News Releases

INDIANAPOLIS, Feb. 17, 2016 /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, today reported  results for the quarter and year ended December 31, 2015, as follows:

The Partnership's results for the fourth quarter 2015 include five special items: (1) a charge related to a lower of cost or market ("LCM") inventory adjustment of $24.1 million; (2) a $21.7 million loss related to the liquidation of last-in, first-out ("LIFO") inventory layers; (3) a $22.3 million gain on the early settlement of select derivatives contracts; (4) a $28.7 million adverse mark-to-market impact from the Partnership's existing Renewable Identification Numbers ("RINs") liability and (5) an $11.8 million unrealized loss on derivative instruments. For detailed information on a reconciliation of special items for all periods presented above, please see the section of this release entitled "Reconciliation of Net income (loss) to Adjusted Net income (loss)."

Management Commentary

"Looking at our full-year results in 2015, our core business performed well, as demonstrated by improved operational reliability at our facilities and higher sales across our deep portfolio of refined products," stated Tim Go, Chief Executive Officer of Calumet. "Refining system utilization and product sales volumes reached all-time records last year, the combination of which contributed to a significant year-over-year increase in Distributable Cash Flow, excluding special items. Despite challenging market conditions evident during the fourth quarter of 2015, our full-year 2015 results reflect a combination of stable growth in our specialty products segment and continued contributions from our niche, inland fuels refineries, which stand poised to benefit from increased processing of cost advantaged heavy Canadian crude oil during 2016."

"We are pleased to announce that our Montana refinery capacity expansion, San Antonio refinery solvents project and Missouri esters plant capacity expansion have all been completed," continued Go. "The crude oil unit at our Montana refinery is on-stream and is expected to reach 25,000 bpd of production by the end of March 2016, our San Antonio refinery is producing and selling solvents and our Missouri facility is producing and selling esters, post expansion. Collectively, we anticipate these projects will provide significant incremental Adjusted EBITDA for the Partnership over time which, together with a more than 60% year-over-year decline in projected capital spending in 2016, should contribute to improved financial flexibility for Calumet."

"Our senior management team, together with our Board of Directors, is highly focused on owning businesses whose unique competitive advantages and stable cash flow profiles support our long-term strategic growth," continued Go. "To that end, we recently introduced a revised corporate vision for Calumet designed to position the organization as 'the premier specialty petroleum products company in the world.'"

"As part of this vision, Calumet has commenced a multi-year initiative that emphasizes a combination of operational excellence, opportunistic investments in 'self-help' internal projects and a long-term, targeted acquisition strategy that will support the purchase of competitively advantaged assets in the global specialty products markets," continued Go. "We intend to provide supporting data on the financial benefits of this initiative in subsequent updates."

"We believe the Partnership has sufficient liquidity from cash on hand and from operations, as well as availability under our asset based revolving credit facility to fund general business requirements, subject to market conditions," continued Go. "During the fourth quarter 2015, affiliates of our general partner provided Calumet with an unsecured $75 million loan, demonstrating their continued long-term support for the Partnership."

"During the first quarter 2016, we have taken steps to significantly increase the volume of heavy Canadian crude oil processed at our fuels refineries," noted Go. "Historically, we have processed between 20,000 bpd and 25,000 bpd of heavy Canadian crude oil at our refineries, representing approximately one-quarter of our crude slate. By year-end 2016, we intend to process between 40,000 bpd and 45,000 bpd of heavy Canadian crude oil and, longer-term, as much as 70,000 bpd of cost-advantaged Canadian feedstock. Given that heavy Canadian crude oil is discounted by more than $12 per barrel versus West Texas Intermediate ("WTI") year-to-date 2016, we view this as a clear profit improvement opportunity for the Partnership that we expect to require limited capital investment."

Specialty Products Segment

Overall demand for specialty products was essentially flat in the fourth quarter 2015, when compared to the prior year period. Demand for lubricating oils, white oils and packaged and synthetic specialty products remained stable, while solvents demand remains soft due primarily to less activity in the oilfield services industry. Sales of packaged and synthetic specialty products, which include proprietary product lines such as TruFuel and Royal Purple, achieved a new record in 2015.

