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, 2009

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		(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 (Do not check if a smaller reporting company)		Smaller reporting company o

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

 

 

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
FORM 10-Q — March 31, 2009 QUARTERLY REPORT

Table of Contents

		Page
Part I
Item 1. Financial Statements
Condensed Consolidated Balance Sheets			5
Unaudited Condensed Consolidated Statements of Operations			6
Unaudited Condensed Consolidated Statements of Partners’ Capital			7
Unaudited Condensed Consolidated Statements of Cash Flows			8
Notes to Unaudited Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			46
Part II
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 4. Submission of Matters to a Vote of Security Holders			47
Item 5. Other Information			47
Item 6. Exhibits			48
EX-31.1
EX-31.2
EX-32.1

FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q includes certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. These statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” or other similar words. The statements regarding (i) expected settlements with the Louisiana Department of Environmental Quality (“LDEQ”) or other environmental and regulatory liabilities, (ii) our anticipated levels of use of derivatives to mitigate our exposure to crude oil price changes and fuel products price changes, (iii) future compliance with our debt covenants, (iv) improvements in our liquidity, and (v) future increases in Shreveport refinery throughput rates as well as other matters discussed in this Quarterly Report on Form 10-Q that are not purely historical data, are forward-looking statements. These statements discuss future expectations or state other “forward-looking” information and involve risks and uncertainties. When considering these forward-looking statements, unitholders should keep in mind the risk factors and other cautionary statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed on March 4, 2009. The risk factors and other factors noted throughout this Quarterly Report on Form 10-Q could cause our actual results to differ materially from those contained in any forward-looking statement. These factors include, but are not limited to:

	•		the overall demand for specialty hydrocarbon products, fuels and other refined products;
	•		our ability to produce specialty products and fuels that meet our customers’ unique and precise specifications;
	•		the impact of fluctuations and rapid increases or decreases in crude oil and crack spread prices, including the impact on our liquidity;
	•		the results of our hedging and other risk management activities;
	•		our ability to comply with financial covenants contained in our credit agreements;
	•		the availability of, and our ability to consummate, acquisition or combination opportunities;
	•		labor relations;
	•		our access to capital to fund expansions, acquisitions and our working capital needs and our ability to obtain debt or equity financing on satisfactory terms;
	•		successful integration and future performance of acquired assets or businesses;
	•		environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves;
	•		maintenance of our credit ratings and ability to receive open credit lines from our suppliers;
	•		demand for various grades of crude oil and resulting changes in pricing conditions;
	•		fluctuations in refinery capacity;
	•		the effects of competition;
	•		continued creditworthiness of, and performance by, counterparties;
	•		the impact of current and future laws, rulings and governmental regulations;
	•		shortages or cost increases of power supplies, natural gas, materials or labor;
	•		hurricane or other weather interference with business operations;
	•		fluctuations in the debt and equity markets;

	•		accidents or other unscheduled shutdowns; and
	•		general economic, market or business conditions.

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

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

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

PART I

Item 1. Financial Statements

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		March 31, 2009				December 31, 2008
		(Unaudited)
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	28			$	48
Accounts receivable:
Trade			97,992				103,962
Other			4,326				5,594
			102,318				109,556
Inventories			148,976				118,524
Derivative assets			86,793				71,199
Prepaid expenses and other current assets			1,119				1,803
Deposits			21				4,021
Total current assets			339,255				305,151
Property, plant and equipment, net			652,247				659,684
Goodwill			48,335				48,335
Other intangible assets, net			46,649				49,502
Other noncurrent assets, net			16,496				18,390
Total assets		$	1,102,982			$	1,081,062
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable		$	68,674			$	87,460
Accounts payable — related party			27,966				6,395
Accrued salaries, wages and benefits			6,773				6,865
Taxes payable			8,842				6,833
Other current liabilities			7,431				9,662
Current portion of long-term debt			4,778				4,811
Derivative liabilities			5,837				15,827
Total current liabilities			130,301				137,853
Pension and postretirement benefit obligations			9,938				9,717
Long-term debt, less current portion			450,050				460,280
Total liabilities			590,289				607,850
Commitments and contingencies
Partners’ capital:
Common unitholders (19,166,000 units authorized, issued and outstanding)			399,369				363,935
Subordinated unitholders (13,066,000 units authorized, issued and outstanding)			59,900				35,778
General partner’s interest			19,147				17,933
Accumulated other comprehensive income			34,277				55,566
Total partners’ capital			512,693				473,212
Total liabilities and partners’ capital		$	1,102,982			$	1,081,062

