabilities at fair value on the
condensed consolidated balance sheets. To the extent a derivative instrument is designated
effective as a cash flow hedge of an exposure to changes in the fair value of a future transaction,
the change in fair value of the derivative is deferred in accumulated other comprehensive income
(loss), a component of partners capital. The Company accounts for certain derivatives hedging
purchases of crude oil and natural gas, the sale of gasoline, diesel and jet fuel and the payment
of interest as cash flow hedges. The derivatives hedging purchases and sales are recorded to cost
of sales and sales in the consolidated statements of operations, respectively, upon recording the
related hedged transaction in sales or cost of sales. The
9
derivatives hedging payments of interest are recorded in interest expense in the condensed
consolidated statements of operations. For the three months ended June 30, 2007 and 2006, the
Company has recorded a derivative loss of $9,399 and $7,656, respectively, to sales and a
derivative loss of $7,637 and a derivative gain of $3,013, respectively, to cost of sales. An
interest rate swap loss of $1 and $6, respectively, for the three months ended June 30, 2007 and
2006, was recorded to interest expense. For derivative instruments not designated as cash flow
hedges and the portion of any cash flow hedge that is determined to be ineffective, the change in
fair value of the asset or liability for the period is recorded to unrealized gain or loss on
derivative instruments in the condensed consolidated statements of operations. Upon the settlement
of a derivative not designated as a cash flow hedge, the gain or loss at settlement is recorded to
realized gain or loss on derivative instruments in the consolidated statements of operations.
Effective April 1, 2006, the Company restructured and designated certain derivative contracts
for its fuel products segment as cash flow hedges of gasoline, diesel, and jet fuel sales and crude
oil purchases to the extent they qualified for hedge accounting, and the effective portion of these
hedges is recorded in accumulated other comprehensive income (loss) on the condensed consolidated
balance sheets until the underlying transaction hedged is recognized in the consolidated statements
of operations. Prior to this date, the historical impact of fair value fluctuations in the
Companys gasoline, diesel and crude oil derivative instruments for the fuel products segment had
been reflected in the realized/unrealized gain (loss) on derivative instruments line items in the
consolidated statements of operations. The Company utilizes third party valuations and published
market data to determine the fair value of these derivatives. The decrease in realized and
unrealized loss of $11,100 from the three months ended June 30, 2006 to the same period in the
current year was primarily due to the unfavorable settlement of certain derivatives not designated
as cash flow hedges during the three months ended June 20, 2006 with no such settlements in the
current year.
The Company assesses, both at inception of the hedge and on an on-going basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in
cash flows of hedged items. The Companys estimate of the ineffective portion of the hedges for the
six months ended ended June 30, 2007 and 2006 were gains of $3,514 and losses of $3,786,
respectively, which were recorded to unrealized loss on derivative instruments in the condensed
consolidated statements of operations.
Comprehensive income (loss) for the Company consists of the changes in fair value of cash flow
hedges that have not been reclassified to net income. Comprehensive income for the three and six
months ended June 30, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
37,418 |
|
|
$ |
23,540 |
|
|
$ |
65,627 |
|
|
$ |
27,370 |
|
Cash flow hedge (gain) loss reclassified to net income |
|
|
230 |
|
|
|
(775 |
) |
|
|
(5,221 |
) |
|
|
(497 |
) |
Change in fair value of cash flow hedges |
|
|
(22,045 |
) |
|
|
(22,081 |
) |
|
|
(83,899 |
) |
|
|
(22,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
15,603 |
|
|
$ |
684 |
|
|
$ |
(23,493 |
) |
|
$ |
4,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective portion of the hedges classified in accumulated other comprehensive income
(loss) is ($36,869) as of June 30, 2007 and, absent a change in the fair market value of the
underlying transactions, will be reclassified to earnings by December 31, 2012 with balances being
recognized as follows:
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
Comprehensive |
|
Year |
|
Income (Loss) |
|
2007 |
|
$ |
(12,161 |
) |
2008 |
|
|
(17,800 |
) |
2009 |
|
|
(6,802 |
) |
2010 |
|
|
282 |
|
2011 |
|
|
(369 |
) |
2012 |
|
|
(19 |
) |
|
|
|
|
Total |
|
$ |
(36,869 |
) |
|
|
|
|
The Company is exposed to credit risk in the event of nonperformance with our counterparties
on these derivative transactions. The Company does not expect nonperformance on any derivative
contract.
Crude Oil Collar Contracts
The Company utilizes combinations of options to manage crude oil price risk and volatility of
cash flows in its specialty products segment. These combinations of options are designated as cash
flow hedges of the future purchase of crude oil. The Companys policy is generally to enter into
crude oil derivative contracts for a period no greater than three to six months forward and for 50%
to 75% of
10
anticipated crude oil purchases related to its specialty products production. At June 30,
2007, the Company had the following derivatives related to crude oil purchases used in specialty
products production.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Average |
|
Average |
|
|
|
|
|
|
|
|
|
|
Lower Put |
|
Upper Put |
|
Lower Call |
|
Upper Call |
Crude Oil Put/Call Spread Contracts by Expiration Dates |
|
Barrels |
|
BPD |
|
($/Bbl) |
|
($/Bbl) |
|
($/Bbl) |
|
($/Bbl) |
July 2007 |
|
|
248,000 |
|
|
|
8,000 |
|
|
$ |
52.52 |
|
|
$ |
62.52 |
|
|
$ |
72.52 |
|
|
$ |
82.52 |
|
August 2007 |
|
|
248,000 |
|
|
|
8,000 |
|
|
$ |
51.54 |
|
|
$ |
61.54 |
|
|
$ |
71.54 |
|
|
$ |
81.54 |
|
September 2007 |
|
|
240,000 |
|
|
|
8,000 |
|
|
$ |
54.85 |
|
|
$ |
64.85 |
|
|
$ |
74.85 |
|
|
$ |
84.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
736,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
52.97 |
|
|
$ |
62.97 |
|
|
$ |
72.97 |
|
|
$ |
82.97 |
|
At December 31, 2006, the Company had the following derivatives related to crude oil purchases
for its specialty products production.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Average |
|
Average |
|
|
|
|
|
|
|
|
|
|
Lower Put |
|
Upper Put |
|
Lower Call |
|
Upper Call |
Crude Oil Put/Call Spread Contracts by Expiration Dates |
|
Barrels |
|
BPD |
|
($/Bbl) |
|
($/Bbl) |
|
($/Bbl) |
|
($/Bbl) |
January 2007 |
|
|
248,000 |
|
|
|
8,000 |
|
|
$ |
48.66 |
|
|
$ |
58.66 |
|
|
$ |
68.66 |
|
|
$ |
78.66 |
|
February 2007 |
|
|
224,000 |
|
|
|
8,000 |
|
|
|
49.28 |
|
|
|
59.28 |
|
|
|
69.28 |
|
|
|
79.28 |
|
March 2007 |
|
|
248,000 |
|
|
|
8,000 |
|
|
|
50.85 |
|
|
|
60.85 |
|
|
|
70.85 |
|
|
|
80.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
720,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
49.61 |
|
|
$ |
59.61 |
|
|
$ |
69.61 |
|
|
$ |
79.61 |
|
Crude Oil Swap Contracts
The Company utilizes swap contracts to manage crude oil price risk and volatility of cash
flows in its fuel products segment. The Companys policy is generally to enter into crude oil swap
contracts for a period no greater than five years forward and for no more than 75% of crude oil
purchases used in fuels production. At June 30, 2007, the Company had the following derivatives
related to crude oil purchases in its fuel products segment, all of which are designated as hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
Third Quarter 2007 |
|
|
1,773,000 |
|
|
|
19,272 |
|
|
|
65.54 |
|
Fourth Quarter 2007 |
|
|
1,742,000 |
|
|
|
18,935 |
|
|
|
65.51 |
|
Calendar Year 2008 |
|
|
8,692,000 |
|
|
|
23,749 |
|
|
|
67.20 |
|
Calendar Year 2009 |
|
|
8,212,500 |
|
|
|
22,500 |
|
|
|
66.26 |
|
Calendar Year 2010 |
|
|
7,482,500 |
|
|
|
20,500 |
|
|
|
67.27 |
|
Calendar Year 2011 |
|
|
1,731,500 |
|
|
|
4,744 |
|
|
|
67.64 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
29,633,500 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
66.78 |
|
At December 31, 2006, the Company had the following derivatives related to crude oil purchases
in its fuel products segment, all of which are designated as hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
First Quarter 2007 |
|
|
1,710,000 |
|
|
|
19,000 |
|
|
$ |
65.14 |
|
Second Quarter 2007 |
|
|
1,728,000 |
|
|
|
18,989 |
|
|
|
64.68 |
|
Third Quarter 2007 |
|
|
1,742,000 |
|
|
|
18,935 |
|
|
|
65.51 |
|
Fourth Quarter 2007 |
|
|
1,742,000 |
|
|
|
18,935 |
|
|
|
65.51 |
|
Calendar Year 2008 |
|
|
8,143,000 |
|
|
|
22,249 |
|
|
|
67.37 |
|
Calendar Year 2009 |
|
|
7,482,500 |
|
|
|
20,500 |
|
|
|
66.04 |
|
Calendar Year 2010 |
|
|
5,840,000 |
|
|
|
16,000 |
|
|
|
67.40 |
|
Calendar Year 2011 |
|
|
363,500 |
|
|
|
996 |
|
|
|
65.99 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
28,751,000 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
66.49 |
|
11
Fuels Product Swap Contracts
The Company utilizes swap contracts to manage diesel, gasoline and jet fuel price risk and
volatility of cash flows in its fuel products segment. The Companys policy is generally to enter
into diesel and gasoline swap contracts for a period no greater than five years forward and for no
more than 75% of forecasted fuels sales.
Diesel Swap Contracts
At June 30, 2007, the Company had the following derivatives related to diesel and jet fuel
sales in its fuel products segment, all of which are designated as hedges except for 58,168 barrels
in 2007. The Company recognized a loss of $256 in unrealized (loss) gain on derivative instruments
in the consolidated statements of operations during the six months ended June 30, 2007 related to
these barrels not designated as cash flow hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
Third Quarter 2007 |
|
|
1,102,000 |
|
|
|
11,978 |
|
|
|
81.36 |
|
Fourth Quarter 2007 |
|
|
1,102,000 |
|
|
|
11,978 |
|
|
|
81.36 |
|
Calendar Year 2008 |
|
|
5,307,000 |
|
|
|
14,500 |
|
|
|
82.11 |
|
Calendar Year 2009 |
|
|
4,745,000 |
|
|
|
13,000 |
|
|
|
80.51 |
|
Calendar Year 2010 |
|
|
4,745,000 |
|
|
|
13,000 |
|
|
|
80.41 |
|
Calendar Year 2011 |
|
|
1,458,500 |
|
|
|
3,996 |
|
|
|
79.70 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
18,459,500 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
80.98 |
|
At December 31, 2006, the Company had the following derivatives related to diesel and jet fuel
sales in its fuel products segment, all of which are designated as hedges except for 169,855
barrels in 2007. As a result of these barrels not being designated as hedges, the Company
recognized a gain of $1,314 in unrealized (loss) gain on derivative instruments in the consolidated
statements of operations during the year ended December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
First Quarter 2007 |
|
|
1,080,000 |
|
|
|
12,000 |
|
|
$ |
81.10 |
|
Second Quarter 2007 |
|
|
1,092,000 |
|
|
|
12,000 |
|
|
|
80.74 |
|
Third Quarter 2007 |
|
|
1,102,000 |
|
|
|
11,978 |
|
|
|
81.36 |
|
Fourth Quarter 2007 |
|
|
1,102,000 |
|
|
|
11,978 |
|
|
|
81.36 |
|
Calendar Year 2008 |
|
|
4,941,000 |
|
|
|
13,500 |
|
|
|
82.18 |
|
Calendar Year 2009 |
|
|
4,562,500 |
|
|
|
12,500 |
|
|
|
80.50 |
|
Calendar Year 2010 |
|
|
3,650,000 |
|
|
|
10,000 |
|
|
|
80.52 |
|
Calendar Year 2011 |
|
|
273,000 |
|
|
|
748 |
|
|
|
76.52 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
17,802,500 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
81.07 |
|
Gasoline Swap Contracts
At June 30, 2007, the Company had the following derivatives related to gasoline sales in its
fuel products segment, all of which are designated as hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
Third Quarter 2007 |
|
|
671,000 |
|
|
|
7,293 |
|
|
|
73.54 |
|
Fourth Quarter 2007 |
|
|
640,000 |
|
|
|
6,957 |
|
|
|
72.67 |
|
Calendar Year 2008 |
|
|
3,385,000 |
|
|
|
9,249 |
|
|
|
75.87 |
|
Calendar Year 2009 |
|
|
3,467,500 |
|
|
|
9,500 |
|
|
|
73.83 |
|
Calendar Year 2010 |
|
|
2,737,500 |
|
|
|
7,500 |
|
|
|
75.10 |
|
Calendar Year 2011 |
|
|
273,000 |
|
|
|
748 |
|
|
|
75.30 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
11,174,000 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
74.71 |
|
12
At December 31, 2006, the Company had the following derivatives related to gasoline sales in
its fuel products segment, all of which are designated as hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
First Quarter 2007 |
|
|
630,000 |
|
|
|
7,000 |
|
|
$ |
72.09 |
|
Second Quarter 2007 |
|
|
636,000 |
|
|
|
6,989 |
|
|
|
71.38 |
|
Third Quarter 2007 |
|
|
640,000 |
|
|
|
6,957 |
|
|
|
72.67 |
|
Fourth Quarter 2007 |
|
|
640,000 |
|
|
|
6,957 |
|
|
|
72.67 |
|
Calendar Year 2008 |
|
|
3,202,000 |
|
|
|
8,749 |
|
|
|
76.17 |
|
Calendar Year 2009 |
|
|
2,920,000 |
|
|
|
8,000 |
|
|
|
73.45 |
|
Calendar Year 2010 |
|
|
2,190,000 |
|
|
|
6,000 |
|
|
|
75.27 |
|
Calendar Year 2011 |
|
|
90,500 |
|
|
|
248 |
|
|
|
70.87 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
10,948,500 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
74.30 |
|
Natural Gas Swap Contracts
The Company utilizes swap contracts to manage natural gas price risk and volatility of cash
flows. These swap contracts are designated as cash flow hedges of the future purchase of natural
gas. The Companys policy is generally to enter into natural gas derivative contracts to hedge
approximately 50% or more of its upcoming fall and winter months anticipated natural gas
requirements. At June 30, 2007, the Company had the following derivatives related to natural gas
purchases.
