Calumet Specialty Products Partners, L.P. Reports Third Quarter 2010 Results

INDIANAPOLIS, Nov. 3, 2010 /PRNewswire-FirstCall/ -- Calumet Specialty Products Partners, L.P. (Nasdaq: CLMT) (the "Partnership" or "Calumet") reported net income for the quarter ended September 30, 2010 of $21.2 million compared to $4.0 million for the quarter ended September 30, 2009. For the nine months ended September 30, 2010, Calumet reported net income of $7.2 million compared to $53.6 million for the same period in 2009. These results include noncash unrealized derivative losses of $13.8 million and gains of $17.7 million for the nine months ended September 30, 2010 and 2009, respectively. Calumet reported net cash provided by operating activities of $87.7 million for the nine months ended September 30, 2010 as compared to $110.6 million for the same period in 2009.

Earnings before interest expense, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA (as defined by the Partnership's credit agreements) were $44.1 million and $40.9 million, respectively, for the quarter ended September 30, 2010 as compared to $27.7 million and $42.5 million, respectively, for the same quarter in 2009. Distributable Cash Flow (as defined below) for the quarter ended September 30, 2010 was $28.6 million as compared to $30.2 million for the same quarter in 2009. The decrease in Adjusted EBITDA quarter over quarter was primarily due to increased realized losses on derivatives and increased transportation expense partially offset by higher gross profit, discussed below. (See the section of this release titled "Non-GAAP Financial Measures" and the attached tables for discussion of EBITDA, Adjusted EBITDA, Distributable Cash Flow and other non-generally accepted accounting principles ("non-GAAP") financial measures, definitions of measures and reconciliations of such measures to the comparable GAAP measures.)

"We are pleased with our results for the third quarter. Our production levels and gross profit have continued to improve in each quarter this year. We continue to focus on increased run rates to meet higher demand for our specialty products," said Bill Grube, Calumet's Chief Executive Officer and President. "As a result of our third quarter results, we have raised our distribution to $0.46 per unit, a $0.005 per unit increase over the prior quarter," said Grube.

The $17.2 million improvement in net income quarter over quarter was due primarily to an increase of $21.0 million in gross profit, partially offset by increased realized derivative losses of $6.3 million and higher transportation expense of $4.7 million due to increased sales volume. These results include noncash unrealized derivative gains of $1.9 million and losses of $4.5 million for the quarters ended September 30, 2010 and 2009, respectively, which may or may not be realized in the future as the derivatives are settled.

Gross profit by segment is as follows for the three and nine months ended September 30, 2010 and 2009:

(1) 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, depreciation and processing materials.

The increase of $27.4 million in specialty products segment gross profit quarter over quarter was primarily due to an increase of 19.7% in the average selling price per barrel, while the average cost of crude oil per barrel increased by only 12.6%. Also, specialty products sales volumes increased 23.1%, due primarily to improvements in overall specialty products demand as a result of improved economic conditions and the addition of sales volumes under our specialty products agreements with LyondellBasell which we entered into during the fourth quarter of 2009 (the "LyondellBasell Agreements").

The decrease of $6.4 million in fuel products segment gross profit quarter over quarter was negatively impacted by the 13.9% decrease in fuel products sales volume as a result of lower overall throughput rates at our Shreveport refinery to facilitate the balancing of inventory levels subsequent to the extended turnaround completed in April 2010. Partially offsetting this decrease in sales volume was a slight improvement in crack spreads as the average selling price per barrel of our fuel products increased by 14.8% driven by market conditions including a 12.5% increase in the average cost of crude oil per barrel, combined with a net $2.5 million increase in derivative gains on our fuel products crack spread cash flow hedges.

Quarterly Distribution

On October 13, 2010, the Partnership declared a quarterly cash distribution of $0.46 per unit for the quarter ended September 30, 2010 on all outstanding units. The distribution will be paid on November 12, 2010 to unitholders of record as of the close of business on November 2, 2010. This distribution represents an increase of $0.005 per unit from the second quarter of 2010.

Operations Summary

The following table sets forth unaudited information about our combined operations. Facility production volume differs from sales volume due to changes in inventory.

(1) Total sales volume includes sales from the production of our facilities and certain third-party facilities pursuant to supply and/or processing agreements and sales of inventories.

(2) Total feedstock runs represent the barrels per day of crude oil and other feedstocks processed at our facilities and certain third-party facilities pursuant to supply and/or processing agreements. The increase in feedstock runs for the three months ended September 30, 2010 compared to the same period in 2009 is due primarily to higher throughput rates at our Princeton and Cotton Valley refineries and the addition of volumes under the LyondellBasell Agreements. These improvements were partially offset by lower overall throughput rates at our Shreveport refinery to facilitate the balancing of inventory levels subsequent to the completion of our April 2010 turnaround discussed below.

