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):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 May 6, 2011, there were 39,779,778 common units outstanding.

 

 

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
QUARTERLY REPORT
For the Three Months Ended March 31, 2011

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			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			45
Item 4. Controls and Procedures			46
Part II
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 3. Defaults Upon Senior Securities			50
Item 4. Removed and Reserved			50
Item 5. Other Information			50
Item 6. Exhibits			51
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements can be identified by the use of forward-looking terminology including “may,” “intend,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. The statements regarding (i) estimated capital expenditures as a result of the required audits or required operational changes included in our settlement 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 and (iii) future compliance with our debt covenants, as well as other matters discussed in this Quarterly Report 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 and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2011 (our “2010 Annual Report”). These risk factors and other factors noted throughout this Quarterly Report and in our 2010 Annual Report 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 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 impact of any completed acquisitions;

•

labor relations;

•

our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms;

•

successful integration and future performance of acquired assets, businesses or third-party product supply and processing relationships;

•

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, including guidance related to the Dodd-Frank Wall Street Reform and Consumer Protection Act;

•

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 also read Part I Item 3 “Quantitative and Qualitative Disclosures About Market Risk” and Part II Item 1A “Risk Factors” of this Quarterly Report.

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

PART I

Item 1.		Financial Statements

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		March 31, 2011				December 31, 2010
		(Unaudited)
		(In thousands, except unit data)
ASSETS
Current assets:
Cash and cash equivalents		$	15,330			$	37
Accounts receivable:
Trade			184,795				157,185
Other			461				776
			185,256				157,961
Inventories			171,929				147,110
Prepaid expenses and other current assets			1,495				1,909
Deposits			31,994				2,094
Total current assets			406,004				309,111
Property, plant and equipment, net			606,262				612,433
Goodwill			48,335				48,335
Other intangible assets, net			27,918				29,666
Other noncurrent assets, net			19,879				17,127
Total assets		$	1,108,398			$	1,016,672
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable		$	160,173			$	146,730
Accounts payable — related party			45,509				27,985
Accrued salaries, wages and benefits			5,364				7,559
Taxes payable			7,095				7,174
Other current liabilities			4,592				16,605
Current portion of long-term debt			968				4,844
Derivative liabilities			146,746				32,814
Total current liabilities			370,447				243,711
Pension and postretirement benefit obligations			8,703				9,168
Other long-term liabilities			1,077				1,083
Long-term debt, less current portion			356,865				364,431
Total liabilities			737,092				618,393
Commitments and contingencies
Partners’ capital:
Limited partner unitholders (39,779,778 units and 35,279,778 units issued and outstanding at March 31, 2011 and December 31, 2010, respectively)			488,233				407,773
General partner’s interest			19,841				18,125
Accumulated other comprehensive loss			(136,768	)			(27,619	)
Total partners’ capital			371,306				398,279
Total liabilities and partners’ capital		$	1,108,398			$	1,016,672

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		For the Three Months Ended
		March 31,
		2011				2010
		(In thousands, except per unit data)
Sales		$	605,240			$	484,616
Cost of sales			558,376				452,941
Gross profit			46,864				31,675
Operating costs and expenses:
Selling, general and administrative			10,528				7,170
Transportation			23,075				20,246
Taxes other than income taxes			1,360				1,025
Other			535				327
Operating income			11,366				2,907
Other income (expense):
Interest expense			(7,481	)			(7,434	)
Realized gain (loss) on derivative instruments			386				(561	)
Unrealized loss on derivative instruments			(417	)			(7,758	)
Other			617				(59	)
Total other expense			(6,895	)			(15,812	)
Net income before income taxes			4,471				(12,905	)
Income tax expense			270				162
Net income (loss)		$	4,201			$	(13,067	)
Allocation of net income (loss):
Net income (loss)		$	4,201			$	(13,067	)
Less:
General partner’s interest in net income (loss)			84				(261	)
Holders of incentive distribution rights			—				—
Net income (loss) available to limited partners		$	4,117			$	(12,806	)
Weighted average limited partner units outstanding — basic			36,875				35,351
Weighted average limited partner units outstanding — diluted			36,895				35,351
Limited partner unitholders’ basic and diluted net income (loss) per unit		$	0.11			$	(0.36	)
Cash distributions declared per limited partner unit		$	0.475			$	0.455

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		Accumulated Other				Partners’ capital
		Comprehensive				General				Limited Partners
		Loss				Partner				Common				Subordinated				Total
		(In thousands)
Balance at December 31, 2010		$	(27,619	)		$	18,125			$	390,843			$	16,930			$	398,279
Distributions to partners			—				(338	)			(10,469	)			(6,141	)			(16,948	)
Subordinated unit conversion			—				—				10,789				(10,789	)			—
Comprehensive loss:
Net income			—				84				4,117				—				4,201
Cash flow hedge loss reclassified to net income			19,514				—				—				—				19,514
Change in fair value of cash flow hedges			(128,724	)			—				—				—				(128,724	)
Defined benefit pension and retiree health benefit plans			61				—				—				—				61
Comprehensive loss															—				(104,948	)
Proceeds from public equity offering, net			—				—				92,366				—				92,366
Contribution from Calumet GP, LLC			—				1,970				—				—				1,970
Units repurchased for phantom unit grants			—				—				(620	)			—				(620	)
Issuance of phantom units			—				—				578				—				578
Amortization of vested phantom units			—				—				629				—				629
Balance at March 31, 2011		$	(136,768	)		$	19,841			$	488,233			$	—			$	371,306

