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

For the quarterly period ended March 31, 2007.

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

FOR THE TRANSITION PERIOD FROM           TO

Calumet Specialty Products Partners, L.P.

Delaware		37-1516132
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
2780 Waterfront Pkwy E. 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o       Accelerated filer o       Non-accelerated filer þ

     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 2, 2007, the registrant had 16,366,000 common units and 13,066,000 subordinated units outstanding.

 

 

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
FORM 10-Q — MARCH 31, 2007 QUARTERLY REPORT

Table of Contents

		Page
Part I
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets			4
Unaudited Condensed Consolidated Statements of Operations			5
Unaudited Condensed Consolidated Statements of Partners’ Capital			6
Unaudited Condensed Consolidated Statements of Cash Flows			7
Notes to Unaudited Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4T. Controls and Procedures			34
Part II
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3. Defaults Upon Senior Securities			35
Item 4. Submission of Matters to a Vote of Security Holders			35
Item 5. Other Information			35
Item 6. Exhibits			35
Third Amendment to Revolving Credit Facility
Second Amendment to Secured First Lien Credit Facility
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certifications Pursuant to Section 1350

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. 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) the Shreveport refinery expansion project’s expected completion date, its estimated cost, the resulting increases in production levels, our ability to amend our credit facilities to permit increased capital expenditures associated with the expansion project and our ability to successfully dismiss pending litigation challenging the air permit related to the expansion project and (ii) expected settlements with the Louisiana Department of Environmental Quality (“LDEQ”) or other environmental liabilities, as well as other matters discussed in this 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 and in our Annual Report on Form 10-K filed on February 23, 2007. These risk factors and cautionary statements noted throughout this 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 results of our hedging activities;
	•		the availability of, and our ability to consummate, acquisition or combination opportunities;
	•		our access to capital to fund expansions or acquisitions and our ability to obtain debt or equity financing on satisfactory terms;
	•		successful integration and future performance of acquired assets or businesses;
	•		environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves;
	•		maintenance of our credit rating and ability to receive open credit 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 crude oil price fluctuations;
	•		the impact of current and future laws, rulings and governmental regulations;
	•		shortages or cost increases of power supplies, natural gas, materials or labor;
	•		weather interference with business operations or project construction;
	•		fluctuations in the debt and equity markets; 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. Please read Part I Item 3 “Quantitative and Qualitative Disclosures About Market Risk.” Except as required by applicable securities laws, we do not intend to update these forward-looking statements and information.

     References in this Form 10-Q to “Calumet,” “the Company,” “we,” “our,” “us” or like terms refer to Calumet Specialty Products Partners, L.P. and its subsidiaries. References to “Predecessor” in this Form 10-Q refer to Calumet Lubricants Co., Limited Partnership. The results of operations for the three months ended March 31, 2006 for Calumet include the results of operations of the Predecessor for the period of January 1, 2006 through January 31, 2006.

PART I

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31, 2007				December 31, 2006
		(unaudited)				As adjusted, See
						Note 2
		(In thousands)
ASSETS
Current assets:
Cash		$	63,268			$	80,955
Accounts receivable:
Trade, less allowance for doubtful accounts of $782 and $782, respectively			106,710				97,740
Other			938				1,260
			107,648				99,000
Inventories			107,706				110,985
Prepaid expenses			9,114				1,506
Derivative assets			1,038				40,802
Deposits and other current assets			21				1,961
Total current assets			288,795				335,209
Property, plant and equipment, net			230,158				191,732
Other noncurrent assets, net			6,132				4,710
Total assets		$	525,085			$	531,651
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable		$	102,310			$	78,752
Accrued salaries, wages and benefits			2,200				5,675
Taxes payable			6,391				7,038
Other current liabilities			2,951				2,424
Current portion of long-term debt			500				500
Derivative liabilities			34,344				2,995
Total current liabilities			148,696				97,384
Long-term debt, less current portion			48,875				49,000
Total liabilities			197,571				146,384
Commitments and contingencies Partners’ capital:
Common unitholders (16,366,000 units issued and outstanding)			294,373				274,719
Subordinated unitholders (13,066,000 units issued and outstanding)			32,694				42,347
General partner’s interest			15,501				15,950
Accumulated other comprehensive income (loss)			(15,054	)			52,251
Total partners’ capital			327,514				385,267
Total liabilities and partners’ capital		$	525,085			$	531,651

See accompanying notes to unaudited condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Three Months Ended
		March 31,
		2007				2006
		(In thousands except per unit data)
						As adjusted, See
						Note 2
Sales		$	351,113			$	397,694
Cost of sales			296,079				346,445
Gross profit			55,034				51,249
Operating costs and expenses:
Selling, general and administrative			5,398				4,929
Transportation			13,569				13,907
Taxes other than income taxes			912				914
Other			180				115
Operating income			34,975				31,384
Other income (expense):
Interest expense			(1,015	)			(3,976	)
Interest income			991				194
Debt extinguishment costs			—				(2,967	)
Realized loss on derivative instruments			(1,736	)			(3,080	)
Unrealized loss on derivative instruments			(4,777	)			(17,715	)
Other			(178	)			5
Total other income (expense)			(6,715	)			(27,539	)
Net income before income taxes			28,260				3,845
Income tax expense			50				14
Net income		$	28,210			$	3,831
Allocation of net income:
Net income applicable to Predecessor for the period through January 31, 2006			—				(4,408	)
Net income (loss) applicable to Calumet		$	28,210			$	(577	)
Minimum quarterly distribution to common unitholders			(7,365	)			(3,885	)
General partner’s incentive distribution rights			(4,749	)			—
General partner’s interest in net (income) loss			(297	)			12
Common unitholders’ share of income in excess of minimum quarterly distribution			(5,516	)			—
Limited partners’ interest in net income (loss)		$	10,283			$	(4,450	)
Basic and diluted net income (loss) per limited partner unit:
Common		$	0.79			$	0.30
Subordinated		$	0.79			$	(0.34	)
Weighted average limited partner common units outstanding — basic			16,366				12,950
Weighted average limited partner subordinated units outstanding — basic			13,066				13,066
Weighted average limited partner common units outstanding — diluted			16,367				12,950
Weighted average limited partner subordinated units outstanding — diluted			13,066				13,066
Cash distributions declared per common and subordinated unit		$	0.60			$	0.30

