Feb 17, 2010
Executives
William Grube – President & CEO Patrick Murray – CFO Jennifer Straumins - EVP
Analysts
Darren Horowitz – Raymond James [David Burd] - Unspecified Company
Operator
Good day ladies and gentlemen and welcome to the fourth quarter 2009 Calumet Specialty Products earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms.
Jennifer Straumins, Executive Vice President; please proceed.
Jennifer Straumins
Good afternoon and welcome to the Calumet Specialty Products Partners investors call to discuss our fourth quarter 2009 financial results. During this call Calumet Specialty Products Partners will be referred to as the Partnership or Calumet.
Also participating in this call will be William Grube, our President and CEO and Patrick Murray, our CFO. Following the presentation we will hold the line open for a question-and-answer session.
During the course of this call we will make various forward-looking statements within the meaning of Section 21(E) of the Securities Exchange Act of 1934. Such statements are based on the beliefs of our management, as well as assumptions made by them and in each case based on information currently available to them.
Although our management believes that the expectations reflected in such forward-looking comments are reasonable, neither the Partnership, its general partner nor our management, can provide any assurance that such expectations will prove to be correct. Please refer to the Partnership’s press release that was issued this morning, as well as our latest filings with the Securities & Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made on this call.
We had several positive things that occurred during the fourth quarter that we expect will help strengthen our future results. First we finalized our specialty products agreement with LyondellBasell during the fourth quarter.
We expect that these agreements will give us approximately 3800 barrels a day addition specialty products to market. In addition to the LyondellBasell agreements we completed a follow-on public offering in December.
We sold an additional three million common units to our underwriters at a price to the public of $18.00 for common units. We received net proceeds of approximately $52.3 million which includes our general partners contribution.
We used these proceeds to pay down borrowings under our revolver. And finally we were able to increase our quarterly cash distribution from $0.45 per unit to $0.45.5 per unit.
We did that [inaudible] both increasing crude oil prices and very weak fuel [crack] spreads during the quarter. However in spite of higher crude prices and lower crack spreads we feel we delivered strong results during the fourth quarter.
The fourth quarter is historically our weakest quarter from a demand standpoint but we have continued to see demand for our specialty products increase as the economy continues to recover. We finished 2009 in compliance with all of our financial covenants pursuant to our credit agreements which are measured quarterly.
While assurances cannot be made regarding our future compliance with these covenants, we believe that we will continue to maintain compliance with all of the covenants in our credit agreements. We also are continuing our fuels products and crude oil hedging programs.
These programs help protect us against rapid changes in pricing levels for both fuels products as well as crude oil. As we announced on January 5, 2010 the partnership declared a quarter cash distribution of $0.45.5 per unit for the quarter ended December 31 on all outstanding units.
The distribution was paid on February 12 to unit holders of record at the close of business on February 2, 2010. And as many of you may have read we did experience an explosion in one of our environmental units at our Shreveport refinery on February 5.
No injuries were reported related to this incident and our management team at the facility has been successful in working with the Louisiana Department of Environmental Quality to find an alternate operating plan during the repair of this unit. Required alterations have been made at the refinery and it is in the process of restarting now.
We expect to be at planned move oil production levels by Friday, February 19 and we do not estimate that this incident will have a major impact on our 2010 results. I’d now like to turn the call over to Patrick Murray for a review of our financial results.
Patrick Murray
Thank you Jennifer, net income for the fourth quarter of 2009 was $8.2 million, compared to net income of $18.5 million for the same period in 2008. The partnership’s net income quarter over quarter decreased by $10.4 million due primarily to both a decrease of $46.6 million in gross profit and an increase of $4.3 million in selling, general and administrative expenses, partially offset by increased derivative gains of $39.7 million.
We believe the non-GAAP measures of EBITDA, adjusted EBITDA, and distributable cash flow are important financial performance measures for the partnership. EBITDA and adjusted EBITDA as defined by our credit agreements, were $32.2 million and $26.8 million respectively for the fourth quarter of 2009 as compared to $44.2 million and $13.6 million respectively for the same period in 2008.
The partnership’s distributable cash flow for the quarter ended December 31, 2009 was $18.4 million as compared to $3.1 million for the same period in 2008. The increase in adjusted EBITDA quarter over quarter was primarily due to increases in realized derivative gains of $51 million to a gain of $5.1 million in 2009, offset by lower gross profit of $46.6 million.
We encourage investors to review the section of the earnings press release found on our website entitled, non-GAAP financial measures in the attached tables for discussion and definitions of EBITDA, adjusted EBITDA, and distributable cash flow financial measures and reconciliation of these non-GAAP measures to the comparable GAAP measures. Gross profit by segment for the fourth quarter of 2009 for specialty products and fuel products was $27.5 million and $7.1 million respectively compared to $77.7 million and $3.5 million respectively for the fourth quarter of 2008.
Specialty products segment gross profit quarter over quarter was primarily impacted by lower overall specialty product selling prices in relation to crude oil prices due to lower demand resulting from the economic downturn, partially offset by increased sales volume of specialty products. The increase in fuel products segment gross profit was due to higher gasoline cracks price on our unhedged gasoline sales in the fourth quarter as compared to the same period in 2008.
