Calumet Specialty Products Partners, L.P. News
Calumet Specialty Products Partners, L.P. Reports First Quarter 2008 Earnings
The Partnership's performance for the first quarter of 2008 as compared to the same period in the prior year was significantly impacted by lower gross profit in our specialty products segment. This decrease in specialty products gross profit is primarily the result of the rising cost of crude oil outpacing increases in selling prices, partially offset by increased gross profit from Penreco operations. Fuel products segment gross profit decreased slightly quarter over quarter primarily due to a decline in fuel products margins as market prices for our fuel products did not keep pace with the rising cost of crude oil, partially offset by increased fuel products sales volume. The decrease in gross profit for the Partnership in the aggregate was partially offset by the recognition of LIFO inventory gains of
Total Specialty Products segment sales volume for the first quarter of 2008 was 32,088 barrels per day as compared to 23,022 barrels per day for the same period in the prior year, an increase of 9,066 barrels per day or 39.4%, primarily due to incremental sales volume associated with our
Total Fuel Products segment sales volume for the first quarter of 2008 was 27,319 barrels per day as compared to 20,378 barrels per day in the same period for the prior year, an increase of 6,941 barrels per day, or 34.1%.
Gross profit by segment for the first quarter of 2008 for specialty products and fuel products was
"Historically high crude oil prices have certainly posed significant challenges for Calumet during the last two quarters. We have implemented multiple rounds of specialty product price increases to customers during this volatile period and would expect to continue to do so as conditions warrant. We expect the recent announcements by other major suppliers to reduce or cease production of certain specialty products, especially paraffinic lubricating oils and waxes, should have a favorable impact on Calumet's success in placing additional specialty products volumes in the market from our
Shreveport Refinery Expansion Project Operational
As of early
The
Further, we have invested
Penreco Acquisition Closed and Integration Underway
On
Since the acquisition, Calumet has implemented multiple price increases for these various specialty product lines to attempt to keep pace with rising feedstock costs. In addition, we have implemented a pricing policy which we believe is more responsive to rising feedstock prices to limit the time between feedstock price increases and product price increases to customers. Calumet is also implementing operational strategies, including using various existing Calumet refinery products as feedstocks in the acquired Penreco plant operations and reducing headcount by approximately 50 employees.
Other Strategic Initiatives
Increased Crude Oil Price Hedging for Specialty Products Segment
Calumet remains committed to an active hedging program to manage commodity price risk in both our specialty products and fuel products segments. Due to the current volatility in the crude oil price environment and the impact such volatility has had on our short-term cash flows while our product pricing is adjusted, we are implementing modifications to our hedging strategy to increase the overall portion of input prices for specialty products we have hedged. Specifically, we are targeting to hedge crude oil prices for up to 75% of our specialty products production. We continue to believe that a shorter-term time horizon of hedging crude oil purchases for 3 to 9 months forward for the specialty products segment is appropriate given our ability to increase specialty products prices within this timeframe.
Working Capital Reduction
The Partnership is implementing strategies to minimize inventory levels across all of our facilities to reduce working capital needs, especially given the impact of increased crude oil prices on inventories. As an example, effective
Operating Cost Reductions
We are also implementing operating cost reductions related to several areas including maintenance and utility costs.
Credit Agreement Covenant Compliance
As previously disclosed, the Partnership has experienced recent adverse financial conditions primarily associated with historically high crude oil costs, which have negatively affected specialty products gross profit. Also contributing to these adverse financial conditions have been the significant cost overruns and delays in the startup of the
While assurances cannot be made regarding our future compliance with these covenants, the Partnership anticipates that our product pricing strategies, completion of the
Failure to achieve our anticipated results may result in a breach of certain of the financial covenants contained in our credit agreements. If this occurs, we will enter into discussions with our lenders to either modify the terms of the existing credit facilities or obtain waivers of non-compliance with such covenants in the event the Partnership fails to comply with a financial covenant. There can be no assurances of the timing of the receipt of any such modification or waiver, the term or costs associated therewith or our ultimate ability to obtain the relief sought. The Partnership's failure to obtain a waiver of non-compliance with certain of the financial covenants or otherwise amend the credit facilities would constitute an event of default under its credit facilities and would permit the lenders to pursue remedies. These remedies could include acceleration of maturity under our credit facilities and limitation or elimination of the Partnership's ability to make distributions to its unitholders.
