UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR THE SECURITIES EXCHANGE ACT OF 1934

Commission File number 000-51734

Calumet Specialty Products Partners, L.P.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		37-1516132
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)
2780 Waterfront Parkway East Drive, Suite 200
Indianapolis, Indiana		46214
(Address of principal executive officers)		(Zip code)

Registrant’s telephone number including area code (317) 328-5660

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     At November 4, 2009, there were 19,166,000 common units and 13,066,000 subordinated units outstanding.

 

 

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
FORM 10-Q — September 30, 2009 QUARTERLY REPORT

Table of Contents

		Page
Part I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets			5
Unaudited Condensed Consolidated Statements of Operations			6
Unaudited Condensed Consolidated Statements of Partners’ Capital			7
Unaudited Condensed Consolidated Statements of Cash Flows			8
Notes to Unaudited Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
Item 4. Controls and Procedures			51
Part II
Item 1. Legal Proceedings			58
Item 1A. Risk Factors			58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			58
Item 3. Defaults Upon Senior Securities			58
Item 4. Submission of Matters to a Vote of Security Holders			58
Item 5. Other Information			58
Item 6. Exhibits
Exhibit 10.2			58
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-10.1
EX-31.1
EX-31.2
EX-32.1

FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q includes certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of the information in this Quarterly Report on Form 10-Q 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. The statements regarding (i) expected settlements with the Louisiana Department of Environmental Quality (“LDEQ”) or other environmental and regulatory liabilities, (ii) our anticipated levels of use of derivatives to mitigate our exposure to crude oil price changes and fuel products price changes, (iii) future compliance with our debt covenants, and (iv) future activities associated with our contractual arrangements with Houston Refining LP, as well as other matters discussed in this Quarterly Report on Form 10-Q that are not purely historical data, are forward-looking statements. These statements discuss future expectations or state other “forward-looking” information and involve risks and uncertainties. When considering these forward-looking statements, unitholders should keep in mind the risk factors and other cautionary statements included in this Quarterly Report on Form 10-Q, our Quarterly Reports on Form 10-Q filed on May 8, 2009 and August 7, 2009, and in our Annual Report on Form 10-K filed on March 4, 2009. The risk factors in these documents and other factors noted throughout this Quarterly Report on Form 10-Q could cause our actual results to differ materially from those contained in any forward-looking statement. These factors include, but are not limited to:

	•		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 impact on our liquidity;
	•		the results of our hedging and other risk management activities;
	•		our ability to comply with financial covenants contained in our credit agreements;
	•		the availability of, and our ability to consummate, acquisition or combination opportunities;
	•		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 other related agreements;
	•		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;
	•		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;
	•		accidents or other unscheduled shutdowns; and
	•		general economic, market or business conditions.

     Other factors described herein, or factors that are unknown or unpredictable, could also have a material adverse effect on future results. Our forward looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward looking statement. Please read Part I Item 3 “Quantitative and Qualitative Disclosures About Market Risk.” We will not update these statements unless securities laws require us to do so.

     All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to publicly release the results of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

     References in this Quarterly Report on Form 10-Q to “Calumet,” “the Partnership,” “the Company,” “we,” “our,” “us” or like terms refer to Calumet Specialty Products Partners, L.P. and its subsidiaries. References in this Quarterly Report on Form 10-Q to “our general partner” refer to Calumet GP, LLC.

PART I

Item 1. Financial Statements

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30, 2009				December 31, 2008
		(Unaudited)
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	2,567			$	48
Accounts receivable:
Trade			121,739				103,962
Other			6,520				5,594
			128,259				109,556
Inventories			131,708				118,524
Derivative assets			38,505				71,199
Prepaid expenses and other current assets			2,756				1,803
Deposits			21				4,021
Total current assets			303,816				305,151
Property, plant and equipment, net			638,829				659,684
Goodwill			48,335				48,335
Other intangible assets, net			40,945				49,502
Other noncurrent assets, net			16,107				18,390
Total assets		$	1,048,032			$	1,081,062
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable		$	94,471			$	87,460
Accounts payable — related party			37,682				6,395
Accrued salaries, wages and benefits			7,867				6,865
Taxes payable			7,574				6,833
Other current liabilities			4,423				9,662
Current portion of long-term debt			4,670				4,811
Derivative liabilities			5,269				15,827
Total current liabilities			161,956				137,853
Pension and postretirement benefit obligations			10,379				9,717
Other long-term liabilities			1,116				—
Long-term debt, less current portion			424,965				460,280
Total liabilities			598,416				607,850
Commitments and contingencies
Partners’ capital:
Common unitholders (19,166,000 units authorized, issued and outstanding)			369,376				363,935
Subordinated unitholders (13,066,000 units authorized, issued and outstanding)			39,404				35,778
General partner’s interest			18,115				17,933
Accumulated other comprehensive income			22,721				55,566
Total partners’ capital			449,616				473,212
Total liabilities and partners’ capital		$	1,048,032			$	1,081,062

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(In thousands, except per unit data)
Sales		$	492,431			$	724,371			$	1,350,735			$	1,990,315
Cost of sales			451,275				647,397				1,212,241				1,817,625
Gross profit			41,156				76,974				138,494				172,690
Operating costs and expenses:
Selling, general and administrative			7,437				11,995				23,697				29,666
Transportation			18,519				21,656				49,761				66,685
Taxes other than income taxes			1,167				1,324				3,156				3,386
Other			191				393				888				957
Operating income			13,842				41,606				60,992				71,996
Other income (expense):
Interest expense			(8,243	)			(10,670	)			(25,333	)			(24,373	)
Debt extinguishment costs			—				—				—				(898	)
Realized gain (loss) on derivative instruments			4,045				(12,621	)			3,213				(12,971	)
Unrealized gain (loss) on derivative instruments			(4,485	)			(30,892	)			17,672				(13,866	)
Gain on sale of mineral rights			—				—				—				5,770
Other			(1,271	)			210				(2,856	)			551
Total other income (expense)			(9,954	)			(53,973	)			(7,304	)			(45,787	)
Net income (loss) before income taxes			3,888				(12,367	)			53,688				26,209
Income tax (benefit) expense			(79	)			148				70				308
Net income (loss)		$	3,967			$	(12,515	)		$	53,618			$	25,901
Calculation of common unitholders’ interest in net income (loss):
Net income (loss)		$	3,967			$	(12,515	)		$	53,618			$	25,901
Less:
General partner’s interest in net income (loss)			79				(250	)			1,070				518
Subordinated unitholders’ interest in net income (loss)			1,573				(4,969	)			21,265				10,292
Net income (loss) available to common unitholders		$	2,315			$	(7,296	)		$	31,283			$	15,091
Weighted average number of common units outstanding — basic and diluted			19,166				19,166				19,166				19,166
Weighted average number of subordinated units outstanding — basic and diluted			13,066				13,066				13,066				13,066
Common and subordinated unitholders’ basic and diluted net income (loss) per unit		$	0.12			$	(0.38	)		$	1.63			$	0.79
Cash distributions declared per common and subordinated unit		$	0.45			$	0.45			$	1.35			$	1.53