This increase was partially offset by lower crack spreads on our unhedged diesel and jet fuel sales quarter over quarter as well as a larger deferral of crude oil hedging losses in the fourth quarter of 2008 as compared to the fourth quarter of 2009 in our fuel products segment. Selling, general, and administrative expenses increased $4.3 million to $8.9 million in the fourth quarter of 2009 from $4.6 million in the fourth quarter of 2008.
This increase is primarily due to increased incentive compensation costs in the fourth quarter as compared to the same period in 2008. Interest expense decreased $1.3 million to $8.2 million in the fourth quarter of 2009 from $9.6 million in the fourth quarter of 2008 as a result of reduced interest rates and lower balances being carried on our revolver and term loan at December 31, 2009 as compared to the prior year.
The increased derivative gains of $39.7 million quarter over quarter was due primarily to the 2008 settlement of certain crude oil derivative instruments that experienced a significant decline in value as crude oil prices declined in the fourth quarter of 2008. As of December 31, 2009 total capitalization consisted of partners capital in the amount of $485.3 million and outstanding debt of $401.1 million comprised of borrowings of $371.2 million under the term loan facility with an unamortized discount of $13 million on the loan, borrowings of $39.9 million under the revolving credit facility, and a long-term capital lease obligation of $2.9 million.
The $12.1 million increase in partners capital from December 31, 2008 to December 31, 2009 was primarily due to net income of $61.8 million and $52.3 million in net proceeds related to our December public equity offering, offset by $59.3 million in distributions to our partners and a $42.9 million decrease in other comprehensive income primarily due to a decrease in the fair market value of our derivative instruments. At December 31, 2009 we had availability under our revolving credit facility of $107.3 million based on $194 million borrowing base, $46.9 million in outstanding standby letters of credit, and outstanding borrowings of $39.9 million.
We believe that we have sufficient cash flow from operations and borrowing capacity to meet our financial commitments, debt service obligations, contingencies, and anticipated capital expenditures. However we are subject to business and operational risks that could materially effect our cash flows.
For example a material decrease in our cash flow from operations or a significant sustained decline in crude oil prices would likely produce a corollary material adverse effect on our borrowing capacity under our revolver and potentially our ability to comply with the covenants under our credit agreements. Substantial declines in crude oil prices is sustained, will materially diminish our borrowing base which is based in part on the value of our crude oil inventory which could result in a material reduction in our borrowing capacity under our revolver.
A significant increase in crude oil prices is sustained, it would likely result in increased working capital funded by borrowings under our revolver. Now I’ll turn the call over to William.
William Grube
Thank you Patrick and Jennifer, this concludes our remarks. We will now be happy to answer any questions you may have.
Operator
(Operator Instructions) Your first question comes from the line of Darren Horowitz – Raymond James
Darren Horowitz – Raymond James
Just a few quick questions if I could, first based on what you see today within the specialty products market, what can you do on the cost line to offset the impact that crack spreads are having on gross margin.
Jennifer Straumins
What we’re trying to do is focus more on specialty products as we always have and as crude oil moved up into the low 80’s earlier this year we were able to implement price increases across all of our product lines. And that has helped some as well.
We are running our Shreveport refinery at levels where it is profitable based on where we’re hedged for our crack spreads. Our hedging program is working great.
Right now basically we’re producing just the amount of fuels that were hedged.
Darren Horowitz – Raymond James
And in terms of capacity utilization what’s that number at Shreveport.
Jennifer Straumins
We’re about 75% capacity utilization at Shreveport right now.
Darren Horowitz – Raymond James
And did you mention the costs that are associated with the repair at Shreveport.
Jennifer Straumins
We do not have those numbers yet.
Darren Horowitz – Raymond James
Last quarter you had mentioned that you had expected to spend about $10 million this year to diversify your product mix, is that still the goal.
Jennifer Straumins
Ten million dollars is our gross CapEx for the year, yes.
Darren Horowitz – Raymond James
And can you just remind me what your maintenance CapEx for full year 2010 is please.
Jennifer Straumins
Roughly $20 million.
Operator
Your next question comes from the line of [David Burd] - Unspecified Company
[David Burd] - Unspecified Company
I also had a question about the cost to repair the damage, I know you don’t have those yet are you expecting to disclose those numbers before next quarter or do you think that will come through—
Jennifer Straumins
We don’t expect those numbers to be material.
William Grube
It’ll be a couple of million dollars at the most probably.
Jennifer Straumins
It would be $1.2 million at the most. It will just fall under our normal CapEx type of program.
[David Burd] - Unspecified Company
And what about the effect on base oil and process oil production, can you give us an estimate of volumes that were lost there.
Jennifer Straumins
We will have been down two weeks. We did go, luckily we did have quite a bit of inventory at the time of the event and have continued to sell out of inventory during the past several weeks.
[David Burd] - Unspecified Company
The unit that was damaged, does that effect mainly base oil production or process oil production or—
Jennifer Straumins
Its and environmental unit so what it does is it impacts the amount of sulfur that we can release into the atmosphere and so that has caused us to have to shut down our hydra treating and any catalytic [dewaxing] type of units. We continue to produce gasoline and run crude during this period so we’ve got quite a bit of work in process, inventory built up in front of our [inaudible] producing units which we, as soon as we’re started up we’ll be able to run at full rates and make up capacity there.
Operator
There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.
Jennifer Straumins
This concludes our specialty products earnings conference call covering our fourth quarter results. Thank you very much for your participation in the teleconference and note that this teleconference will be available for replay using the instructions contained in our press release.
Have a great afternoon everybody.