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		For the Three Months Ended
		March 31,
		2011				2010
		(In thousands)
Operating activities
Net income (loss)		$	4,201			$	(13,067	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			14,432				14,404
Amortization of turnaround costs			3,213				2,140
Non-cash interest expense			998				947
Provision for doubtful accounts			135				(91	)
Unrealized loss on derivative instruments			417				7,758
Other non-cash activities			1,338				936
Changes in assets and liabilities:
Accounts receivable			(27,430	)			(17,438	)
Inventories			(24,819	)			26,256
Prepaid expenses and other current assets			414				313
Derivative activity			4,305				1,071
Turnaround costs			(5,587	)			(940	)
Deposits			(29,900	)			5,248
Accounts payable			30,074				28,466
Accrued salaries, wages and benefits			(2,195	)			(630	)
Taxes payable			(79	)			(645	)
Other liabilities			(12,019	)			2,442
Pension and postretirement benefit obligations			(404	)			161
Net cash provided by (used in) operating activities			(42,906	)			57,331
Investing activities
Additions to property, plant and equipment			(6,566	)			(5,669	)
Proceeds from sale of equipment			59				89
Net cash used in investing activities			(6,507	)			(5,580	)
Financing activities
Proceeds from borrowings — revolving credit facility			289,791				215,056
Repayments of borrowings — revolving credit facility			(300,623	)			(248,000	)
Repayments of borrowings — term loan credit facility			(963	)			(963	)
Payments on capital lease obligations			(267	)			(372	)
Proceeds from equity offering, net			92,366				793
Contribution from Calumet GP, LLC			1,970				18
Change in bank overdraft			—				(1,650	)
Common units repurchased for vested phantom unit grants			(620	)			(248	)
Distributions to partners			(16,948	)			(16,397	)
Net cash provided by (used in) financing activities			64,706				(51,763	)
Net increase (decrease) in cash and cash equivalents			15,293				(12	)
Cash and cash equivalents at beginning of period			37				49
Cash and cash equivalents at end of period		$	15,330			$	37
Supplemental disclosure of cash flow information
Interest paid		$	7,185			$	6,944
Income taxes paid		$	—			$	8

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

1. Description of the Business

Calumet Specialty Products Partners, L.P. (the “Company”) is a Delaware limited partnership. The general partner of the Company is Calumet GP, LLC, a Delaware limited liability company. As of March 31, 2011, the Company had 39,779,778 common units and 811,832 general partner units outstanding. The number of common units outstanding includes 13,066,000 common units that converted from subordinated units on February 16, 2011. There are no longer any subordinated units outstanding. Refer to Note 9 for additional information. The general partner owns 2% of the Company while the remaining 98% is owned by limited partners. The Company is engaged in the production and marketing of crude oil-based specialty lubricating oils, white mineral oils, solvents, petrolatums, waxes and fuels. The Company owns facilities located in Shreveport, Louisiana (“Shreveport”); Princeton, Louisiana (“Princeton”); Cotton Valley, Louisiana (“Cotton Valley”); Karns City, Pennsylvania (“Karns City”) and Dickinson, Texas (“Dickinson”) and a terminal located in Burnham, Illinois (“Burnham”).

The unaudited condensed consolidated financial statements of the Company as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 included herein have been prepared, without audit, pursuant to the rules and regulations of the SEC. Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP) in the United States of America (the “U.S.”) 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 months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 2010 Annual Report. The Company issued these unaudited condensed consolidated financial statements by filing them with the SEC and have evaluated subsequent events up to the time of filing. Refer to Note 15 for additional information on these subsequent events.

2. New Accounting Pronouncements

In January 2010, the FASB issued ASU No. 2010-06, “Disclosures About Fair Value Measurements” (the “ASU”), which amends ASC No. 820, “Fair Value Measurements and Disclosures” to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. The ASU also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The ASU is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which is effective for fiscal years (including interim periods) beginning after December 15, 2010. Effective January 1, 2010, the Company has adopted the ASU standard, relating to disclosures about transfers in and out of Level 1 and 2 and the inputs and valuation techniques used to measure fair value, effective January 1, 2010. Effective January 1, 2011, the Company has also adopted the ASU standard relating to the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis. The adoption of the ASU standard did not have a material impact on the Company’s financial position, results of operations or cash flows.

3. Inventories

The cost of inventories is determined using the last-in, first-out (LIFO) method. 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:

		March 31,				December 31,
		2011				2010
Raw materials		$	10,755			$	12,885
Work in process			57,183				49,006
Finished goods			103,991				85,219
		$	171,929			$	147,110

The replacement cost of these inventories, based on current market values, would have been $76,948 and $55,855 higher as of March 31, 2011 and December 31, 2010, respectively.

4. 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 Internal Revenue Service and the Occupational Safety and Health Administration (“OSHA”), as the result of audits or reviews of the Company’s business. In addition, the Company has property, business interruption, general liability and various other insurance policies that may result in certain losses or expenditures being reimbursed to the Company. During the first quarter of 2011 the Company recorded $800 of other income related to proceeds received from its insurance claim related to the failure of an environmental operating unit at its Shreveport refinery in the first quarter of 2010. The Company is still working with its insurers to settle the claim, which could result in additional proceeds being received in future periods. 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. For example, the LDEQ initiated enforcement actions in prior years 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. On December 23, 2010, the Company entered into a settlement agreement with the LDEQ that consolidated the terms of its settlement of the aforementioned violations with the Company’s agreement to voluntarily participate in the LDEQ’s “Small Refinery and Single Site Refinery Initiative” described below.