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

		Accumulated Other				Partners' Capital
		Comprehensive				General				Limited Partners
		Income				Partner				Common				Subordinated				Total
		(In thousands)
Balance at December 31, 2008		$	55,566			$	17,933			$	363,935			$	35,778			$	473,212
Comprehensive income:
Net income							1,070				31,283				21,265				53,618
Cash flow hedge gain reclassified to net income upon settlement			(5,243	)															(5,243	)
Change in fair value of cash flow hedges			(27,885	)															(27,885	)
Minimum pension liability adjustment			283																283
Comprehensive income																			20,773
Common units repurchased for vested phantom unit grants											(164	)							(164	)
Amortization of vested phantom units											242								242
Distributions to partners							(888	)			(25,920	)			(17,639	)			(44,447	)
Balance at September 30, 2009		$	22,721			$	18,115			$	369,376			$	39,404			$	449,616

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Nine Months Ended
		September 30,
		2009				2008
		(In thousands)
Operating activities
Net income		$	53,618			$	25,901
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			48,890				42,369
Amortization of turnaround costs			5,692				1,041
Provision for doubtful accounts			(766	)			1,320
Non-cash debt extinguishment costs			—				898
Unrealized (gain) loss on derivative instruments			(17,672	)			13,866
Gain on sale of mineral rights			—				(5,770	)
Other non-cash activity			3,561				305
Changes in assets and liabilities:
Accounts receivable			(17,937	)			(64,410	)
Inventories			(13,184	)			84,606
Prepaid expenses and other current assets			(953	)			4,641
Derivative activity			6,680				7,510
Deposits			4,000				—
Other assets			(4,539	)			(1,985	)
Accounts payable			38,298				(39,473	)
Accrued salaries, wages and benefits			1,002				1,621
Taxes payable			741				1,996
Other current liabilities			1,086				518
Pension and postretirement benefit obligations			945				725
Other long-term liabilities			1,116				—
Net cash provided by operating activities			110,578				75,679
Investing activities
Additions to property, plant and equipment			(20,718	)			(161,811	)
Acquisition of Penreco, net of cash acquired			—				(269,118	)
Settlement of derivative instruments			—				(6,042	)
Proceeds from sale of mineral rights			—				6,065
Proceeds from disposal of property and equipment			793				24
Net cash used in investing activities			(19,925	)			(430,882	)
Financing activities
Proceeds from (Repayments of) borrowings, net — revolving credit facility			(33,435	)			85,933
Repayments of borrowings — prior term loan credit facility			—				(30,099	)
Proceeds from (Repayments of) borrowings, net — existing term loan credit facility			(2,888	)			358,647
Debt issuance costs			—				(9,633	)
Payments on capital lease obligations			(875	)			(309	)
Change in bank overdraft			(6,325	)			2,190
Common units repurchased for vested phantom unit grants			(164	)			(115	)
Distributions to partners			(44,447	)			(51,339	)
Net cash provided by (used in) financing activities			(88,134	)			355,275
Net increase in cash and cash equivalents			2,519				72
Cash and cash equivalents at beginning of period			48				35
Cash and cash equivalents at end of period		$	2,567			$	107
Supplemental disclosure of cash flow information
Interest paid		$	23,124			$	24,180
Income taxes paid		$	91			$	19

See accompanying notes to unaudited condensed consolidated financial statements

1. Description of the Business

     Calumet Specialty Products Partners, L.P. (Calumet, Partnership, or the Company) is a Delaware limited partnership. The general partner of the Company is Calumet GP, LLC, a Delaware limited liability company. On January 31, 2006, the Partnership completed the initial public offering of its common units. At that time, substantially all of the assets and liabilities of Calumet Lubricants Co., Limited Partnership and its subsidiaries were contributed to Calumet. As of September 30, 2009, Calumet had 19,166,000 common units, 13,066,000 subordinated units, and 657,796 general partner equivalent units outstanding. The general partner owns 2% of Calumet while the remaining 98% is owned by limited partners. On January 3, 2008 the Company acquired Penreco, a Texas general partnership, for approximately $269,118. Calumet is engaged in the production and marketing of crude oil-based specialty lubricating oils, white mineral oils, solvents, petrolatums, waxes and fuels. Calumet owns facilities located in Princeton, Louisiana, Cotton Valley, Louisiana, Shreveport, Louisiana, Karns City, Pennsylvania, and Dickinson, Texas, and a terminal located in Burnham, Illinois.

     The unaudited condensed consolidated financial statements of the Company as of September 30, 2009 and for the three and nine months ended September 30, 2009 and 2008 included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal nature, unless otherwise disclosed. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 4, 2009.

2. New Accounting Pronouncements

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification Statement (“ASC”) 805-10, Business Combinations (formerly Statement of Financial Accounting Standards (“SFAS”) No. 141 (R)), (“ASC 805-10”). ASC 805-10 applies to the financial accounting and reporting of business combinations. ASC 805-10 is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will apply the provisions of ASC 805-10 for all future acquisitions.

     In March 2008, the FASB issued ASC 815-10, Derivatives and Hedging (formerly SFAS No. 161, Derivative Instruments and Hedging Activities). ASC 815-10 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within such derivatives. ASC 815-10 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of ASC 815-10 have been applied, and the impact that hedges have on an entity’s financial position, results of operations, and cash flows. ASC 815-10 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company has adopted ASC 815-10 as of January 1, 2009. Because ASC 815-10 applies only to financial statement disclosures, it did not have any impact on the Company’s financial position, results of operations, or cash flows.

