News Releases

INDIANAPOLIS, Nov. 5, 2014 /PRNewswire/ -- Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) (the "Partnership," "Calumet," "we," "our" or "us"), a leading independent producer of specialty hydrocarbon and fuel products, reported net income for the third quarter ended September 30, 2014 of $9.4 million, or $0.08 per diluted unit, compared to a net loss of $34.8 million, or $(0.54) per diluted unit, in the third quarter 2013. Third quarter 2014 results include $25.6 million in non-cash unrealized derivative losses, compared to $2.4 million non-cash unrealized derivative gains in the prior year period.

Calumet generated Adjusted EBITDA (as defined below in the section of this press release titled "Non-GAAP Financial Measures") of $107.5 million during the third quarter 2014 versus $38.3 million in the prior-year period, driven by improved utilization at key fuels refineries, a year-over-year improvement in benchmark refining margins and strong demand for refined products.

Distributable Cash Flow ("DCF") (as defined below in the section of this press release titled "Non-GAAP Financial Measures") for the third quarter 2014 was $71.3 million, compared to $(16.0) million in the prior year period. The year-over-year increase in DCF resulted primarily from significant growth in Adjusted EBITDA and lower turnaround costs, partially offset by higher cash interest expense.

Management Commentary

"During the third quarter, Adjusted EBITDA increased to near-record levels, distribution coverage reached 1.4x and our key refineries operated at or ahead of plan," stated Bill Grube, Vice Chairman and Chief Executive Officer.  "Strong system reliability and seasonally robust refining economics, were among the key factors that contributed to our strong third quarter results."

"Our slate of organic growth projects remain on track," continued Grube.  "We are finalizing pre-commissioning work at our Dakota Prairie joint venture refinery, scheduled to reach completion by year-end 2014.  Further, together with our joint venture partner, we have secured crude oil supply relationships with multiple established producers in the local market who are capable of supplying Dakota Prairie Refining with cost-advantaged Bakken crude oil, the majority of which will be delivered by third-party pipeline once the refinery comes on stream."

"Having concluded the turnaround cycle at our four major fuels refineries during the past two years, we do not anticipate major maintenance-related capital spending at these refineries until the 2018-2019 timeframe," continued Grube.  "Our Shreveport refinery, which concluded planned maintenance during the second quarter 2014, operated at approximately 43,000 barrels per day during the third quarter 2014, well above historical averages.  We want to congratulate all of our refinery personnel on their continued commitment to safety and reliability."

"Our leverage ratio, as defined by total debt divided by our trailing twelve month Adjusted EBITDA, improved substantially between the second and third quarters of 2014, declining from 7.4x to 6.0x," continued Grube.  "Long term, we remain focused on reducing our leverage ratio below 4.0x."

"We remain committed to maintaining a distribution policy that provides for consistent cash distributions to our unitholders,"stated Grube. "On October 21, 2014, we announced a quarterly cash distribution of $0.685 per unit for the third quarter 2014 on all of our outstanding limited partner units.  Long term, we continue to target a distribution coverage ratio in the range of 1.2x to 1.5x."

Third Quarter 2014 Performance Highlights

• Significant year-over-year and sequential increase in Adjusted EBITDA. Adjusted EBITDA reported in the third quarter 2014 was $107.5 million, compared to $38.3 million in the third quarter 2013 and $39.3 million in the second quarter 2014. Adjusted EBITDA reported in the third quarter 2014 represents the third highest single-quarter Adjusted EBITDA generated in the history of the Partnership and the single highest Adjusted EBITDA quarter for the Partnership since the third quarter 2012.
• Achieved 1.4x distribution coverage ratio in third quarter 2014 and 0.7x for the nine months ended September 30, 2014. The Partnership reported DCF of $71.3 million in the third quarter 2014, versus $(16.0) million in the third quarter 2013 and $(20.4) million in the second quarter 2014. The year-over-year improvement in DCF was attributable primarily to a combination of higher Adjusted EBITDA and lower turnaround costs, partially offset by higher cash interest expense.
• Entered a cycle of lower turnaround-related spending. Between the first quarter 2013 and the second quarter 2014, each of the Partnership's fuels refineries, conducted a full, plant-wide turnaround, resulting in elevated turnaround expenditures during that period. Management anticipates that, having completed this planned major maintenance cycle, turnaround related expenditures should return to a range of $25 million to $30 million per year until the next turnaround cycle commences in 2018. The Partnership anticipates minimal turnaround related capital spending during the fourth quarter 2014.
• Leverage ratio improved on a trailing twelve month basis. The Partnership's debt to trailing twelve month Adjusted EBITDA as of September 30, 2014 was 6.0x, down from 7.4x as of June 30, 2014, due primarily to higher trailing twelve months Adjusted EBITDA. The Partnership continues to target a leverage ratio of at or below 4.0x.