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		For the Three Months Ended
		March 31,
		2009				2008
		(In thousands, except per unit data)
Sales		$	414,264			$	594,723
Cost of sales			335,293				559,889
Gross profit			78,971				34,834
Operating costs and expenses:
Selling, general and administrative			9,322				8,252
Transportation			15,155				23,860
Taxes other than income taxes			1,125				1,054
Other			418				224
Operating income			52,951				1,444
Other income (expense):
Interest expense			(8,644	)			(5,166	)
Debt extinguishment costs			—				(526	)
Realized loss on derivative instruments			(8,470	)			(2,877	)
Unrealized gain on derivative instruments			39,739				3,570
Other			144				171
Total other income (expense)			22,769				(4,828	)
Net income (loss) before income taxes			75,720				(3,384	)
Income tax expense			82				8
Net income (loss)		$	75,638			$	(3,392	)
Calculation of common unitholders’ interest in net income (loss):
Net income (loss)		$	75,638			$	(3,392	)
Less:
General partner’s interest in net income (loss)			1,510				(68	)
Subordinated unitholders’ interest in net income (loss)			30,002				(1,347	)
Net income (loss) available to common unitholders		$	44,126			$	(1,977	)
Weighted average number of common units outstanding – basic and diluted			19,166				19,166
Weighted average number of subordinated units outstanding – basic and diluted			13,066				13,066
Common and subordinated unitholders’ basic and diluted net income (loss) per unit			2.30				(0.10	)
Cash distributions declared per common and subordinated unit		$	0.45			$	0.63

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		Accumulated Other				Partners’ Capital
		Comprehensive				General				Limited Partners
		Income				Partner				Common				Subordinated				Total
										(In thousands)
Balance at December 31, 2008		$	55,566			$	17,933			$	363,935			$	35,778			$	473,212
Comprehensive income:
Net income							1,510				44,126				30,002				75,638
Cash flow hedge gain reclassified to net income upon settlement			(1,311	)															(1,311	)
Change in fair value of cash flow hedges			(20,072	)															(20,072	)
Minimum pension liability adjustment			94																94
Comprehensive income																			54,349
Common units repurchased for vested phantom unit grants											(105	)							(105	)
Amortization of vested phantom units											55								55
Distributions to partners							(296	)			(8,642	)			(5,880	)			(14,818	)
Balance at March 31, 2009		$	34,277			$	19,147			$	399,369			$	59,900			$	512,693

See accompanying notes to unaudited condensed consolidated financial statements.

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

		For the Three Months Ended
		March 31,
		2009				2008
		(In thousands)
Operating activities
Net income (loss)		$	75,638			$	(3,392	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			16,135				11,350
Amortization of turnaround costs			1,597				330
Provision for doubtful accounts			240				400
Non-cash debt extinguishment costs			—				526
Unrealized gain on derivative instruments			(39,739	)			(3,570	)
Other non-cash activity			106				114
Changes in assets and liabilities:
Accounts receivable			6,998				(16,745	)
Inventories			(30,452	)			24,494
Prepaid expenses and other current assets			684				6,237
Derivative activity			(7,228	)			5,961
Deposits			4,000				—
Other assets			(76	)			1,372
Accounts payable			2,785				32,910
Accrued salaries, wages and benefits			(92	)			349
Taxes payable			2,009				1,235
Other current liabilities			(287	)			475
Pension and postretirement benefit obligations			315				383
Net cash provided by operating activities			32,633				62,429
Investing activities
Additions to property, plant and equipment			(4,945	)			(90,274	)
Acquisition of Penreco, net of cash acquired			—				(268,969	)
Net cash used in investing activities			(4,945	)			(359,243	)
Financing activities
Repayments of borrowings, net — revolving credit facility			(9,569	)			(6,958	)
Repayments of borrowings — prior term loan credit facility			—				(30,099	)
Proceeds from (Repayments of) borrowings, net — existing term loan credit facility			(963	)			366,637
Debt issuance costs			—				(10,996	)
Payments on capital lease obligation			(309	)			—
Change in bank overdraft			(1,944	)			98
Common units repurchased for vested phantom unit grants			(105	)			(115	)
Distributions to partners			(14,818	)			(21,738	)
Net cash provided by (used in) financing activities			(27,708	)			296,829
Net increase (decrease) in cash and cash equivalents			(20	)			15
Cash and cash equivalents at beginning of period			48				35
Cash and cash equivalents at end of period		$	28			$	50
Supplemental disclosure of cash flow information
Interest paid		$	7,917			$	5,666
Income taxes paid		$	—			$	7