     In March 2008, the FASB issued requirements under ASC 260-10, Earnings per Share (formerly EITF Issue No. 07-4, Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships), requiring master limited partnerships to treat incentive distribution rights (“IDRs”) as participating securities for the purposes of computing earnings per unit in the period that the general partner becomes contractually obligated to pay IDRs. ASC 260-10 requires that undistributed earnings be allocated to the partnership interests based on the allocation of earnings to capital accounts as specified in the respective partnership agreement. When distributions exceed earnings, ASC 260-10 requires that net income be reduced by the actual distributions with the resulting net loss being allocated to capital accounts as specified in the respective partnership agreement. ASC 260-10 is effective for fiscal years and interim periods beginning after December 15, 2008. The Company has adopted these requirements under ASC 260-10 as of January 1, 2009 and applied it retrospectively. The impact of ASC 260-10 on the Company’s calculation of earnings per unit as reported for the three and nine months ended September 30, 2008 is as follows:

		Three Months Ended				Nine Months Ended
		September 30, 2008, as				September 30, 2008, as
		Adjusted				Adjusted
		for ASC 260-10				for ASC 260-10
Net income (loss)		$	(12,515	)		$	25,901
Less:
General partner’s interest in net income (loss)			(250	)			518
Subordinated unitholders interest in net income (loss)			(4,969	)			10,292
Net income (loss) available to common unitholders		$	(7,296	)		$	15,091
Weighted average number of common units outstanding — basic and diluted			19,166,000				19,166,000
Weighted average number of subordinated units outstanding — basic and diluted			13,066,000				13,066,000
Common and subordinated unitholders’ basic and diluted net income (loss) per unit		$	(0.38	)		$	0.79
Cash distributions declared per common and subordinated unit		$	0.45			$	1.53

		Three Months Ended				Nine Months Ended
		September 30, 2008, as				September 30, 2008, as
		Previously Reported				Previously Reported
Net income (loss)		$	(12,515	)		$	25,901
Minimum quarterly distribution to common unitholders			(8,625	)			(25,875	)
General partner’s incentive distribution rights			—				(10,658	)
General partner’s interest in net income (loss)			250				(8	)
Common unitholders’ share of income in excess of minimum quarterly distribution			—				(9,704	)
Subordinated unitholders’ interest in net income (loss)		$	(20,890	)		$	(20,344	)
Basic and diluted net income (loss) per limited partner unit:
Common		$	1.45			$	1.86
Subordinated		$	(1.60	)		$	(1.55	)
Weighted average limited partner common units outstanding — basic and diluted			19,166,000				19,166,000
Weighted average limited partner subordinated units outstanding — basic and diluted			13,066,000				13,066,000
Cash distributions declared per common and subordinated unit		$	0.45			$	1.53

     In June 2008, the FASB issued pronouncements under ASC 260-10, Earnings per Share (formerly EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities). ASC 260-10 clarifies that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities for the purposes of applying the two-class method of calculating EPS (earnings per share). ASC 260-10 also provides guidance on how to allocate earnings to participating securities and compute basic EPS using the two-class method. These additional requirements under ASC 260-10 are effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company has adopted these pronouncements as of January 1, 2009 and applied them retrospectively. The adoption of ASC 260-10 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

     In April 2008, the FASB issued pronouncements under ASC 350-30, General Intangibles Other Than Goodwill (formerly FSP No. 142-3, Determination of the Useful Life of Intangible Assets). ASC 350-30 amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350 (formerly SFAS No. 142, Goodwill and Other Intangible Assets). ASC 350-30 requires a consistent approach between the useful life of a recognized intangible asset under ASC 350 and the period of expected cash flows used to measure the fair value of an asset under ASC 805-10. ASC 350-30 also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. ASC 350-30 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applied prospectively. The Company has adopted ASC 350-30 and applied its various provisions as required as of January 1, 2009. The adoption of ASC 350-30 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

     In December 2008, the FASB issued pronouncements under ASC 715-20, Compensation-Retirement Benefits-Defined Benefit Plans (formerly FSP FAS 132R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets). ASC 715-20 replaces the requirement to disclose the percentage of the fair value of total plan assets with a requirement to disclose the fair value of each major asset category. ASC 715-20 also requires additional disclosure regarding the level of the plan assets within the fair value hierarchy according to ASC 820-10, Fair Value Measurements and Disclosures (formerly SFAS No. 157, Fair Value Measurements), and a reconciliation of activity for any plan assets being measured using unobservable inputs as defined in ASC 715-20. ASC 715-20 is effective for fiscal years ending after December 15, 2009. The Company expects that the adoption of ASC 715-20 will not have a material impact on the Company’s financial position, results of operations, or cash flows.

     In May 2009, the FASB issued pronouncements under ASC 855-10, Subsequent Events (formerly SFAS No. 165, Subsequent Events). ASC 855-10 provides authoritative accounting literature for a topic that was previously addressed only in the auditing literature. ASC 855-10 distinguishes events requiring recognition in the financial statements and those that may require disclosure in the financial statements. Furthermore, ASC 855-10 requires disclosure of the date through which subsequent events were evaluated. ASC 855-10 is effective on a prospective basis for interim or annual financial periods ending after June 15, 2009. The Company adopted ASC 855-10 beginning with the quarter ended June 30, 2009, and has evaluated subsequent events for the quarter ended September 30, 2009 through November 6, 2009. The adoption of ASC 855-10 did not have a material effect on the Company’s financial position, results of operations, or cash flows.

     In June 2009, the FASB issued pronouncements under ASC 105-10, Generally Accepted Accounting Principles (formerly SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles). ASC 105-10 establishes the FASB Accounting Standards Codification (“Codification”), which supersedes all existing accounting standards documents and will become the single source of authoritative non-governmental U.S. GAAP. All other accounting literature not included in the Codification is considered non-authoritative. The Codification was implemented on July 1, 2009 and is effective for interim and annual periods ending after September 15, 2009. The Company has adopted ASC 105-10 for the quarter ended September 30, 2009. The adoption of ASC 105-10 did not have a material effect on the Company’s financial position, results of operations, or cash flows.

     In April 2009, the FASB issued pronouncements under ASC 825-10, Financial Instruments (formerly FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments). ASC 825-10 requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This action also requires those disclosures in summarized financial information at interim periods. ASC 825-10 is effective for reporting periods ending after June 15, 2009 and was adopted by the Company beginning with the quarter ended June 30, 2009. The adoption of these pronouncements did not have a material impact on the Company’s financial statements.

3. Inventories

     The cost of inventories is determined using the last-in, first-out (LIFO) method. Inventory costs include crude oil and other feedstocks, labor, processing costs and refining overhead costs. Inventories are valued at the lower of cost or market value.

     Inventories consist of the following:

		September 30,				December 31,
		2009				2008
Raw materials		$	4,197			$	24,955
Work in process			45,752				43,735
Finished goods			81,759				49,834
		$	131,708			$	118,524

     The replacement cost of these inventories, based on current market values, would have been $28,435 and $27,517 higher as of September 30, 2009 and December 31, 2008, respectively. During the three months ended September 30, 2009 and 2008, the Company recorded $9,475 and $0, respectively, of gains in cost of sales in the unaudited condensed consolidated statements of operations due to the liquidation of lower cost inventory layers. During the nine months ended September 30, 2009 and 2008, the Company recorded $9,475 and $50,826, respectively, of gains in cost of sales in the unaudited condensed consolidated statements of operations due to the liquidation of lower cost inventory layers.