|
|
|
|
|
|
|
|
|
Natural Gas Swap Contracts by Expiration Dates |
|
MMbtu |
|
|
$/MMbtu |
|
Third Quarter 2007 |
|
|
600,000 |
|
|
$ |
8.77 |
|
Fourth Quarter 2007 |
|
|
900,000 |
|
|
|
8.77 |
|
First Quarter 2008 |
|
|
850,000 |
|
|
|
8.76 |
|
|
|
|
|
|
|
|
Totals |
|
|
2,350,000 |
|
|
|
|
|
Average price |
|
|
|
|
|
$ |
8.77 |
|
At December 31, 2006, the Company had the following derivatives related to natural gas
purchases.
|
|
|
|
|
|
|
|
|
Natural Gas Swap Contracts by Expiration Dates |
|
MMbtu |
|
|
$/MMbtu |
|
First Quarter 2007 |
|
|
600,000 |
|
|
$ |
8.87 |
|
Third Quarter 2007 |
|
|
100,000 |
|
|
|
7.99 |
|
Fourth Quarter 2007 |
|
|
150,000 |
|
|
|
7.99 |
|
First Quarter 2008 |
|
|
150,000 |
|
|
|
7.99 |
|
|
|
|
|
|
|
|
Totals |
|
|
1,000,000 |
|
|
|
|
|
Average price |
|
|
|
|
|
$ |
8.52 |
|
Interest Rate Swap Contracts
In 2006, the Company entered into a forward swap contract to manage interest rate risk related
to its variable rate senior secured first lien term loan. The Company hedges the interest payments
related to 85% of its future term loan indebtedness. This swap contract is designated as a cash
flow hedge of the future payment of interest with three-month LIBOR fixed at 5.44% per annum.
6. Commitments and Contingencies
From time to time, the Company is a party to certain claims and litigation incidental to its
business, including claims made by various taxing and regulatory authorities, such as the Louisiana
Department of Environmental Quality (LDEQ), Environmental Protection Agency (EPA), Internal
Revenue Service (IRS) and Occupational Safety and Health Administration, as the result of audits
or reviews of the Companys business. Management is of the opinion that the ultimate resolution of
any known claims, either individually or in the aggregate, will not have a material adverse impact
on the Companys financial position, results of operations or cash flow.
Environmental
The Company operates crude oil and specialty hydrocarbon refining and terminal operations,
which are subject to stringent and complex federal, state, and local laws and regulations governing
the discharge of materials into the environment or otherwise relating to environmental protection.
These laws and regulations can impair the Companys operations that affect the environment in many
ways, such as requiring the acquisition of permits to conduct regulated activities; restricting the
manner in which the Company can release materials into the environment; requiring remedial
activities or capital expenditures to mitigate pollution from former or current operations; and
imposing substantial liabilities for pollution resulting from its operations. Certain environmental
laws impose joint and several, strict liability for costs required to remediate and restore sites where
petroleum hydrocarbons, wastes, or other materials have been released or disposed.
13
Failure to comply with environmental laws and regulations may result in the triggering of
administrative, civil and criminal measures, including the assessment of monetary penalties, the
imposition of remedial obligations, and the issuance of injunctions limiting or prohibiting some or
all of the Companys operations. On occasion, the Company receives notices of violation,
enforcement and other complaints from regulatory agencies alleging non-compliance with applicable
environmental laws and regulations. In particular, the LDEQ has proposed penalties totaling $191
and supplemental projects for the following alleged violations: (i) a May 2001 notification
received by the Cotton Valley refinery from the LDEQ regarding several alleged violations of
various air emission regulations, as identified in the course of the Companys Leak Detection and
Repair program, and also for failure to submit various reports related to the facilitys air
emissions; (ii) a December 2002 notification received by the Companys Cotton Valley refinery from
the LDEQ regarding alleged violations for excess emissions, as identified in the LDEQs file review
of the Cotton Valley refinery; and (iii) a December 2004 notification received by the Cotton Valley
refinery from the LDEQ regarding alleged violations for the construction of a multi-tower pad and
associated pump pads without a permit issued by the agency. The Company is currently in settlement
negotiations with the LDEQ to resolve these matters, as well as a number of similar matters at the
Princeton refinery, for which no penalty has yet been proposed. The Company anticipates that any
penalties that may be assessed due to the alleged violations at its Princeton refinery as well as
the aforementioned penalties related to the Cotton Valley refinery will be consolidated in a
settlement agreement that the Company anticipates executing with the LDEQ in connection with the
agencys Small Refinery and Single Site Refinery Initiative described below.
The Company has recently entered into discussions on a voluntary basis with the LDEQ regarding
the Companys participation in that agencys Small Refinery and Single Site Refinery Initiative.
This state initiative is patterned after the EPAs National Petroleum Refinery Initiative, which
is a coordinated, integrated compliance and enforcement strategy to address federal Clean Air Act
compliance issues at the nations largest petroleum refineries. The Company expects that the LDEQs
primary focus under the state initiative will be on four compliance and enforcement concerns: (i)
Prevention of Significant Deterioration/New Source Review; (ii) New Source Performance Standards
for fuel gas combustion devices, including flares, heaters and boilers; (iii) Leak Detection and
Repair requirements; and (iv) Benzene Waste Operations National Emission Standards for Hazardous
Air Pollutants. The Company is only in the beginning stages of discussion with the LDEQ and,
consequently, while no significant compliance and enforcement expenditures have been requested as a
result of the Companys discussions, the Company anticipates that it will ultimately be required to
make emissions reductions requiring capital investments between an aggregate of $1,000 and $3,000
over a three to five year period at the Companys three Louisiana refineries.
Voluntary remediation of subsurface contamination is in process at each of the Companys
refinery sites. The remedial projects are being overseen by the appropriate state agencies. Based
on current investigative and remedial activities, the Company believes that the groundwater
contamination at these refineries can be controlled or remedied without having a material adverse
effect on its financial condition. However, such costs are often unpredictable and, therefore,
there can be no assurance that the future costs will not become material.
The Company is indemnified by Shell Oil Company, as successor to Pennzoil-Quaker State Company
and Atlas Processing Company, for specified environmental liabilities arising from the operations
of the Shreveport refinery prior to the Companys acquisition of the facility. The indemnity is
unlimited in amount and duration, but requires the Company to contribute up to $1,000 of the first
$5,000 of indemnified costs for certain of the specified environmental liabilities.
On December 27, 2006, the LDEQ approved the Companys application for a modification of its
air emissions permit for the Shreveport refinery expansion. The Company was required to obtain
approval of this modified air emissions permit from the LDEQ prior to commencing construction of
the expansion activities. Upon receipt of the permit approval from the LDEQ, the Company commenced
construction of the Shreveport refinery expansion project. The approval granted by the LDEQ for the
Companys application for a modified air quality permit was challenged by an individual on her own
behalf and on behalf of a neighborhood group and was subsequently voluntarily dismissed on July 11,
2007.
Standby Letters of Credit
The Company has agreements with various financial institutions for standby letters of credit
which have been issued to domestic vendors. As of June 30, 2007 and December 31, 2006, the Company
had outstanding standby letters of credit of $64,446 and $42,775, respectively, under its senior
secured revolving credit facility. The Company also had a $50,000 letter of credit outstanding
under the senior secured first lien letter of credit facility for its fuel products hedging
program, which bears interest at 3.50%.
14
7. Partners Capital
On January 31, 2006, the Partnership completed the initial public offering of its common units
and sold 5,699,900 of those units to the underwriters in the initial public offering at a price to
the public of $21.50 per common unit. The Partnership also sold a total of 750,100 common units to
certain relatives of the chairman of our general partner at a price of $19.995 per common unit. In
addition, on February 8, 2006, the Partnership sold an additional 854,985 common units to the
underwriters at a price to the public of $21.50 per common unit pursuant to the underwriters
over-allotment option. Each of these issuances was made pursuant to the Partnerships Registration
Statement on Form S-1 (File No. 333-128880) declared effective by the Securities and Exchange
Commission on January 29, 2006. The proceeds received by the Partnership (net of underwriting
discounts and structuring fees and before expenses) from the sale of an aggregate of 7,304,985
units were approximately $144,400. The net proceeds were used to: (i) repay indebtedness and
accrued interest under the first lien term loan facility in the amount of approximately $125,700,
(ii) repay indebtedness under the secured revolving credit facility in the amount of approximately
$13,100 and (iii) pay transaction fees and expenses in the amount of approximately $5,600.
Underwriting discounts totaled approximately $11,600 (including certain structuring fees paid to
certain of the underwriters of approximately $2,400).
On July 5, 2006, the Partnership completed a follow-on public offering of its common units in
which it sold 3,300,000 common units to the underwriters of the offering at a price to the public
of $32.94 per common unit. This issuance was made pursuant to the Partnerships Registration
Statement on Form S-1 (File No. 333-134993) declared effective by the Securities and Exchange
Commission on June 28, 2006. The proceeds received by the Partnership (net of underwriting
discounts, commissions and expenses but before its general partners capital contribution) from
this offering was $103,479. The use of proceeds from the offering was to: (i) repay all of its
borrowings under its revolving credit facility, which were approximately $9,243 as of June 30,
2006, (ii) fund the future construction and other start-up costs of the planned expansion project
at the Shreveport refinery and (iii) to the extent available, for general partnership purposes.
Underwriting discounts totaled $4,620. The general partner contributed $2,218 to retain its 2%
general partner interest.
Of the 16,366,000 common units outstanding at June 30, 2007, 10,604,985 are held by the
public, with the remaining 5,761,015 held by affiliates. All of the 13,066,000 subordinated units
are held by affiliates.
The Predecessors policy was that distributions were limited to the amount necessary to pay
each partners federal income tax and state income tax on their share of partnership income.
However, additional distributions to the partners could be made at the sole discretion of the
general partner. In January 2006, the Predecessor made its final distribution of $6,900 to its
partners. Subsequent to January 31, 2006, Calumets distribution policy is as defined in the
Partnership Agreement. During the six months ended June 30, 2007 and 2006, the Company made
distributions of $37,346 and $8,000, respectively, to its partners.
On July 13, 2007, the Company declared a quarterly cash distribution of $0.63 per unit on all
outstanding units, or $19,850, for the three months ended June 30, 2007. The distribution will be
paid on August 14, 2007 to unitholders of record as of the close of business on August 4, 2007.
This quarterly distribution of $0.63 per unit equates to $2.52 per unit on an annualized basis.