The decrease in feedstock runs for the nine months ended September 30, 2010 compared to the same period in 2009 is primarily due to our decision to reduce crude oil run rates at our facilities during the entire first quarter of 2010 because of the poor economics of running additional barrels, the extended turnaround and reduced throughput rates at our Shreveport refinery during April 2010, and the lower subsequent throughput rates at our Shreveport refinery during the third quarter of 2010 as discussed above. These decreases were partially offset by higher throughput rates at our Cotton Valley refinery and the addition of volumes under the LyondellBasell Agreements.

(3) Total facility production represents the barrels per day of specialty products and fuel products yielded from processing crude oil and other feedstocks at our facilities and certain third-party facilities pursuant to supply and/or processing agreements, including the LyondellBasell Agreements. The difference between total facility production and total feedstock runs is primarily a result of the time lag between the input of feedstock and production of finished products and volume loss. The increase in the production of specialty products for the three months ended September 30, 2010 compared to the same period in 2009 is primarily the result of the addition of volumes under the LyondellBasell Agreements and increased feedstock runs during those periods at our Princeton and Cotton Valley refineries. This increase was partially offset by reduced facility production levels as a result of reduced feedstock runs at our Shreveport refinery during the period as discussed above in footnote 2 of this table. The reduction in production of fuel products for the three months ended September 30, 2010 as compared to the same period in 2009 was also due to reduced feedstock runs at our Shreveport refinery during the current period as discussed in footnote 2 of this table.

The increase in the production of specialty products for the nine months ended September 30, 2010 compared to the same period in 2009 is primarily the result of the addition of volumes under the LyondellBasell Agreements and improved throughput rates at our Cotton Valley refinery as discussed in footnote 2 of this table. The reduction in production of fuel products for the nine months ended September 30, 2010 as compared to the same period in 2009 is due to reduced feedstock runs at our Shreveport refinery during the current period as discussed in footnote 2 of this table.

Credit Agreement Covenant Compliance

Compliance with the financial covenants under Calumet's credit agreements is measured quarterly based upon performance over the most recent four fiscal quarters. As of September 30, 2010, Calumet continued to be in compliance with all financial covenants under its credit agreements.

While assurances cannot be made regarding our future compliance with these financial covenants and subject to the inherent uncertainty of the crude oil pricing environment and general economic conditions, Calumet believes that it will continue to maintain compliance with such financial covenants.

Revolving Credit Facility Capacity

On September 30, 2010, Calumet had availability under its revolving credit facility of $143.8 million, based on a $251.1 million borrowing base, $75.4 million in outstanding standby letters of credit, and outstanding borrowings of $31.9 million. Calumet believes that it will have sufficient cash flow from operations and borrowing capacity to meet its financial commitments, minimum quarterly distributions to unitholders, debt service obligations, contingencies and anticipated capital expenditures. However, Calumet is subject to business and operational risks that could materially adversely affect its cash flows. A material decrease in Calumet's cash flow from operations or a significant, sustained decline in crude oil prices would likely produce a corollary material adverse effect on Calumet's borrowing capacity under its revolving credit facility and potentially Calumet's ability to comply with the covenants under Calumet's credit facilities. Substantial declines in crude oil prices, if sustained, may materially diminish Calumet's borrowing base, which is based in part on the value of Calumet's crude oil inventory, which could result in a material reduction in Calumet's borrowing capacity under Calumet's revolving credit facility. A significant increase in crude oil prices, if sustained, would likely result in increased working capital funded by borrowings under its revolving credit facility.

About the Partnership

The Partnership is a leading independent producer of high-quality, specialty hydrocarbon products in North America. The Partnership processes crude oil and other feedstocks into customized lubricating oils, white oils, solvents, petrolatums, waxes and other specialty products used in consumer, industrial and automotive products.

The Partnership also produces fuel products including gasoline, diesel and jet fuel. The Partnership is based in Indianapolis, Indiana and has five facilities located in northwest Louisiana, western Pennsylvania and southeastern Texas.

A conference call is scheduled for 1:00 p.m. ET (12:00 p.m. CT) on Wednesday, November 3, 2010, to discuss the financial and operational results for the third quarter of 2010. Anyone interested in listening to the presentation may call 866-730-5764 and enter passcode 35701361. For international callers, the dial-in number is 857-350-1588 and the passcode is 35701361.

The telephonic replay of the conference call is available in the United States by calling 888-286-8010 and entering passcode 41866668. International callers can access the replay by calling 617-801-6888 and entering passcode 41866668. The replay will be available beginning Wednesday, November 3, 2010, at approximately 4:00 p.m. until Wednesday, November 17, 2010.