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

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

2.  New Accounting Pronouncements

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

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, results of operations, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company has adopted SFAS 161 as of January 1, 2009. Because SFAS 161 applies only to financial statement disclosures, it did not have any impact on the Company’s financial position, results of operations, or cash flows.

     In March 2008, the FASB issued EITF Issue No. 07-4, Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships (“EITF 07-4”). EITF 07-4 requires master limited partnerships to treat incentive distribution rights (“IDRs”) as participating securities for the purposes of computing earnings per unit in the period that the general partner becomes contractually obligated to pay IDRs. EITF 07-4 requires that undistributed earnings be allocated to the partnership interests based on the allocation of earnings to capital accounts as specified in the respective partnership agreement. When distributions exceed earnings, EITF 07-4 requires that net income be reduced by the actual distributions with the resulting net loss being allocated to capital accounts as specified in the respective partnership agreement. EITF 07-4 is effective for fiscal years and interim periods beginning after December 15, 2008. The Company has adopted EITF 07-4 as of January 1, 2009 and applied it retrospectively. The impact of EITF 07-4 on our calculation of earnings per unit as reported for the three months ended March 31, 2008 is as follows:

		Three Months Ended March 31, 2008, as Adjusted
		for EITF 07-4
Net income (loss)		$	(3,392	)
Less:
General partner’s interest in net income (loss)			(68	)
Subordinated unitholders interest in net income (loss)			(1,347	)
Net income (loss) available to common unitholders		$	(1,977	)
Weighted average number of common units outstanding – basic and diluted			19,166
Weighted average number of subordinated units outstanding – basic and diluted			13,066
Common and subordinated unitholders’ basic and diluted net income (loss) per unit			(0.10	)
Cash distributions declared per common and subordinated unit		$	0.63
		Three Months Ended March 31, 2008, as Previously
		Reported
Net income (loss)		$	(3,392	)
Minimum quarterly distribution to common unitholders			(8,625	)
General partner’s incentive distribution rights			—
General partner’s interest in net (income) loss			68
Common unitholders’ share of income in excess of minimum quarterly distribution			—
Subordinated unitholders’ interest in net income (loss)		$	(11,949	)
Basic and diluted net income (loss) per limited partner unit:
Common		$	0.45
Subordinated		$	(0.91	)
Weighted average limited partner common units outstanding – basic and diluted			19,166
Weighted average limited partner subordinated units outstanding – basic and diluted			13,066
Cash distributions declared per common and subordinated unit		$	0.63

     In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets, (“FSP No. 142-3”) that amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). FSP No. 142-3 requires a consistent approach between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of an asset under SFAS No. 141(R), Business Combinations. FSP No. 142-3 also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applied prospectively. The Company has adopted FSP No. 142-3 and applied its various provisions as required as of January 1, 2009. The adoption of FSP No. 142-3 did not have a material affect on the Company’s financial position, results of operations, or cash flows.

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

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

     Inventories consist of the following:

		March 31,				December 31,
		2009				2008
Raw materials		$	21,899			$	24,955
Work in process			49,925				43,735
Finished goods			77,152				49,834
		$	148,976			$	118,524

     The replacement cost of these inventories, based on current market values, would have been $7,067 and $27,517 higher as of March 31, 2009 and December 31, 2008, respectively. During the three months ended March 31, 2008, the Company recorded $9,120 of gains in cost of sales in the unaudited condensed consolidated statements of operations due to the liquidation of lower cost inventory layers. No gains were recorded in 2009.