4. Acquisition of Penreco

     On January 3, 2008 the Company acquired Penreco, a Texas general partnership, for $269,118, net of the cash acquired. Penreco was owned by ConocoPhillips Company and M.E. Zukerman Specialty Oil Corporation. Penreco manufactures and markets highly-refined products and specialty solvents, including white mineral oils, petrolatums, natural petroleum sulfonates, cable-filling compounds, refrigeration oils, food-grade compressor lubricants and gelled products. The acquisition included facilities in Karns City, Pennsylvania and Dickinson, Texas, as well as several long-term supply agreements with ConocoPhillips Company.

     The Company believes that this acquisition has provided several key strategic benefits, including market synergies within its solvents and lubricating oil product lines, additional operational and logistics flexibility and overhead cost reductions resulting from the acquisition. The acquisition has broadened the Company’s customer base and given the Company access to new markets.

     As a result of the acquisition, the assets and liabilities previously held by Penreco and results of the operations of these assets have been included in the Company’s unaudited condensed consolidated balance sheets and unaudited condensed consolidated statements of operations since the date of acquisition.

5. LyondellBasell Agreements

     On September 29, 2009, the Company entered into multiyear agreements with Houston Refining LP, a wholly-owned subsidiary of LyondellBasell (“Houston Refining”), to form a long term exclusive specialty products affiliation. Under the terms of the agreement, Calumet will be the exclusive marketer of Houston Refining’s naphthenic lubricating oil production and is required to market a minimum of approximately 3,000 barrels per day (“bpd”) from its Houston, TX refinery. In addition, Houston Refining will process at least approximately 800 bpd of white mineral oil for Calumet which Calumet will then sell to supplement Calumet’s existing production at its Karns City, PA and Dickinson, TX facilities. Calumet also receives the exclusive right to use the LyondellBasell registered trademarks and tradenames including Tufflo, Duoprime, Duotreat, Crystex, Ideal and Aquamarine. The agreements were deemed to be effective as of November 4, 2009 upon the approval of LyondellBasell’s motion for entry of an order by the U.S. Bankruptcy Court authorizing the rejection by LyondellBasell of the agreements in place with third parties covering these products.

6. Sale of Mineral Rights

     In June 2008, the Company received $6,065 associated with the lease of mineral rights on the real property at its Shreveport and Princeton refineries to an unaffiliated third party which were accounted for as a sale. The Company retained a royalty interest in any future production associated with these mineral rights. As a result of these transactions, the Company recorded a gain of $5,770 in other income (expense) in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2008. Under the Company’s term loan agreement, cash proceeds resulting from this disposition of property, plant and equipment were used as a mandatory prepayment of the term loan.

7. Commitments and Contingencies

     From time to time, the Company is a party to certain claims and litigation incidental to its business, including claims made by various taxation and regulatory authorities, such as the Louisiana Department of Environmental Quality (“LDEQ”), the U.S. Environmental Protection Agency (“EPA”), the IRS and the Occupational Safety and Health Administration (“OSHA”), as the result of audits or reviews of the Company’s business. Management is of the opinion that the ultimate resolution of any known claims, either individually or in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

Environmental

     The Company operates crude oil and specialty hydrocarbon refining and terminal operations, which are subject to stringent and complex federal, state, and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations can impair the Company’s operations that affect the environment in many ways, such as requiring the acquisition of permits to conduct regulated activities, restricting the manner in which the Company can release materials into the environment, requiring remedial activities or capital expenditures to mitigate pollution from former or current operations, and imposing substantial liabilities for pollution resulting from its operations. Certain environmental laws impose joint and several, strict liability for costs required to remediate and restore sites where petroleum hydrocarbons, wastes, or other materials have been released or disposed.

     Failure to comply with environmental laws and regulations may result in the triggering of administrative, civil and criminal measures, including the assessment of monetary penalties, the imposition of remedial obligations, and the issuance of injunctions limiting or prohibiting some or all of the Company’s operations. On occasion, the Company receives notices of violation, enforcement and other complaints from regulatory agencies alleging non-compliance with applicable environmental laws and regulations. In particular, the LDEQ has proposed penalties totaling approximately $400 and supplemental environmental capital projects for the following alleged violations: (i) a May 2001 notification received by the Cotton Valley refinery from the LDEQ regarding several alleged violations of various air emission regulations, as identified in the course of the Company’s Leak Detection and Repair program, and also for failure to submit various reports related to the facility’s air emissions; (ii) a December 2002 notification received by the Company’s Cotton Valley refinery from the LDEQ regarding alleged violations for excess emissions, as identified in the LDEQ’s file review of the Cotton Valley refinery; (iii) a December 2004 notification received by the Cotton Valley refinery from the LDEQ regarding alleged violations for the construction of a multi-tower pad and associated pump pads without a permit issued by the agency; and (iv) an August 2005 notification received by the Princeton refinery from the LDEQ regarding alleged violations of air emissions regulations, as identified by the LDEQ following performance of a compliance review, due to excess emissions and failures to continuously monitor and record air emissions levels. The Company anticipates that any penalties that may be assessed due to the alleged violations will be consolidated in a settlement agreement that the Company anticipates executing with the LDEQ in connection with the agency’s “Small Refinery and Single Site Refinery Initiative” described below. The Company has recorded a liability for the proposed penalties within other current liabilities on the unaudited condensed consolidated balance sheets. Environmental expenses are recorded within other expenses in the unaudited condensed consolidated statements of operations.

     The Company is party to ongoing discussions on a voluntary basis with the LDEQ regarding the Company’s participation in that agency’s “Small Refinery and Single Site Refinery Initiative.” This state initiative is patterned after the EPA’s “National Petroleum Refinery Initiative,” which is a coordinated, integrated compliance and enforcement strategy to address federal Clean Air Act compliance issues at the nation’s largest petroleum refineries. The Company expects that the LDEQ’s primary focus under the state initiative will be on four compliance and enforcement concerns: (i) Prevention of Significant Deterioration/New Source Review; (ii) New Source Performance Standards for fuel gas combustion devices, including flares, heaters and boilers; (iii) Leak Detection and Repair requirements; and (iv) Benzene Waste Operations National Emission Standards for Hazardous Air Pollutants. The Company is in discussions with the LDEQ regarding its participation in this regulatory initiative and the Company anticipates that it will be entering into a settlement agreement with the LDEQ pursuant to which the Company will be required to make emissions reductions requiring capital investments between approximately $1,000 and $3,000 in total over a three to five year period at its three Louisiana refineries. Because the settlement agreement is also expected to resolve the aforementioned alleged air emissions issues and other violations at the Company’s Cotton Valley and Princeton refineries and consolidate any penalties associated with such issues, the Company further anticipates that a penalty of approximately $400 will be assessed in connection with this settlement agreement.