Reduction of Quarterly Distribution
As announced on
The following table sets forth unaudited information about our combined refinery operations. Refining production volume differs from sales volume due to changes in inventory. Three Months Ended March 31, —————————— 2008 2007 ——— ——— Sales volume (bpd): Specialty products sales volume 32,088 23,022 Fuel products sales volume 27,319 20,378 ——— ——— Total (1) 59,407 43,400 Total feedstock runs (bpd) (2)(3) 55,998 45,420 Facility production (bpd): Specialty products: Lubricating oils 13,120 10,087 Solvents 8,882 5,198 Waxes 2,054 902 Fuels 1,487 2,138 Asphalt and other by-products 6,758 5,038 ——— ——— Total 32,301 23,363 ——— ——— Fuel products: Gasoline 9,212 7,836 Diesel 8,367 5,127 Jet fuel 5,898 7,160 By-products 203 1,187 ——— ——— Total 23,680 21,310 ——— ——— Total facility production (3) 55,981 44,673 ====== ====== (1) Total sales volume includes sales from the production of our facilities, sales of purchased products and sales of inventories. The increase in volume was primarily due to sales volume associated with our Karns City and Dickinson facilities, which were acquired as a result of the Penreco acquisition on January 3, 2008, as well as scheduled turnaround activities at our Shreveport and Princeton refineries in the first quarter of 2007, with no similar activities in the first quarter of 2008. (2) Feedstock runs represents the barrels per day of crude oil and other feedstocks processed at our facilities. The increase in feedstock runs for the three months ended March 31, 2008 was due to scheduled turnaround activities at our Shreveport and Princeton refineries in the first quarter of 2007, with no similar activities in the first quarter of 2008 as well as feedstock runs associated with the Karns City and Dickinson facilities, which we acquired as part of the Penreco acquisition on January 3, 2008. (3) Total refinery production represents the barrels per day of specialty products and fuel products yielded from processing crude oil and other feedstocks at our facilities. 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.
About the Company
The Partnership is a leading independent producer of high-quality, specialty hydrocarbon products in
A conference call is scheduled for
The telephonic replay is available in
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 volatility of refining margins; risks associated with our
Non-GAAP Financial Measures
We include in this release the non-GAAP financial measures of EBITDA, Adjusted EBITDA and Distributable Cash Flow, and provide reconciliations of net income to EBITDA, Adjusted EBITDA and Distributable Cash Flow and (in the case of EBITDA and Adjusted EBITDA) to cash flow from 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 and support our indebtedness; — 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 extinguishment costs), taxes and depreciation and amortization. We define Adjusted EBITDA to be Consolidated EBITDA as defined in our credit facility agreements. Consistent with that definition, Adjusted EBITDA, for any period, equals: (1) net income plus (2)(a) interest expense; (b) taxes; (c) depreciation and amortization; (d) unrealized losses from mark to market accounting for derivative activities; (e) unrealized items decreasing net income (including the non-cash impact of restructuring; decommissioning and asset impairments in the periods presented); (f) other non-recurring expenses reducing net income which do not represent a cash item for such period; and (g) all non-recurring restructuring charges associated with the Penreco acquisition 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 derivative activities; and (d) other non-cash 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 believe that Distributable Cash Flow provides additional information for investors to evaluate the Partnership's ability to declare and pay distributions to unitholders.
We define Distributable Cash Flow as Adjusted EBITDA less maintenance capital expenditures, cash interest paid (excluding capitalized interest) and income tax expense.