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

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

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

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

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

     Failure to comply with environmental laws and regulations may result in the triggering of administrative, civil and criminal measures, including the assessment of monetary penalties, the imposition of remedial obligations, and the issuance of injunctions limiting or prohibiting some or all of the Company’s operations. On occasion, the Company receives notices of violation, enforcement and other complaints from regulatory agencies alleging non-compliance with applicable environmental laws and regulations. In particular, the LDEQ has proposed penalties totaling approximately $400 and supplemental environmental capital projects for the following alleged violations: (i) a May 2001 notification received by the Cotton Valley refinery from the LDEQ regarding several alleged violations of various air emission regulations, as identified in the course of the Company’s Leak Detection and Repair program, and also for failure to submit various reports related to the facility’s air emissions; (ii) a December 2002 notification received by the Company’s Cotton Valley refinery from the LDEQ regarding alleged violations for excess emissions, as identified in the LDEQ’s file review of the Cotton Valley refinery; (iii) a December 2004 notification received by the Cotton Valley refinery from the LDEQ regarding alleged violations for the construction of a multi-tower pad and associated pump pads without a permit issued by the agency; and (iv) an August 2005 notification received by the Princeton refinery from the

LDEQ regarding alleged violations of air emissions regulations, as identified by the LDEQ following performance of a compliance review, due to excess emissions and failures to continuously monitor and record air emissions levels. The Company anticipates that any penalties that may be assessed due to the alleged violations will be consolidated in a settlement agreement that the Company anticipates executing with the LDEQ in connection with the agency’s “Small Refinery and Single Site Refinery Initiative” described below. The Company has recorded a liability for the proposed penalty within other current liabilities on the unaudited condensed consolidated balance sheets. Environmental expenses are recorded within other expenses in the unaudited condensed consolidated statements of operations.

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

     Voluntary remediation of subsurface contamination is in process at each of the Company’s refinery sites. The remedial projects are being overseen by the appropriate state agencies. Based on current investigative and remedial activities, the Company believes that the groundwater contamination at these refineries can be controlled or remedied without having a material adverse effect on the Company’s financial condition. However, such costs are often unpredictable and, therefore, there can be no assurance that the future costs will not become material. During 2008, the Company determined that it would incur approximately $700 of costs during 2009 at its Cotton Valley refinery in connection with continued remediation of groundwater impacts at that site.

     The Company and the EPA have resolved alleged deficiencies in risk management planning in connection with a fire-related incident arising out of tank cleaning and vacuum truck operations at the Company’s Shreveport refinery on October 30, 2008. The incident involved a third-party contractor and resulted in damage to an on-site aboveground storage tank. Following an investigation of the matter, EPA issued five violations against the Company alleging, among other things, inadequate contractor training and oversight, and proposed a penalty of $230, which the Company has agreed to and paid subsequent to March 31, 2009.

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

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

Health and Safety

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

maintain its compliance with applicable requirements at the Shreveport refinery. While the Company does not expect these expenditures to be material at this time, it has not yet received the reports from the engineering firms conducting the studies to reach final determination. The Company believes that its operations are in substantial compliance with OSHA and similar state laws.

Standby Letters of Credit

     The Company has agreements with various financial institutions for standby letters of credit which have been issued to domestic vendors. As of March 31, 2009 and December 31, 2008, the Company had outstanding standby letters of credit of $20,055 and $21,355, respectively, under its senior secured revolving credit facility. The maximum amount of letters of credit the Company can issue is limited to its availability under its revolving credit facility or $300,000, whichever is lower. As of March 31, 2009 and December 31, 2008, the Company had availability to issue letters of credit of $69,151 and $51,865, respectively, under its revolving credit facility. As discussed in Note 6, as of March 31, 2009 the Company also had a $50,000 letter of credit outstanding under its senior secured first lien letter of credit facility for its fuels hedging program, which bears interest at 4.0%.