8. Segments and Related Information
a. Segment Reporting
Under the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, the Company has two reportable segments: Specialty Products and Fuel Products. The
Specialty Products segment produces a variety of lubricating oils, solvents and waxes. These
products are sold to customers who purchase these products primarily as raw material components for
basic automotive, industrial and consumer goods. The Fuel Products segment produces a variety of
fuel and fuel-related products including gasoline, diesel and jet fuel.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies except that the Company evaluates segment performance based on
income from operations. The Company accounts for intersegment sales and transfers at cost plus a
specified mark-up. Reportable segment information is as follows:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
|
Fuel |
|
|
Combined |
|
|
|
|
|
|
Consolidated |
|
Three Months Ended June 30, 2007 |
|
Products |
|
|
Products |
|
|
Segments |
|
|
Eliminations |
|
|
Total |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers |
|
$ |
227,215 |
|
|
$ |
194,511 |
|
|
$ |
421,726 |
|
|
$ |
|
|
|
$ |
421,726 |
|
Intersegment sales |
|
|
155,085 |
|
|
|
8,266 |
|
|
|
163,351 |
|
|
|
(163,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
382,300 |
|
|
$ |
202,777 |
|
|
$ |
585,077 |
|
|
$ |
(163,351 |
) |
|
$ |
421,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,775 |
|
|
|
|
|
|
|
4,775 |
|
|
|
|
|
|
|
4,775 |
|
Income from operations |
|
|
21,019 |
|
|
|
17,923 |
|
|
|
38,942 |
|
|
|
|
|
|
|
38,942 |
|
Reconciling items to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,113 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569 |
|
Loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(767 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
37,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
64,912 |
|
|
$ |
|
|
|
$ |
64,912 |
|
|
$ |
|
|
|
$ |
64,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
|
Fuel |
|
|
Combined |
|
|
|
|
|
|
Consolidated |
|
Three Months Ended June 30, 2006 |
|
Products |
|
|
Products |
|
|
Segments |
|
|
Eliminations |
|
|
Total |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers |
|
$ |
245,331 |
|
|
$ |
184,594 |
|
|
$ |
429,925 |
|
|
$ |
|
|
|
$ |
429,925 |
|
Intersegment sales |
|
|
173,935 |
|
|
|
11,355 |
|
|
|
185,290 |
|
|
|
(185,290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
419,266 |
|
|
$ |
195,949 |
|
|
$ |
615,215 |
|
|
$ |
(185,290 |
) |
|
$ |
429,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,781 |
|
|
|
|
|
|
|
3,781 |
|
|
|
|
|
|
|
3,781 |
|
Income from operations |
|
|
22,775 |
|
|
|
14,810 |
|
|
|
37,585 |
|
|
|
|
|
|
|
37,585 |
|
Reconciling items to net income : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,157 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
Debt extinguishment costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,867 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
23,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
19,478 |
|
|
$ |
|
|
|
$ |
19,478 |
|
|
$ |
|
|
|
$ |
19,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
|
Fuel |
|
|
Combined |
|
|
|
|
|
|
Consolidated |
|
Six Months Ended June 30, 2007 |
|
Products |
|
|
Products |
|
|
Segments |
|
|
Eliminations |
|
|
Total |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers |
|
$ |
428,968 |
|
|
$ |
343,871 |
|
|
$ |
772,839 |
|
|
$ |
|
|
|
$ |
772,839 |
|
Intersegment sales |
|
|
279,976 |
|
|
|
16,071 |
|
|
|
296,047 |
|
|
|
(296,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
708,944 |
|
|
$ |
359,942 |
|
|
$ |
1,068,886 |
|
|
$ |
(296,047 |
) |
|
$ |
772,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,316 |
|
|
|
|
|
|
|
9,316 |
|
|
|
|
|
|
|
9,316 |
|
Income from operations |
|
|
43,592 |
|
|
|
30,325 |
|
|
|
73,917 |
|
|
|
|
|
|
|
73,917 |
|
Reconciling items to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,128 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,559 |
|
Loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,280 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
106,646 |
|
|
$ |
|
|
|
$ |
106,646 |
|
|
$ |
|
|
|
$ |
106,646 |
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
|
Fuel |
|
|
Combined |
|
|
|
|
|
|
Consolidated |
|
Six Months Ended June 30, 2006 |
|
Products |
|
|
Products |
|
|
Segments |
|
|
Eliminations |
|
|
Total |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers |
|
$ |
474,988 |
|
|
$ |
352,631 |
|
|
$ |
827,619 |
|
|
$ |
|
|
|
$ |
827,619 |
|
Intersegment sales |
|
|
340,112 |
|
|
|
20,906 |
|
|
|
361,018 |
|
|
|
(361,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
815,100 |
|
|
$ |
373,537 |
|
|
$ |
1,188,637 |
|
|
$ |
(361,018 |
) |
|
$ |
827,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,148 |
|
|
|
|
|
|
|
7,148 |
|
|
|
|
|
|
|
7,148 |
|
Income from operations |
|
|
42,661 |
|
|
|
26,307 |
|
|
|
68,968 |
|
|
|
|
|
|
|
68,968 |
|
Reconciling items to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,133 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245 |
|
Debt extinguishment costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,967 |
) |
Loss on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,662 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
22,453 |
|
|
$ |
|
|
|
$ |
22,453 |
|
|
$ |
|
|
|
$ |
22,453 |
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Segment assets: |
|
|
|
|
|
|
|
|
Specialty Products |
|
$ |
1,170,370 |
|
|
$ |
973,854 |
|
Fuel Products |
|
|
828,691 |
|
|
|
681,677 |
|
|
|
|
|
|
|
|
Combined segments |
|
|
1,999,061 |
|
|
|
1,655,531 |
|
Eliminations |
|
|
(1,444,799 |
) |
|
|
(1,123,880 |
) |
|
|
|
|
|
|
|
Total assets |
|
$ |
554,262 |
|
|
$ |
531,651 |
|
|
|
|
|
|
|
|
b. Geographic Information
International sales accounted for less than 10% of consolidated sales for each of the three
and six months ended June 30, 2007 and 2006.
c. Product Information
The Company offers products primarily in four general categories consisting of fuels,
lubricants, solvents and waxes. Other includes asphalt and other by-products. The following table
sets forth the major product category sales
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
Fuels |
|
$ |
194,242 |
|
|
$ |
196,104 |
|
Lubricants |
|
|
124,610 |
|
|
|
136,066 |
|
Solvents |
|
|
52,344 |
|
|
|
52,031 |
|
Waxes |
|
|
15,278 |
|
|
|
16,294 |
|
Other |
|
|
35,252 |
|
|
|
29,430 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
421,726 |
|
|
$ |
429,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
Fuels |
|
$ |
349,169 |
|
|
$ |
374,707 |
|
Lubricants |
|
|
241,340 |
|
|
|
268,975 |
|
Solvents |
|
|
101,375 |
|
|
|
104,391 |
|
Waxes |
|
|
25,634 |
|
|
|
31,748 |
|
Other |
|
|
55,321 |
|
|
|
47,798 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
772,839 |
|
|
$ |
827,619 |
|
|
|
|
|
|
|
|
d. Major Customers
No customer represented 10% or greater of consolidated sales in each of the three months and
six months ended June 30, 2007 and 2006.
17
9. Subsequent Events
On July 13, 2007, the Company declared a quarterly cash distribution of $0.63 per unit on all
outstanding units, or $19,850, for the three months ended June 30, 2007. The distribution will be
paid on August 14, 2007 to unitholders of record as of the close of business on August 4, 2007.
This quarterly distribution of $0.63 per unit equates to $2.52 per unit on an annualized basis.
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The historical condensed consolidated financial statements included in this Quarterly Report on
Form 10-Q reflect all of the assets, liabilities and results of operations of Calumet Specialty
Products Partners, L.P. (Calumet) when used in the present tense, prospectively or for historical
periods since January 31, 2006 and Calumet Lubricants Co., Limited Partnership (Predecessor) for
historical periods prior to January 31, 2006 where applicable. The following discussion analyzes
the financial condition and results of operations of Calumet for the three and six months ended
June 30, 2007 and 2006. The financial condition and results of operations for the three months
ended March 31, 2006 are of Calumet and include the results of operation of the Predecessor from
January 1, 2006 to January 31, 2006. Unitholders should read the following discussion of the
financial condition and results of operations for Calumet and the Predecessor in conjunction with
the historical condensed consolidated financial statements and notes of Calumet and the Predecessor
included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a leading independent producer of high-quality, specialty hydrocarbon products in North
America. Our business is organized into two segments: specialty products and fuel products. In our
specialty products segment, we process crude oil into a wide variety of customized lubricating
oils, solvents and waxes. Our specialty products are sold to domestic and international customers
who purchase them primarily as raw material components for basic industrial, consumer and
automotive goods. In our fuel products segment, we process crude oil into a variety of fuel and
fuel-related products including unleaded gasoline, diesel and jet fuel. In connection with our
production of specialty products and fuel products, we also produce asphalt and a limited number of
other by-products. The asphalt and other by-products produced in connection with the production of
specialty products at the Princeton, Cotton Valley and Shreveport refineries are included in our
specialty products segment. The by-products produced in connection with the production of fuel
products at the Shreveport refinery are included in our fuel products segment. The fuels produced
in connection with the production of specialty products at the Princeton and Cotton Valley
refineries are included in our specialty products segment. For the three and six months ended June
30, 2007, approximately 67.1% and 70.5%, respectively of our gross profit was generated from our
specialty products segment and approximately 32.9% and 29.5%, respectively of our gross profit was
generated from our fuel products segment.
Our fuel products segment began operations in 2004, as we substantially completed the
approximately $39.7 million reconfiguration of the Shreveport refinery to add motor fuels
production, including gasoline, diesel and jet fuel, to its existing specialty products production
as well as to increase overall feedstock throughput. The project was fully completed in February
2005. The reconfiguration was undertaken to capitalize on strong fuels refining margins, or crack
spreads, relative to historical levels, to utilize idled assets, and to enhance the profitability
of the Shreveport refinerys specialty products segment by increasing overall refinery throughput.
In 2006, we commenced construction of an expansion project at our Shreveport refinery to increase
throughput capacity and feedstock flexibility. Please read Liquidity and Capital Resources
Capital Expenditures below.
Our sales and net income are principally affected by the price of crude oil, demand for
specialty and fuel products, prevailing crack spreads for fuel products, the price of natural gas
used as fuel in our operations and our results from derivative instrument activities.
Our primary raw material is crude oil and our primary outputs are specialty petroleum and fuel
products. The prices of crude oil, specialty and fuel products are subject to fluctuations in
response to changes in supply, demand, market uncertainties and a variety of additional factors
beyond our control. We monitor these risks and enter into financial derivatives designed to
mitigate the impact of commodity price fluctuations on our business. The primary purpose of our
commodity risk management activities is to economically hedge our cash flow exposure to commodity
price risk so that we can meet our cash distribution, debt service and maintenance capital
expenditure requirements despite fluctuations in crude oil and fuel products prices. We enter into
derivative contracts for future periods in quantities which do not exceed our projected purchases
of crude oil and sales of fuel products. Please read Item 3 Quantitative and Qualitative
Disclosures about Market Risk Commodity Price Risk. As of June 30, 2007, we have hedged
approximately 29 million barrels of fuel products through December 2011 at an average refining
margin of $11.83 per barrel and average refining margins range from a low of $11.05 in the first
and second quarters of 2011 to a high of $12.86 in the third quarter of 2007. Please refer to Item
3 Quantitative and Qualitative Disclosures About Market Risk Commodity Price Risk Existing
Commodity Derivative Instruments for a detailed listing of our hedge positions.
Our management uses several financial and operational measurements to analyze our performance.
These measurements include the following:
|
|
|
Sales volumes; |
|
|
|
|
Production yields; and |
19
|
|
|
Specialty products and fuel products gross profit. |
Sales volumes. We view the volumes of specialty and fuels products sold as an important
measure of our ability to effectively utilize our refining assets. Our ability to meet the demands
of our customers is driven by the volumes of crude oil and feedstocks that we run at our
refineries. Higher volumes improve profitability both through the spreading of fixed costs over
greater volumes and the additional gross profit achieved on the incremental volumes.
Production yields. We seek the optimal product mix for each barrel of crude oil we refine in
order to maximize our gross profit and minimize lower margin by-products which we refer to as
production yield.
Specialty products and fuel products gross profit. Specialty products and fuel products gross
profit are an important measure of our ability to maximize the profitability of our specialty
products and fuel products segments. We define specialty products and fuel products gross profit as
sales less the cost of crude oil and other feedstocks and other production-related expenses, the
most significant portion of which include labor, plant fuel, utilities, contract services,
maintenance and processing materials. We use specialty products and fuel products gross profit as
an indicator of our ability to manage our business during periods of crude oil and natural gas
price fluctuations, as the prices of our specialty products and fuel products generally do not
change immediately with changes in the price of crude oil and natural gas. The increase in selling
prices typically lags behind the rising costs of crude oil and other feedstocks for specialty
products. Other than plant fuel, production-related expenses generally remain stable across broad
ranges of throughput volumes, but can fluctuate depending on maintenance and turnaround activities.
In addition to the foregoing measures, we also monitor our general and administrative
expenditures, substantially all of which are incurred through our general partner, Calumet GP, LLC.