See accompanying notes to unaudited condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

		Accumulated Other				Partners’ Capital
		Comprehensive				General				Limited Partners
		Income (Loss)				Partner				Common				Subordinated				Total
		(In thousands)
Balance at December 31, 2006 (As Adjusted, See Note 2)		$	52,251			$	15,950			$	274,719			$	42,347			$	385,267
Comprehensive loss:
Net income							564				29,459				(1,813	)			28,210
Cash flow hedge gain reclassified to net income			(5,451	)			—				—				—				(5,451	)
Change in fair value of cash flow hedges			(61,854	)			—				—				—				(61,854	)
Comprehensive loss																			(39,095	)
Amortization of phantom units							—				15				—				15
Distributions to partners							(1,013	)			(9,820	)			(7,840	)			(18,673	)
Balance at March 31, 2007		$	(15,054	)		$	15,501			$	294,373			$	32,694			$	327,514

See accompanying notes to unaudited condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Three Months Ended
		March 31,
		2007				2006
						As adjusted, See
						Note 2
		(In thousands)
Operating activities
Net income		$	28,210			$	3,831
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,573				2,673
Amortization of turnaround costs			968				694
Debt extinguishment costs			—				2,967
Other non-cash activities			6				133
Changes in assets and liabilities:
Accounts receivable			(8,648	)			1,400
Inventories			3,279				7,313
Prepaid expenses			(7,608	)			8,916
Derivative activity			3,808				18,694
Deposits and other current assets			1,940				7,555
Other noncurrent assets			(2,680	)			4,063
Accounts payable			23,573				7,457
Accrued salaries, wages and benefits			(3,475	)			(6,160	)
Taxes payable			(647	)			611
Other current liabilities			527				(32	)
Net cash provided by operating activities			42,826				60,115
Investing activities
Additions to property, plant and equipment			(41,734	)			(2,975	)
Proceeds from disposal of property, plant and equipment			19				54
Net cash used in investing activities			(41,715	)			(2,921	)
Financing activities
Repayment of borrowings, net — credit agreements with third parties			(125	)			(203,359	)
Proceeds from initial public offering, net			—				138,743
Contributions from Calumet GP, LLC			—				375
Cash distribution to Calumet Holding, LLC			—				(3,257	)
Change in bank overdraft			—				5,116
Distributions to Predecessor partners			—				(6,900	)
Distributions to partners			(18,673	)			—
Net cash used in financing activities			(18,798	)			(69,282	)
Net decrease in cash			(17,687	)			(12,088	)
Cash at beginning of period			80,955				12,173
Cash at end of period		$	63,268			$	85
Supplemental disclosure of cash flow information
Interest paid		$	1,988			$	3,797
Income taxes paid		$	32			$	—

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except operating, unit and per unit data)

1. Partnership Organization and Basis of Presentation

     Calumet Specialty Products Partners, L.P. (Calumet, Partnership, or the Company) is a Delaware limited partnership. The general partner 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 (Predecessor) were contributed to Calumet. References to the Predecessor in these unaudited condensed consolidated financial statements refer to Calumet Lubricants Co., Limited Partnership and its subsidiaries. On July 5, 2006, the Partnership completed a follow-on public offering of its common units. See Note 7 for further discussion of the units sold and proceeds from these offerings. As of March 31, 2007, the Partnership had 16,366,000 common units, 13,066,000 subordinated units, and 600,653 general partner equivalent units outstanding. The general partner owns 2% of Calumet while the remaining 98% is owned by limited partners. Calumet is engaged in the production and marketing of crude oil-based specialty lubricating oils, solvents, waxes and fuels. Calumet owns refineries located in Princeton, Louisiana, Cotton Valley, Louisiana, and Shreveport, Louisiana, and a terminal located in Burnham, Illinois.

     The unaudited condensed consolidated financial statements of the Company as of March 31, 2007 and for the three months ended March 31, 2007 and 2006 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 months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. 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, 2006 filed on February 23, 2007.

2. New Accounting Pronouncements

     In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”), an interpretation of FASB Statement No. 109. The Interpretation clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position to be taken or expected to be taken in a tax return. The Interpretation is effective for fiscal years beginning after December 15, 2006. The Company adopted the Interpretation on January 1, 2007. The adoption had no effect on the Company’s financial position, results of operations or cash flow. Interest and penalties related to income taxes, if any, would be recorded in income tax expense on the condensed consolidated statements of operations. The Company had no unrecognized tax benefits as of March 31, 2007 and December 31, 2006. The Company’s income taxes generally remain subject to examination by major tax jurisdictions for a period of three years.

     In September 2006, the FASB issued FASB Staff Position No. AUG AIR-1, Accounting for Planned Major Maintenance Activities (the “Position”), which amends certain provisions in the AICPA Industry Audit Guides, Audits of Airlines, and APB Opinion No. 28, Interim Financial Reporting. The Position prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities (turnaround costs) and requires the use of the direct expensing method, built-in overhaul method, or deferral method. The Position is effective for fiscal years beginning after December 15, 2006.

     The Company adopted the Position on January 1, 2007 and began using the deferral method to account for turnaround costs. Under this method, actual costs of an overhaul are capitalized as incurred and amortized to cost of sales until the next overhaul date. Prior to the adoption of this standard, the Company accrued for such overhaul costs in advance and recorded the charge to cost of sales. As a result of the adoption of the Position, the Company has adjusted prior periods to account for turnaround costs as capitalized costs, recorded in other noncurrent assets on the consolidated balance sheets, in lieu of accrued turnaround costs. The cumulative effect of the adoption of the Position on prior periods was to increase partners’ capital by $3,318 as of January 1, 2005. The adoption of the Position resulted in a net decrease in cost of sales of $299 ($0.02 per limited partner unit) for the three months ended March 31, 2006 from the amount previously reported.

     In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (the “Statement”). The Statement applies to assets and liabilities required or permitted to be measured at fair value under other accounting pronouncements. The Statement defines fair value, establishes a framework for measuring fair value, and expands disclosure requirements about fair value, but does not provide guidance whether assets and liabilities are required or permitted to be measured at fair value. The Statement is effective for fiscal years beginning after November 15, 2007. The Company does not anticipate that this Statement will have a material effect on its financial position, results of operations, or cash flow.