6.  Long-Term Debt

     Long-term debt consisted of the following:

		March 31,				December 31,
		2009				2008
Borrowings under senior secured first lien term loan with third-party lenders, interest at rate of three-month LIBOR plus 4.00% (5.23% and 6.15% at March 31, 2009 and December 31, 2008, respectively), interest and principal payments quarterly with borrowings due January 2015, effective interest rate of 7.47% at March 31, 2009		$	374,123			$	375,085
Borrowings under senior secured revolving credit agreement with third-party lenders, interest at prime plus 0.50% (3.75% and 3.75% at March 31, 2009 and December 31, 2008, respectively), interest payments monthly, borrowings due January 2013			92,970				102,539
Capital lease obligations, interest at 8.25%, interest and principal payments quarterly with borrowings due January 2012			2,381				2,640
Less unamortized discount on senior secured first lien term loan with third-party lenders			(14,646	)			(15,173	)
Total long-term debt			454,828				465,091
Less current portion of long-term debt			4,778				4,811
		$	450,050			$	460,280

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

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

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

     The borrowing capacity at March 31, 2009 under the revolving credit facility was $182,176 with $69,151 available for additional borrowings based on collateral and specified availability limitations. Lenders under the revolving credit facility have a first priority lien on the Company’s cash, accounts receivable and inventory and a second priority lien on the Company’s fixed assets.

     Compliance with the financial covenants pursuant to the Company’s credit agreements is tested quarterly based upon performance over the most recent four fiscal quarters and as of March 31, 2009 the Company was in compliance with all financial covenants under its credit agreements and achieved improvement in its financial covenant performance metrics compared to the fourth quarter of 2008.

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

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

     As of March 31, 2009, maturities of the Company’s long-term debt are as follows:

Year		Maturity
2009		$	3,590
2010			4,594
2011			4,460
2012			4,175
2013			96,820
Thereafter			355,835
Total		$	469,474

7.  Derivatives

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

     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 instruments at their fair values in accordance with SFAS 157 (see Note 9) as either assets or liabilities on the unaudited condensed consolidated balance sheets. Fair value includes any premiums paid or received and unrealized gains and losses. Fair value does not include any amounts receivable or payable from or to counterparties, or collateral provided to counterparties. Derivative asset and liability amounts with the same counterparty are netted against each other for financial reporting purposes. The Company had recorded the following derivative assets and liabilities at fair values as of March 31, 2009 and December 31, 2008:

		Derivative Assets								Derivative Liabilities
		March 31, 2009				December 31, 2008				March 31, 2009				December 31, 2008
Derivative instruments designated as cash flow hedges:
Fuel products segment:
Crude oil swaps		$	(119,299	)		$	(93,197	)		$	—			$	(40,283	)
Gasoline swaps			79,647				115,172				—				4,459
Diesel swaps			120,322				50,652				—				39,685
Specialty products segment:
Crude oil collars			—				—				—				—
Natural gas swaps			—				—				—				(206	)
Interest rate swap			—				—				(3,647	)			(3,582	)
Total derivative instruments designated as cash flow hedges			80,670				72,627				(3,647	)			73
Derivative instruments not designated as cash flow hedges:
Fuel products segment:
Crude oil swaps (1)			8,047				12,929				—				1,349
Gasoline swaps (1)			(2,154	)			(14,357	)			—				(1,494	)
Diesel swaps			—				—				—				—
Jet fuel crack spread collars (4)			403				—				—				—
Specialty products segment:
Crude oil collars (2)			(173	)			—				—				(12,345	)
Natural gas swaps (2)			—				—				—				(1,223	)
Interest rate swaps (3)			—				—				(2,190	)			(2,187	)
Total derivative instruments not designated as cash flow hedges			6,123				(1,428	)			(2,190	)			(15,900	)
Total derivative instruments		$	86,793			$	71,199			$	(5,837	)		$	(15,827	)

     To the extent a derivative instrument is determined to be effective as a cash flow hedge of an exposure to changes in the fair value of a future transaction, the change in fair value of the derivative is deferred in accumulated other comprehensive income, a component of partners’ capital in the unaudited condensed consolidated balance sheets, until the underlying transaction hedged is recognized in the unaudited condensed consolidated statements of operations. The Company accounts for certain derivatives hedging purchases of crude oil and natural gas, the sale 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 on-going 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 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 loss on derivative instruments in the unaudited condensed consolidated statements of operations.