In 2010, the Company entered into a settlement agreement with the LDEQ regarding the Company’s voluntary participation in the LDEQ’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 agreement, voluntarily entered into by the Company, requires the Company to make a $1,000 payment to the LDEQ and complete beneficial environmental programs and implement emissions reduction projects at the Company’s Shreveport, Cotton Valley and Princeton refineries. The Company estimates implementation of these requirements will result in approximately $11,000 to $15,000 of capital expenditures, expenditures related to additional personnel and environmental studies over the next five years. This agreement also fully settles the aforementioned alleged environmental and permit violations at the Company’s Shreveport, Cotton Valley and Princeton refineries and stipulates that no further civil penalties over alleged past violations at those refineries will be pursued by the LDEQ. The required investments are expected to include projects resulting in (i) nitrogen oxide and sulfur dioxide emission reductions from heaters and boilers and the application of New Source Performance Standards for sulfur recovery plants and flaring devices, (ii) control of incidents related to acid gas flaring, tail gas and hydrocarbon flaring, (iii) electrical reliability improvements to reduce flaring, (iv) flare refurbishment at the Shreveport refinery, (v) enhancement of the Benzene Waste National Emissions Standards for Hazardous Air Pollutants programs and the Leak Detection and Repair programs at the Company’s three Louisiana refineries and (vi) Title V audits and targeted audits of certain regulatory compliance programs. During negotiations with the LDEQ, the Company voluntarily initiated projects for certain of these requirements prior to the settlement with the LDEQ, and currently anticipates completion of these projects over the next five years. These capital investment requirements will be incorporated into the Company’s annual capital expenditures budget and the Company does not expect any additional capital expenditures as a result of the required audits or required operational changes included in the settlement to have a material adverse effect on the Company’s financial results or operations. The Company estimates that the total additional capital expenditures above already planned levels will be approximately $1,000 to $3,000. Before the terms of this settlement agreement are deemed final, they will require the concurrence of the Louisiana Attorney General, which concurrence is anticipated to be granted during 2011.

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 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. The Company incurred approximately $204 of capital expenditures at its Cotton Valley refinery during the first quarter of 2011 and estimates that it will incur another $546 of capital expenditures at its Cotton Valley refinery during the remainder of 2011 in connection with these activities. The Company incurred approximately $541 of capital expenditures at its Cotton Valley refinery during 2010.

The Company is indemnified by Shell Oil Company, 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.

Health, Safety and Maintenance

The Company is subject to various laws and regulations relating to occupational health and safety, including OSHA 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, contractors, state and local government authorities and customers. 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 implemented an internal program of inspection designed to monitor and enforce compliance with worker safety requirements as well as a quality system that meets the requirements of the ISO-9001-2008 Standard. The integrity of the Company’s ISO-9001-2008 Standard certification is maintained through surveillance audits by its registrar at regular intervals designed to ensure adherence to the standards.

The Company has completed studies to assess the adequacy of its process safety management practices at its Shreveport refinery with respect to certain consensus codes and standards. The Company expects to incur between $5,000 and $8,000 of capital expenditures in total during 2011, 2012 and 2013 to address OSHA compliance issues identified in these studies. The Company expects these capital expenditures will enhance its equipment such that the equipment maintains compliance with applicable consensus codes and standards. The Company believes that its operations are in substantial compliance with OSHA and similar state laws.

Beginning in February 2010, OSHA conducted an inspection of the Shreveport refinery’s process safety management program under OSHA’s National Emphasis Program which is targeting all U.S. refineries for review. On August 19, 2010, OSHA issued a Citation and Notification of Penalty (the “Shreveport Citation”) to the Company as a result of the Shreveport inspection which included a proposed civil penalty amount of $173. The Company contested the Shreveport Citation and associated penalty amount and agreed to a final penalty amount of $119 that was paid in January 2011. Similarly, OSHA conducted an inspection of the Cotton Valley refinery’s process safety management program under OSHA’s National Emphasis Program in the first quarter of 2011. On March 14, 2011, OSHA issued a Citation and Notification of Penalty (the “Cotton Valley Citation”) to the Company as a result of the Cotton Valley inspection, which included a proposed penalty amount of $208. The Company has contested the Cotton Valley Citation and associated penalties and is currently in negotiations with OSHA to reach a settlement allowing an extended abatement period for a new refinery flare system study and for completion of facility siting modifications, including relocation and hardening of structures.

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 March 31, 2011 and December 31, 2010, the Company had outstanding standby letters of credit of $84,893 and $90,725, respectively, under its senior secured revolving credit facility (the “revolving credit facility”), which were issued to domestic vendors. The maximum amount of letters of credit the Company can issue is limited to its borrowing capacity under its revolving credit facility or $300,000, whichever is lower. As of March 31, 2011 and December 31, 2010, the Company had availability to issue letters of credit of $225,640 and $145,454, respectively, under its revolving credit facility. As discussed in Note 5, as of March 31, 2011 the Company also had a $50,000 prefunded letter of credit outstanding under its senior secured first lien credit facility for its fuel products hedging program. Refer to Note 15 for additional information related to the termination and replacement of this letter of credit in April 2011.

5. Long-Term Debt

Long-term debt consisted of the following:

		March 31,				December 31,
		2011				2010
Borrowings under senior secured first lien term loan with third-party lenders, interest at rate of three-month LIBOR plus 4.00% (4.31% and 4.29% at March 31, 2011 and December 31, 2010, respectively), interest and principal payments quarterly with remaining borrowings due January 2015, effective interest rate of 5.39% and 5.45% for the periods ended March 31, 2011 and December 31, 2010, respectively		$	366,423			$	367,385
Borrowings under senior secured revolving credit agreement with third-party lenders, interest at prime plus 0.25% (3.50% and 3.75% at March 31, 2011 and December 31, 2010, respectively), interest payments monthly, borrowings due January 2013			—				10,832
Capital lease obligations, at various interest rates, interest and principal payments quarterly through November 2013			1,539				1,781
Less unamortized discount on senior secured first lien term loan with third-party lenders			(10,129	)			(10,723	)
Total long-term debt			357,833				369,275
Less current portion of long-term debt			968				4,844
		$	356,865			$	364,431

The Company’s $435,000 senior secured first lien credit facility included a $385,000 term loan and a $50,000 prefunded letter of credit facility to support crack spread hedging. The Company terminated its term loan on April 21, 2011 in connection with the issuance and sale of senior notes, as further discussed below. The term loan bore interest at a rate equal to (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). At March 31, 2011, the term loan bore interest at 4.31%. Please refer to “Amendments to Master Derivative Contracts” below on information on termination and replacement of the $50,000 prefunded letter of credit to support crack spread hedging.