RFS Small Refinery Exemptions

On October 7, 2014, the EPA granted both the Partnership's Shreveport and San Antonio refineries a "small refinery exemption" under the U.S. Renewable Fuels Standard ("RFS") for the full-year 2013, as provided under the Clean Air Act.  The EPA determined that for the full-year 2013, compliance with the RFS would represent a "disproportionate economic hardship" for these two refineries. Under the 2013 exemptions granted by the EPA, both the Shreveport and San Antonio refineries are not subject to the requirements of RFS as an  "obligated party" for fuels produced at these refineries between January 1, 2013 and December 31, 2013.  As a result of the exemptions, the Partnership's requirements to purchase Renewable Identification Numbers ("RINs") for 2013 compliance were reduced by approximately 39 million RINs.  Any gains from these exemptions will be recorded in the fourth quarter 2014, the period such exemptions were received.  The Partnership is in the process of an assessment to determine which of its fuels refineries potentially could be eligible for economic hardship exemptions for the full-year 2014.

Organic Growth Projects Update

Beginning in 2013, the Partnership initiated a series of organic growth projects, the last of which is expected to be completed by the first quarter 2016. Collectively, these projects are estimated to cost approximately $610 million and are expected to return approximately $200 million in annualized Adjusted EBITDA upon completion. As of September 30, 2014, Calumet had invested more than $300 million in these growth related capital projects. The following is a current list of the remaining growth projects slated for through the first quarter 2016:

• Dakota Prairie (North Dakota) Refinery Project. Calumet, together with its 50/50 joint venture partner, MDU Resources, Inc., continues to make steady progress on the construction of a 20,000 barrels per day ("bpd") diesel refinery located in Dickinson, North Dakota. At this point, all critical path items have been completed, and the Partnership anticipates the refinery should be mechanically completed by year-end 2014 with production ramp-up during the first quarter of 2015. The estimated total construction cost of this project to the joint venture, which is in its final phase, is approximately $365 million.
• San Antonio Solvents Project. Calumet has commenced a project that will take a portion of its San Antonio refinery's ultra-low sulfur diesel and jet fuel production and convert it into up to 3,000 bpd of higher margin solvents that will meet customer requirements for low aromatic content. Solvents production will supplement the refinery's current fuels production slate and will be targeted toward the drilling fluid, paints and coating markets. This project is expected to reach completion during the second quarter 2015. The estimated total construction cost of the solvents project is approximately $40 million. 
• Missouri Esters Plant Expansion Project. Calumet continues to make progress on a project that is expected to double esters production capacity at its Missouri esters plant from 35 million to 75 million pounds per year. Esters are a key base stock used in the aviation, refrigeration and automotive lubricants markets. The Partnership anticipates completion of the project during the second quarter 2015. The estimated total construction cost of the expansion project is approximately $40 million.
• Montana Refinery Expansion Project. Calumet is progressing on a project designed to double production capacity at its Montana refinery from 10,000 to 20,000 bpd. The Partnership estimates that this project will be completed during the first quarter of 2016. The current estimated total construction cost of the expansion project is approximately $400 million.

Financial and Operational Guidance

• 2014 capital spending forecast. For the full-year 2014, the Partnership anticipates total capital expenditures of $375 million to $420 million. Approximately $315 million to $345 million (including contributions to our joint ventures) of the total 2014 capital spending plan is allocated toward organic growth projects. The 2014 capital spending plan also includes an estimated $35 million to $45 million in replacement and environmental capital expenditures and approximately $25 million to $30 million in turnaround costs.
• Estimated RFS compliance impact for the full-year 2014. In conjunction with the Partnership's ongoing compliance with the RFS, Calumet will purchase blending credits referred to as RINs. The Partnership records its outstanding RINs obligation as a balance sheet liability. This liability is marked-to-market on a quarterly basis to reflect the market price of RINs on the last day of each quarter. Excluding any the exemptions for the full-year 2014, the Partnership expects its gross estimated annual RINs obligation, which includes RINs that are required to be secured through either blending or through the purchase of RINs in the open market, to be in the range of 85 million to 90 million RINs for the full year 2014, consistent with the Partnership's prior guidance. During the third quarter 2014, Calumet incurred RFS compliance costs of $3.8 million, compared to a $3.9 million gain in the third quarter 2013.