     The Company recorded the following amounts in its unaudited condensed consolidated statements of operations and its unaudited condensed consolidated statements of partners’ capital for the three months ended March 31, 2009 and 2008 related to its derivative instruments that were designated as cash flow hedges:

		Amount of Gain (Loss)
		Recognized in
		Accumulated Other								Amount of (Gain) Loss Reclassified from
		Comprehensive Income								Accumulated Other Comprehensive												Amount of Gain (Loss) Recognized in Net
		on Derivatives (Effective								Income into Net Income (Loss) (Effective												Income (Loss) on Derivatives (Ineffective
		Portion)								Portion)												Portion)
		For the Three Months Ended March 31,								Location of (Gain)				For the Three Months Ended March 31,								Location of Gain				For the Three Months Ended March 31,
Type of Derivative		2009				2008				Loss				2009				2008				(Loss)				2009				2008
Fuel products segment:
Crude oil swaps		$	(142,869	)		$	666,184			Cost of sales				$	36,410			$	(53,167	)		Unrealized/ Realized				$	13,005			$	(10	)
Gasoline swaps			85,542				(239,112	)		Sales					(20,667	)			20,973			Unrealized/ Realized					2,644				(3	)
Diesel swaps			101,381				(524,685	)		Sales					(18,482	)			34,062			Unrealized/ Realized					7,745				2,905
Specialty products segment:
Crude oil collars			—				4,614			Cost of sales					—				(2,758	)		Unrealized/ Realized					—				(617	)
Natural gas swaps			—				570			Cost of sales					1,428				1,568			Unrealized/ Realized					—				311
Interest rate swaps			(3,647	)			(2,116	)		Interest expense					—				—			Unrealized/ Realized					—				—
Total		$	40,407			$	(94,545	)						$	(1,311	)		$	678							$	23,394			$	2,586

     The Company recorded the following gains (losses) in its unaudited condensed consolidated statement of operations for the three months ended March 31, 2009 and 2008 related to its derivative instruments not designated as cash flow hedges:

		Amount of Gain (Loss) Recognized in								Amount of Gain (Loss) Recognized
		Realized Loss on Derivatives Three Months Ended March 31,								in Unrealized Gain on Derivatives Three Months Ended March 31,
Type of Derivative		2009				2008				2009				2008
Fuel products segment:
Crude oil swaps		$	11,510			$	3,323			$	(8,989	)		$	(3,323	)
Gasoline swaps			(5,736	)			(1,931	)			13,829				(1,317	)
Diesel swaps			(1,664	)			(4,018	)			1,664				6,408
Jet fuel collars			—				—				(159	)			—
Specialty products segment:
Crude oil collars			(14,261	)			—				12,172				210
Natural gas swaps			(1,507	)			—				1,223				—
Interest rate swaps			(204	)			(251	)			(3	)			(994	)
Total		$	(11,862	)		$	(2,877	)		$	19,737			$	984

     The Company is exposed to credit risk in the event of nonperformance by its counterparties on these derivative transactions. The Company does not expect nonperformance on any derivative instruments, however, no assurances can be provided. The Company’s credit exposure related to these derivative instruments is represented by the fair value of contracts reported as derivative assets. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings. The Company executes all of its derivative instruments with a small number of counterparties, the majority of which are large financial institutions and all have ratings of at least A2 and A by Moody’s and S&P, respectively. In the event of default, the Company would potentially be subject to losses on derivative instruments with mark to market gains. The Company requires collateral from its counterparties when the fair value of the derivatives exceeds agreed upon thresholds in its contracts with these counterparties. The Company’s contracts with these counterparties allow for netting of derivative instrument positions executed under each contract. Collateral received from or held by counterparties is netted against the derivative asset or liability. The Company provides the counterparties with collateral when the fair value of its obligation exceeds specified amounts for each counterparty. As of March 31, 2009, the Company had provided the counterparties with no cash collateral. 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, 2009, there is no net liability associated with the Company’s outstanding derivative instruments subject to such requirements. In addition, the majority of the credit support agreements covering the Company’s outstanding derivative instruments also contain a general provision stating that if the Company experiences a material adverse change in its business, in the reasonable discretion of the counterparty, the Company’s credit threshold could be lowered by such counterparty. The Company does not expect that it will experience a material adverse change in its business.

     The effective portion of the hedges classified in accumulated other comprehensive income is $40,407 as of March 31, 2009 and, absent a change in the fair market value of the underlying transactions, will be reclassified to earnings by December 31, 2012 with balances being recognized as follows:

		Accumulated Other
		Comprehensive
Year		Income (Loss)
2009		$	12,842
2010			21,728
2011			6,810
2012			(973	)
Total		$	40,407

     Based on fair values as of March 31, 2009, the Company expects to reclassify $18,560 of net gains 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.