3. Inventory

     The cost of inventories is determined using the last-in, first-out (LIFO) method. Inventories are valued at the lower of cost or market value.

     Inventories consist of the following:

		March 31,				December 31,
		2007				2006
Raw materials		$	27,055			$	26,791
Work in process			30,306				30,130
Finished goods			50,345				54,064
		$	107,706			$	110,985

     The replacement cost of these inventories, based on current market values, would have been $45,472 and $46,711 higher at March 31, 2007 and December 31, 2006, respectively.

4. Shreveport Refinery Expansion

     The Company commenced an expansion project at its Shreveport refinery during the second quarter of 2006. Through March 31, 2007, the Company had incurred capital expenditures of $100,473 (including capitalized interest of $2,742) related to the expansion project, which is recorded to construction-in-progress, a component of property, plant and equipment. Management has estimated that the Company will incur approximately $99,500 of additional capital expenditures in 2007 related to the expansion project. The expansion project is expected to be completed in the third quarter of 2007 with production ramping up in the fourth quarter of 2007. Management currently estimates the total cost of the Shreveport refinery expansion project will be approximately $200,000, an increase of $50,000 from the Company’s previous estimate. This increase in the estimated cost of the expansion project is due to further escalation in construction costs and an enhancement in the project to allow the Shreveport refinery to run additional barrels per day of sour crude in the future subsequent to the planned completion of another capital project to add capacity and modify certain operating units.

5. 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. In accordance with Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which was amended in June 2000 by SFAS No. 138 and in May 2003 by SFAS No. 149 (collectively referred to as “SFAS 133”), the Company recognizes all derivative transactions as either assets or liabilities at fair value on the consolidated balance sheets. To the extent a derivative instrument is designated 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 (loss), a component of partners’ capital. The Company accounts for certain derivatives hedging purchases of crude oil and natural gas, the sale of gasoline, diesel and jet fuel and the payment of interest as cash flow hedges. The derivatives hedging purchases and sales are recorded to cost of sales and sales in the consolidated statements of operations, respectively, 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 consolidated statements of operations. For the three months ended March 31, 2007 and 2006, the Company has recorded a derivative gain of $17,797 and $0, respectively, to sales and a derivative loss of $20,959 and $340, respectively, to cost of sales. An interest rate swap loss of $1 for the three months ended March 31, 2007 was recorded to interest expense. 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 or loss on derivative instruments in the consolidated statements of operations. The Company does not account for fuel products margin swap or collar contracts (“crack spread swaps or collars”) as cash flow hedges. As of March 31, 2007 and December 31, 2006, the Company has no such derivative contracts outstanding. Upon the settlement of a derivative not designated as a cash flow hedge, the gain or loss at settlement is recorded to realized gain or loss on derivative instruments in the consolidated statements of operations.

     Effective April 1, 2006, the Company restructured and designated certain derivative contracts for its fuel products segment as cash

flow hedges of gasoline, diesel, and jet fuel sales and crude oil purchases to the extent they qualified for hedge accounting, and the effective portion of these hedges is recorded in accumulated other comprehensive income (loss) on the consolidated balance sheets until the underlying transaction hedged is recognized in the consolidated statements of operations. Prior to this date, the historical impact of fair value fluctuations in our gasoline, diesel and crude oil derivative instruments for the fuel products segment had been reflected in the realized/unrealized gain (loss) on derivative instruments line items in the consolidated statements of operations. The Company utilizes third party valuations and published market data to determine the fair value of these derivatives. The decrease in realized and unrealized loss by $14,282 from the three months ended March 31, 2006 to the same period in the current year was due to the designation of certain derivatives as cash flow hedges. Thus, the settlement value of these derivatives is reflected in gross profit in the current period as compared to unrealized and realized loss on derivative instruments during the same period in 2006.

     The Company assesses, both at inception of the hedge and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The Company’s estimate of the ineffective portion of the hedges for the three months ended March 31, 2007 and 2006 were losses of $7,513 and $592, respectively, which was recorded to unrealized loss on derivative instruments in the consolidated statements of operations.

     Comprehensive income (loss) for the Company consists of the changes in fair value of cash flow hedges and the gain or loss on cash flow hedges reclassified to net income. Comprehensive income for the three months ended March 31, 2007 and 2006 was as follows:

		Three Months Ended
		March 31,
		2007				2006
Net income		$	28,210			$	3,831
Cash flow hedge (gain) loss reclassified to net income			(5,451	)			278
Change in fair value of cash flow hedges			(61,854	)			280
Total comprehensive income (loss)		$	(39,095	)		$	4,389

     The effective portion of the hedges classified in accumulated other comprehensive income (loss) is ($15,054) as of March 31, 2007 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:

		Other
		Comprehensive
Year		Income (Loss)
2007		$	(9,258	)
2008			(6,767	)
2009			(414	)
2010			2,500
2011			(946	)
2012			(169	)
Total		$	(15,054	)

     The Company is exposed to credit risk in the event of nonperformance with our counterparties on these derivative transactions. The Company does not expect nonperformance on any derivative contract.

Crude Oil Collar Contracts

     The Company utilizes combinations of options to manage crude oil price risk and volatility of cash flows in its specialty products segment. These combinations of options are designated as cash flow hedges of the future purchase of crude oil. The Company’s policy is generally to enter into crude oil derivative contracts for a period no greater than three to six months forward and for 50% to 75% of anticipated crude oil purchases related to its specialty products production. At March 31, 2007, the Company had the following derivatives related to crude oil purchases used in specialty products production.

										Average				Average				Average				Average
										Lower Put				Upper Put				Lower Call				Upper Call
Crude Oil Put/Call Spread Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)				($/Bbl)				($/Bbl)
April 2007			240,000				8,000			$	42.25			$	52.25			$	62.25			$	72.25
May 2007			248,000				8,000				46.03				56.03				66.03				76.03
June 2007			240,000				8,000				49.06				59.06				69.06				79.06
Totals			728,000
Average price										$	45.78			$	55.78			$	65.78			$	75.78

     At December 31, 2006, the Company had the following derivatives related to crude oil purchases for its specialty products production.