     Voluntary remediation of subsurface contamination is in process at each of the Company’s refinery sites. The remedial projects are being overseen by the appropriate state environmental regulatory agencies. Based on current investigative and remedial activities, the Company believes that the groundwater contamination at these refineries can be controlled or remedied without having a material adverse effect on the Company’s financial condition. However, such costs are often unpredictable and, therefore, there can be no assurance that the future costs will not become material. During 2008, the Company determined that it would incur approximately $700 of costs at its Cotton Valley refinery in connection with continued remediation of groundwater impacts at that site. This remediation is expected to take place during 2010.

     The Company and the EPA have resolved alleged deficiencies in risk management planning in connection with a fire-related incident arising out of tank cleaning and vacuum truck operations at the Company’s Shreveport refinery on October 30, 2008. The incident involved a third-party contractor and resulted in damage to an on-site aboveground storage tank. Following an investigation of the matter, EPA issued five violations against the Company alleging, among other things, inadequate contractor training and oversight, and proposed a penalty of $230, which the Company agreed to and paid in April 2009. Calumet has certified compliance with the requirements of the related Consent Agreement with EPA in October 2009.

     The Company is indemnified by Shell Oil Company (“Shell”), as successor to Pennzoil-Quaker State Company and Atlas Processing Company, for specified environmental liabilities arising from the operations of the Shreveport refinery prior to the Company’s acquisition of the facility. The indemnity is unlimited in amount and duration, but requires the Company to contribute up to $1,000 of the first $5,000 of indemnified costs for certain of the specified environmental liabilities.

     The Company is indemnified on a limited basis by ConocoPhillips Company and M.E. Zuckerman Specialty Oil Corporation, former owners of Penreco, for pending, threatened, contemplated or contingent environmental claims against Penreco, if any, that were not known and identified as of the Penreco acquisition date. A significant portion of these indemnifications will expire on January 1, 2010 if there are no claims asserted by the Company and are generally subject to a $2,000 limit.

Health and Safety

     The Company is subject to various laws and regulations relating to occupational health and safety including OSHA laws and regulations, and comparable state laws. These laws and the implementing regulations strictly govern the protection of the health and safety of employees. In addition, OSHA’s hazard communication standard requires that information be maintained about hazardous materials used or produced in the Company’s operations and that this information be provided to employees, state and local government authorities and citizens. The Company maintains safety, training, and maintenance programs as part of its ongoing efforts to ensure compliance with applicable laws and regulations. The Company’s compliance with applicable health and safety laws and regulations has required and continues to require substantial expenditures. The Company has commissioned studies to assess the adequacy of its process safety management practices at its Shreveport refinery with respect to certain consensus codes and standards, some of which have been recently received. The Company expects to have fully reviewed the findings made in these studies during the first quarter of 2010 and may incur capital expenditures over the next several years to enhance its programs and equipment so that it may maintain its compliance with applicable requirements at the Shreveport refinery. The Company believes that its operations are in substantial compliance with OSHA and similar state laws.

Standby Letters of Credit

     The Company has agreements with various financial institutions for standby letters of credit which have been issued to domestic vendors. As of September 30, 2009 and December 31, 2008, the Company had outstanding standby letters of credit of $41,942 and $21,355, respectively, under its senior secured revolving credit facility. The maximum amount of letters of credit the Company can issue is limited to its availability under its revolving credit facility or $300,000, whichever is lower. As of September 30, 2009 and December 31, 2008, the Company had availability to issue letters of credit of $89,511 and $51,865, respectively, under its revolving credit facility. As discussed in Note 8, as of September 30, 2009 the Company also had a $50,000 letter of credit outstanding under its senior secured first lien letter of credit facility for its fuel products hedging program, which bears interest at 4.0%.

8. Long-Term Debt

     Long-term debt consisted of the following:

		September 30,				December 31,
		2009				2008
Borrowings under senior secured first lien term loan with third-party lenders, interest at rate of three-month LIBOR plus 4.00% (4.43% and 6.15% at September 30, 2009 and December 31, 2008, respectively), interest and principal payments quarterly through September 30, 2014 with remaining borrowings due January 2015, effective interest rate of 6.18% at September 30, 2009		$	372,198			$	375,085
Borrowings under senior secured revolving credit agreement with third-party lenders, interest at prime plus 0.50% (3.75% and 3.75% at September 30, 2009 and December 31, 2008, respectively), interest payments monthly, borrowings due January 2013			69,104				102,539
Capital lease obligations, interest at 8.25%, interest and principal payments quarterly through January 2012			1,900				2,640
Less unamortized discount on senior secured first lien term loan with third-party lenders			(13,567	)			(15,173	)
Total long-term debt			429,635				465,091
Less current portion of long-term debt			4,670				4,811
		$	424,965			$	460,280

     The Partnership’s $435,000 senior secured first lien term loan facility includes a $385,000 term loan and a $50,000 prefunded letter of credit facility to support crack spread hedging. The term loan bears interest at a rate equal (i) with respect to a LIBOR Loan, the LIBOR Rate plus 400 basis points (the Applicable Rate defined in the term loan credit agreement) and (ii) with respect to a Base Rate Loan, the Base Rate plus 300 basis points (as defined in the term loan credit agreement). The letter of credit facility to support crack spread hedging bears interest at 4.0%.

     Lenders under the term loan facility have a first priority lien on the Company’s fixed assets and a second priority lien on its cash, accounts receivable, inventory and other personal property. The term loan facility requires quarterly principal payments of $963 until maturity on September 30, 2014, with the remaining balance due at maturity on January 3, 2015.

     On January 3, 2008, the Partnership amended its existing senior secured revolving credit facility dated as of December 9, 2005. Pursuant to this amendment, the revolving credit facility lenders agreed to, among other things, (i) increase the total availability under the revolving credit facility up to $375,000, subject to borrowing base limitations, and (ii) conformed certain of the financial covenants and other terms in the revolving credit facility to those contained in the term loan credit agreement. The revolving credit facility, which is the Company’s primary source of liquidity for cash needs in excess of cash generated from operations, currently bears interest at prime plus a basis points margin or LIBOR plus a basis points margin, at the Company’s option. This margin is currently at 50 basis points for prime and 200 basis points for LIBOR; however, it fluctuates based on quarterly measurement of the Company’s Consolidated Leverage Ratio (as defined in the credit agreement). The existing senior secured revolving credit facility matures on January 3, 2013.

     The borrowing capacity at September 30, 2009 under the revolving credit facility was $200,558 with $89,511 available for additional borrowings based on collateral and specified availability limitations. Lenders under the revolving credit facility have a first priority lien on the Company’s cash, accounts receivable and inventory and a second priority lien on the Company’s fixed assets.

     Compliance with the financial covenants pursuant to the Company’s credit agreements is tested quarterly based upon performance over the most recent four fiscal quarters and as of September 30, 2009 the Company was in compliance with all financial covenants under its credit agreements.