Second Quarter 2007 and Six Months Ended June 30, 2007 Results of Operations
The following table sets forth information about our combined refinery operations. Refining
production volume differs from sales volume due to changes in inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
Six months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Total sales volume (bpd)(1) |
|
|
49,736 |
|
|
|
50,747 |
|
|
|
46,586 |
|
|
|
51,425 |
|
Total feedstock runs (bpd)(2) |
|
|
49,488 |
|
|
|
53,363 |
|
|
|
47,465 |
|
|
|
52,869 |
|
Refinery production (bpd)(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lubricating oils |
|
|
11,495 |
|
|
|
12,101 |
|
|
|
10,795 |
|
|
|
11,899 |
|
Solvents |
|
|
4,994 |
|
|
|
5,671 |
|
|
|
5,095 |
|
|
|
5,012 |
|
Waxes |
|
|
1,337 |
|
|
|
1,226 |
|
|
|
1,121 |
|
|
|
1,186 |
|
Fuels |
|
|
2,022 |
|
|
|
2,612 |
|
|
|
2,080 |
|
|
|
2,561 |
|
Asphalt and other by-products |
|
|
6,723 |
|
|
|
7,911 |
|
|
|
5,885 |
|
|
|
6,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
26,571 |
|
|
|
29,521 |
|
|
|
24,976 |
|
|
|
27,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
|
6,660 |
|
|
|
8,987 |
|
|
|
7,245 |
|
|
|
9,491 |
|
Diesel |
|
|
5,433 |
|
|
|
7,018 |
|
|
|
5,281 |
|
|
|
7,369 |
|
Jet fuel |
|
|
7,962 |
|
|
|
6,581 |
|
|
|
7,563 |
|
|
|
6,942 |
|
By-products |
|
|
2,255 |
|
|
|
604 |
|
|
|
1,724 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
22,310 |
|
|
|
23,190 |
|
|
|
21,813 |
|
|
|
24,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total refinery production |
|
|
48,881 |
|
|
|
52,711 |
|
|
|
46,789 |
|
|
|
51,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total sales volume includes sales from the production of our refineries, sales of purchased
products and sales of inventories. |
|
(2) |
|
Feedstock runs represents the barrels per day of crude oil and other feedstocks processed at
our refineries. The decrease in feedstock runs for the three and six months ended June 30,
2007 was partially due to unscheduled downtime of certain operating units at our Shreveport
refinery in the second quarter of 2007, with no comparable activities in the second quarter
of 2006. Feedstock runs for the six months ended June 30, 2007 were also negatively affected
by turnarounds performed at our Shreveport and Princeton refineries in the first quarter of
2007, with no similar activities in the comparable period in 2006. |
|
(3) |
|
Total refinery production represents the barrels per day of specialty products and fuel
products yielded from processing crude oil and other refinery feedstocks at our refineries.
The difference between total refinery production and total feedstock runs is primarily a
result of the time lag between the input of feedstock and production of end products and
volume loss. |
20
The following table reflects our consolidated results of operations and includes the non-GAAP
financial measures EBITDA and Adjusted EBITDA. For a reconciliation of net income to EBITDA and
Adjusted EBITDA as well as Adjusted EBITDA and EBITDA to cash flow from operating activities, our
most directly comparable financial performance and liquidity measures calculated in accordance with
GAAP, please read Non-GAAP Financial Measures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
|
Six months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As adjusted (1) |
|
|
|
|
|
|
As adjusted (1) |
|
|
|
(In millions) |
|
|
(In millions) |
|
Sales |
|
$ |
421.7 |
|
|
$ |
429.9 |
|
|
$ |
772.8 |
|
|
$ |
827.6 |
|
Cost of sales |
|
|
361.3 |
|
|
|
371.5 |
|
|
|
657.3 |
|
|
|
717.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
60.4 |
|
|
|
58.4 |
|
|
|
115.5 |
|
|
|
109.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
6.4 |
|
|
|
5.2 |
|
|
|
11.8 |
|
|
|
10.1 |
|
Transportation |
|
|
14.0 |
|
|
|
14.6 |
|
|
|
27.6 |
|
|
|
28.5 |
|
Taxes other than income taxes |
|
|
0.9 |
|
|
|
0.9 |
|
|
|
1.8 |
|
|
|
1.8 |
|
Other |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
38.9 |
|
|
|
37.5 |
|
|
|
73.9 |
|
|
|
69.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(1.1 |
) |
|
|
(2.1 |
) |
|
|
(2.2 |
) |
|
|
(6.1 |
) |
Interest income |
|
|
0.6 |
|
|
|
|
|
|
|
1.6 |
|
|
|
0.2 |
|
Debt extinguishment costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.0 |
) |
Realized loss on derivative instruments |
|
|
(4.0 |
) |
|
|
(12.7 |
) |
|
|
(5.8 |
) |
|
|
(15.8 |
) |
Unrealized gain (loss) on derivative instruments |
|
|
3.3 |
|
|
|
0.9 |
|
|
|
(1.5 |
) |
|
|
(16.8 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(1.2 |
) |
|
|
(13.9 |
) |
|
|
(8.0 |
) |
|
|
(41.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes |
|
|
37.7 |
|
|
|
23.6 |
|
|
|
65.9 |
|
|
|
27.5 |
|
Income taxes |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
37.4 |
|
|
$ |
23.5 |
|
|
$ |
65.6 |
|
|
$ |
27.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
42.5 |
|
|
$ |
28.7 |
|
|
$ |
75.3 |
|
|
$ |
42.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
43.5 |
|
|
$ |
29.4 |
|
|
$ |
75.9 |
|
|
$ |
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of the adoption of FASB Staff Position No. AUG AIR-1, Accounting for Planned
Major Maintenance Activities, on January 1, 2007, the Company recorded a reduction to cost of
sales of $0.7 million for the six months ended June 30, 2006 and $0.4 million for the three
months ended June 30, 2007. |
21
Non-GAAP Financial Measures
We include in this Quarterly Report on Form 10-Q the non-GAAP financial measures EBITDA and
Adjusted EBITDA, and provide reconciliations of net income to EBITDA and Adjusted EBITDA and
Adjusted EBITDA and EBITDA to net cash provided by operating activities, our most directly
comparable financial performance and liquidity measures calculated and presented in accordance with
GAAP.
EBITDA and Adjusted EBITDA are used as supplemental financial measures by our management and
by external users of our financial statements such as investors, commercial banks, research
analysts and others, to assess:
|
|
|
the financial performance of our assets without regard to financing methods, capital
structure or historical cost basis; |
|
|
|
|
the ability of our assets to generate cash sufficient to pay interest costs, support our
indebtedness, and meet minimum quarterly distributions; |
|
|
|
|
our operating performance and return on capital as compared to those of other companies
in our industry, without regard to financing or capital structure; and |
|
|
|
|
the viability of acquisitions and capital expenditure projects and the overall rates of
return on alternative investment opportunities. |
We define EBITDA as net income plus interest expense (including debt issuance and
extinguishment costs), taxes and depreciation and amortization. We define Adjusted EBITDA to be
Consolidated EBITDA as defined in our credit facilities. Consistent with that definition, Adjusted
EBITDA means, for any period: (1) net income plus (2)(a) interest expense; (b) taxes; (c)
depreciation and amortization; (d) unrealized losses from mark to market accounting for hedging
activities; (e) unrealized items decreasing net income (including the non-cash impact of
restructuring, decommissioning and asset impairments in the periods presented); and (f) other
non-recurring expenses reducing net income which do not represent a cash item for such period;
minus (3)(a) tax credits; (b) unrealized items increasing net income (including the non-cash impact
of restructuring, decommissioning and asset impairments in the periods presented); (c) unrealized
gains from mark to market accounting for hedging activities; and (d) other non-recurring expenses
and unrealized items that reduced net income for a prior period, but represent a cash item in the
current period. We are required to report Adjusted EBITDA to our lenders under our credit
facilities and it is used to determine our compliance with the consolidated leverage test
thereunder. We are required to maintain a consolidated leverage ratio of consolidated debt to
Adjusted EBITDA, after giving effect to any proposed distributions, of no greater than 3.75 to 1 in
order to make distributions to our unitholders. If an event of default exists under our credit
agreements, the lenders will be able to accelerate the maturity of the credit facilities and
exercise other rights and remedies. Please refer to Liquidity and Capital Resources Debt and
Credit Facilities within this item for additional details regarding debt covenants.
EBITDA and Adjusted EBITDA should not be considered alternatives to net income, operating
income, net cash provided by operating activities or any other measure of financial performance
presented in accordance with GAAP. Our EBITDA and Adjusted EBITDA may not be comparable to
similarly titled measures of another company because all companies may not calculate EBITDA and
Adjusted EBITDA in the same manner. The following table presents a reconciliation of both net
income to EBITDA and Adjusted EBITDA and Adjusted EBITDA and EBITDA to net cash provided by
operating activities, our most directly comparable GAAP financial performance and liquidity
measures, for each of the periods indicated.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended |
|
|
Six months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As adjusted (1) |
|
|
|
|
|
|
As adjusted (1) |
|
|
|
(In millions) |
|
|
(in millions) |
|
Reconciliation of Net Income to EBITDA and Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
37.4 |
|
|
$ |
23.5 |
|
|
$ |
65.6 |
|
|
$ |
27.4 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and debt extinguishment costs |
|
|
1.1 |
|
|
|
2.1 |
|
|
|
2.2 |
|
|
|
9.1 |
|
Depreciation and amortization |
|
|
3.7 |
|
|
|
3.0 |
|
|
|
7.2 |
|
|
|
5.6 |
|
Income tax expense |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
42.5 |
|
|
$ |
28.7 |
|
|
$ |
75.3 |
|
|
$ |
42.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) from mark to market accounting for
hedging activities |
|
$ |
(2.2 |
) |
|
$ |
(0.1 |
) |
|
$ |
1.5 |
|
|
$ |
17.5 |
|
Prepaid non-recurring expenses and accrued non-recurring
expenses, net of cash outlays |
|
|
3.2 |
|
|
|
0.8 |
|
|
|
(0.9 |
) |
|
|
(4.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
43.5 |
|
|
$ |
29.4 |
|
|
$ |
75.9 |
|
|
$ |
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As adjusted (1) |
|
|
|
(In millions) |
|
Reconciliation of Adjusted EBITDA and EBITDA to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
75.9 |
|
|
$ |
55.5 |
|
Add: |
|
|
|
|
|
|
|
|
Unrealized loss from mark to market accounting for hedging activities |
|
$ |
(1.5 |
) |
|
$ |
(17.5 |
) |
Prepaid non-recurring expenses and accrued non-recurring expenses, net of cash outlays |
|
|
0.9 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
75.3 |
|
|
$ |
42.2 |
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
Interest expense and debt extinguishment costs, net |
|
|
(2.1 |
) |
|
|
(9.1 |
) |
Income tax expense |
|
|
(0.3 |
) |
|
|
(0.1 |
) |
Provision for doubtful accounts |
|
|
|
|
|
|
0.2 |
|
Debt extinguishment costs |
|
|
|
|
|
|
3.0 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(29.7 |
) |
|
|
(18.7 |
) |
Inventory |
|
|
8.5 |
|
|
|
3.9 |
|
Other current assets |
|
|
0.8 |
|
|
|
14.5 |
|
Derivative activity |
|
|
1.6 |
|
|
|
18.4 |
|
Accounts payable |
|
|
31.2 |
|
|
|
42.8 |
|
Other current liabilities |
|
|
(1.0 |
) |
|
|
(2.8 |
) |
Other, including changes in noncurrent assets and liabilities |
|
|
(2.2 |
) |
|
|
4.5 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
82.1 |
|
|
$ |
98.8 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of the adoption of FASB Staff Position No. AUG AIR-1, Accounting for Planned
Major Maintenance Activities, on January 1, 2007, the Company recorded a reduction to cost of
sales of $0.7 million for the six months ended June 30, 2006, which resulted in an increase in
EBITDA for the three months ended June 30, 2006 by the same amount. The adjustment did not
have an effect on Adjusted EBITDA for three months and six ended June 30, 2006. |
23
Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
Sales. Sales decreased $8.2 million, or 1.9%, to $421.7 million in the three months ended June
30, 2007 from $429.9 million in the three months ended June 30, 2006. Sales for each of our
principal product categories in these periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
|
(Dollars in millions) |
|
Sales by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Specialty products: |
|
|
|
|
|
|
|
|
|
|
|
|
Lubricating oils |
|
$ |
124.6 |
|
|
$ |
136.1 |
|
|
|
(8.4 |
%) |
Solvents |
|
|
52.3 |
|
|
|
52.0 |
|
|
|
0.6 |
% |
Waxes |
|
|
15.3 |
|
|
|
16.3 |
|
|
|
(6.2 |
%) |
Fuels(1) |
|
|
14.5 |
|
|
|
14.3 |
|
|
|
1.6 |
% |
Asphalt and by-products(2) |
|
|
20.5 |
|
|
|
26.6 |
|
|
|
(23.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total specialty products |
|
$ |
227.2 |
|
|
$ |
245.3 |
|
|
|
(7.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total specialty products volume (in barrels) |
|
|
2,247,000 |
|
|
|
2,440,000 |
|
|
|
(8.0 |
%) |
Fuel products: |
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
$ |
76.3 |
|
|
$ |
77.7 |
|
|
|
(1.8 |
%) |
Diesel |
|
|
50.0 |
|
|
|
57.0 |
|
|
|
(12.2 |
%) |
Jet fuel |
|
|
53.4 |
|
|
|
47.1 |
|
|
|
13.3 |
% |
By-products(3) |
|
|
14.8 |
|
|
|
2.8 |
|
|
|
433.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total fuel products |
|
$ |
194.5 |
|
|
$ |
184.6 |
|
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total fuel products sales volumes (in barrels) |
|
|
2,279,000 |
|
|
|
2,178,000 |
|
|
|
4.6 |
% |
Total sales |
|
$ |
421.7 |
|
|
$ |
429.9 |
|
|
|
(1.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total sales volumes (in barrels) |
|
|
4,526,000 |
|
|
|
4,618,000 |
|
|
|
(2.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents fuels produced in connection with the production of specialty products at the
Princeton and Cotton Valley refineries. |
|
(2) |
|
Represents asphalt and other by-products produced in connection with the production of
specialty products at the Princeton, Cotton Valley and Shreveport refineries. |
|
(3) |
|
Represents by-products produced in connection with the production of fuels at the Shreveport
refinery. |
This $8.2 million decrease in sales resulted from a $18.1 million decrease in sales by our
specialty products segment offset by a $9.9 million increase in sales by our fuel products segment.