										Average				Average				Average				Average
										Lower Put				Upper Put				Lower Call				Upper Call
Crude Oil Put/Call Spread Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)				($/Bbl)				($/Bbl)
January 2007			248,000				8,000			$	48.66			$	58.66			$	68.66			$	78.66
February 2007			224,000				8,000				49.28				59.28				69.28				79.28
March 2007			248,000				8,000				50.85				60.85				70.85				80.85
Totals			720,000
Average price										$	49.61			$	59.61			$	69.61			$	79.61

Crude Oil Swap Contracts

     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, 2007, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which are designated as hedges.

Crude Oil Swap Contracts by Expiration Dates		Barrels				BPD				($/Bbl)
Second Quarter 2007			1,728,000				18,989			$	64.68
Third Quarter 2007			1,742,000				18,935				65.51
Fourth Quarter 2007			1,742,000				18,935				65.51
Calendar Year 2008			8,509,000				23,249				67.20
Calendar Year 2009			7,847,500				21,500				66.06
Calendar Year 2010			6,752,500				18,500				67.07
Calendar Year 2011			728,500				1,996				65.59
Totals			29,049,500
Average price										$	66.47

     At December 31, 2006, the Company had the following derivatives related to crude oil purchases in its fuel products segment, all of which are designated as hedges.

Crude Oil Swap Contracts by Expiration Dates		Barrels				BPD				($/Bbl)
First Quarter 2007			1,710,000				19,000			$	65.14
Second Quarter 2007			1,728,000				18,989				64.68
Third Quarter 2007			1,742,000				18,935				65.51
Fourth Quarter 2007			1,742,000				18,935				65.51
Calendar Year 2008			8,143,000				22,249				67.37
Calendar Year 2009			7,482,500				20,500				66.04
Calendar Year 2010			5,840,000				16,000				67.40
Calendar Year 2011			363,500				996				65.99
Totals			28,751,000
Average price										$	66.49

Fuels Product Swap Contracts

     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 fuels sales.

Diesel Swap Contracts

     At March 31, 2007, 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 except for 157,430 barrels in 2007. The Company recognized a loss of $365 in unrealized (loss) gain on derivative instruments in the consolidated statements of operations during the three months ended March 31, 2007.

Diesel Swap Contracts by Expiration Dates		Barrels				BPD				($/Bbl)
Second Quarter 2007			1,092,000				12,000			$	80.74
Third Quarter 2007			1,102,000				11,978				81.36
Fourth Quarter 2007			1,102,000				11,978				81.36
Calendar Year 2008			5,124,000				14,000				82.07
Calendar Year 2009			4,745,000				13,000				80.51
Calendar Year 2010			4,380,000				12,000				80.11
Calendar Year 2011			638,000				1,748				76.93
Totals			18,183,000
Average price										$	80.85

     At December 31, 2006, 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 except for 169,855 barrels in 2007. As a result of these barrels not being designated as hedges, the Company recognized a gain of $1,314 in unrealized (loss) gain on derivative instruments in the consolidated statements of operations during the year ended December 31, 2006.

Diesel Swap Contracts by Expiration Dates		Barrels				BPD				($/Bbl)
First Quarter 2007			1,080,000				12,000			$	81.10
Second Quarter 2007			1,092,000				12,000				80.74
Third Quarter 2007			1,102,000				11,978				81.36
Fourth Quarter 2007			1,102,000				11,978				81.36
Calendar Year 2008			4,941,000				13,500				82.18
Calendar Year 2009			4,562,500				12,500				80.50
Calendar Year 2010			3,650,000				10,000				80.52
Calendar Year 2011			273,000				748				76.52
Totals			17,802,500
Average price										$	81.07

Gasoline Swap Contracts

     At March 31, 2007, the Company had the following derivatives related to gasoline sales in its fuel products segment, all of which are designated as hedges.

Gasoline Swap Contracts by Expiration Dates		Barrels				BPD				($/Bbl)
Second Quarter 2007			636,000				6,989			$	71.38
Third Quarter 2007			640,000				6,957				72.67
Fourth Quarter 2007			640,000				6,957				72.67
Calendar Year 2008			3,385,000				9,249				75.87
Calendar Year 2009			3,102,500				8,500				73.39
Calendar Year 2010			2,372,500				6,500				75.07
Calendar Year 2011			90,500				248				70.87
Totals			10,866,500
Average price										$	74.31

     At December 31, 2006, the Company had the following derivatives related to gasoline sales in its fuel products segment, all of which are designated as hedges.

Gasoline Swap Contracts by Expiration Dates		Barrels				BPD				($/Bbl)
First Quarter 2007			630,000				7,000			$	72.09
Second Quarter 2007			636,000				6,989				71.38
Third Quarter 2007			640,000				6,957				72.67
Fourth Quarter 2007			640,000				6,957				72.67
Calendar Year 2008			3,202,000				8,749				76.17
Calendar Year 2009			2,920,000				8,000				73.45
Calendar Year 2010			2,190,000				6,000				75.27
Calendar Year 2011			90,500				248				70.87
Totals			10,948,500
Average price										$	74.30

Natural Gas Swap Contracts

     The Company utilizes swap contracts to manage natural gas price risk and volatility of cash flows. These swap contracts are designated as cash flow hedges of the future purchase of natural gas. 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 requirements. At March 31, 2007, the Company had the following derivatives related to natural gas purchases.

Natural Gas Swap Contracts by Expiration Dates		MMbtu				$/MMbtu
Third Quarter 2007			100,000			$	7.99
Fourth Quarter 2007			150,000				7.99
First Quarter 2008			150,000				7.99
Totals			400,000
Average price						$	7.99

     At December 31, 2006, the Company had the following derivatives related to natural gas purchases.

Natural Gas Swap Contracts by Expiration Dates		MMbtu				$/MMbtu
First Quarter 2007			600,000			$	8.87
Third Quarter 2007			100,000				7.99
Fourth Quarter 2007			150,000				7.99
First Quarter 2008			150,000				7.99
Totals			1,000,000
Average price						$	8.52

Interest Rate Swap Contracts

     In 2006, the Company entered into a forward swap contract to manage interest rate risk related to its variable rate senior secured first lien term loan. The Company hedges the interest payments related to 85% of its future term loan indebtedness. This swap contract is designated as a cash flow hedge of the future payment of interest with three-month LIBOR fixed at 5.44% per annum.

6. 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 taxing authorities 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 flow.