Lenders under the term loan facility had 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 required quarterly principal payments of $963 through September 30, 2014, with the remaining balance due at maturity on January 3, 2015.

The Company’s revolving credit facility has a maximum availability of up to $375,000, subject to borrowing base limitations. 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 a rate equal to prime plus a basis points margin or LIBOR plus a basis points margin, at the Company’s option. As of March 31, 2011, the margin was 25 basis points for prime and 175 basis points for LIBOR; however, the margin fluctuates based on quarterly measurement of the Company’s Consolidated Leverage Ratio (as defined in the credit agreement). The revolving credit facility matures on January 3, 2013.

The borrowing capacity at March 31, 2011 under the revolving credit facility was $310,533, with $225,640 available for additional borrowings based on collateral and specified availability limitations. The revolving credit facility agreement was amended on April 21, 2011, as further discussed below. Prior to that date, the lenders under the revolving credit facility had a first priority lien on the Company’s cash, accounts receivable, inventory and other personal property and a second priority lien on the Company’s fixed assets. Please read “Seventh Amendment to Revolving Credit Facility” below for more information on how the collateral securing the Company’s obligations under the revolving credit facility changed after April 21, 2011.

Compliance with the financial covenants under the Company’s credit agreements is tested quarterly based upon performance over the most recent four fiscal quarters. As of March 31, 2011, the Company was in compliance with all financial covenants under its credit agreements.

9 3/8% Senior Notes

On April 21, 2011, the Company issued and sold $400,000 in aggregate principal amount of the Company’s 9 3/8% senior notes due May 1, 2019 (the “2019 Notes”) in a private placement pursuant to Rule 144A under the Securities Act to eligible purchasers. The 2019 Notes were resold to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States pursuant to Regulation S under the Securities Act. The Company received proceeds of $389,000 net of underwriters’ fees and expenses, which the Company used to repay in full borrowings outstanding under its existing senior secured first lien term loan facility, as well as all accrued interest and fees, and for general partnership purposes. Interest on the 2019 Notes will be paid semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2011. The 2019 Notes will mature on May 1, 2019, unless redeemed prior to maturity. The 2019 Notes are guaranteed on a senior unsecured basis by all of the Company’s operating subsidiaries and the Company’s future operating subsidiaries.

At any time prior to May 1, 2014, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2019 Notes with the net proceeds of a public or private equity offering at a redemption price of 109.375% of the principal amount, plus any accrued and unpaid interest to the date of redemption, provided that: (1) at least 65% of the aggregate principal amount of 2019 Notes issued remains outstanding immediately after the occurrence of such redemption and (2) the redemption occurs within 120 days of the date of the closing of such public or private equity offering.

On and after May 1, 2015, the Company may on any one or more occasions redeem all or a part of the 2019 Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus any accrued and unpaid interest to the applicable redemption date on such 2019 Notes, if redeemed during the twelve-month period beginning on May 1 of the years indicated below:

Year		Percentage
2015			104.688	%
2016			102.344	%
2017 and at any time thereafter			100.000	%

Prior to May 1, 2015, the Company may on any one or more occasions redeem all or part of the 2019 Notes at a redemption price equal to the sum of: (1) the principal amount thereof, plus (2) a make-whole premium (as set forth in the indenture governing the 2019 Notes) at the redemption date, plus any accrued and unpaid interest to the applicable redemption date.

The indenture governing the 2019 Notes contains covenants that, among other things, restrict the Company’s ability and the ability of certain of the Company’s subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase the Company’s common units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; (vii) consolidate, merge or transfer all or substantially all of the Company’s assets; (viii) engage in transactions with affiliates and (ix) create unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications. At any time when the 2019 Notes are rated investment grade by either of Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and no Default or Event of Default, each as defined in the indenture governing the 2019 Notes, has occurred and is continuing, many of these covenants will be suspended.

Upon the occurrence of certain change of control events, each holder of the 2019 Notes will have the right to require that the Company repurchase all or a portion of such holder’s 2019 Notes in cash at a purchase price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest to the date of repurchase.

Registration Rights Agreement

In connection with the issuance and sale of the 2019 Notes, on April 21, 2011, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the initial purchasers of the 2019 Notes obligating the Company to use reasonable best efforts to file an exchange registration statement with the SEC so that holders of the 2019 Notes can offer to exchange the 2019 Notes issued in the April 2011 offering for registered notes having substantially the same terms as the 2019 Notes and evidencing the same indebtedness as the 2019 Notes. The Company must use reasonable best efforts to cause the exchange offer registration statement to become effective by April 20, 2012 and remain effective until 180 days after the closing of the exchange. Additionally, the Company has agreed to commence the exchange offer promptly after the exchange offer registration statement is declared effective by the SEC and use reasonable best efforts to complete the exchange offer not later than 60 days after such effective date. Under certain circumstances, in lieu of a registered exchange offer, the Company must use reasonable best efforts to file a shelf registration statement for the resale of the 2019 Notes. If the Company fails to satisfy these obligations on a timely basis, the annual interest borne by the 2019 Notes will be increased by up to 1.0% per annum until the exchange offer is completed or the shelf registration statement is declared effective.

Termination of Term Loan Facility and Letter of Credit

On April 21, 2011, the Company used approximately $369,486 of the net proceeds from the issuance and sale of the 2019 Notes to repay in full its term loan and terminated the entire senior secured first lien credit facility, including the term loan and $50,000 prefunded letter of credit. The Company did not incur any material early termination penalties in connection with its termination of the senior secured first lien credit facility. Further, the Company will record in the second quarter of 2011 approximately $16,162 in extinguishment charges related to the write-off of both unamortized debt issuance costs and the discount associated with the term loan.