Specialty products segment sales for the three months ended June 30, 2007 decreased $18.1
million, or 7.4%, primarily due to an 8.0% decrease in volumes sold, from approximately 2.4 million
barrels in the second quarter of 2006 to 2.2 million barrels in the second quarter of 2007. This
decrease was primarily driven by decreased sales volume of 0.1 million barrels for lubricating oils
due to reduced crude runs resulting from unscheduled downtime of certain operating units at our
Shreveport refinery. Further decreases in sales resulted from a 10.0% decrease in the average
selling price per barrel of asphalt and by-products as compared to a 7.3% decrease in the average
cost of crude, primarily driven by market demand for asphalt. This decrease was partially offset by
slight sales price increases for all other specialty products.
Fuel products segment sales for the three months ended June 30, 2007 increased $9.9 million,
or 5.4%, primarily due to a 1.4% increase in the average selling price per barrel as compared to a
7.1% decrease in the average cost of crude primarily driven by increases in gasoline sales prices
due to market conditions. Fuel products sales were also positively affected by a 4.6% increase in
volumes sold, from approximately 2.2 million barrels in the second quarter of 2006 to 2.3 million
barrels in the second quarter of 2007. This increase was primarily
due to a 0.2 million barrel increase in
by-products sales volume primarily due to unscheduled downtime of certain operating units at our
Shreveport refinery during the three months ended June 30, 2007, with no similar activities during
the same period in 2006. This increase was offset by a decrease in diesel sales volume offset by
increased jet fuel sales volume due to increases in jet fuel pricing relative to diesel pricing.
These increases in sales were partially offset by the recognition of $1.7 million of increased
derivative losses on our fuel products cash flow hedges recorded in sales from the three months
ended June 30, 2007 as compared to the same period in 2006.
Gross Profit. Gross profit increased $2.0 million, or 3.4%, to $60.5 million for the three
months ended June 30, 2007 from $58.5 million (as adjusted) for the three months ended June 30,
2006. Gross profit for our specialty and fuel products segments were as follows:
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2007 |
|
2006 |
|
% Change |
|
|
(As adjusted) |
|
|
(Dollars in millions) |
Gross profit by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Specialty products |
|
$ |
40.6 |
|
|
$ |
40.9 |
|
|
|
(0.8 |
%) |
Percentage of sales |
|
|
17.9 |
% |
|
|
16.7 |
% |
|
|
|
|
Fuel products |
|
$ |
19.9 |
|
|
$ |
17.6 |
|
|
|
13.4 |
% |
Percentage of sales |
|
|
10.2 |
% |
|
|
9.5 |
% |
|
|
|
|
Total gross profit |
|
$ |
60.5 |
|
|
$ |
58.5 |
|
|
|
3.4 |
% |
Percentage of sales |
|
|
14.3 |
% |
|
|
13.6 |
% |
|
|
|
|
This $2.0 million increase in total gross profit includes a decrease in gross profit of $0.3
million in our specialty product segment offset by an increase in gross profit of $2.3 million in
our fuel products segment.
The
decrease in our specialty products segment gross profit was primarily
due an 8.0% decrease
in volumes sold, from approximately 2.4 million barrels in the second quarter of 2006 to 2.2
million barrels in the second quarter of 2007. This decrease was primarily driven by decreased
sales volume of 0.1 million barrels for lubricating oils due to
reduced crude runs resulting from unscheduled downtime on certain
operating units at our Shreveport refinery. The decrease
due to lower sales volume was offset by a 0.6% increase in specialty products sales prices as
compared to a decrease in the average cost of crude of 7.3%. In addition, specialty products
segment gross profit was negatively affected by a $0.6 million decrease in derivative gains
recognized on our cash flow hedges of crude oil and natural gas purchases from the three months
ended June 30, 2007 as compared to the same period in 2006.
The increase in our fuel products segment gross profit was primarily driven by a 1.4% increase
in the average selling price of fuel products as compared to a decrease in the average cost of
crude of 7.1%. Fuel products segment gross profit was also positively affected by a 4.6% increase
in volumes sold, from approximately 2.2 million barrels in the second quarter of 2006 to 2.3
million barrels in the second quarter of 2007. This increase was primarily due to a
0.2 million
barrel increase in by-products sales volume primarily due to unscheduled downtime of certain operating
units at our Shreveport refinery during the three months ended June 30, 2007, with no similar
activities during the same period in 2006. These increases in fuel products segment gross profit were offset by an $11.8
million increase in derivative losses recognized on our cash flow hedges of fuel products sales and
crude oil purchases for the three months ended June 30, 2007 as compared to the three months ended
June 30, 2006.
Selling, general and administrative. Selling, general and administrative expenses increased
$1.2 million, or 23.5%, to $6.4 million in the three months ended June 30, 2007 from $5.2 million
in the three months ended June 30, 2006. This increase was primarily due to increased employee
incentive compensation costs and an increase in headcount, as well as increased costs associated
with Section 404 of the Sarbanes-Oxley Act of 2002 compliance.
Transportation. Transportation expenses decreased $0.5 million, or 3.7%, to $14.0 million in
the three months ended June 30, 2007 from $14.6 million in the three months ended June 30, 2006.
This decrease in transportation expense is primarily due to a 7.9% decrease in sales volume for the
specialty products segment, offset by significant price increases for rail services that became
effective during the third quarter of 2006. The majority of our transportation expenses are
reimbursed by our customers and are reflected in sales in the consolidated statements of
operations.
Interest expense. Interest expense decreased $1.0 million, or 48.4%, to $1.1 million in the
three months ended June 30, 2007 from $2.2 million in the three months ended June 30, 2006. This
decrease was primarily due to the repayment of all outstanding borrowings on the revolving credit
facility subsequent to the second quarter of 2006.
Interest income. Interest income increased $0.5 million to $0.6 million in the three months
ended June 30, 2007 from $0.1 million in the three months ended June 30, 2006. This increase was
primarily due to the investment of both the remaining proceeds from our follow-on public offering
completed in July 2006 and cash flow from operations. The Company did not have significant cash or
cash equivalent balances in the second quarter of 2006 and, as a result, earned less interest
income.
Realized loss on derivative instruments. Realized loss on derivative instruments decreased
$8.7 million to $4.1 million in the three months ended June 30, 2007 from $12.7 million for the
three months ended June 30, 2006. This decreased loss was primarily the result of the unfavorable
settlement in the second quarter of 2006 of certain derivatives not designated as cash flow hedges,
with no similar derivatives settlements during the same period in 2007.
25
Unrealized gain (loss) on derivative instruments. Unrealized gain on derivative instruments
increased $2.4 million to $3.3 million in the three months ended June 30, 2007 from $0.9 million
for the three months ended June 30, 2006. This increased gain in
the current year is primarily the result of the reclassification to
realized loss on derivative instrument of the settlement value of
certain expired derivative contracts that were recorded to unrealized
gain on derivative instruments in the prior period.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2007
Sales. Sales decreased $54.8 million, or 6.6%, to $772.8 million in the six months ended June
30, 2007 from $827.6 million in the six months ended June 30, 2006. Sales for each of our principal
product categories in these periods were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
% Change |
|
|
|
(Dollars in millions) |
|
Sales by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Specialty products: |
|
|
|
|
|
|
|
|
|
|
|
|
Lubricating oils |
|
$ |
241.3 |
|
|
$ |
269.0 |
|
|
|
(10.3 |
%) |
Solvents |
|
|
101.4 |
|
|
|
104.4 |
|
|
|
(2.9 |
%) |
Waxes |
|
|
25.6 |
|
|
|
31.7 |
|
|
|
(19.3 |
%) |
Fuels(1) |
|
|
26.0 |
|
|
|
26.1 |
|
|
|
(0.2 |
%) |
Asphalt and by-products(2) |
|
|
34.6 |
|
|
|
43.8 |
|
|
|
(21.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total specialty products |
|
$ |
428.9 |
|
|
$ |
475.0 |
|
|
|
(9.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total specialty products volume (in barrels) |
|
|
4,319,000 |
|
|
|
4,857,000 |
|
|
|
(11.0 |
%) |
Fuel products: |
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline |
|
$ |
130.3 |
|
|
$ |
149.7 |
|
|
|
(12.9 |
%) |
Diesel |
|
|
100.2 |
|
|
|
112.9 |
|
|
|
(11.3 |
%) |
Jet fuel |
|
|
92.7 |
|
|
|
86.0 |
|
|
|
(7.7 |
%) |
By-products(3) |
|
|
20.7 |
|
|
|
4.0 |
|
|
|
(419.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total fuel products |
|
$ |
343.9 |
|
|
$ |
352.6 |
|
|
|
(2.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total fuel products sales volumes (in barrels) |
|
|
4,113,000 |
|
|
|
4,451,000 |
|
|
|
(7.7 |
%) |
Total sales |
|
$ |
772.8 |
|
|
$ |
827.6 |
|
|
|
(6.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Total sales volumes (in barrels) |
|
|
8,432,000 |
|
|
|
9,308,000 |
|
|
|
(9.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents fuels produced in connection with the production of specialty products at the
Princeton and Cotton Valley refineries. |
|
(2) |
|
Represents asphalt and other by-products produced in connection with the production of
specialty products at the Princeton, Cotton Valley and Shreveport refineries. |
|
(3) |
|
Represents by-products produced in connection with the production of fuels at the Shreveport
refinery. |
This $54.8 million decrease in sales resulted from a $46.1 million decrease in sales by our
specialty products segment and a $8.7 million decrease in our fuel products segment.
Specialty products segment sales for the six months ended June 30, 2007 decreased $46.1
million, or 9.7%, primarily due to a 11.0% decrease in volumes sold, from approximately 4.9
million barrels in the six months ended June 30, 2006 to 4.3 million barrels in the six months
ended June 30, 2007 primarily due to decreased combined volume of 0.4 million barrels for
lubricating oils and asphalt and by-products due to turnaround activities at our Shreveport and
Princeton refineries as well as unscheduled downtime of certain operating units at our Shreveport
refinery. The decrease due to sales volume was partially offset by a 1.5% increase in the average
selling price per barrel as compared to a 7.4% decrease in the overall cost of crude per barrel.
This increase was primarily due to sales price increases for lubricating oils, offset by price
sales price decreases for asphalt and by-products due to market conditions.
Fuel products segment sales for the six months ended June 30, 2007 decreased $8.7 million, or
2.5%, primarily due to a 7.7% decrease in sales volumes, from approximately 4.5 million barrels in
the six months ended June 30, 2006 to 4.1 million barrels in the six months ended June 30, 2007,
due primarily to scheduled turnaround activities at our Shreveport refinery in the first quarter of
2007. The decrease due to reduced sales volume was offset by a 0.8% increase in the average selling
price per barrel as compared to a 7.2% decrease in the overall cost of crude. The increase sales
price per barrel was primarily a result of increased commodity prices for gasoline. Fuel products
segment sales were also positively affected by a $16.1 million decrease in derivative losses on our
fuel products cash flow hedges recorded in sales.
26
Gross Profit. Gross profit increased $5.8 million, or 5.3%, to $115.5 million for the six
months ended June 30, 2007 from $109.7 million for the six months ended June 30, 2006. Gross profit
for our specialty and fuel products segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2007 |
|
2006 |
|
% Change |
|
|
(Dollars in millions) |
Gross profit by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Specialty products |
|
$ |
81.4 |
|
|
$ |
78.3 |
|
|
|
4.0 |
% |
Percentage of sales |
|
|
19.0 |
% |
|
|
16.5 |
% |
|
|
|
|
Fuel products |
|
$ |
34.1 |
|
|
$ |
31.4 |
|
|
|
8.5 |
% |
Percentage of sales |
|
|
9.9 |
% |
|
|
8.9 |
% |
|
|
|
|
Total gross profit |
|
$ |
115.5 |
|
|
$ |
109.7 |
|
|
|
5.3 |
% |
Percentage of sales |
|
|
14.9 |
% |
|
|
13.3 |
% |
|
|
|
|
This $5.8 million increase in total gross profit includes an increase in gross profit of $3.1
million in our specialty product segment and $2.7 million in our fuels product segment.