Partnership Liquidity

On September 30, 2014, Calumet had availability under its revolving credit facility of approximately $557.4 million, based on a $831.5 million borrowing base, $149.9 million in outstanding standby letters of credit and $124.2 million in outstanding borrowings. In addition, Calumet had approximately $7.7 million of cash on hand as of September 30, 2014. Calumet believes it will continue to have ample liquidity from cash on hand, cash flow from operations and borrowing capacity under its revolving credit facility to meet its financial commitments, minimum quarterly distributions to unitholders, debt service obligations, contingencies and anticipated capital expenditures.

Gross Profit Comparison of Quarters Ended September 30, 2014 and 2013

The Partnership has reclassified the reporting of asphalt sold from its Shreveport, Superior and Montana refineries from its Specialty Products segment to its Fuel Products segment. This reporting change does not impact the Partnership's consolidated financial results from prior periods. Segment gross profit for the prior periods has been restated and is consistent with the current year presentation.

Gross profit by segment for the three and nine months ended September 30, 2014 and 2013 are as follows:

Specialty Products

Calumet's Specialty Products segment generated a gross profit of $41.98 per barrel during the third quarter 2014, compared to $31.47 per barrel in the third quarter 2013. The increase in specialty products segment gross profit of $72.9 million between the third quarter 2014 and the prior year period was attributable to incremental gross profit contributions from recently completed acquisitions, including Anchor Drilling Fluids ("Anchor"), Bel-Ray, Specialty Oilfield Services ("SOS") and United Petroleum, coupled with a decline in the average cost of crude oil per barrel year over year.

Fuel Products

Calumet's Fuel Products segment generated a gross profit of $3.11 per barrel (excluding hedging activities) during the third quarter 2014, compared to gross loss of $(1.80) per barrel (excluding hedging activities) in the third quarter 2013. The increase in Fuel Products gross profit of $47.6 million between the third quarter 2014 and the prior year period was attributable to improved refining economics, partially offset by higher RINs and natural gas costs incurred during the third quarter 2014 compared to the prior year period.

Operations Summary

The following table sets forth unaudited information about Calumet's operations, excluding Anchor and SOS operations. Facility production volume differs from sales volume due to changes in inventories and the sale of purchased fuel product blendstocks such as ethanol, biodiesel and the resale of crude oil in the Fuel Products segment. The table includes the results of operations at our San Antonio refinery commencing January 2, 2013, Bel-Ray facility commencing December 10, 2013 and United Petroleum assets commencing February 28, 2014.

Derivatives Summary

The following table summarizes the derivative activity reflected in the unaudited consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the three and nine months ended September 30, 2014 and 2013.

About the Partnership

Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT) is a master limited partnership and a leading independent producer of high-quality, specialty hydrocarbon products in North America. Calumet processes crude oil and other feedstocks into customized lubricating oils, solvents and waxes used in consumer, industrial and automotive products. Calumet also produces fuel products including gasoline, diesel and jet fuel. Calumet is based in Indianapolis, Indiana and has thirteen manufacturing facilities located in northwest Louisiana, northwest Wisconsin, northern Montana, western Pennsylvania, Texas, New Jersey, Oklahoma and eastern Missouri.

A conference call is scheduled for 1:00 p.m. ET (12:00 p.m. CT) on Wednesday, November 5, 2014, to discuss the financial and operational results for the third quarter 2014. Investors, analysts and members of the media interested in listening to the live presentation may call (800) 688-0836 and enter passcode 87185139. The telephonic replay is available by calling (888) 286-8010 and entering passcode 92070726. The replay will be available beginning Wednesday, November 5, 2014, at approximately 5:00 p.m. ET until Wednesday, November 12, 2014. A webcast of the earnings call and accompanying presentation slides will be available on the Partnership's website at http://www.calumetspecialty.com.