Seventh Amendment to Revolving Credit Facility

On April 15, 2011, the Company’s revolving credit facility was amended to, among other things, (i) permit the issuance of the 2019 Notes; (ii) upon consummation of the issuance of the 2019 Notes and the termination of the senior secured first lien credit facility, release the revolving credit facility lenders’ second priority lien on the collateral securing the senior secured first lien credit facility; and (iii) change the interest rate pricing on the revolving credit facility as follows:

Consolidated		Margin on Base Rate				Margin on LIBOR
Leverage Ratio		Revolving Loans				Revolving Loans
< 2.75 to 1.0			0.50	%			2.00	%
≥ 2.75 to 1.0 but < 3.25 to 1.0			0.75	%			2.25	%
≥ 3.25 to 1.0			1.00	%			2.50	%

Amendments to Master Derivative Contracts

In connection with the issuance and sale of the 2019 Notes, on April 21, 2011, the Company entered into certain (“Amendments”) to the Company’s master derivatives contracts to provide new credit support arrangements to secure the Company’s payment obligations under these contracts following the issuance and sale of the 2019 Notes. Under the new credit support arrangements, the Company’s payment obligations under all of the Company’s master derivatives contracts for commodity hedging will be secured by a first priority lien on the Company’s real property, plant and equipment, fixtures, intellectual property, certain financial assets, certain investment property, commercial tort claims, chattel paper, documents, instruments and proceeds of the foregoing (including proceeds of hedge arrangements). The Company also issued to one counterparty a $25,000 letter of credit under the revolving credit facility to replace a prefunded $50,000 letter of credit previously issued under the first lien senior secured credit facility that secured, in part, the Company’s payment obligations prior to the Company’s termination of the first lien senior credit facility. In the event the counterparty’s exposure to the Company exceeds $150,000, the Company will be required to post additional collateral support in the form of either cash or letters of credit with the counterparty to enter into additional crack spread hedges up to the aforementioned maximum volume. The Company’s master derivatives contracts will continue to impose a number of covenant limitations on the Company’s operating and financing activities, including limitations on liens on collateral, limitations on dispositions of collateral and collateral maintenance and insurance requirements.

In connection with the Amendments, on April 21, 2011, the Company entered into a collateral sharing agreement with each of its secured hedging counterparties and an administrative agent for the benefit of the secured hedging counterparties. The collateral sharing agreement also governs how the secured hedging counterparties will share collateral pledged as security for the payment obligations owed by the Company to the secured hedging counterparties under their respective master derivatives contracts. Under the collateral sharing agreement, the Company has the ability to add secured hedging counterparties to the collateral sharing agreement. The collateral pledged under this agreement consists primarily of property, plant and equipment.

As of March 31, 2011, maturities of the Company’s long-term debt, based upon the April 21, 2011 debt issuance, are as follows:

Year		Maturity
2011		$	751
2012			551
2013			237
2014			—
2015			—
Thereafter			366,423
Total		$	367,962

6. Derivatives

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 8) as either assets or liabilities on the 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 recorded the following derivative assets and liabilities at their fair values as of March 31, 2011 and December 31, 2010:

		Derivative Assets								Derivative Liabilities
		March 31, 2011				December 31, 2010				March 31, 2011				December 31, 2010
Derivative instruments designated as hedges:
Fuel products segment:
Crude oil swaps		$	—			$	—			$	249,167			$	134,916
Gasoline swaps			—				—				(121,465	)			(14,149	)
Diesel swaps			—				—				(244,636	)			(53,744	)
Jet fuel swaps			—				—				(27,087	)			(96,556	)
Interest rate swaps:			—				—				(1,634	)			(2,681	)
Total derivative instruments designated as hedges			—				—				(145,655	)			(32,214	)
Derivative instruments not designated as hedges:
Fuel products segment:
Jet fuel crack spread collars (1)			—				—				—				20
Specialty products segment: (2)
Crude oil collars			—				—				—				—
Natural gas swaps			—				—				—				—
Crude oil swaps			—				—				—				662
Interest rate swaps: (3)			—				—				(1,091	)			(1,282	)
Total derivative instruments not designated as hedges			—				—				(1,091	)			(600	)
Total derivative instruments		$	—			$	—			$	(146,746	)		$	(32,814	)

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 loss, a component of partners’ capital in the 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, March 31, 2011 and 2010 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 (Loss)								Accumulated Other Comprehensive										Amount of Gain (Loss) Recognized in Net
		on Derivatives								Income (Loss) into Net Income (Loss)										Income (Loss) on Derivatives
		(Effective Portion)								(Effective Portion)										(Ineffective Portion)
												Three Months Ended										Three Months Ended
		March 31,								Location of (Gain)		March 31,								Location of Gain		March 31,
Type of Derivative		2011				2010				Loss		2011				2010				(Loss)		2011				2010
Fuel products segment:
Crude oil swaps		$	136,946			$	16,481			Cost of sales		$	(19,101	)		$	(17,508	)		Unrealized/ Realized		$	1,219			$	(6,473	)
Gasoline swaps			(19,110	)			(5,841	)		Sales			6,239				5,184			Unrealized/ Realized			(461	)			(1,535	)
Diesel swaps			(96,322	)			(8,566	)		Sales			18,113				5,808			Unrealized/ Realized			(557	)			(1,181	)
Jet fuel swaps			(150,583	)			(7,224	)		Sales			13,561				—			Unrealized/ Realized			(476	)			—
Specialty products segment:
Crude oil collars			—				—			Cost of sales			—				—			Unrealized/ Realized			—				—
Crude oil swaps			—				—			Cost of sales			—				—			Unrealized/ Realized			—				—
Natural gas swaps			—				—			Cost of sales			—				—			Unrealized/ Realized			—				—
Interest rate swaps:			345				(949	)		Interest expense			702				786			Unrealized/ Realized			—				—
Total		$	(128,724	)		$	(6,099	)				$	19,514			$	(5,730	)				$	(275	)		$	(9,189	)