The information contained in this press release is available on the Partnership's website at http://www.calumetspecialty.com.

Cautionary Statement Regarding Forward-Looking Statements

Some of the information in this release may contain forward-looking statements. These statements can be identified by the use of forward-looking terminology including "may," "believe," "expect," "anticipate," "estimate," "continue," or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other "forward-looking" information. These forward-looking statements involve risks and uncertainties that are difficult to predict and may be beyond our control. These risks and uncertainties include the overall demand for specialty hydrocarbon products, fuels and other refined products; our ability to produce specialty products and fuels that meet our customers' unique and precise specifications; the impact of fluctuations and rapid increases and decreases in crude oil and crack spread prices, including the impact on our liquidity; the results of the Partnership's hedging and risk management activities; the availability of, and the Partnership's ability to consummate, acquisition or combination opportunities; labor relations; the ability of the Partnership to comply with the financial covenants contained in its credit facilities; the Partnership's access to capital to fund acquisitions and its ability to obtain debt or equity financing on satisfactory terms; successful integration and future performance of acquired assets or businesses; environmental liabilities or events that are not covered by an indemnity; insurance or existing reserves; maintenance of the Partnership's credit ratings and ability to receive open credit from its suppliers; demand for various grades of crude oil and resulting changes in pricing conditions; fluctuations in refinery capacity; the effects of competition; continued creditworthiness of, and performance by, counterparties; the impact of current and future laws, rulings and governmental regulations; shortages or cost increases of power supplies, natural gas, materials or labor; hurricane or other weather interference with business operations; fluctuations in the debt and equity markets; and general economic, market or business conditions. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements included in this release as well as the Partnership's most recent Form 10-K and 2010 Forms 10-Q filed with the Securities and Exchange Commission, which could cause the Partnership's actual results to differ materially from those contained in any forward-looking statement.

Non-GAAP Financial Measures

We include in this release the non-GAAP financial measures of EBITDA, Adjusted EBITDA and Distributable Cash Flow, and provide quarterly and annual reconciliations of net income to EBITDA, Adjusted EBITDA and Distributable Cash Flow and an annual reconciliation of EBITDA, Adjusted EBITDA and Distributable Cash Flow to net cash provided by operating activities, our most directly comparable financial performance and liquidity measures calculated and presented in accordance with GAAP.

EBITDA, Adjusted EBITDA and Distributable Cash Flow 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 believe that these non-GAAP measures are useful to our analysts and investors as they exclude transactions not related to our core cash operating activities and provide metrics to analyze our ability to pay distributions. We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations.

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 and consolidated interest coverage tests thereunder.

We define Distributable Cash Flow as Adjusted EBITDA less replacement capital expenditures, cash interest paid (excluding capitalized interest) and income tax expense. Distributable Cash Flow is used by us and our investors to analyze our ability to pay distributions.

EBITDA, Adjusted EBITDA and Distributable Cash Flow 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. In evaluating our performance as measured by EBITDA, Adjusted EBITDA and Distributable Cash Flow, management recognizes and considers the limitations of this measurement. EBITDA, Adjusted EBITDA and Distributable Cash Flow do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EDITDA, Adjusted EBITDA and Distributable Cash Flow are only three of the measurements that management utilizes. Moreover, our EBITDA, Adjusted EBITDA and Distributable Cash Flow may not be comparable to similarly titled measures of another company because all companies may not calculate EBITDA, Adjusted EBITDA and Distributable Cash Flow in the same manner. The following tables present a reconciliation of both net income to EBITDA, Adjusted EBITDA and Distributable Cash Flow, and Distributable Cash Flow 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.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

UPDATE ON EXISTING COMMODITY DERIVATIVE INSTRUMENTS

September 30, 2010

Fuel Products Segment

The following tables provide information about our derivative instruments related to our fuel products segment as of September 30, 2010:

The following table provides a summary of these derivatives and implied crack spreads for the crude oil, diesel and gasoline swaps disclosed above, all of which are designated as hedges.

At September 30, 2010, the Partnership had the following derivatives related to crude oil sales and gasoline purchases in its fuel products segment, none of which are designated as hedges.

To summarize, at September 30, 2010, the Partnership had the following crude oil and gasoline derivative instruments not designated as hedges in its fuel products segment. These trades were used to economically lock in a portion of the mark-to-market valuation gain for the above crack spread trades.

At September 30, 2010, the Partnership had the following put options related to jet fuel crack spreads in its fuel products segment, none of which are designated as hedges.

Specialty Products Segment

The following tables provide information about our derivatives related to our specialty products segment as of September 30, 2010, none of which are designated as hedges:

SOURCE Calumet Specialty Products Partners, L.P.