Fuel Products Segment

During the fourth quarter 2015, a more than 45% quarter-over-quarter decline in the Gulf Coast 2/1/1 crack spread, together with a narrowing in crude oil price differentials, contributed to lower results within the fuel products segment. The Partnership processed an average of approximately 22,300 bpd of heavy Canadian crude oil in the fourth quarter 2015, versus 19,500 bpd in the fourth quarter 2014. Calumet continues to believe a structurally wide WCS-WTI crude oil price differential remains a significant advantage to the overall profitability of its fuel products segment based on current market conditions. During 2016, the Partnership intends to significantly increase the volumes of WCS price-linked crude oil processed at its fuels refineries to further capitalize on this advantage.

Oilfield Services Segment

The average price of WTI crude oil declined by more than 40% between December 31, 2014 and December 31, 2015. In response to lower crude oil prices, domestic oilfield services activity declined sharply during the past year, as the U.S. land rig count dropped by nearly 50% on a year over year basis. The decline in drilling and completion activity had a material adverse impact on our oilfield services segment throughout 2015, a trend which continued into the fourth quarter 2015. 

In response to these market conditions, the Partnership took steps to significantly reduce costs in the business during the past year, efforts that included capturing increased supply chain efficiencies in addition to a series of targeted workforce reductions that better positioned the segment relative to the needs of existing customers. While the oilfield services segment remains challenged in a lower commodity price environment, the Partnership continues to position the business for cash flow neutrality, given the current challenges evident in this market.

Partnership Liquidity

On December 31, 2015, Calumet had availability under its revolving credit facility of $233.5 million, based on a $411.3 million borrowing base, $66.8 million in outstanding standby letters of credit and $111.0 million in outstanding borrowings. In addition, Calumet had $5.6 million of cash on hand as of December 31, 2015. Calumet believes it will continue to have sufficient liquidity from cash on hand, cash flow from operations, borrowing capacity and other means by which to meet its financial commitments, debt service obligations, contingencies and anticipated capital expenditures. On a continuous basis, the Partnership focuses on various initiatives, including working capital initiatives, to further enhance its liquidity over time, given current market conditions.

Financial Guidance

Full-year 2016 Capital Spending Forecast. For the full year 2016, the Partnership anticipates total capital expenditures between $125.0 million and $150.0 million. Anticipated 2016 capital spending includes (1) $60.0 million to $70.0 million for capital improvement expenditures; (2) $50.0 million to $60.0 million for replacement and environmental expenditures; (3) $5.0 million to $10.0 million for turnaround related expenditures and (4) $10.0 million for joint venture contributions.

Full-Year 2016 RFS Compliance Impact Forecast. In conjunction with the Partnership's ongoing compliance with the U.S. Renewable Fuel Standard ("RFS"), Calumet expects to 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. 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, will be up to 120 million RINs for the full-year 2016, excluding the potential for any subsequent hardship waivers that may or may not be granted by the U.S. Environmental Protection Agency ("EPA") to any of the Partnership's fuel refineries at a later time.

Strategic Update

In early 2016, Calumet introduced a revised vision designed to position the organization as the premier specialty petroleum products company in the world. As part of this vision, Calumet has commenced a multi-year initiative that emphasizes a combination of operational excellence, opportunistic investments in "self-help," high-return internal projects and a targeted acquisition strategy that seeks to support the purchase of complementary, competitively advantaged assets in the global specialty products markets.

Operational Excellence. Calumet will seek to optimize its existing asset base through a series of improvement initiatives that are expected to position the Partnership for sustained, profitable growth. Calumet has identified key areas of opportunity within the business that carry "low/no" capital investment requirements and attractive return profiles. Key initiatives under evaluation as part of the operational excellence initiative include efforts to further optimize the procurement of feedstock, efforts to improve refinery yields, efforts to improve the efficiency of assets by operating at higher utilization rates and efforts to lower margin product streams into higher margin finished products. 