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 Louisiana Department of Environmental Quality (“LDEQ”) has proposed penalties totaling $191 and supplemental 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; and (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. The Company is currently in settlement negotiations with the LDEQ to resolve these matters, as well as a number of similar matters at the Princeton refinery, for which no penalty has yet been proposed. The Company anticipates that any penalties that may be assessed due to the alleged violations at its Princeton refinery as well as the aforementioned penalties related to the Cotton Valley refinery 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 recently entered into 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 only in the beginning stages of discussion with the LDEQ and, consequently, while no significant compliance and enforcement expenditures have been requested as a result of the Company’s discussions, the Company anticipates that it will ultimately be required to make emissions reductions requiring capital investments between approximately $1,000 and $3,000 over a three to five year period at the Company’s three Louisiana refineries.

     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 its 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 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.

     On December 27, 2006, the LDEQ approved the Company’s application for a modification of its air emissions permit for the Shreveport refinery expansion. The Company was required to obtain approval of this modified air emissions permit from the LDEQ prior to commencing construction of the expansion activities. Upon receipt of the permit approval from the LDEQ, the Company commenced construction of the Shreveport refinery expansion project. On February 22, 2007, the Company received notice that on February 13, 2007 an individual filed, on behalf of the “Residents for Air Neutralization,” a Petition for Review in the 19th Judicial District Court for East Baton Rouge Parish, Louisiana, asking the Court to review the approval granted by the LDEQ for the Company’s application for a modified air emissions permit. The Petition alleges the information in the final LDEQ decision report was inaccurate and that, based on the LDEQ’s decision to grant the modified air emissions permit, the LDEQ had not reviewed the evidence put before them properly. The Company believes that the Petition was not timely filed and is obtaining the necessary documentation for dismissal of the Petition. If the Petition is not dismissed, the LDEQ and the Company will defend the issuance of the permit. The Company believes that the LDEQ and the Company will be successful in defending the LDEQ’s approval of the Company’s application for a modified air emissions permit. The Company is not named at this time as a party to the Petition.

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, 2007 and December 31, 2006, the Company had outstanding standby letters of credit of $40,155 and $42,775, respectively, under its senior secured revolving credit facility. The Company also had a $50,000 letter of credit outstanding under the senior secured first lien letter of credit facility for its fuels hedging program, which bears interest at 3.50%.

7. Partners’ Capital

     On January 31, 2006, the Partnership completed the initial public offering of its common units and sold 5,699,900 of those units to the underwriters in the initial public offering at a price to the public of $21.50 per common unit. The Partnership also sold a total of 750,100 common units to certain relatives of the chairman of our general partner at a price of $19.995 per common unit. In addition, on February 8, 2006, the Partnership sold an additional 854,985 common units to the underwriters at a price to the public of $21.50 per common unit pursuant to the underwriters’ over-allotment option. Each of these issuances was made pursuant to the Partnership’s Registration Statement on Form S-1 (File No. 333-128880) declared effective by the Securities and Exchange Commission on January 29, 2006. The proceeds received by the Partnership (net of underwriting discounts and structuring fees and before expenses) from the sale of an aggregate of 7,304,985 units were approximately $144,400. The net proceeds were used to: (i) repay indebtedness and accrued interest under the first lien term loan facility in the amount of approximately $125,700, (ii) repay indebtedness under the secured revolving credit facility in the amount of approximately $13,100 and (iii) pay transaction fees and expenses in the amount of approximately $5,600. Underwriting discounts totaled approximately $11,600 (including certain structuring fees paid to certain of the underwriters of approximately $2,400).

     On July 5, 2006, the Partnership completed a follow-on public offering of its common units in which it sold 3,300,000 common units to the underwriters of the offering at a price to the public of $32.94 per common unit. This issuance was made pursuant to the Partnership’s Registration Statement on Form S-1 (File No. 333-134993) declared effective by the Securities and Exchange Commission on June 28, 2006. The proceeds received by the Partnership (net of underwriting discounts, commissions and expenses but before its general partner’s capital contribution) from this offering was $103,479. The use of proceeds from the offering was to: (i) repay all of its borrowings under its revolving credit facility, which were approximately $9,243 as of June 30, 2006, (ii) fund the future construction and other start-up costs of the planned expansion project at the Shreveport refinery and (iii) to the extent available, for general partnership purposes. Underwriting discounts totaled $4,620. The general partner contributed $2,218 to retain its 2% general partner interest.

     Of the 16,366,000 common units outstanding at March 31, 2007 10,604,985 are held by the public, with the remaining 5,761,015 held by affiliates. All of the 13,066,000 subordinated units are held by affiliates.

     The Predecessor’s policy was that distributions were limited to the amount necessary to pay each partner’s federal income tax and any state income tax on their share of partnership income. However, additional distributions to the partners could be made at the sole discretion of the general partner. In January 2006, the Predecessor made its final distribution of $6,900 to its partners. Subsequent to January 31, 2006, Calumet’s distribution policy is as defined in the Partnership Agreement. During the three months ended March 31, 2007 and 2006, the Company made distributions of $18,673 and $0, respectively, to its partners.

     On April 10, 2007, the Company declared a quarterly cash distribution of $0.60 per unit on all outstanding units, or $18,673, for the three months ended March 31, 2007. The distribution will be paid on May 15, 2007 to unitholders of record as of the close of business on May 5, 2007. This quarterly distribution of $0.60 per unit equates to $2.40 per unit on an annualized basis.

8. Segments and Related Information

a. Segment Reporting

     Under the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has two reportable segments: Specialty Products and Fuel Products. The Specialty Products segment produces a variety of lubricating oils, solvents and waxes. These products are sold to customers who purchase these products primarily as raw material components for basic automotive, industrial and consumer goods. The Fuel Products segment produces a variety of fuel and fuel-related products including gasoline, diesel and jet fuel.