The increase in our specialty products segment gross profit was primarily due to a 1.5%
increase in the average selling price per barrel as compared to a 7.4% decrease in the overall cost
of crude per barrel. This increase in sales prices was primarily due to increased pricing for
lubricating oils. This increase was offset by a 11.0% decrease in volumes sold, from approximately
4.9 million barrels in the six months ended June 30, 2006 to 4.3 million barrels in the six months
ended June 30, 2007 primarily due to a combined decrease of 0.4 million barrels for lubricating
oils and asphalt and by-products. In addition, specialty products segment gross profit was
negatively affected by a $2.8 million increase in derivative losses recognized on our cash flow
hedges of crude oil and natural gas purchases.
The increase in our fuel products segment gross profit was primarily driven by a 0.8% increase
in the average selling price of fuel products as compared to a decrease in the average cost of
crude of 7.2%, primarily driven by increased sales prices for gasoline. The increase due to sales
prices was offset by a 7.7% decrease in sales volumes, from approximately 4.5 million barrels in
the six months ended June 30, 2006 to 4.1 million barrels in the six months ended June 30, 2007,
due primarily to scheduled turnaround activities at our Shreveport refinery in the first quarter of
2007. Fuel products segment gross profit was also negatively affected by a $12.4 million increase
in derivative losses recognized on our cash flow hedges of fuel products sales and crude oil
purchases for the three months ended June 30, 2007 as compared to three months ended June 30, 2006.
In 2006, the majority of derivative losses were recorded to realized gain (loss) on derivative
instruments upon settlement.
Selling, general and administrative. Selling, general and administrative expenses increased
$1.7 million, or 16.8%, to $11.8 million in the six months ended June 30, 2007 from $10.1 million
in the six months ended June 30, 2006. This increase was primarily due to increased employee
incentive compensation costs and an increase in headcount, as well as increased costs associated
with Section 404 of the Sarbanes-Oxley Act of 2002 compliance.
Transportation. Transportation expenses decreased $0.9 million, or 3.1%, to $27.6 million in
the six months ended June 30, 2007 from $28.5 million in the six months ended June 30, 2006. This
decrease in transportation expense is primarily due to an 11.1% decrease in sales volume for the
specialty products segment, offset by significant price increases for rail services that became
effective during the third quarter of 2006. The majority of our transportation expenses are
reimbursed by our customers and are reflected in sales in the condensed consolidated statements of
operations.
Interest expense. Interest expense decreased $4.0 million, or 65.3%, to $2.1 million in the
six months ended June 30, 2007 from $6.1 million in the six months ended June 30, 2006. This
decrease was primarily due to the repayment of debt with the proceeds of the initial public
offering, which closed on January 31, 2006, as well as repayment of outstanding borrowings on the
revolving credit facility subsequent to the second quarter of 2006.
Debt extinguishment costs. Debt extinguishment costs were $3.0 million in the six months ended
June 30, 2006 and we incurred no such expenses in the same period in 2007. The expenses recorded in
2006 resulted from the repayment of a portion of borrowings under Calumets term loan facility
using the proceeds of the initial public offering, which closed on January 31, 2006.
Realized loss on derivative instruments. Realized loss on derivative instruments decreased
$10.0 million to $5.8 million in the six months ended June 30, 2007 from $15.8 million in the six
months ended June 30, 2006. This decreased loss was primarily the result of the designation of
certain derivatives as cash flow hedges. Thus, the settlement value of these derivatives is
reflected in gross profit in
27
the current period as compared to realized loss on derivative instruments during the first
quarter of 2006. The decreased loss was also due to the unfavorable settlement in the second
quarter of 2006 of certain derivatives not designated as cash flow hedges, with no similar
derivatives settlements during the same period in 2007.
Unrealized loss on derivative instruments. Unrealized loss on derivative instruments decreased
$15.3 million, to $1.5 million in the six months ended June 30, 2007 from $16.8 million for the six
months ended June 30, 2006. This decrease was primarily due to the market change of certain
derivative instruments not designated as cash flow hedges being recorded to unrealized loss on
derivative instruments in the prior year with no similar derivative instruments designated as cash
for hedges during the same period in 2007.
Liquidity and Capital Resources
Our principal sources of cash have included cash flow from operations, proceeds from public
offerings, issuance of private debt and bank borrowings. Principal historical uses of cash have
included capital expenditures, growth in working capital, distributions and debt service. We expect
that our principal uses of cash in the future will be for working capital, distributions to our
limited partners and general partner, debt service and expenditures related to internal growth
projects and acquisitions from third parties or affiliates. Future internal growth projects or
acquisitions may require expenditures in excess of our then current cash flow from operations and
cause us to issue debt or equity securities in public or private offerings or incur additional
borrowings under bank credit facilities to meet those costs. We frequently enter into
confidentiality agreements, letters of intent and other preliminary agreements with third parties
in the ordinary course of business as we evaluate potential growth opportunities for our business.
Our compliance with these agreements could result in additional costs, such as engineering fees,
legal fees, consulting fees, and/or termination fees that we do not anticipate to be material to
our liquidity or operations.
Cash Flows
We believe that we have sufficient liquid assets, cash flow from operations and borrowing
capacity to meet our financial commitments, debt service obligations, contingencies and anticipated
capital expenditures. However, we are subject to business and operational risks that could
materially adversely affect our cash flows. A material decrease in our cash flow from operations
would likely produce a corollary materially adverse effect on our borrowing capacity.
The following table summarizes our primary sources and uses of cash in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In millions) |
Net cash provided by operating activities |
|
$ |
82.1 |
|
|
$ |
98.8 |
|
Net cash used in investing activities |
|
|
(103.1 |
) |
|
|
(22.4 |
) |
Net cash used in financing activities |
|
$ |
(37.6 |
) |
|
$ |
(88.0 |
) |
Operating Activities. Operating activities provided $82.1 million in cash during the six
months ended June 30, 2007 compared to $98.8 million during the six months ended June 30, 2006. The
cash provided by operating activities during the six months ended June 30, 2007 primarily consisted
of net income after adjusting for non-cash items of $75.0 million and a $7.1 million increase due
to changes in working capital. Net income after adjustments for non-cash items increased to $75.0
million in 2007 from $37.7 million in 2006 primarily as a result of an increase in net income of
$38.3 million. The decrease due to changes in working capital was primarily due to a $30.2 million
increase in current liabilities due primarily to increases in accounts payable due to increase in
the cost of crude oil, offset by a $20.4 million increase in current assets primarily due to higher
accounts receivable.
Investing Activities. Cash used in investing activities increased to $103.1 million during the
six months ended June 30, 2007 compared to a use of $22.4 million during the six months ended June
30, 2006. This increase was primarily due to the $86.6 million of additions to property, plant and
equipment related to the Shreveport refinery expansion project during the six months ended June 30,
2007 as compared to $17.5 million incurred for this expansion project during the same period in
2006.
Financing Activities. Financing activities used cash of $37.6 million for the six months ended
June 30, 2007 compared to using $88.0 million for the six months ended June 30, 2006. This decrease
is primarily due to the repayment of debt in the first quarter of 2006 using the proceeds of our
initial public offering and cash provided by operations with no similar transactions in the first
quarter of 2007. This decrease was offset by increased distributions to partners, from $14.9
million combined in the first and second quarters of 2006 to $37.3 million combined in the first
and second quarter of 2007.
On July 13, 2007, the Company declared a quarterly cash distribution of $0.63 per unit on all
outstanding units, or $19.9 million, for the three months ended June 30, 2007. The distribution
will be paid on August 14, 2007 to unitholders of record as of the close of business on August 4,
2007. This quarterly distribution of $0.63 per unit equates to $2.52 per unit on an annualized
basis.
28
Capital Expenditures
Our capital expenditure requirements consist of capital improvement expenditures, replacement
capital expenditures and environmental capital expenditures. Capital improvement expenditures
include expenditures to acquire assets to grow our business and to expand existing facilities, such
as projects that increase operating capacity. Replacement capital expenditures replace worn out or
obsolete equipment or parts. Environmental capital expenditures include asset additions to meet or
exceed environmental and operating regulations. We previously expensed all costs associated with
major maintenance and repairs (facility turnarounds) through the accrue-in-advance method over the
period between turnarounds. The accounting method used for facility turnarounds changed effective
January 1, 2007 as discussed below in Recent Accounting Pronouncements.
The following table sets forth our capital improvement expenditures, replacement capital
expenditures and environmental capital expenditures in each of the periods shown.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(in millions) |
|
Capital improvement expenditures |
|
$ |
99.1 |
|
|
$ |
20.2 |
|
Replacement capital expenditures |
|
$ |
5.0 |
|
|
$ |
1.2 |
|
Environmental capital expenditures |
|
$ |
2.5 |
|
|
$ |
1.1 |
|
|
|
|
|
|
|
|
Total |
|
$ |
106.6 |
|
|
$ |
22.5 |
|
|
|
|
|
|
|
|
We anticipate that future capital improvement requirements will be provided through long-term
borrowings, other debt financings, equity offerings and/or cash on hand. Until the Shreveport
expansion project is complete, our ability to raise additional capital through the sale of common
units is limited to 3,233,000 units.
Capital improvement expenditures for the six months ended June 30, 2007 of $99.1 million were
primarily related to the expansion project at our Shreveport refinery to increase its throughput
capacity and its production of specialty products. The expansion project involves several of the
refinerys operating units and is estimated to result in a crude oil throughput capacity increase
of approximately 15,000 bpd, bringing total crude oil throughput capacity of the refinery to
approximately 57,000 bpd. The expansion is expected to be completed in the third quarter of 2007
with production ramping up during the fourth quarter of 2007.
As part of the Shreveport refinery expansion project, we plan to increase the Shreveport
refinerys capacity to process an additional 8,000 bpd of sour crude oil, bringing total capacity
to process sour crude oil to 13,000 bpd. Of the anticipated 57,000 bpd throughput rate upon
completion of the expansion project, we expect the refinery to have the capacity to process
approximately 42,000 bpd of sweet crude oil and 13,000 bpd of sour crude oil, with the remainder
coming from interplant feedstocks.
During the second quarter of 2006, we began purchasing equipment for the Shreveport expansion
project and have incurred a total of $155.0 million on capital expenditures for the expansion as of
June 30, 2007, with $90.2 million of capital expenditures incurred in the six months ended June 30,
2007. In July 2006, we completed a follow-on public offering of 3.3 million common units raising
$103.5 million to fund a significant portion of this project. Management estimates that Calumet
will incur an additional $45.0 million of capital expenditures in the third and fourth quarter of
2007 on the expansion project. We continue to estimate the total cost of the Shreveport refinery
expansion project will be approximately $200.0 million. Cash on hand from the follow-on offering,
cash flow from operations and borrowings under the secured revolving credit facility, to the extent
necessary, are expected to fund these expenditures.
In order to accommodate our estimates of the increased cost of the Shreveport refinery
expansion project and other planned capital expenditures, we will be required to amend certain
provisions of our revolving and term loan credit facilities related to permitted capital
expenditures. We anticipate that we will successfully complete the requisite amendments prior to
the in-service date of the Shreveport refinery expansion project.
The approval granted by the LDEQ for the Companys application for a modified air quality
permit was challenged by an individual on her own behalf and on behalf of a neighborhood group and
was subsequently voluntarily dismissed on July 11, 2007.
Debt and Credit Facilities
On December 9, 2005, we repaid all of our existing indebtedness under our prior credit
facilities and entered into new credit agreements with syndicates of financial institutions for
credit facilities that consist of:
|
|
|
a $225.0 million senior secured revolving credit facility; and |
29
|
|
|
a $225.0 million senior secured first lien credit facility consisting of a $175.0 million
term loan facility and a $50.0 million letter of credit facility to support crack spread
hedging. |
The revolving credit facility borrowings are limited by advance rates of percentages of
eligible accounts receivable and inventory (the borrowing base) as defined by the revolving credit
agreement. At June 30, 2007, we had borrowings of $49.3 million under our term loan and no
borrowings under our revolving credit facility. Our letters of credit outstanding as of June 30,
2007 were $64.4 million under the revolving credit facility and $50.0 million under the $50.0
million letter of credit facility to support crack spread hedging.
The secured revolving credit facility currently bears interest at prime or LIBOR plus 100
basis points (which basis point margin may fluctuate), has a first priority lien on our cash,
accounts receivable and inventory and a second priority lien on our fixed assets and matures in
December 2010. On June 30, 2007, we had availability on our revolving credit facility of $153.0
million, based upon its $217.5 million borrowing base, $64.4 million in outstanding letters of
credit, and no outstanding borrowings.