The Company recorded the following gains (losses) in its unaudited condensed consolidated statements of operations and its consolidated statements of partners’ capital for the three months ended March 31, 2011 and 2010 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
		March 31,								March 31,
Type of Derivative		2011				2010				2011				2010
Fuel products segment:
Crude oil swaps		$	—			$	(2,235	)		$	—			$	1,572
Gasoline swaps			—				3,394				—				(2,042	)
Diesel swaps			—				(325	)			—				325
Jet fuel swaps			—				—				—				—
Jet fuel collars			(562	)			—				543				(126	)
Specialty products segment:
Crude oil collars			—				(771	)			—				977
Crude oil swaps			932				24				(662	)			51
Natural gas swaps			—				(35	)			—				—
Interest rate swaps:			(199	)			(200	)			192				261
Total		$	171			$	(148	)		$	73			$	1,018

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 large financial institutions that 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. No such collateral was held by the Company as of March 31, 2011 or December 31, 2010. The Company’s contracts with these counterparties allow for netting of derivative instrument positions executed under each contract. Collateral received from counterparties is reported in other current liabilities, and collateral held by counterparties is reported in deposits on the Company’s condensed consolidated balance sheets and not netted against derivative assets or liabilities. As of March 31, 2011, the Company had provided its counterparties with $28,900 cash collateral above the $50,000 prefunded letter of credit provided to one counterparty to support crack spread hedging. As of December 31, 2010, the Company had provided its counterparties with no cash collateral or letters of credit above the $50,000 prefunded letter of credit provided to one counterparty 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 March 31, 2011 and December 31, 2010, there was a net liability of $1,712 and $388, respectively, 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 loss is $131,976 as of March 31, 2011 and, absent a change in the fair market value of the underlying transactions, will be reclassified to earnings by December 31, 2013 with balances being recognized as follows:

		Accumulated Other
		Comprehensive
Year		Loss
2011		$	(47,809	)
2012			(80,701	)
2013			(3,466	)
Total		$	(131,976	)

Based on fair values as of March 31, 2011, the Company expects to reclassify $69,587 of net losses on derivative instruments from accumulated other comprehensive income (loss) 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 Swap and 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 general policy is to enter into crude oil derivative contracts that mitigate the Company’s exposure to price risk associated with crude oil purchases related to specialty products production (for up to 70% of expected purchases). While the Company’s policy generally requires that these positions be short term in nature and expire within three to nine months from execution, the Company may execute derivative contracts for up to two years forward, if a change in the risks supports lengthening the Company’s position. As of March 31, 2011, the Company did not have any crude oil derivatives related to future crude oil purchases in its specialty products segment.

At December 31, 2010, 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
		Barrels								Swap
Crude Oil Swap Contracts by Expiration Dates		Purchased				BPD				($/Bbl)
February 2011			33,600				1,200			$	83.10
March 2011			37,200				1,200				83.55
Totals			70,800
Average price										$	83.34

Crude Oil Swap Contracts — Fuel Products Segment

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 March 31, 2011, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which are designated as hedges.

										Average
		Barrels								Swap
Crude Oil Swap Contracts by Expiration Dates		Purchased				BPD				($/Bbl)
Second Quarter 2011			1,774,000				19,495			$	77.03
Third Quarter 2011			1,610,000				17,500				77.38
Fourth Quarter 2011			1,334,000				14,500				77.71
Calendar Year 2012			5,626,000				15,372				86.63
Calendar Year 2013			1,125,000				3,082				101.50
Totals			11,469,000
Average price										$	84.27

At December 31, 2010, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which are designated as hedges.

										Average
		Barrels								Swap
Crude Oil Swap Contracts by Expiration Dates		Purchased				BPD				($/Bbl)
First Quarter 2011			1,215,000				13,500			$	75.32
Second Quarter 2011			1,729,000				19,000				76.62
Third Quarter 2011			1,610,000				17,500				77.38
Fourth Quarter 2011			1,334,000				14,500				77.71
Calendar Year 2012			5,535,000				15,123				86.30
Totals			11,423,000
Average price										$	81.41

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, jet fuel and gasoline swap contracts for a period no longer than five years forward and for no more than 75% of forecasted fuel sales.

Diesel Swap Contracts

At March 31, 2011, 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.

										Average
										Swap
Diesel Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
Second Quarter 2011			637,000				7,000			$	89.57
Third Quarter 2011			552,000				6,000				91.74
Fourth Quarter 2011			552,000				6,000				91.74
Calendar Year 2012			1,651,000				4,511				101.08
Totals			3,392,000
Average price										$	95.88

At December 31, 2010, 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.

										Average
										Swap
Diesel Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
First Quarter 2011			630,000				7,000			$	89.57
Second Quarter 2011			637,000				7,000				89.57
Third Quarter 2011			552,000				6,000				91.74
Fourth Quarter 2011			552,000				6,000				91.74
Calendar Year 2012			1,560,000				4,262				99.27
Totals			3,931,000
Average price										$	94.03

Jet Fuel Swap Contracts

At March 31, 2011, 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.

										Average
										Swap
Jet Fuel Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
Second Quarter 2011			819,000				9,000			$	89.58
Third Quarter 2011			920,000				10,000				89.86
Fourth Quarter 2011			644,000				7,000				89.21
Calendar Year 2012			3,838,500				10,488				99.78
Calendar Year 2013			945,000				2,589				126.36
Totals			7,166,500
Average price										$	99.90

At December 31, 2010, 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.