     The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that the Company evaluates segment performance based on income from operations. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up. Reportable segment information is as follows :

		Specialty				Fuel				Combined								Consolidated
Three Months Ended March 31, 2007		Products				Products				Segments				Eliminations				Total
Sales:
External customers		$	201,753			$	149,360			$	351,113			$	—			$	351,113
Intersegment sales			124,891				7,805				132,696				(132,696	)			—
Total sales		$	326,644			$	157,165			$	483,809			$	(132,696	)		$	351,113
Depreciation and amortization			4,541				—				4,541				—				4,541
Income from operations			22,574				12,401				34,975				—				34,975
Reconciling items to net income:
Interest expense																			(1,015	)
Interest income																			991
Loss on derivative instruments																			(6,513	)
Other																			(178	)
Income tax expense																			(50	)
Net income																		$	28,210
Capital expenditures		$	41,734			$	—			$	41,734			$	—			$	41,734

		Specialty				Fuel				Combined								Consolidated
Three Months Ended March 31, 2006		Products				Products				Segments				Eliminations				Total
Sales:
External customers		$	229,657			$	168,037			$	397,694			$	—			$	397,694
Intersegment sales			166,177				9,551				175,728				(175,728	)			—
Total sales		$	395,834			$	177,588			$	573,422			$	(175,728	)		$	397,694
Depreciation and amortization			3,367				—				3,367				—				3,367
Income from operations			19,886				11,498				31,384				—				31,384
Reconciling items to net income :
Interest expense																			(3,976	)
Interest income																			194
Debt extinguishment costs																			(2,967	)
Loss on derivative instruments																			(20,795	)
Other																			5
Income tax expense																			(14	)
Net income																		$	3,831
Capital expenditures		$	2,975			$	—			$	2,975			$	—			$	2,975

		March 31,				December 31,
		2007				2006
Segment assets:
Specialty products		$	1,055,321			$	973,854
Fuel products			715,204				681,677
Combined segments			1,770,525				1,655,531
Eliminations			(1,245,440	)			(1,123,880	)
Total assets		$	525,085			$	531,651

b. Geographic Information

     International sales accounted for less than 10% of consolidated sales for each of the three months ended March 31, 2007 and 2006.

c. Product Information

     The Company offers products primarily in four general categories consisting of fuels, lubricants, solvents and waxes. Other includes asphalt and other by-products. The following table sets forth the major product category sales

		Three Months Ended March 31,
		2007				2006
Fuels		$	154,928			$	178,601
Lubricants			116,729				132,910
Solvents			49,032				52,360
Waxes			10,356				15,455
Other			20,068				18,368
Total sales		$	351,113			$	397,694

d. Major Customers

     No customer represented 10% or greater of consolidated sales in the three months ended March 31, 2007 and 2006.

9. Subsequent Events

     On April 10, 2007, the Company declared a quarterly cash distribution of $0.60 per unit on all outstanding units, or $18,673, for the three months ended March 31, 2007. The distribution will be paid on May 15, 2007 to unitholders of record as of the close of business on May 5, 2007. This quarterly distribution of $0.60 per unit equates to $2.40 per unit on an annualized basis.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The historical condensed consolidated financial statements included in this Quarterly Report on Form 10-Q reflect all of the assets, liabilities and results of operations of Calumet Specialty Products Partners, L.P. (“Calumet”) when used in the present tense, prospectively or for historical periods since January 31, 2006 and Calumet Lubricants Co., Limited Partnership (“Predecessor”) for historical periods prior to January 31, 2006 where applicable. The following discussion analyzes the financial condition and results of operations of Calumet for the three months ended March 31, 2007 and 2006. The financial condition and results of operations for the three months ended March 31, 2006 are of Calumet and include the results of operation of the Predecessor from January 1, 2006 to January 31, 2006. Unitholders should read the following discussion of the financial condition and results of operations for Calumet and the Predecessor in conjunction with the historical condensed consolidated financial statements and notes of Calumet and the Predecessor included elsewhere in this Quarterly Report on Form 10-Q.

Overview

     We are a leading independent producer of high-quality, specialty hydrocarbon products in North America. Our business is organized into two segments: specialty products and fuel products. In our specialty products segment, we process crude oil into a wide variety of customized lubricating oils, solvents and waxes. Our specialty products are sold to domestic and international customers who purchase them primarily as raw material components for basic industrial, consumer and automotive goods. In our fuel products segment, we process crude oil into a variety of fuel and fuel-related products including unleaded gasoline, diesel and jet fuel. In connection with our production of specialty products and fuel products, we also produce asphalt and a limited number of other by-products. The asphalt and other by-products produced in connection with the production of specialty products at the Princeton, Cotton Valley and Shreveport refineries are included in our specialty products segment. The by-products produced in connection with the production of fuel products at the Shreveport refinery are included in our fuel products segment. The fuels produced in connection with the production of specialty products at the Princeton and Cotton Valley refineries are included in our specialty products segment. For the three months ended March 31, 2007, approximately 74.2% of our gross profit was generated from our specialty products segment and approximately 25.8% of our gross profit was generated from our fuel products segment.

     Our fuel products segment began operations in 2004, as we substantially completed the approximately $39.7 million reconfiguration of the Shreveport refinery to add motor fuels production, including gasoline, diesel and jet fuel, to its existing specialty products production as well as to increase overall feedstock throughput. The project was fully completed in February 2005. The reconfiguration was undertaken to capitalize on strong fuels refining margins, or crack spreads, relative to historical levels, to utilize idled assets, and to enhance the profitability of the Shreveport refinery’s specialty products segment by increasing overall refinery throughput. In 2006, we commenced construction of an expansion project at our Shreveport refinery to increase throughput capacity and feedstock flexibility. Please read “—Liquidity and Capital Resources — Capital Expenditures” below.

     Our sales and net income are principally affected by the price of crude oil, demand for specialty and fuel products, prevailing crack spreads for fuel products, the price of natural gas used as fuel in our operations and our results from derivative instrument activities.

     Our primary raw material is crude oil and our primary outputs are specialty petroleum and fuel products. The prices of crude oil, specialty and fuel products are subject to fluctuations in response to changes in supply, demand, market uncertainties and a variety of additional factors beyond our control. We monitor these risks and enter into financial derivatives designed to mitigate the impact of commodity price fluctuations on our business. The primary purpose of our commodity risk management activities is to economically hedge our cash flow exposure to commodity price risk so that we can meet our cash distribution, debt service and capital expenditure requirements despite fluctuations in crude oil and fuel products prices. We enter into derivative contracts for future periods in quantities which do not exceed our projected purchases of crude oil and sales of fuel products. Please read Item 3 “Quantitative and Qualitative Disclosures about Market Risk — Commodity Price Risk.” As of March 31, 2007, we have hedged approximately 29 million barrels of fuel products through December 2011 at an average refining margin of $11.93 per barrel and average refining margins range from a low of $10.08 in the first and second quarters of 2011 to a high of $12.66 in the third and fourth quarters of 2007. Please refer to Item 3 “Quantitative and Qualitative Disclosures About Market Risk — Commodity Price Risk — Existing Commodity Derivative Instruments” for a detailed listing of our hedge positions.