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per unit data) For the Three Months Ended March 31, ——————————- 2008 2007 ———- ———- Unaudited Unaudited Sales $594,723 $351,113 Cost of sales 559,889 296,079 ———- ———- Gross profit 34,834 55,034 Operating costs and expenses: Selling, general and administrative 8,252 5,398 Transportation 23,860 13,569 Taxes other than income taxes 1,054 912 Other 224 180 ———- ———- Operating income (loss) 1,444 34,975 ———- ———- Other income (expense): Interest expense (5,166) (1,015) Interest income 216 991 Debt extinguishment costs (526) - Realized loss on derivative instruments (2,877) (1,736) Unrealized gain (loss) on derivative instruments 3,570 (4,777) Other (45) (178) ———- ———- Total other income (expense) (4,828) (6,715) ———- ———- Net income (loss) before income taxes (3,384) 28,260 Income tax expense 8 50 ———- ———- Net income (loss) $(3,392) $28,210 ======= ======= Minimum quarterly distribution to common unitholders (8,625) (7,365) General partner's incentive distribution rights - (4,749) General partner's interest in net (income) loss 68 (297) Common unitholders' share of income in excess of minimum quarterly distribution - (5,516) ———- ———- Subordinated partners' interest in net income (loss) $(11,949) $10,283 ======== ======= Basic and diluted net income (loss) per limited partner unit: Common $0.45 $0.79 Subordinated ($0.91) $0.79 Weighted average limited partner common units outstanding - basic 19,166 16,366 Weighted average limited partner common units outstanding - diluted 19,166 16,367 Weighted average limited partner subordinated units outstanding - basic and diluted 13,066 13,066 CALUMET SPECIALTY PRODUCTS PARTNERS, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) March 31, 2008 December 31, 2007 ——————— ————————- Unaudited ASSETS Current assets: Cash $50 $35 Accounts receivable, net 172,322 113,997 Inventories 147,521 107,664 Prepaid expenses and other current assets 1,413 7,588 ————— ———— Total current assets 321,306 229,284 Property, plant and equipment, net 617,651 442,882 Goodwill 49,446 - Intangible assets, net 58,461 2,460 Other noncurrent assets, net 12,709 4,231 ————— ———— Total assets $1,059,573 $678,857 ========== ======== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable $229,642 $167,977 Other current liabilities 20,607 13,842 Current portion of long-term debt 4,792 943 Derivative liabilities 114,798 57,503 ————— ———— Total current liabilities 369,839 240,265 Long-term postretirement benefit obligations 4,571 - Long-term debt, less current portion 365,638 38,948 ————— ———— Total liabilities 740,048 279,213 Partners' capital: Partners' capital 414,070 439,285 Accumulated other comprehensive loss (94,545) (39,641) ————— ———— Total partners' capital 319,525 399,644 ————— ———— Total liabilities and partners' capital $1,059,573 $678,857 ========== ======== CALUMET SPECIALTY PRODUCTS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Three Months Ended March 31, ————————————— 2008 2007 ————- ————— Unaudited Unaudited Operating activities Net income (loss) $(3,392) $28,210 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,350 3,573 Amortization of turnaround costs 330 968 Debt extinguishment costs 526 - Unrealized (gain) loss on derivative instruments (3,570) 4,777 Other non-cash activities 898 6 Changes in assets and liabilities: Accounts receivable (16,745) (8,648) Inventories 24,494 3,279 Prepaid expenses and other current assets 6,236 (5,668) Derivative activity 5,961 (969) Other noncurrent assets 1,373 (2,680) Accounts payable 32,910 23,573 Other current liabilities 2,058 (3,595) ————- ————— Net cash provided by operating activities 62,429 42,826 Investing activities Additions to property, plant and equipment (90,274) (41,734) Acquisition of Penreco, net of cash received (268,969) - Proceeds from disposal of property, plant and equipment - 19 ————- ————— Net cash used in investing activities (359,243) (41,715) Financing activities Proceeds from (Repayments of) borrowings, net - revolving credit facility (6,958) - Repayments of borrowings term loan credit facility with third parties (30,099) (125) Proceeds from (Repayments of) borrowings, net - new term loan credit facility with third parties, net 367,600 - Repayments of borrowings - new term loan credit facility with third parties (963) - Change in bank overdraft 98 - Purchase of common units for phantom unit grants (115) - Debt issuance costs (10,996) - Distributions to partners (21,738) (18,673) ————- ————— Net cash provided by (used in) financing activities 296,829 (18,798) ————- ————— Net increase (decrease) in cash 15 (17,687) Cash at beginning of period 35 80,955 ————- ————— Cash at end of period $50 $63,268 ========= ========== Supplemental disclosure of cash flow information Interest paid, net of capitalized interest $5,666 $1,988 ========= ========== Income taxes paid $7 $32 ========= ========== CALUMET SPECIALTY PRODUCTS PARTNERS, L.P. RECONCILIATION OF NET INCOME TO EBITDA, ADJUSTED EBITDA, AND DISTRIBUTABLE CASH FLOW (In thousands) Three Months Ended March 31, ———————————- 2008 2007 ————- ————- Unaudited Unaudited Reconciliation of Net Income to EBITDA, Adjusted EBITDA and Distributable Cash Flow: Net income (loss) $(3,392) $28,210 Add: Interest expense and debt extinguishment costs 5,692 1,015 Depreciation and amortization 9,928 3,474 Income tax expense 8 50 ————- ————- EBITDA $12,236 $32,749 ————- ————- Add: Unrealized loss from mark to market accounting for hedging activities $475 $3,807 Prepaid non-recurring expenses and accrued non-recurring expenses, net of cash outlays 2,196 (4,089) ————- ————- Adjusted EBITDA $14,907 $32,467 ————- ————- Less: Maintenance capital expenditures (1) (1,487) (3,161) Cash interest expense (2) (224) (883) Income tax expense (8) (50) ————- ————- Distributable Cash Flow $13,188 $28,373 ========= ========= (1) Maintenance capital expenditures are defined as those capital expenditures which do not increase operating capacity or sales from existing levels. (2) Represents cash interest paid by the Partnership, excluding capitalized interest. CALUMET SPECIALTY PRODUCTS PARTNERS, L.P. RECONCILIATION OF ADJUSTED EBITDA AND EBITDA TO NET CASH PROVIDED BY OPERATING ACTIVITIES (In thousands) Three Months Ended March 31, ————————— 2007 2008 ————— ————— Unaudited Unaudited Reconciliation of Adjusted EBITDA and EBITDA to net cash provided by operating activities: Adjusted EBITDA $14,907 $32,467 Add: Unrealized loss from mark to market accounting for hedging activities (475) (3,807) Prepaid non-recurring expenses and accrued non-recurring expenses, net of cash outlays (2,196) 4,089 ————— ————— EBITDA $12,236 $32,749 ========== ========== Add: Interest expense and debt extinguishment costs, net (4,239) (901) Unrealized loss on derivative instruments (3,570) 4,777 Income tax expense (8) (50) Provision for doubtful accounts 400 - Non-cash debt extinguishment costs 526 - Changes in assets and liabilities: Accounts receivable (16,745) (8,648) Inventory 24,494 3,279 Other current assets 6,236 (5,668) Derivative activity 5,961 (969) Accounts payable 32,910 23,573 Other current liabilities 2,058 (3,595) Other, including changes in noncurrent assets and liabilities 2,170 (1,721) ————— ————— Net cash provided by operating activities $62,429 $42,826 ========== ========== CALUMET SPECIALTY PRODUCTS PARTNERS, L.P. EXISTING COMMODITY DERIVATIVE INSTRUMENTS
The following table provides a summary of our derivatives and implied crack
spreads for the crude oil, diesel and gasoline swaps as of March 31, 2008: Implied Crack Swap Contracts by Expiration Dates Barrels BPD Spread ($/Bbl) ————————————————— ————- —- ——————- Second Quarter 2008 2,184,000 24,000 $12.63 Third Quarter 2008 2,208,000 24,000 12.25 Fourth Quarter 2008 2,116,000 23,000 12.42 Calendar Year 2009 8,212,500 22,500 11.43 Calendar Year 2010 7,482,500 20,500 11.20 Calendar Year 2011 2,279,000 6,244 11.49 ————- ——————- Totals 24,482,000 Average price $11.63