										Average
										Swap
Jet Fuel Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
First Quarter 2011			405,000				4,500			$	86.12
Second Quarter 2011			819,000				9,000				89.58
Third Quarter 2011			920,000				10,000				89.86
Fourth Quarter 2011			644,000				7,000				89.21
Calendar Year 2012			3,838,500				10,488				99.78
Totals			6,626,500
Average price										$	95.28

Gasoline Swap Contracts

At March 31, 2011, the Company had the following derivatives related to gasoline sales in its fuel products segment, all of which are designated as hedges.

										Average
										Swap
Gasoline Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
Second Quarter 2011			318,000				3,495			$	85.95
Third Quarter 2011			138,000				1,500				85.50
Fourth Quarter 2011			138,000				1,500				85.50
Calendar Year 2012			136,500				373				89.04
Calendar Year 2013			180,000				493				110.38
Totals			910,500
Average price										$	91.11

At December 31, 2010, the Company had the following derivatives related to gasoline sales in its fuel products segment, all of which are designated as hedges.

										Average
										Swap
Gasoline Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
First Quarter 2011			180,000				2,000			$	81.84
Second Quarter 2011			273,000				3,000				82.66
Third Quarter 2011			138,000				1,500				85.50
Fourth Quarter 2011			138,000				1,500				85.50
Calendar Year 2012			136,500				373				89.04
Totals			865,500
Average price										$	84.40

Jet Fuel Put Spread Contracts

At March 31, 2011 the Company had the following jet fuel put options related to jet fuel crack spreads in its fuel products segment, none of which are designated as hedges.

										Average				Average
										Sold Put				Bought Put
Jet Fuel Put Option Crack Spread Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)
Fourth Quarter 2011			184,000				2,000			$	4.75			$	7.00
Totals			184,000
Average price										$	4.75			$	7.00

At December 31, 2010, the Company had the following jet fuel put options related to jet fuel crack spreads in its fuel products segment, none of which are designated as hedges.

										Average				Average
										Sold Put				Bought Put
Jet Fuel Put Option Crack Spread Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)
First Quarter 2011			630,000				7,000			$	4.00			$	6.00
Fourth Quarter 2011			184,000				2,000				4.75				7.00
Totals			814,000
Average price										$	4.17			$	6.23

Natural Gas Swap Contracts

Natural gas purchases comprise a significant component of the Company’s cost of sales; therefore, changes in the price of natural gas also significantly affect its profitability and cash flows. The Company utilizes swap contracts to manage natural gas price risk and volatility of cash flows. The Company’s policy is generally to enter into natural gas derivative contracts to hedge approximately 50% or more of its upcoming fall and winter months’ anticipated natural gas requirement for a period no greater than three years forward. At March 31, 2011 and December 31, 2010, the Company had no derivatives outstanding related to natural gas purchases.

Interest Rate Swap Contracts

The Company’s profitability and cash flows are affected by changes in interest rates, specifically LIBOR and prime rates. The primary purpose of the Company’s interest rate risk management activities is to hedge its exposure to changes in interest rates. Historically, the Company’s policy has been to enter into interest rate swap agreements to hedge up to 75% of its interest rate risk related to variable rate debt.

During 2010, the Company entered into forward swap contracts to manage interest rate risk related to a portion of its current variable rate senior secured first lien term loan. The Company hedged the future interest payments related to $100,000 of the total outstanding term loan indebtedness for the period from February 15, 2011 to February 15, 2012 pursuant to these forward swap contracts. These swap contracts are designated as cash flow hedges of the future payments of interest with three-month LIBOR fixed at an average rate during the hedge period of 2.03%.

In 2009, the Company hedged the future interest payments related to $200,000 of the total outstanding term loan indebtedness for the period from February 15, 2010 to February 15, 2011. This swap contract is designated as a cash flow hedge of the future payment of interest with three-month LIBOR fixed at an average rate during the hedge period of 0.94%.

In 2008, the Company entered into a forward swap contract to manage interest rate risk related to a portion of its then existing variable rate senior secured first lien term loan which closed January 3, 2008. The Company hedged the future interest payments related to $150,000 and $50,000 of the total outstanding term loan indebtedness in 2009 and 2010, respectively, pursuant to this forward swap contract. This swap contract is designated as a cash flow hedge of the future payment of interest with three-month LIBOR fixed at 3.09% and 3.66% per annum in 2009 and 2010, respectively.

In 2006, the Company entered into a forward swap contract to manage interest rate risk related to a portion of its then existing variable rate senior secured first lien term loan. Due to the repayment of $19,000 of the outstanding balance of the Company’s then existing term loan facility in August 2007 and subsequent refinancing of the remaining term loan balance, this swap contract was not designated as a cash flow hedge of the future payment of interest. The entire change in the fair value of this interest rate swap is recorded to unrealized gain (loss) on derivative instruments in the unaudited condensed consolidated statements of operations. In the first quarter of 2008, the Company fixed its unrealized loss on this interest rate swap derivative instrument by entering into an offsetting interest rate swap expiring December 2012 which is not designated as a cash flow hedge.

7. Fair Value of Financial Instruments

The Company’s financial instruments which require fair value disclosure consist primarily of cash and cash equivalents, accounts receivable, financial derivatives, accounts payable and indebtedness. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of their respective fair values, due to the short maturity of these instruments. Derivative instruments are reported in the accompanying unaudited condensed consolidated financial statements at fair value. The fair value of the Company’s term loan was $366,423 and $355,445 at March 31, 2011 and December 31, 2010, respectively. The carrying values of borrowings under the Company’s senior secured revolving credit facility were $0 and $10,832 at March 31, 2011 and December 31, 2010, respectively, and approximate their fair values. In addition, based upon fees charged for similar agreements, the face values of outstanding standby letters of credit approximated their fair values at March 31, 2011 and December 31, 2010.