     While assurances cannot be made regarding the Company’s future compliance with the financial covenants in its credit agreements, and being cognizant of the general uncertain economic environment, the Company anticipates that it will be able to maintain compliance with such financial covenants and to continue to improve its liquidity and distributable cash flow.

     Failure to achieve the Company’s anticipated results may result in a breach of certain of the financial covenants contained in its credit agreements. If this occurs, the Company will enter into discussions with its lenders to either modify the terms of the existing credit facilities or obtain waivers of non-compliance with such covenants. There can be no assurances of the timing of the receipt of any such modification or waiver, the term or costs associated therewith or the Company’s ultimate ability to obtain the relief sought. The Company’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 the credit facilities and limitations or the elimination of the Company’s ability to make distributions to its unitholders. If the Company’s lenders accelerate maturity under its credit facilities, a significant portion of its indebtedness may become due and payable immediately. The Company might not have, or be able to obtain, sufficient funds to make these accelerated payments. If the Company is unable to make these accelerated payments, its lenders could seek to foreclose on its assets.

     As of September 30, 2009, maturities of the Company’s long-term debt are as follows:

Year		Maturity
2009		$	1,184
2010			4,594
2011			4,460
2012			4,175
2013			72,954
Thereafter			355,835
Total		$	443,202

9. Derivatives

     The Company is exposed to fluctuations in the price of crude oil, its principal raw material, as well as the sales prices of gasoline, diesel and jet fuel. Given the historical volatility of crude oil, gasoline, diesel and jet fuel prices, this exposure can significantly impact sales and gross profit. Therefore, the Company utilizes derivative instruments to minimize its price risk and volatility of cash flows associated with the purchase of crude oil and natural gas, the sale of fuel products and interest payments. The Company employs various hedging strategies, which are further discussed below. The Company does not hold or issue derivative instruments for trading purposes.

     The Company recognizes all derivative instruments at their fair values (see Note 10) as either assets or liabilities on the unaudited condensed consolidated balance sheets. Fair value includes any premiums paid or received and unrealized gains and losses. Fair value does not include any amounts receivable from or payable to counterparties, or collateral provided to counterparties. Derivative asset and liability amounts with the same counterparty are netted against each other for financial reporting purposes. The Company had recorded the following derivative assets and liabilities at fair value as of September 30, 2009 and December 31, 2008:

		Derivative Assets								Derivative Liabilities
		September 30, 2009				December 31, 2008				September 30, 2009				December 31, 2008
Derivative instruments designated as hedges:
Fuel products segment:
Crude oil swaps		$	66,539			$	(93,197	)		$	—			$	(40,283	)
Gasoline swaps			(6,704	)			115,172				—				4,459
Diesel swaps			(17,035	)			50,652				—				39,685
Jet fuel swaps			(8,561	)			—				—				—
Specialty products segment:
Crude oil collars			—				—				—				—
Natural gas swaps			—				—				—				(206	)
Interest rate swap			—				—				(3,226	)			(3,582	)
Total derivative instruments designated as hedges			34,239				72,627				(3,226	)			73
Derivative instruments not designated as hedges:
Fuel products segment:
Crude oil swaps (1)			(12,533	)			12,929				—				1,349
Gasoline swaps (1)			16,487				(14,357	)			—				(1,494	)
Diesel swaps			—				—				—				—
Jet fuel crack spread collars (4)			300				—				—				—
Specialty products segment:
Crude oil collars (2)			27				—				—				(12,345	)
Natural gas swaps (2)			(15	)			—				—				(1,223	)
Interest rate swaps (3)			—				—				(2,043	)			(2,187	)
Total derivative instruments not designated as hedges			4,266				(1,428	)			(2,043	)			(15,900	)
Total derivative instruments		$	38,505			$	71,199			$	(5,269	)		$	(15,827	)

     To the extent a derivative instrument is determined to be effective as a cash flow hedge of an exposure to changes in the fair value of a future transaction, the change in fair value of the derivative is deferred in accumulated other comprehensive income, a component of partners’ capital in the unaudited condensed consolidated balance sheets, until the underlying transaction hedged is recognized in the unaudited condensed consolidated statements of operations. The Company accounts for certain derivatives hedging purchases of crude oil and natural gas, sales of gasoline, diesel and jet fuel and the payment of interest as cash flow hedges. The derivatives hedging sales and purchases are recorded to sales and cost of sales, respectively, in the unaudited condensed consolidated statements of operations upon recording the related hedged transaction in sales or cost of sales. The derivatives hedging payments of interest are recorded in interest expense in the unaudited condensed consolidated statements of operations upon payment of interest. The Company assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

     For derivative instruments not designated as cash flow hedges and the portion of any cash flow hedge that is determined to be ineffective, the change in fair value of the asset or liability for the period is recorded to unrealized gain (loss) on derivative instruments in the unaudited condensed consolidated statements of operations. Upon the settlement of a derivative not designated as a cash flow hedge, the gain or loss at settlement is recorded to realized gain (loss) on derivative instruments in the unaudited condensed consolidated statements of operations.

     The Company recorded the following amounts in its condensed consolidated balance sheets, unaudited condensed consolidated statements of operations and its unaudited condensed consolidated statements of partners’ capital as of, and for the three months ended, September 30, 2009 and 2008 related to its derivative instruments that were designated as cash flow hedges:

		Amount of Gain (Loss)
		Recognized in
		Accumulated Other								Amount of (Gain) Loss Reclassified from
		Comprehensive Income								Accumulated Other Comprehensive												Amount of Gain (Loss) Recognized in Net
		on Derivatives (Effective								Income into Net Income (Loss) (Effective												Income (Loss) on Derivatives (Ineffective
		Portion)								Portion)												Portion)
														Three Months Ended												Three Months Ended
		September 30,								Location of (Gain)				September 30,								Location of Gain				September 30,
Type of Derivative		2009				2008				Loss				2009				2008				(Loss)				2009				2008
Fuel products segment:
Crude oil swaps		$	(19,056	)		$	(763,554	)		Cost of sales				$	5,120			$	(109,034	)		Unrealized/ Realized				$	(9	)		$	11
Gasoline swaps			5,697				275,249			Sales					242				45,617			Unrealized/ Realized					556				(2,295	)
Diesel swaps			22,660				522,548			Sales					(7,447	)			78,828			Unrealized/ Realized					(1,682	)			526
Jet fuel swaps			3,274				—			Sales					—				—			Unrealized/ Realized					446				—
Specialty products segment:
Crude oil collars			—				1,344			Cost of sales					—				(2,316	)		Unrealized/ Realized					—				—
Crude oil swaps			—				—			Cost of sales					—				(756	)		Unrealized/ Realized					—				—
Natural gas swaps			—				(1,424	)		Cost of sales					—				(31	)		Unrealized/ Realized					—				—
Interest rate swaps			(673	)			(891	)		Interest expense					928				251			Unrealized/ Realized					—				—
Total		$	11,902			$	33,272							$	(1,157	)		$	12,559							$	(689	)		$	(1,758	)