     The Company is exposed to significant 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 of SFAS 133. The Company’s policy is generally to enter into crude oil derivative contracts for up to 70% of expected purchases that mitigate its exposure to price risk associated with crude oil purchases related to specialty products production. Generally, the Company’s policy is that these positions will be short term in nature and expire within three to nine months from execution; however, the Company may execute derivative contracts for up to two years forward if a change in the risks support lengthening the Company’s position. As of March 31, 2009, the Company had the following crude oil derivative instruments for the second quarter 2009 in its specialty products segment, none of which are designated as hedges.

										Average				Average				Average				Average
										Bought Put				Sold Put				Bought Call				Sold Call
Crude Oil Put/Call Spread Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)				($/Bbl)				($/Bbl)
April 2009			105,000				3,500			$	33.49			$	43.49			$	53.49			$	63.49
May 2009			93,000				3,000				34.55				44.55				54.55				64.55
June 2009			30,000				1,000				34.50				44.50				54.50				64.50
Totals			228,000
Average price										$	34.06			$	44.06			$	54.06			$	64.06

										Average				Average				Average
										Bought Put				Bought Swap				Sold Call
Crude Oil Put/Swap/Call Contracts by Expiration Dates		Barrels				BPD				($/Bbl)				($/Bbl)				($/Bbl)
April 2009			60,000				2,000			$	41.33			$	53.55			$	63.55
May 2009			62,000				2,000				45.53				55.30				64.50
June 2009			90,000				3,000				43.47				53.42				62.83
Totals			212,000
Average price										$	43.46			$	54.01			$	63.52

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

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

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

Crude Oil Swap Contracts — Fuel Products Segment

     The Company is exposed to significant 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, 2009, 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 2009			2,047,500				22,500			$	66.26
Third Quarter 2009			2,070,000				22,500				66.26
Fourth Quarter 2009			2,070,000				22,500				66.26
Calendar Year 2010			7,300,000				20,000				67.29
Calendar Year 2011			3,009,000				8,244				76.98
Totals			16,496,500
Average price										$	68.67

     At March 31, 2009, the Company had the following derivatives related to crude oil sales in its fuel products segment, none of which are designated as hedges.

		Barrels
Crude Oil Swap Contracts by Expiration Dates		Sold				BPD				($/Bbl)
Second Quarter 2009			455,000				5,000			$	62.66
Third Quarter 2009			460,000				5,000				62.66
Fourth Quarter 2009			460,000				5,000				62.66
Calendar Year 2010			547,500				1,500				58.25
Totals			1,922,500
Average price										$	61.40

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

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

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

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

     Fuel Products Swap Contracts

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

     Diesel Swap Contracts

     At March 31, 2009, the Company had the following derivatives related to diesel and jet fuel sales in its fuel products segment, all of which are designated as hedges.

Diesel Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
Second Quarter 2009			1,183,000				13,000			$	80.51
Third Quarter 2009			1,196,000				13,000				80.51
Fourth Quarter 2009			1,196,000				13,000				80.51
Calendar Year 2010			4,745,000				13,000				80.41
Calendar Year 2011			2,371,000				6,496				90.58
Totals			10,691,000
Average price										$	82.70

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

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

     Gasoline Swap Contracts

     At March 31, 2009, 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 Sold				BPD				($/Bbl)
Second Quarter 2009			864,500				9,500			$	73.83
Third Quarter 2009			874,000				9,500				73.83
Fourth Quarter 2009			874,000				9,500				73.83
Calendar Year 2010			2,555,000				7,000				75.28
Calendar Year 2011			638,000				1,748				83.42
Totals			5,805,500
Average price										$	75.52

     At March 31, 2009, the Company had the following derivatives related to gasoline purchases in its fuel products segment, none of which are designated as hedges.