"Self-Help" Project Investments. Calumet expects to pursue a series of "self-help" projects characterized by high-return investment profiles and sub-$50 million capital investment requirements. The Partnership will evaluate projects that are smaller in size/scope than the prior organic growth campaign and that carry shorter durations to completion. These projects will carry high-return investment profiles capable of supporting growth in Adjusted EBITDA and Distributable Cash Flow. 

Targeted Acquisition Strategy. Calumet seeks to acquire complementary, immediately accretive businesses with sustainable competitive advantages that further entrench Calumet as a global leader in the specialty products markets. The Partnership's acquisition focus will narrow versus prior years to include specialty businesses (1) where the Partnership has an existing core competency; and (2) that have a sustainable competitive advantage. At the same time, the Partnership regularly evaluates its portfolio to identify potential asset divestiture candidates that do not fit its core asset portfolio criteria.

Operations Summary

The following table sets forth information about our combined operations, excluding the results of the oilfield services segment. Facility production volume differs from sales volume due to changes in inventories and the sale of purchased fuel product blendstocks such as ethanol and biodiesel and the resale of crude oil in our fuel products segment.

Derivatives Summary

The following table summarizes the derivative activity reflected in the unaudited consolidated statements of operations and consolidated statements of cash flows for the three months and years ended December 31, 2015 and 2014:

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; produces fuel products including gasoline, diesel and jet fuel; and provides oilfield services and products to customers throughout the United States. Calumet is based in Indianapolis, Indiana, and has fourteen manufacturing facilities located in northwest Louisiana, northwest Wisconsin, northern Montana, western Pennsylvania, Texas, New Jersey, Oklahoma, eastern Missouri and North Dakota.

A conference call is scheduled for 1:00 p.m. ET (12:00 p.m. CT) on February 17, 2016, to discuss the financial and operational results for the fourth quarter and full-year 2015. Investors, analysts and members of the media interested in listening to the live presentation may call (866) 584-9671. The telephonic replay is available by calling (404) 537-3406 and entering passcode 28567856. The replay will be available beginning February 17, 2016, until February 24, 2016.  A webcast of the 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 months and year ended December 31, 2015, 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, including our targeted debt to Adjusted EBITDA ratio and our expected future distributions, 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, other refined products and oilfield services; the level of foreign and domestic production of crude oil and refined products; our ability to produce specialty products, fuels products and products used in oilfield services 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; estimated capital expenditures as a result of our planned organic growth projects and estimated annual EBITDA contributions from such projects; 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 RFS, 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 the Securities and Exchange Commission ("SEC"), including our 2014 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, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items and provide reconciliations of EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items 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, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items 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) impairment, (e) unrealized losses from mark-to-market accounting for hedging activities, (f) realized gains under derivative instruments excluded from the determination of net income (loss), (g) 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), (h) debt refinancing fees, premiums and penalties and (i) 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), income (loss) from unconsolidated affiliates, net of cash distributions and income tax expense (benefit). 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 release reflect the calculation of "Consolidated Cash Flow" contained in the indentures governing our 7.625% senior notes due January 15, 2022, that were issued in November 2013 (the "2022 Notes"), our 6.5% senior notes due April 15, 2021, that were issued in March 2014 (the "2021 Notes") and our 7.75% senior notes due April 15, 2023 (the "2023 Notes"), that were issued in March 2015. We are required to report Consolidated Cash Flow to the holders of our 2021 Notes, 2022 Notes and 2023 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. Adjusted EBITDA and Distributable Cash Flow that are presented in this press release for prior periods have been updated to reflect the use of the new calculations. Please see our filings with the SEC, including our 2014 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, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items should not be considered alternatives to net income (loss), operating income (loss), 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, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items, management recognizes and considers the limitations of these measurements. EBITDA, Adjusted EBITDA and Adjusted EBITDA, Excluding Special Items 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 several measurements that management utilizes. Moreover, our EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items may not be comparable to similarly titled measures of another company because all companies may not calculate EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items in the same manner. The following tables present a reconciliation of both net loss to EBITDA, Adjusted EBITDA, Distributable Cash Flow, Adjusted Net Income (Loss), Adjusted EBITDA, Excluding Special Items and Distributable Cash Flow, Excluding Special Items, 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.