     The Company recorded the following gains (losses) in its unaudited condensed consolidated statement of operations for the three months ended September 30, 2009 and 2008 related to its derivative instruments not designated as cash flow hedges:

		Amount of Gain (Loss) Recognized in								Amount of Gain (Loss) Recognized
		Realized Gain (Loss) on Derivatives								in Unrealized Gain (Loss) on Derivatives
		Three Months Ended								Three Months Ended
		September 30,								September 30,
Type of Derivative		2009				2008				2009				2008
Fuel products segment:
Crude oil swaps		$	169			$	3,323			$	2,129			$	(3,323	)
Gasoline swaps			5,598				(2,846	)			(7,384	)			2,846
Diesel swaps			(1,664	)			(1,931	)			1,664				1,931
Jet fuel swaps			—				—				—				—
Jet fuel collars			—				—				(85	)			—
Specialty products segment:
Crude oil collars			176				(10,225	)			(159	)			(27,305	)
Crude oil swaps			—				(101	)			—				(191	)
Natural gas swaps			(56	)			(633	)			(48	)			(3,500	)
Interest rate swaps			(207	)			(208	)			116				408
Total		$	4,016			$	(12,621	)		$	(3,767	)		$	(29,134	)

     The Company recorded the following amounts in its condensed consolidated balance sheets, unaudited condensed consolidated statements of operations and its unaudited condensed consolidated statements of partners’ capital as of, and for the nine months ended, September 30, 2009 and 2008 related to its derivative instruments that were designated as cash flow hedges:

		Amount of Gain (Loss)
		Recognized in
		Accumulated Other								Amount of (Gain) Loss Reclassified from
		Comprehensive Income								Accumulated Other Comprehensive												Amount of Gain (Loss) Recognized in Net
		on Derivatives (Effective								Income into Net Income (Effective												Income on Derivatives (Ineffective
		Portion)								Portion)												Portion)
														Nine Months Ended												Nine Months Ended
		September 30,								Location of (Gain)				September 30,								Location of Gain				September 30,
Type of Derivative		2009				2008				Loss				2009				2008				(Loss)				2009				2008
Fuel products segment:
Crude oil swaps		$	128,556			$	445,369			Cost of sales				$	70,799			$	(291,041	)		Unrealized/ Realized				$	14,142			$	600
Gasoline swaps			(105,715	)			(123,648	)		Sales					(23,586	)			108,165			Unrealized/ Realized					2,582				(4,975	)
Diesel swaps			(40,227	)			(394,309	)		Sales					(54,954	)			212,358			Unrealized/ Realized					(14,397	)			5,645
Jet fuel swaps			(8,562	)			—			Sales					—				—			Unrealized/ Realized					—				—
Specialty products segment:
Crude oil collars			—				18,244			Cost of sales					—				(20,203	)		Unrealized/ Realized					—				(709	)
Crude oil swaps			—				—			Cost of sales					—				(756	)		Unrealized/ Realized					—				—
Natural gas swaps			(101	)			(156	)		Cost of sales					307				935			Unrealized/ Realized					—				311
Interest rate swaps			(1,836	)			(284	)		Interest expense					2,191				328			Unrealized/ Realized					—				—
Total		$	(27,885	)		$	(54,784	)						$	(5,243	)		$	9,786							$	2,327			$	872

     The Company recorded the following gains (losses) in its unaudited condensed consolidated statement of operations for the nine months ended September 30, 2009 and 2008 related to its derivative instruments not designated as cash flow hedges:

		Amount of Gain (Loss) Recognized in								Amount of Gain (Loss) Recognized
		Realized Gain (Loss) on Derivatives								in Unrealized Gain (Loss) on Derivatives
		Nine Months Ended								Nine Months Ended
		September 30,								September 30,
Type of Derivative		2009				2008				2009				2008
Fuel products segment:
Crude oil swaps		$	15,821			$	9,969			$	(35,084	)		$	(9,969	)
Gasoline swaps			2,733				(8,538	)			35,546				4,375
Diesel swaps			(4,991	)			(7,886	)			4,991				10,897
Jet fuel swaps			—				—				—				—
Jet fuel collars			—				—				(262	)			—
Specialty products segment:
Crude oil collars			(11,739	)			(5,116	)			12,372				(17,692	)
Crude oil swaps			—				(101	)			—				(191	)
Natural gas swaps			(1,563	)			(633	)			1,207				(1,822	)
Interest rate swaps			(617	)			(666	)			144				(336	)
Total		$	(356	)		$	(12,971	)		$	18,914			$	(14,738	)

     The Company is exposed to credit risk in the event of nonperformance by its counterparties on these derivative transactions. The Company does not expect nonperformance on any derivative instruments, however, no assurances can be provided. The Company’s credit exposure related to these derivative instruments is represented by the fair value of contracts reported as derivative assets. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings. The Company executes all of its derivative instruments with a small number of counterparties, the majority of which are large financial institutions and all have ratings of at least A2 and A by Moody’s and S&P, respectively. In the event of default, the Company would potentially be subject to losses on derivative instruments with mark to market gains. The Company requires collateral from its counterparties when the fair value of the derivatives exceeds agreed upon thresholds in its contracts with these counterparties. The Company’s contracts with these counterparties allow for netting of derivative instrument positions executed under each contract. Collateral received from or held by counterparties is reported in deposits and other current liabilities on the Company’s condensed consolidated balance sheets and not netted against derivative assets or liabilities. The Company provides its counterparties with collateral when the fair value of its obligation exceeds specified amounts for each counterparty. As of September 30, 2009, the Company had provided the counterparties with no cash collateral or letters of credit above the $50,000 prefunded letter of credit to support crack spread hedging. For financial reporting purposes, the Company does not offset the collateral provided to a counterparty against the fair value of its obligation to that counterparty. Any outstanding collateral is released to the Company upon settlement of the related derivative instrument liability.

     Certain of the Company’s outstanding derivative instruments are subject to credit support agreements with the applicable counterparties which contain provisions setting certain credit thresholds above which the Company may be required to post agreed-upon collateral, such as cash or letters of credit, with the counterparty to the extent that the Company’s mark-to-market net liability, if any, on all outstanding derivatives exceeds the credit threshold amount per such credit support agreement. In certain cases, the Company’s credit threshold is dependent upon the Company’s maintenance of certain corporate credit ratings with Moody’s and S&P. In the event that the Company’s corporate credit rating was lowered below its current level by either Moody’s or S&P, such counterparties would have the right to reduce the applicable threshold to zero and demand full collateralization of the Company’s net liability position on outstanding derivative instruments. As of September 30, 2009, there is no net liability associated with the Company’s outstanding derivative instruments subject to such requirements. In addition, the majority of the credit support agreements covering the Company’s outstanding derivative instruments also contain a general provision stating that if the Company experiences a material adverse change in its business, in the reasonable discretion of the counterparty, the Company’s credit threshold could be lowered by such counterparty. The Company does not expect that it will experience a material adverse change in its business.