The following tables provide information about our derivative instruments related
to our specialty products segment as of March 31, 2008: Crude Oil Put/Call Spread Contracts by Expiration Dates Average Average Average Average Lower Upper Lower Upper Put Put Call Call Barrels BPD ($/Bbl) ($/Bbl) ($/Bbl) ($/Bbl) ———- —- ———- ———- ———- ———- April 2008 300,000 10,000 $74.35 $84.35 $94.35 $104.35 May 2008 248,000 8,000 75.45 85.45 95.45 105.45 June 2008 180,000 6,000 77.20 87.20 97.20 107.20 July 2008 62,000 2,000 74.30 84.30 94.30 104.30 August 2008 62,000 2,000 74.30 84.30 94.30 104.30 September 2008 60,000 2,000 74.30 84.30 94.30 104.30 ———- Totals 912,000 Average price $75.20 $85.20 $95.20 $105.20 For April 2008, the Partnership had a total of 300,000 barrels hedged with four-way collars. We settled approximately 270,000 barrels of these collars by entering into offsetting collars in March 2008, which yielded proceeds of approximately $1.9 million, or $6.85 per barrel. Crude Oil Swap Contracts by Expiration Dates Barrels BPD ($/Bbl) ———- —- ———- Second Quarter 2008 90,000 989 $93.50 Third Quarter 2008 46,000 500 100.45 Fourth Quarter 2008 46,000 500 100.45 ———- Totals 182,000 Average Price $97.01 Natural Gas Swap Contracts by Expiration Dates MMbtu $/MMbtu ——- ———- Third Quarter 2008 60,000 $8.30 Fourth Quarter 2008 90,000 $8.30 First Quarter 2009 90,000 $8.30 ——— ——- Totals 240,000 Average price $8.30 As of May 1, 2008, the Partnership has added the following derivative instruments in addition to the above transactions for our fuel products segment: Swap Contracts by Expiration Dates Implied Crack Barrels BPD Spread ($/Bbl) ———- —- ——————- Calendar Year 2011 730,000 2,000 $13.91 ———- ——————- Totals 730,000 Average price $13.91 As of May 1, 2008, the Partnership has added the following derivative instruments in addition to the above transactions for our specialty products segment: Average Average Average Average Crude Oil Put/Call Spread Lower Upper Lower Upper Contracts by Expiration Put Put Call Call Dates Barrels BPD ($/Bbl) ($/Bbl) ($/Bbl) ($/Bbl) ————————————- ———- ——- ——— ———- ———- ———- June 2008 60,000 2,000 $92.90 $102.90 $112.90 $122.90 ——— ——— ———- ———- ———- Totals 60,000 Average price $92.90 $102.90 $112.90 $122.90 For May 2008, the Partnership had a total of 248,000 barrels hedged with four-way collars. We settled all of these positions in April 2008 by entering into offsetting collars, which yielded proceeds of approximately $2.3 million, or $9.16 per barrel. Average Average Average Sold Put Lower Upper Crude Oil Put/Call Spread Barrels BPD ($/Bbl) Call Call Contracts by Expiration Dates ($/Bbl) ($/Bbl) ——————————————— ———- ——- ———- ———— ———- June 2008 180,000 6,000 $109.00 $115.00 $123.00 Third Quarter 2008 552,000 6,000 $107.50 $115.50 $123.50 ———- ———- ———- ———- Totals 732,000 Average price $107.87 $115.38 $123.38 Average Average Crude Oil Put/Call Spread Sold Put Bought Call Contracts by Expiration Dates Barrels BPD ($/Bbl) ($/Bbl) ——————————————— ———- ——- ———— —————- Fourth Quarter 2008 276,000 3,000 $98.85 $135.00 ———- ———— —————- Totals 276,000 Average price $98.85 $135.00 Crude Oil Swap Contracts by Barrels BPD ($/Bbl) Expiration Dates ———- ——- ———- —————————————- Second Quarter 2008 126,500 1,390 $115.78 ———- ———- Totals 126,500 Average Price $115.78 Natural Gas Swap Contracts by Expiration Dates MMbtu $/MMbtu ———————————————————————- ———- ———- Third Quarter 2008 160,000 $11.17 Fourth Quarter 2008 240,000 $11.17 First Quarter 2009 240,000 $11.17 ———- ———- Totals 640,000 Average price $11.17
SOURCE Calumet Specialty Products Partners, L.P.
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