The term loan facility bears interest at a rate of LIBOR plus 350 basis points and the letter
of credit facility to support crack spread hedging bears interest at a rate of 3.5%. Each facility
has a first priority lien on our fixed assets and a second priority lien on our cash, accounts
receivable and inventory and matures in December 2012. Under the terms of our term loan facility,
we applied a portion of the net proceeds we received from our initial public offering and the
underwriters over-allotment option as a repayment of the term loan facility, and are required to
make mandatory repayments of approximately $0.1 million at the end of each fiscal quarter,
beginning with the fiscal quarter ended March 31, 2006 and ending with the fiscal quarter ending
December 31, 2011. At the end of each fiscal quarter in 2012 we are required to make mandatory
repayments of approximately $11.8 million per quarter, with the remainder of the principal due at
maturity. On April 24, 2006, the Company entered into an interest rate swap agreement with a
counterparty to fix the LIBOR component of the interest rate on a portion of outstanding borrowings
under its term loan facility. The notional amount of the interest rate swap agreement is 85% of the
outstanding term loan balance over its remaining term, with LIBOR fixed at 5.44%.
Our letter of credit facility to support crack spread hedging is secured by a first priority
lien on our fixed assets. We have issued a letter of credit in the amount of $50.0 million, the
full amount available under the letter of credit facility, to one counterparty. As long as this
first priority lien is in effect and such counterparty remains the beneficiary of the $50.0 million
letter of credit, we will have no obligation to post additional cash, letters of credit or other
collateral with such counterparty to provide additional credit support for a mutually-agreed
maximum volume of executed crack spread hedges. In the event such counterpartys exposure exceeds
$100.0 million, we would be required to post additional credit support to enter into additional
crack spread hedges up to the aforementioned maximum volume. In addition, we have other crack
spread hedges in place with other approved counterparties under the letter of credit facility whose
credit exposure to us is also secured by a first priority lien on our fixed assets.
The credit facilities permit us to make distributions to our unitholders as long as we are not
in default or would not be in default following the distribution. Under the credit facilities, we
are obligated to comply with certain financial covenants requiring us to maintain a Consolidated
Leverage Ratio of no more than 3.75 to 1 (as of the end of each fiscal quarter and after giving
effect to a proposed distribution or other restricted payments as defined in the credit agreement)
and available liquidity of at least $30.0 million (after giving effect to a proposed distribution
or other restricted payments as defined in the credit agreements). The Consolidated Leverage Ratio
is defined under our credit agreements to mean the ratio of our Consolidated Debt (as defined in
the credit agreements) as of the last day of any fiscal quarter to our Adjusted EBITDA (as defined
below) for the last four fiscal quarter periods ending on such date. Available Liquidity is a
measure used under our credit agreements to mean the sum of the cash and borrowing capacity under
our revolving credit facility that we have as of a given date. Adjusted EBITDA means Consolidated
EBITDA as defined in our credit facilities to mean, for any period: (1) net income plus (2)(a)
interest expense; (b) taxes; (c) depreciation and amortization; (d) unrealized losses from mark to
market accounting for hedging activities; (e) unrealized items decreasing net income (including the
non-cash impact of restructuring, decommissioning and asset impairments in the periods presented);
and (f) other non-recurring expenses reducing net income which do not represent a cash item for
such period; minus (3)(a) tax credits; (b) unrealized items increasing net income (including the
non-cash impact of restructuring, decommissioning and asset impairments in the periods presented);
(c) unrealized gains from mark to market accounting for hedging activities; and (d) other
non-recurring expenses and unrealized items that reduced net income for a prior period, but
represent a cash item in the current period.
In addition, at any time that our borrowing capacity under our revolving credit facility falls
below $25.0 million, we must maintain a Fixed Charge Coverage Ratio of at least 1 to 1 (as of the
end of each fiscal quarter). The Fixed Charge Coverage Ratio is defined under our credit agreements
to mean the ratio of (a) Adjusted EBITDA minus Consolidated Capital Expenditures minus Consolidated
Cash Taxes, to (b) Fixed Charges (as each such term is defined in our credit agreements). We
anticipate that we will continue to be in compliance with the financial covenants contained in our
credit facilities and will, therefore, be able to make distributions to our unitholders.
30
In addition, our credit agreements contain various covenants that limit, among other things,
our ability to: incur indebtedness; grant liens; make certain acquisitions and investments; make
capital expenditures above specified amounts; redeem or prepay other debt or make other restricted
payments such as distributions to unitholders; enter into transactions with affiliates; enter into
a merger, consolidation or sale of assets; and cease our refining margin hedging program (our
lenders have required us to obtain and maintain derivative contracts for fuel products margins in
our fuel products segment for a rolling two-year period for at least 40%, and no more than 80%, of
our anticipated fuels production). Please read Capital Expenditures above for the amendments we
will seek in order to accommodate the increased capital expenditures we expect in connection with
the completion of the Shreveport refinery expansion and other planned capital expenditures.
If an event of default exists under our credit agreements, the lenders will be able to
accelerate the maturity of the credit facilities and exercise other rights and remedies. An event
of default is defined as nonpayment of principal interest, fees or other amounts; failure of any
representation or warranty to be true and correct when made or confirmed; failure to perform or
observe covenants in the credit agreement or other loan documents, subject to certain grace
periods; payment defaults in respect of other indebtedness; cross-defaults in other indebtedness if
the effect of such default is to cause the acceleration of such indebtedness under any material
agreement if such default could have a material adverse effect on us; bankruptcy or insolvency
events; monetary judgment defaults; asserted invalidity of the loan documentation; and a change of
control in us. As of June 30, 2007, we believe we are in compliance with all debt covenants and
have adequate liquidity to conduct our business.
Equity Transactions
On January 31, 2006, we completed the initial public offering of our common units and sold
5,699,900 of those units to the underwriters of the initial public offering at a price to the
public of $21.50 per common unit. We also sold a total of 750,100 common units to certain other
investors at a price of $19.995 per common unit. In addition, on February 8, 2006, we sold an
additional 854,985 common units to the underwriters at a price to the public of $21.50 per common
unit pursuant to the underwriters over-allotment option. We received total net proceeds of
approximately $144.4 million. The net proceeds were used to: (i) repay indebtedness and accrued
interest under the first lien term loan facility in the amount of approximately $125.7 million,
(ii) repay indebtedness under the secured revolving credit facility in the amount of approximately
$13.1 million and (iii) pay transaction fees and expenses in the amount of approximately $5.6
million.
On July 5, 2006, we completed a follow-on public offering of common units in which we sold
3,300,000 common units to the underwriters of this offering at a price to the public of $32.94 per
common unit and received net proceeds of $103.5 million. The net proceeds were used (or will be
used) to: (i) repay all of our borrowings under our revolving credit facility, which were
approximately $9.2 million as of June 30, 2006, (ii) fund the future construction and other
start-up costs of the planned expansion project at our Shreveport refinery and (iii) to the extent
available, for general partnership purposes. The general partner contributed an additional $2.2
million to us to retain its 2% general partner interest.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes (the Interpretation), an interpretation of FASB
Statement No. 109. The Interpretation clarifies the accounting for uncertainty in income taxes by
prescribing a recognition threshold and measurement methodology for the financial statement
recognition and measurement of a tax position to be taken or expected to be taken in a tax return.
The Interpretation is effective for fiscal years beginning after December 15, 2006. The Company
adopted the Interpretation on January 1, 2007. The adoption did not have a material effect on its
financial position, results of operations or cash flow. Interest and penalties related to income
taxes, if any, would be recorded in income tax expense on the condensed consolidated statements of
operations. We had no unrecognized tax benefits as of June 30, 2007 and December 31, 2006. Our
income taxes generally remain subject to examination by major tax jurisdictions for a period of
three years.
In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned
Major Maintenance Activities (the Position), which amends certain provisions in the AICPA
Industry Audit Guides, Audits of Airlines, and APB Opinion No. 28, Interim Financial Reporting. The
Position prohibits the use of the accrue-in-advance method of accounting for planned major
maintenance activities (turnaround costs) and requires the use of the direct expensing method,
built-in overhaul method, or deferral method. The Position is effective for fiscal years beginning
after December 15, 2006.
31
The Company adopted the Position on January 1, 2007 and began using the deferral method to
account for turnaround costs. Under this method, actual costs of an overhaul are capitalized as
incurred and amortized to cost of sales until the next overhaul date. Prior to the adoption of this
standard, the Company accrued for such overhaul costs in advance and recorded the charge to cost of
sales. As a result of the adoption of the Position, the Company has adjusted prior periods to
account for turnaround costs as capitalized costs, recorded in other noncurrent assets on the
consolidated balance sheets, in lieu of accrued turnaround costs. The cumulative effect of the
adoption of the Position on prior periods was to increase partners capital by $3.3 million as of
January 1, 2005. The adoption of the Position resulted in a net decrease in cost of sales of $0.4
million and $0.7 million, respectively ($0.01 and $0.02, respectively, per limited partner unit),
for the three and six months ended June 30, 2006 from the amount previously reported.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (the
Statement). The Statement applies to assets and liabilities required or permitted to be measured
at fair value under other accounting pronouncements. The Statement defines fair value, establishes
a framework for measuring fair value, and expands disclosure requirements about fair value, but
does not provide guidance whether assets and liabilities are required or permitted to be measured
at fair value. The Statement is effective for fiscal years beginning after November 15, 2007. The
Company does not anticipate that this Statement will have a material effect on its financial
position, results of operations, or cash flow.
In April 2007, the FASB issued FASB Staff Position No. FIN 39-1, Amendment of FASB
Interpretation No. 39 (the Position), which amends certain aspects of FASB Interpretation Number
39, Offsetting of Amounts Related to Certain Contracts. The Position permits companies to offset
fair value amounts recognized for the right to reclaim cash collateral or the obligation to return
cash collateral against fair value amounts recognized for derivative instruments executed with the
same counterparty under a master netting arrangement. The Position is effective for fiscal years
beginning after November 15, 2007. The Company does not anticipate that the Position will have a
material effect on its financial position, results of operations, or cash flow.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our profitability and cash flows are affected by changes in interest rates, specifically LIBOR
and prime rates. The primary purpose of our interest rate risk management activities is to hedge
our exposure to changes in interest rates.
We are exposed to market risk from fluctuations in interest rates. As June 30, 2007, we had
approximately $49.3 million of variable rate debt. Holding other variables constant (such as debt
levels) a one hundred basis point change in interest rates on our variable rate debt as of June 30,
2007 would be expected to have an impact on net income and cash flows for 2007 of approximately
$0.5 million.
Commodity Price Risk
Both our profitability and our cash flows are affected by volatility in prevailing crude oil,
gasoline, diesel, jet fuel, and natural gas prices. The primary purpose of our commodity risk
management activities is to hedge our exposure to price risks associated with the cost of crude oil
and natural gas and sales prices of our fuel products.
Crude Oil Price Volatility
We are exposed to significant fluctuations in the price of crude oil, our principal raw
material. Given the historical volatility of crude oil prices, this exposure can significantly
impact product costs and gross profit. Holding all other variables constant, and excluding the
impact of our current hedges, we expect a $1.00 change in the per barrel price of crude oil would
change our specialty product segment cost of sales by $9.3 million and our fuel product segment
cost of sales by $9.4 million on an annual basis based on our results for the three months ended
June 30, 2007.
Crude Oil Hedging Policy
We typically do not set prices for our specialty products in advance of our crude oil
purchases; thus, we can take into account the cost of crude oil in setting our specialty products
prices. We further manage our exposure to fluctuations in crude oil prices in our specialty
products segment through the use of derivative instruments. Our policy is generally to enter into
crude oil derivative contracts for three to nine months forward and for 50% to 75% of our
anticipated crude oil purchases related to our specialty products
32
production and for up to five years and no more than 75% of our crude oil purchases related
to fuel products production on average for each fiscal year.
Natural Gas Price Volatility
Natural gas purchases comprise a significant component of our cost of sales. As a result,
changes in the price of natural gas can significantly affect our profitability and our cash flows.
Holding all other cost and revenue variables constant, and excluding the impact of our current
hedges, we expect a $0.50 change per MMBtu (one million British Thermal Units) in the price of
natural gas would change our cost of sales by $3.0 million on an annual basis based on our results
for the three months ended June 30, 2007.
Natural Gas Hedging Policy
In order to manage our exposure to natural gas prices, we enter into derivative contracts. Our
policy is generally to enter into natural gas swap contracts during the summer months for
approximately 50% or more of our upcoming fall and winter months anticipated natural gas
requirements.
Fuel Products Selling Price Volatility
We are exposed to significant fluctuations in the prices of gasoline, diesel, and jet fuel.
Given the historical volatility of gasoline, diesel, and jet fuel prices, this exposure can
significantly impact sales and gross profit. Holding all other variables constant, and excluding
the impact of our current hedges, we expect that a $1.00 change in the per barrel selling price of
gasoline, diesel, and jet fuel would change our forecasted fuel products segment sales by $9.4
million on an annual basis based on our results for the three months ended June 30, 2007.