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

Cautionary Statement Regarding Forward-Looking Statements

Certain statements and information in this press release concerning results for the three and nine months ended September 30, 2014 may constitute "forward-looking statements." The words "believe," "expect," "anticipate," "plan," "intend," "foresee," "should," "would," "could" or other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future sales and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause our actual results to differ from our historical experience and our present expectations or projections. Known material factors that could cause actual results to differ materially from those in the forward-looking statements 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 or decreases in crude oil and crack spread prices, including the resulting impact on our liquidity; the results of our hedging and other risk management activities; our ability to comply with financial covenants contained in our debt instruments; the availability of, and our ability to consummate, acquisition or combination opportunities and the impact of any completed acquisitions; labor relations; our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms; successful integration and future performance of acquired assets, businesses or third-party product supply and processing relationships; our ability to timely and effectively integrate the operations of recently acquired businesses or assets, particularly those in new geographic areas or in new lines of business; environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves; maintenance of our credit ratings and ability to receive open credit lines from our suppliers; demand for various grades of crude oil and resulting changes in pricing conditions; fluctuations in refinery capacity; our ability to access sufficient crude oil supply through long-term or month-to-month evergreen contracts and on the spot market; the effects of competition; continued creditworthiness of, and performance by, counterparties; the impact of current and future laws, rulings and governmental regulations, including guidance related to the Dodd-Frank Wall Street Reform and Consumer Protection Act; the costs of complying with the Renewable Fuels Standard, including the prices paid for RINs; shortages or cost increases of power supplies, natural gas, materials or labor; hurricane or other weather interference with business operations; our ability to access the debt and equity markets; accidents or other unscheduled shutdowns; and general economic, market or business conditions.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with Securities and Exchange Commission ("SEC"), including our 2013 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

We include in this press release the non-GAAP financial measures EBITDA, Adjusted EBITDA and Distributable Cash Flow and provide reconciliations of EBITDA, Adjusted EBITDA and Distributable Cash Flow to net income (loss) and 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 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 believe that these non-GAAP measures are useful to 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" for any period as net income (loss) plus interest expense (including debt issuance and extinguishment costs), income taxes and depreciation and amortization.

We define "Adjusted EBITDA" for any period as: (1) net income (loss) plus; (2)(a) interest expense, (b) income taxes, (c) depreciation and amortization, (d) unrealized losses from mark to market accounting for hedging activities, (e) realized gains under derivative instruments excluded from the determination of net income (loss), (f) non-cash equity based compensation expense and other non-cash items (excluding items such as accruals of cash expenses in a future period or amortization of a prepaid cash expense) that were deducted in computing net income (loss), (g) debt refinancing fees, premiums and penalties and (h) all extraordinary, unusual or non-recurring items of gain or loss, or revenue or expense; minus (3)(a) unrealized gains from mark to market accounting for hedging activities, (b) realized losses under derivative instruments excluded from the determination of net income (loss) and (c) other non-recurring expenses and unrealized items that reduced net income (loss) for a prior period, but represent a cash item in the current period.

We define "Distributable Cash Flow" for any period as Adjusted EBITDA less replacement and environmental capital expenditures, turnaround costs, cash interest expense (consolidated interest expense less non-cash interest expense and excluding capitalized interest) and income tax expense. Distributable Cash Flow is used by us, our investors and analysts to analyze our ability to pay distributions.

The definitions of Adjusted EBITDA and Distributable Cash Flow that are presented in this press release reflect the calculation of "Consolidated Cash Flow" contained in the indenture governing our 9.625% senior notes due August 1, 2020 that were issued in June 2012 (the "2020 Notes"), the indenture governing our 7.625% senior notes due January 15, 2022 that were issued in November 2013 (the "2022 Notes") and the indenture governing our 6.50% senior notes due April 15, 2021 that were issued in March 2014 (the "2021 Notes"). We are required to report Consolidated Cash Flow to our holders of the 2021 Notes, 2020 Notes and 2022 Notes and Adjusted EBITDA to the lenders under our revolving credit facility, and these measures are used by them to determine our compliance with certain covenants governing those debt instruments. Please see our filings with the SEC, including our 2013 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, for additional details regarding the covenants governing our debt instruments.

EBITDA, Adjusted EBITDA and Distributable Cash Flow should not be considered alternatives to net income (loss), 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 these measurements. EBITDA and Adjusted EBITDA do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EBITDA, 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 (loss) 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.

Subsequent to September 30, 2014, we entered into crude oil, diesel, jet and gasoline swap contracts that offset certain derivative instruments existing at September 30, 2014 in order to lock in hedging gains of $26.1 million on 3.6 million barrels which will be realized during the fourth quarter 2014 and in 2015.

SOURCE Calumet Specialty Products Partners, L.P.