     Our management uses several financial and operational measurements to analyze our performance. These measurements include the following:

	•		Sales volumes;
	•		Production yields; and

•

Specialty products and fuel products gross profit.

     Sales volumes. We view the volumes of specialty and fuels products sold as an important measure of our ability to effectively utilize our refining assets. Our ability to meet the demands of our customers is driven by the volumes of crude oil and feedstocks that we run at our refineries. Higher volumes improve profitability both through the spreading of fixed costs over greater volumes and the additional gross profit achieved on the incremental volumes.

     Production yields. We seek the optimal product mix for each barrel of crude oil we refine in order to maximize our gross profits and minimize lower margin by-products which we refer to as production yield.

     Specialty products and fuel products gross profit. Specialty products and fuel products gross profit are an important measure of our ability to maximize the profitability of our specialty products and fuel products segments. We define specialty products and fuel products gross profit as sales less the cost of crude oil and other feedstocks and other production-related expenses, the most significant portion of which include labor, plant fuel, utilities, contract services, maintenance and processing materials. We use specialty products and fuel products gross profit as an indicator of our ability to manage our business during periods of crude oil and natural gas price fluctuations, as the prices of our specialty products and fuel products generally do not change immediately with changes in the price of crude oil and natural gas. The increase in selling prices typically lags behind the rising costs of crude oil and other feedstocks for specialty products. Other than plant fuel, production-related expenses generally remain stable across broad ranges of throughput volumes, but can fluctuate depending on maintenance and turnaround activities.

     In addition to the foregoing measures, we also monitor our general and administrative expenditures, substantially all of which are incurred through our general partner, Calumet GP, LLC.

Three Months Ended March 31, 2007 Results of Operations

     The following table sets forth information about our combined refinery operations. Refining production volume differs from sales volume due to changes in inventory.

		Three Months Ended
		March 31,
		2007				2006
Total sales volume (bpd)(1)			43,400				52,090
Total feedstock runs (bpd)(2)			45,420				52,370
Refinery production (bpd)(3):
Specialty products:
Lubricating oils			10,087				11,695
Solvents			5,198				4,346
Waxes			902				1,144
Fuels			2,138				2,508
Asphalt and other by-products			5,038				5,561
Total			23,363				25,254
Fuel products:
Gasoline			7,836				10,002
Diesel			5,127				7,724
Jet fuel			7,160				7,308
By-products			1,187				297
Total			21,310				25,331
Total refinery production			44,673				50,585

     The following table reflects our consolidated results of operations and includes the non-GAAP financial measures EBITDA and Adjusted EBITDA. For a reconciliation of net income to EBITDA and Adjusted EBITDA as well as Adjusted EBITDA and EBITDA to cash flow from operating activities, our most directly comparable financial performance and liquidity measures calculated in accordance with GAAP, please read “—Non-GAAP Financial Measures”.

		Three Months Ended
		March 31,
		2007				2006
						As adjusted (1)
		(In millions)
Sales		$	351.1			$	397.7
Cost of sales			296.1				346.4
Gross profit			55.0				51.3
Operating costs and expenses:
Selling, general and administrative			5.4				4.9
Transportation			13.5				13.9
Taxes other than income taxes			0.9				1.0
Other			0.2				0.1
Operating income			35.0				31.4
Other income (expense):
Interest expense			(1.0	)			(4.0	)
Interest income			1.0				0.2
Debt extinguishment costs			—				(3.0	)
Realized loss on derivative instruments			(1.7	)			(3.1	)
Unrealized loss on derivative instruments			(4.8	)			(17.7	)
Other			(0.2	)			—
Total other income (expense)			(6.7	)			(27.6	)
Net income before income taxes			28.3				3.8
Income taxes			0.1				—
Net income		$	28.2			$	3.8
EBITDA		$	32.7			$	13.5
Adjusted EBITDA		$	32.5			$	26.1

Non-GAAP Financial Measures

     We include in this Quarterly Report on Form 10-Q the non-GAAP financial measures EBITDA and Adjusted EBITDA, and provide reconciliations of net income to EBITDA and Adjusted EBITDA and Adjusted EBITDA and EBITDA to net cash provided by operating activities, our most directly comparable financial performance and liquidity measures calculated and presented in accordance with GAAP.

     EBITDA and Adjusted EBITDA are used as supplemental financial measures by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others, to assess:

	•		the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
	•		the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness, and meet minimum quarterly distributions;
	•		our operating performance and return on capital as compared to those of other companies in our industry, without regard to financing or capital structure; and
	•		the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

     We define EBITDA as net income plus interest expense (including debt issuance and extinguishment costs), taxes and depreciation and amortization. We define Adjusted EBITDA to be Consolidated EBITDA as defined in our credit facilities. Consistent with that definition, Adjusted EBITDA means, for any period: (1) net income plus (2)(a) interest expense; (b) taxes; (c) depreciation and amortization; (d) unrealized losses from mark to market accounting for hedging activities; (e) unrealized items decreasing net income (including the non-cash impact of restructuring, decommissioning and asset impairments in the periods presented); and (f) other non-recurring expenses reducing net income which do not represent a cash item for such period; minus (3)(a) tax credits; (b) unrealized items increasing net income (including the non-cash impact of restructuring, decommissioning and asset impairments in the periods presented); (c) unrealized gains from mark to market accounting for hedging activities; and (d) other non-recurring expenses and unrealized items that reduced net income for a prior period, but represent a cash item in the current period. We are required to report Adjusted EBITDA to our lenders under our credit facilities and it is used to determine our compliance with the consolidated leverage test thereunder. We are required to maintain a consolidated leverage ratio of consolidated debt to Adjusted EBITDA, after giving effect to any proposed distributions, of no greater than 3.75 to 1 in order to make distributions to our unitholders. If an event of default exists under our credit agreements, the lenders will be able to accelerate the maturity of the credit facilities and exercise other rights and remedies. Please refer to “—Liquidity and Capital Resources — Debt and Credit Facilities “ within this item for additional details regarding debt covenants.