8. Fair Value Measurements

The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. In determining fair value, the Company uses various valuation techniques and prioritizes the use of observable inputs. The availability of observable inputs varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the instrument. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management judgment. For other financial instruments, pricing inputs are less observable in the marketplace and may require management judgment.

As of March 31, 2011, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included the Company’s derivative instruments related to crude oil, gasoline, diesel, jet fuel and interest rates and investments associated with the Company’s non-contributory defined benefit plan (“Pension Plan”).

The Company’s derivative instruments consist of over-the-counter (“OTC”) contracts, which are not traded on a public exchange. Substantially all of the Company’s derivative instruments are with counterparties that have long-term credit ratings of at least A2 and A by Moody’s and S&P, respectively. To estimate the fair values of the Company’s derivative instruments, the entity uses the market approach. Under this approach, the fair values of the Company’s derivative instruments for crude oil, gasoline, diesel, jet fuel and interest rates are determined primarily based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Generally, the Company obtains this data through surveying its counterparties and performing various analytical tests to validate the data. The Company determines the fair value of its crude oil option contracts utilizing a standard option pricing model based on inputs that can be derived from information available in publicly quoted markets, or are quoted by counterparties to these contracts. In situations where the Company obtains inputs via quotes from its counterparties, it verifies the reasonableness of these quotes via similar quotes from another counterparty as of each date for which financial statements are prepared. The Company also includes an adjustment for non-performance risk in the recognized measure of fair value of all of the Company’s derivative instruments. The adjustment reflects the full credit default spread (“CDS”) applied to a net exposure by counterparty. When the Company is in a net asset position, it uses its counterparty’s CDS, or a peer group’s estimated CDS when a CDS for the counterparty is not available. The Company uses its own peer group’s estimated CDS when it is in a net liability position. As a result of applying the applicable CDS, at March 31, 2011 and December 31, 2010, the Company’s liability was reduced by approximately $2,439 and $687, respectively. Based on the use of various unobservable inputs, principally non-performance risk and unobservable inputs in forward years for gasoline, jet fuel and diesel, the Company has categorized these derivative instruments as Level 3. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative instruments it holds.

The Company’s investments associated with its Pension Plan primarily consist of (i) mutual funds that are publicly traded and (ii) a commingled fund. The mutual funds are publicly traded and market prices of the mutual funds are readily available; thus, these investments are categorized as Level 1. The commingled fund is categorized as Level 2 because inputs used in its valuation are not quoted prices in active markets that are indirectly observable and is valued at the net asset value of shares held by the Pension Plan at quarter end.

The Company’s assets and liabilities measured at fair value at March 31, 2011 were as follows:

		Fair Value Measurements
		Level 1				Level 2 (a)				Level 3				Total
Assets:
Cash and cash equivalents		$	15,330			$	—			$	—			$	15,330
Crude oil swaps			—				—				249,167				249,167
Gasoline swaps			—				—				—				—
Diesel swaps			—				—				—				—
Jet fuel swaps			—				—				—				—
Crude oil options			—				—				—				—
Jet fuel options			—				—				—				—
Pension plan investments			14,703				2,032				—				16,735
Total assets at fair value		$	30,033			$	2,032			$	249,167			$	281,232
Liabilities:
Crude oil swaps		$	—			$	—			$	—			$	—
Gasoline swaps			—				—				(121,465	)			(121,465	)
Diesel swaps			—				—				(244,636	)			(244,636	)
Jet fuel swaps			—				—				(27,087	)			(27,087	)
Crude oil options			—				—				—				—
Jet fuel options			—				—				—				—
Interest rate swaps			—				—				(2,725	)			(2,725	)
Pension plan investments			—				—				—				—
Total liabilities at fair value		$	—			$	—			$	(395,913	)		$	(395,913	)

The Company’s financial assets and liabilities measured at fair value at December 31, 2010 were as follows:

		Fair Value Measurements
		Level 1				Level 2				Level 3				Total
Assets:
Cash and cash equivalents		$	37			$	—			$	—			$	37
Crude oil swaps			—				—				135,578				135,578
Gasoline swaps			—				—				—				—
Diesel swaps			—				—				—				—
Jet fuel swaps			—				—				—				—
Crude oil options			—				—				—				—
Jet fuel options			—				—				20				20
Pension plan investments			16,039				—				—				16,039
Total assets at fair value		$	16,076			$	—			$	135,598			$	151,674
Liabilities:
Crude oil swaps		$	—			$	—			$	—			$	—
Gasoline swaps			—				—				(14,149	)			(14,149	)
Diesel swaps			—				—				(53,744	)			(53,744	)
Jet fuel swaps			—				—				(96,556	)			(96,556	)
Crude oil options			—				—				—				—
Jet fuel options			—				—				—				—
Interest rate swaps			—				—				(3,963	)			(3,963	)
Pension plan investments			—				—				—				—
Total liabilities at fair value		$	—			$	—			$	(168,412	)		$	(168,412	)

The table below sets forth a summary of net changes in fair value of the Company’s Level 3 financial assets and liabilities for the three months ended March 31, 2011 and March 31, 2010:

		Three Months Ended
		March 31,
		2011				2010
Fair value at January 1,		$	(32,814	)		$	26,138
Realized losses (gains)			(386	)			561
Unrealized losses			(417	)			(7,758	)
Change in fair value of cash flow hedges			(128,724	)			(6,099	)
Settlements			15,595				(7,362	)
Transfers in (out) of Level 3			—				—
Fair value at March 31,		$	(146,746	)		$	5,480
Total (losses) gains included in net income attributable to changes in unrealized (losses) gains relating to financial assets and liabilities held as of March 31		$	(417	)		$	(7,758	)