     The effective portion of the hedges classified in accumulated other comprehensive income is $28,663 as of September 30, 2009 and, absent a change in the fair market value of the underlying transactions, will be reclassified to earnings by December 31, 2012 with balances being recognized as follows:

		Accumulated Other
		Comprehensive
Year		Income (Loss)
2009		$	12,108
2010			22,029
2011			(4,482	)
2012			(992	)
Total		$	28,663

     Based on fair values as of September 30, 2009, the Company expects to reclassify $14,608 of net gains on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months due to actual crude oil purchases, gasoline, diesel and jet fuel sales, and the payment of variable interest associated with floating rate debt. However, the amounts actually realized will be dependent on the fair values as of the date of settlements.

Crude Oil Collar Contracts — Specialty Products Segment

     The Company is exposed to fluctuations in the price of crude oil, its principal raw material. The Company utilizes combinations of options and swaps to manage crude oil price risk and volatility of cash flows in its specialty products segment. These derivatives may be designated as cash flow hedges of the future purchase of crude oil if they meet the hedge criteria. The Company’s policy is generally to enter into crude oil derivative contracts for up to 70% of expected purchases that mitigate its exposure to price risk associated with crude oil purchases related to specialty products production. Generally, the Company’s policy is that these positions will be short term in nature and expire within three to nine months from execution; however, the Company may execute derivative contracts for up to two years forward if a change in the risks support lengthening the Company’s position. As of September 30, 2009, the Company had the following crude oil derivatives related to crude oil purchases in its specialty products segment, none of which are designated as hedges.

										Average				Average				Average
										Bought Put				Swap				Sold Call
Crude Oil Put/Swap/Call Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)				($/Bbl)
October 2009			248,000				8,000			$	57.33			$	71.09			$	81.09
November 2009			150,000				5,000				56.17				69.64				79.64
December 2009			62,000				2,000				56.30				68.55				78.55
Totals			460,000
Average price										$	56.81			$	70.27			$	80.27

     At December 31, 2008, the Company had the following crude oil derivatives related to crude oil purchases in its specialty products segment, none of which were designated as hedges.

										Average				Average				Average				Average
										Bought Put				Sold Put				Bought Call				Sold Call
Crude Oil Put/Call Spread Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)				($/Bbl)				($/Bbl)
January 2009			217,000				7,000			$	50.32			$	60.32			$	70.32			$	80.32
February 2009			84,000				3,000				38.33				48.33				58.33				68.33
Totals			301,000
Average price										$	46.98			$	56.98			$	66.98			$	76.98

										Average				Average
										Sold Put				Bought Call
Crude Oil Put/Call Spread Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)
January 2009			186,000				6,000			$	68.57			$	90.83
February 2009			112,000				4,000				74.85				96.25
March 2009			93,000				3,000				79.37				101.67
Totals			391,000
Average price										$	72.94			$	94.96

Crude Oil Swap Contracts

     The Company is exposed to fluctuations in the price of crude oil, its principal raw material. The Company utilizes swap contracts to manage crude oil price risk and volatility of cash flows in its fuel products segment. The Company’s policy is generally to enter into crude oil swap contracts for a period no greater than five years forward and for no more than 75% of crude oil purchases used in fuels production. At September 30, 2009, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which are designated as hedges.

		Barrels
Crude Oil Swap Contracts by Expiration Dates		Purchased				BPD				($/Bbl)
Fourth Quarter 2009			2,070,000				22,500				66.26
Calendar Year 2010			7,300,000				20,000				67.29
Calendar Year 2011			5,384,000				14,751				76.24
Totals			14,754,000
Average price										$	70.41

     At September 30, 2009, the Company had the following derivatives related to crude oil sales in its fuel products segment, none of which are designated as hedges.

		Barrels
Crude Oil Swap Contracts by Expiration Dates		Sold				BPD				($/Bbl)
Fourth Quarter 2009			460,000				5,000				62.66
Calendar Year 2010			547,500				1,500				58.25
Totals			1,007,500
Average price										$	60.26

     At December 31, 2008, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which were designated as hedges.

		Barrels
Crude Oil Swap Contracts by Expiration Dates		Purchased				BPD				($/Bbl)
First Quarter 2009			2,025,000				22,500			$	66.26
Second Quarter 2009			2,047,500				22,500				66.26
Third Quarter 2009			2,070,000				22,500				66.26
Fourth Quarter 2009			2,070,000				22,500				66.26
Calendar Year 2010			7,300,000				20,000				67.29
Calendar Year 2011			3,009,000				8,244				76.98
Totals			18,521,500
Average price										$	68.41

     At December 31, 2008, the Company had the following derivatives related to crude oil sales in its fuel products segment, none of which are designated as hedges.

Crude Oil Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
First Quarter 2009			450,000				5,000			$	62.66
Second Quarter 2009			455,000				5,000				62.66
Third Quarter 2009			460,000				5,000				62.66
Fourth Quarter 2009			460,000				5,000				62.66
Totals			1,825,000
Average price										$	62.66

Fuel Products Swap Contracts

     The Company is exposed to fluctuations in the prices of gasoline, diesel, and jet fuel. The Company utilizes swap contracts to manage diesel, gasoline and jet fuel price risk and volatility of cash flows in its fuel products segment. The Company’s policy is generally to enter into diesel and gasoline swap contracts for a period no greater than five years forward and for no more than 75% of forecasted fuel sales.

     Diesel Swap Contracts

     At September 30, 2009, the Company had the following derivatives related to diesel and jet fuel sales in its fuel products segment, all of which are designated as hedges.

Diesel Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
Fourth Quarter 2009			1,196,000				13,000				80.51
Calendar Year 2010			4,745,000				13,000				80.41
Calendar Year 2011			2,371,000				6,496				90.58
Totals			8,312,000
Average price										$	83.32

     At December 31, 2008, the Company had the following derivatives related to diesel and jet fuel sales in its fuel products segment, all of which were designated as hedges.

Diesel Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
First Quarter 2009			1,170,000				13,000			$	80.51
Second Quarter 2009			1,183,000				13,000				80.51
Third Quarter 2009			1,196,000				13,000				80.51
Fourth Quarter 2009			1,196,000				13,000				80.51
Calendar Year 2010			4,745,000				13,000				80.41
Calendar Year 2011			2,371,000				6,496				90.58
Totals			11,861,000
Average price										$	82.48