     EBITDA and Adjusted EBITDA should not be considered alternatives to net income, operating income, net cash provided by operating activities or any other measure of financial performance presented in accordance with GAAP. Our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate EBITDA and Adjusted EBITDA in the same manner. The following table presents a reconciliation of both net income to EBITDA and Adjusted EBITDA and Adjusted EBITDA and EBITDA to net cash provided by operating activities, our most directly comparable GAAP financial performance and liquidity measures, for each of the periods indicated.

		Three Months Ended
		March 31,
		2007				2006
						As adjusted (1)
		(In millions)
Reconciliation of Net Income to EBITDA and Adjusted EBITDA:
Net income		$	28.2			$	3.8
Add:
Interest expense and debt extinguishment costs			1.0				7.0
Depreciation and amortization			3.4				2.7
Income tax expense			0.1				—
EBITDA		$	32.7			$	13.5
Add:
Unrealized loss from mark to market accounting for hedging activities			3.8				17.7
Prepaid non-recurring expenses and accrued non-recurring expenses, net of cash outlays			(4.0	)			(5.1	)
Adjusted EBITDA		$	32.5			$	26.1

		Three Months Ended
		March 31,
		2007				2006
						As adjusted (1)
		(In millions)
Reconciliation of Adjusted EBITDA and EBITDA to Net cash provided by operating activities:
Adjusted EBITDA		$	32.5			$	26.1
Add:
Unrealized loss from mark to market accounting for hedging activities			(3.8	)			(17.7	)
Prepaid non-recurring expenses and accrued non-recurring expenses, net of cash outlays			4.0				5.1
EBITDA		$	32.7			$	13.5
Add:
Interest expense and debt extinguishment costs, net			(0.9	)			(7.0	)
Income tax expense			(0.1	)			—
Provision for doubtful accounts			—				0.1
Debt extinguishment costs			—				3.0
Changes in assets and liabilities:
Accounts receivable			(8.6	)			1.4
Inventory			3.3				7.3
Other current assets			(5.7	)			16.5
Derivative activity			3.8				18.7
Accounts payable			23.6				7.4
Other current liabilities			(3.6	)			(5.6	)
Other, including changes in noncurrent assets and liabilities			(1.7	)			4.8
Net cash provided by operating activities		$	42.8			$	60.1

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

     Sales. Sales decreased $46.6 million, or 11.7%, to $351.1 million in the three months ended March 31, 2007 from $397.7 million in the three months ended March 31, 2006. Sales for each of our principal product categories in these periods were as follows:

		Three Months Ended March 31,
		2007				2006				% Change
		(Dollars in millions)
Sales by segment:
Specialty products:
Lubricating oils		$	116.7			$	132.9				(12.2	%)
Solvents			49.0				52.4				(6.4	%)
Waxes			10.4				15.5				(33.0	%)
Fuels(1)			11.5				11.8				(2.3	%)
Asphalt and by-products( 2)			14.1				17.1				(17.7	%)
Total specialty products			201.7				229.7				(12.1	%)
Total specialty products volume (in barrels)			2,072,000				2,414,000				(14.2	%)
Fuel products:
Gasoline		$	54.0			$	71.9				(25.0	%)
Diesel			50.1				56.0				(10.4	%)
Jet fuel			39.3				38.9				1.0	%
By-products( 3)			6.0				1.2				387.0	%
Total fuel products			149.4				168.0				(11.1	%)
Total fuel products sales volumes (in barrels)			1,834,000				2,274,000				(19.4	%)
Total sales		$	351.1			$	397.7				(11.7	%)
Total sales volumes (in barrels)			3,906,000				4,688,000				(16.7	%)

     This $46.6 million decrease in sales resulted from a $27.9 million decrease in sales by our specialty products segment and a $18.7 million decrease in sales by our fuel products segment.

     Specialty products segment sales for the three months ended March 31, 2007 decreased $27.9 million, or 12.1%, primarily due to a 14.2% decrease in volumes sold, from approximately 2.4 million barrels in the first quarter of 2006 to 2.1 million barrels in the first quarter of 2007. This decrease was primarily driven by decreased sales volume of 0.3 million barrels for lubricating oils and solvents combined, due primarily to scheduled turnaround activities at our Shreveport and Princeton refineries in the first quarter of 2007, with no similar activities in the comparable period in 2006. The decrease due to volume was offset by a 2.3% increase in the average selling price per barrel as compared to a 8.1% decrease in the average cost of crude, primarily driven by increased sales prices of lubricating oils due to market demand.

     Fuel products segment sales for the three months ended March 31, 2007 decreased $18.7 million, or 11.1%, primarily due to a 19.4% decrease in volumes sold, from approximately 2.3 million barrels in the first quarter of 2006 to 1.8 million barrels in the first quarter of 2007. This decrease was primarily driven by a 0.6 million barrel decrease in gasoline and diesel sales combined, due primarily to scheduled turnaround activities at our Shreveport refinery in the first quarter of 2007 with no similar activities in the comparable period in 2006. Fuel products sales were also negatively affected by a 2.9% decrease in the average selling price per barrel as compared to a 8.3% decrease in the average cost of crude primarily driven by decreases in gasoline and jet fuel sales prices due to market conditions. These decreases in sales were partially offset by the recognition of $17.8 million of derivative gains on our fuel products cash flow hedges recorded in sales with no similar activity during the comparable period in 2006.

     Gross Profit. Gross profit increased $3.8 million, or 7.4%, to $55.0 million for the three months ended March 31, 2007 from $51.2 million (as adjusted) for the three months ended March 31, 2006. Gross profit for our specialty and fuel products segments were as follows:

		Three Months Ended March 31,
		2007				2006				% Change
		(As adjusted)
		(Dollars in millions)
Gross profit by segment:
Specialty products		$	40.8			$	37.4				9.3	%
Percentage of sales			20.2	%			16.3	%
Fuel products		$	14.2			$	13.9				2.3	%
Percentage of sales			9.5	%			8.3	%
Total gross profit		$	55.0			$	51.2				7.4	%
Percentage of sales			15.7	%			12.9	%