		Barrels
Gasoline Swap Contracts by Expiration Dates		Purchased				BPD				($/Bbl)
Second Quarter 2009			455,000				5,000			$	60.53
Third Quarter 2009			460,000				5,000				60.53
Fourth Quarter 2009			460,000				5,000				60.53
Calendar Year 2010			547,500				1,500				58.42
Totals			1,922,500
Average price										$	59.93

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

Gasoline Swap Contracts by Expiration Dates		Barrels Sold				BPD				($/Bbl)
First Quarter 2009			855,000				9,500			$	73.83
Second Quarter 2009			864,500				9,500				73.83
Third Quarter 2009			874,000				9,500				73.83
Fourth Quarter 2009			874,000				9,500				73.83
Calendar Year 2010			2,555,000				7,000				75.28
Calendar Year 2011			638,000				1,748				83.42
Totals			6,660,500
Average price										$	75.30

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

		Barrels
Gasoline Swap Contracts by Expiration Dates		Purchased				BPD				($/Bbl)
First Quarter 2009			450,000				5,000			$	60.53
Second Quarter 2009			455,000				5,000				60.53
Third Quarter 2009			460,000				5,000				60.53
Fourth Quarter 2009			460,000				5,000				60.53
Totals			1,825,000
Average price										$	60.53

Jet Fuel Put Spread Contracts

     At March 31, 2009, 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)
January 2011			216,500				6,984			$	4.00			$	6.00
February 2011			197,000				7,036				4.00				6.00
March 2011			216,500				6,984				4.00				6.00
Totals			630,000
Average price										$	4.00			$	6.00

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. Certain of 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 requirement for a period no greater than three years forward. At March 31, 2009, the Company had no natural gas swaps outstanding as the current hedging period just ended. The Company anticipates adding natural gas derivatives throughout the summer months to reach its desired hedge levels.

     At December 31, 2008, the Company had the following derivatives related to natural gas purchases, of which 90,000 MMBtus were designated as hedges.

Natural Gas Swap Contracts by Expiration Dates		MMBtus				$/MMBtu
First Quarter 2009			330,000			$	10.38
Totals			330,000
Average price						$	10.38

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. In 2008, the Company entered into a forward swap contract to manage interest rate risk related to a portion of its current variable rate senior secured first lien term loan which closed January 3, 2008. The Company has 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 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 which is not designated as a cash flow hedge.

8.  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 value 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 in accordance with SFAS No. 157, Fair Value Measurements. The fair value of the Company’s senior secured first lien term loan was $285,643 and $305,084 at March 31, 2009 and December 31, 2008, respectively. The carrying value of the Company’s senior secured first lien term loan was $374,123 and $375,085 at March 31, 2009 and December 31, 2008, respectively. In addition, based upon fees charged for similar agreements, the face values of outstanding standby letters of credit approximated their fair value at March 31, 2009 and December 31, 2008.

     9.  Fair Value Measurements

     In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company adopted the provisions of SFAS 157 as of January 1, 2008 for financial instruments and as of January 1, 2009 for nonfinancial assets and liabilities as required by SFAS 157.

     SFAS 157 establishes 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, as required by SFAS 157, 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, 2009, 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, natural gas 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. The fair values of the Company’s derivative instruments for crude oil, gasoline, diesel, natural gas 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, 2009, the Company’s asset was reduced by approximately $7,054 and its liability was reduced by $822. Based on the use of various unobservable inputs, principally non-performance risk and unobservable inputs in forward years for gasoline 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 consist of mutual funds that are publicly traded and for which market prices are readily available, thus these investments are categorized as Level 1.

     The Company’s assets measured at fair value on a recurring basis subject to the disclosure requirements of SFAS 157 at March 31, 2009 were as follows:

		Fair Value Measurements
		Level 1				Level 2				Level 3				Total
Assets:
Crude oil swaps		$	—			$	—			$	—			$	—
Gasoline swaps			—				—				77,493				77,493
Diesel swaps			—				—				120,322				120,322
Natural gas swaps			—				—				—				—
Crude oil options			—				—				255				255
Jet fuel options			—				—				403				403
Pension plan investments			12,018				—				—				12,018
Total assets at fair value		$	12,018			$	—			$	198,473			$	210,491
Liabilities:
Crude oil swaps		$	—			$	—			$	(111,680	)		$	(111,680	)
Gasoline swaps			—				—				—				—
Diesel swaps			—				—				—				—
Natural gas swaps			—				—				—				—
Crude oil options			—				—				—				—
Jet fuel options			—				—				—				—
Interest rate swaps			—				—				(5,837	)			(5,837	)
Pension plan investments			—				—				—				—
Total liabilities at fair value		$	—			$	—			$	(117,517	)		$	(117,517	)