Fuel Products Hedging Policy
In order to manage our exposure to changes in gasoline, diesel, and jet fuel selling prices,
we enter into fuels product swap contracts. Our policy is to enter into derivative contracts to
hedge our fuel products sales for a period no greater than five years forward and for no more than
75% of anticipated fuels sales on average for each fiscal year, which is consistent with our crude
purchase hedging policy for our fuel products segment discussed above. We believe this policy
lessens the volatility of our cash flows. In addition, in connection with our credit facilities,
our lenders require us to obtain and maintain derivative contracts to hedge our fuels product
margins for a rolling two-year period for at least 40%, and no more than 80%, of our anticipated
fuels production. Until March 31, 2006, the historical impact of fair value fluctuations in our
derivative instruments has been reflected in the realized/unrealized gain (loss) on derivative
instruments line items in our consolidated statements of operations. Effective April 1, 2006, we
restructured and designated certain derivative contracts for our fuel products segment as cash flow
hedges under SFAS 133 of gasoline, diesel, and jet fuel sales, and the effective portion of these
hedges is recorded in accumulated other comprehensive income (loss) until the underlying
transaction hedged is recognized in the consolidated statements of operations.
The unrealized gain or loss on derivatives at a given point in time is not necessarily
indicative of the results realized when such contracts mature. The decrease in the fair market
value of our outstanding derivative instruments from a net asset of $37.8 million as of December
31, 2006 to a net liability of $52.9 million as of June 30, 2007 was due to increases during 2007
in the forward market values of fuel products margins, or cracks spreads, relative to our hedged
fuel products margins. Please read Derivatives in Note 5 to our unaudited condensed consolidated
financial statements for a discussion of the accounting treatment for the various types of
derivative transactions, and a further discussion of our hedging policies.
Existing Commodity Derivative Instruments
The following tables provide information about our derivative instruments as of June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
Third Quarter 2007 |
|
|
1,773,000 |
|
|
|
19,272 |
|
|
|
65.54 |
|
Fourth Quarter 2007 |
|
|
1,742,000 |
|
|
|
18,935 |
|
|
|
65.51 |
|
Calendar Year 2008 |
|
|
8,692,000 |
|
|
|
23,749 |
|
|
|
67.20 |
|
Calendar Year 2009 |
|
|
8,212,500 |
|
|
|
22,500 |
|
|
|
66.26 |
|
Calendar Year 2010 |
|
|
7,482,500 |
|
|
|
20,500 |
|
|
|
67.27 |
|
Calendar Year 2011 |
|
|
1,731,500 |
|
|
|
4,744 |
|
|
|
67.64 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
29,633,500 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
66.78 |
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
Third Quarter 2007 |
|
|
1,102,000 |
|
|
|
11,978 |
|
|
|
81.36 |
|
Fourth Quarter 2007 |
|
|
1,102,000 |
|
|
|
11,978 |
|
|
|
81.36 |
|
Calendar Year 2008 |
|
|
5,307,000 |
|
|
|
14,500 |
|
|
|
82.11 |
|
Calendar Year 2009 |
|
|
4,745,000 |
|
|
|
13,000 |
|
|
|
80.51 |
|
Calendar Year 2010 |
|
|
4,745,000 |
|
|
|
13,000 |
|
|
|
80.41 |
|
Calendar Year 2011 |
|
|
1,458,500 |
|
|
|
3,996 |
|
|
|
79.70 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
18,459,500 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
80.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
Third Quarter 2007 |
|
|
671,000 |
|
|
|
7,293 |
|
|
|
73.54 |
|
Fourth Quarter 2007 |
|
|
640,000 |
|
|
|
6,957 |
|
|
|
72.67 |
|
Calendar Year 2008 |
|
|
3,385,000 |
|
|
|
9,249 |
|
|
|
75.87 |
|
Calendar Year 2009 |
|
|
3,467,500 |
|
|
|
9,500 |
|
|
|
73.83 |
|
Calendar Year 2010 |
|
|
2,737,500 |
|
|
|
7,500 |
|
|
|
75.10 |
|
Calendar Year 2011 |
|
|
273,000 |
|
|
|
748 |
|
|
|
75.30 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
11,174,000 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
74.71 |
|
The following table provides a summary of these derivatives and implied crack spreads for the
crude oil, diesel and gasoline swaps disclosed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Crack |
|
Swap Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
Spread ($/Bbl) |
|
Third Quarter 2007 |
|
|
1,773,000 |
|
|
|
19,272 |
|
|
|
12.86 |
|
Fourth Quarter 2007 |
|
|
1,742,000 |
|
|
|
18,935 |
|
|
|
12.66 |
|
Calendar Year 2008 |
|
|
8,692,000 |
|
|
|
23,749 |
|
|
|
12.48 |
|
Calendar Year 2009 |
|
|
8,212,500 |
|
|
|
22,500 |
|
|
|
11.43 |
|
Calendar Year 2010 |
|
|
7,482,500 |
|
|
|
20,500 |
|
|
|
11.20 |
|
Calendar Year 2011 |
|
|
1,731,500 |
|
|
|
4,744 |
|
|
|
11.37 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
29,633,500 |
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
11.83 |
|
The following tables provide information about our derivative instruments related to our
specialty products segment as of June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Average |
|
Average |
|
|
|
|
|
|
|
|
|
|
Lower Put |
|
Upper Put |
|
Lower Call |
|
Upper Call |
Crude Oil Put/Call Spread Contracts by Expiration Dates |
|
Barrels |
|
BPD |
|
($/Bbl) |
|
($/Bbl) |
|
($/Bbl) |
|
($/Bbl) |
July 2007 |
|
|
248,000 |
|
|
|
8,000 |
|
|
$ |
52.52 |
|
|
$ |
62.52 |
|
|
$ |
72.52 |
|
|
$ |
82.52 |
|
August 2007 |
|
|
248,000 |
|
|
|
8,000 |
|
|
$ |
51.54 |
|
|
$ |
61.54 |
|
|
$ |
71.54 |
|
|
$ |
81.54 |
|
September 2007 |
|
|
240,000 |
|
|
|
8,000 |
|
|
$ |
54.85 |
|
|
$ |
64.85 |
|
|
$ |
74.85 |
|
|
$ |
84.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
736,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
52.97 |
|
|
$ |
62.97 |
|
|
$ |
72.97 |
|
|
$ |
82.97 |
|
|
|
|
|
|
|
|
|
|
Natural Gas Swap Contracts by Expiration Dates |
|
MMbtu |
|
|
$/MMbtu |
|
Third Quarter 2007 |
|
|
600,000 |
|
|
$ |
8.77 |
|
Fourth Quarter 2007 |
|
|
900,000 |
|
|
|
8.77 |
|
First Quarter 2008 |
|
|
850,000 |
|
|
|
8.76 |
|
|
|
|
|
|
|
|
Totals |
|
|
2,350,000 |
|
|
|
|
|
Average price |
|
|
|
|
|
$ |
8.77 |
|
34
As of August 1, 2007, the Company has added the following derivative instruments to the above
transactions for our specialty products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
Lower Put |
|
|
Upper Put |
|
|
Lower Call |
|
|
Upper Call |
|
Crude Oil Put/Call Spread Contracts by Expiration Dates |
|
Barrels |
|
|
BPD |
|
|
($/Bbl) |
|
|
($/Bbl) |
|
|
($/Bbl) |
|
|
($/Bbl) |
|
Oct 2007 |
|
|
248,000 |
|
|
|
8,000 |
|
|
$ |
59.06 |
|
|
$ |
69.06 |
|
|
$ |
79.06 |
|
|
$ |
89.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
248,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price |
|
|
|
|
|
|
|
|
|
$ |
59.06 |
|
|
$ |
69.06 |
|
|
$ |
79.06 |
|
|
$ |
89.06 |
|
Item 4T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our principal executive officer and principal financial officer have evaluated, as required by
Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act), our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the principal
executive officer and principal financial officer concluded that the design and operation of our
disclosure controls and procedures are effective in ensuring that information we are required to
disclose in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.
PART II
Item 1. Legal Proceedings
We are not a party to any material litigation. Our operations are subject to a variety of
risks and disputes normally incident to our business. As a result, we may, at any given time, be a
defendant in various legal or regulatory proceedings and litigation arising in the ordinary course
of business. Please see Note 6 Commitments and Contingencies in Part I Item 1 Financial
Statements for a description of our current regulatory matters related to the environment.
Item 1A. Risk Factors
In addition to the other information included in this Quarterly Report on Form 10-Q and the
risk factors reported in our Annual Report on Form 10-K for the period ended December 31, 2006, you
should consider the following risk factor in evaluating our business and future prospects. If any
of the risks contained in this Quarterly Report or our Annual Report occur, our business, results
of operations, financial condition and ability to make cash distributions to our unitholders could
be materially adversely affected.
We have adopted certain valuation methodologies that may result in a shift of income, gain,
loss and deduction between the general partner and the unitholders. The IRS may challenge this
treatment, which could adversely affect the value of the common units.
When we issue additional units or engage in certain other transactions, we determine the fair
market value of our assets and allocate any unrealized gain or loss attributable to our assets to
the capital accounts of our unitholders and our general partner. Our methodology may be viewed as
understating the value of our assets. In that case, there may be a shift of income, gain, loss and
deduction between certain unitholders and the general partner, which may be unfavorable to such
unitholders. Moreover, subsequent purchasers of common units may have a greater portion of their
Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser
portion allocated to our intangible assets. The IRS may challenge our valuation methods, or our
allocation of the Section 743(b) adjustment attributable to our tangible and intangible assets, and
allocations of income, gain, loss and deduction between the general partner and certain of our
unitholders.
A successful IRS challenge to these methods or allocations could adversely affect the amount
of taxable income or loss being allocated to our unitholders. It also could affect the amount of
gain from our unitholders sale of common units and could have a negative impact on the value of
the common units or result in audit adjustments to our unitholders tax returns without the benefit
of additional deductions.
35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
The following documents are filed as exhibits to this Form 10-Q:
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
10.1
|
|
|
|
Third Amendment , dated April 13, 2007 and effective April 23, 2007, to
Revolving Credit Facility dated as of December 9, 2005, by and among Calumet
Lubricants Co., Limited Partnership, et al as Borrowers, Bank of America,
N.A, as Agent and Lender, and other Lenders party thereto (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q) filed with
the Commission on May 10, 2007 (File No 000-51734). |
|
|
|
|
|
10.2
|
|
|
|
Second Amendment, dated April 18, 2007 and effective April 20, 2007, to the
Secured First Lien Credit Facility, dated as of December 9, 2005, by and
among, Calumet Lubricants Co. Limited Partnership, as Borrower, Bank of
America, N.A., as Administrative Agent and Lender, and other Lenders party
thereto (incorporated by reference to Exhibit 10.2 to the Quarterly Report
on Form 10-Q) filed with the Commission on May 10, 2007 (File No
000-51734). |
|
|
|
|
|
31.1
|
|
|
|
Sarbanes-Oxley Section 302 certification of F. William Grube. |
|
|
|
|
|
31.2
|
|
|
|
Sarbanes-Oxley Section 302 certification of R. Patrick Murray, II. |
|
|
|
|
|
32.1
|
|
|
|
Section 1350 certification of F. William Grube and R. Patrick Murray, II. |
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
|
|
|
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
CALUMET GP, LLC, |
|
|
|
|
|
|
its general partner |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ R. Patrick Murray
R. Patrick Murray, II, Vice President, Chief Financial
|
|
|
|
|
|
|
Officer and Secretary of Calumet GP, LLC, general partner of
Calumet Specialty Products Partners, L.P. |
|
|
|
|
|
|
(Authorized Person and Principal Accounting Officer) |
|
|
|
|
|
|
|
|
|
|
|
Date: August 10, 2007 |
|
|
37
Index to Exhibits
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
10.1
|
|
|
|
Third Amendment , dated April 13, 2007 and effective April 23, 2007, to Revolving
Credit Facility dated as of December 9, 2005, by and among Calumet Lubricants Co.,
Limited Partnership, et al as Borrowers, Bank of America, N.A, as Agent and
Lender, and other Lenders party thereto (incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q) filed with the Commission on May 10, 2007
(File No 000-51734). |
|
|
|
|
|
10.2
|
|
|
|
Second Amendment, dated April 18, 2007 and effective April 20, 2007, to the
Secured First Lien Credit Facility, dated as of December 9, 2005, by and among,
Calumet Lubricants Co. Limited Partnership, as Borrower, Bank of America, N.A., as
Administrative Agent and Lender, and other Lenders party thereto (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q) filed with the
Commission on May 10, 2007 (File No 000-51734). |
|
|
|
|
|
31.1
|
|
|
|
Sarbanes-Oxley Section 302 certification of F. William Grube. |
|
|
|
|
|
31.2
|
|
|
|
Sarbanes-Oxley Section 302 certification of R. Patrick Murray, II. |
|
|
|
|
|
32.1
|
|
|
|
Section 1350 certification of F. William Grube and R. Patrick Murray, II. |