CALUMET SPECIALITY PRODUCTS PARTNERS, SEC Management Report and Analysis of Financial Position and Results of Operations (Form 10-Q)

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The historical unaudited condensed consolidated financial statements included in
this Quarterly Report reflect all of the assets, liabilities and results of
operations of Calumet Specialty Products Partners, L.P. ("Calumet," the
"Company," "we," "our," or "us"). The following discussion analyzes the
financial condition and results of operations of the Company for the three and
nine months ended September 30, 2021. Unitholders should read the following
discussion and analysis of our financial condition and results of operations in
conjunction with our 2020 Annual Report and our historical unaudited condensed
consolidated financial statements and notes included elsewhere in this Quarterly
Report.
Overview
We manufacture, formulate, and market a diversified slate of specialty branded
products to customers in various consumer-facing and industrial markets. Calumet
is headquartered in Indianapolis, Indiana and operates twelve facilities
throughout North America.
Effective January 1, 2021, we reorganized our business segments as a result of a
change in how the CODM allocates resources, makes operating decisions and
assesses the performance of the business. As a result, as of January 1, 2021,
our operations are managed by the CODM using the following reportable segments:
Montana/Renewables; Specialty Products and Solutions; Performance Brands; and
Corporate. Segment information presented herein reflects the impact of this
reorganization for all periods presented. For additional information, see Note
13 - "Segments and Related Information" under Part I, Item 1 "Financial
Statements - Notes to Unaudited Condensed Consolidated Financial Statements." In
our Specialty Products and Solutions segment, we process crude oil and other
feedstocks into a wide variety of customized lubricating oils, solvents, waxes
and other products. 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 Montana/Renewables
segment, we process crude oil into a variety of fuels and fuel-related products,
including gasoline, diesel, jet fuel, asphalt, heavy fuel oils and other
products. Additionally, we are in the process of converting a significant
portion of our Great Falls refinery into a Renewable Diesel Production facility,
which we expect to commence operations in the second quarter of 2022. In our
Performance Brands segment, we blend, package and market specialty products
through our Royal Purple, Bel-Ray, and TruFuel brands. Our Corporate segment
primarily consists of general and administrative expenses not allocated to the
Specialty Products and Solutions, Montana/Renewables, or Performance Brands
segments. Please read Note 13 - "Segments and Related Information" under Part I,
Item 1 "Financial Statements - Notes to Unaudited Condensed Consolidated
Financial Statements" for further information.
Third Quarter 2021 Update
Outlook and Trends
The world continues to navigate the COVID-19 pandemic. Global economic
conditions continue to improve, driven by increases in vaccination rates in the
U.S. and across the world, which has resulted in increased demand and higher
prices for many industrial and consumer goods products, as well as energy
prices. Additionally, most industries continued to see supply chain disruptions
during the third quarter of 2021, and while the global dynamic is receiving
elevated attention in all areas, it's difficult to predict when all challenges
will be fully resolved. The global crisis has impacted Calumet's businesses in
various ways. Concurrently, our businesses continue to see strong, growing
demand for products across our segments. Our Performance Brands segment has been
most impacted by the global supply chain disruption, and as we navigate this
environment in a time of rapidly growing demand, our order backlog continues to
grow. Our Specialty Products and Solutions segment is experiencing record
specialty unit margins and fuels margins have increased for the third straight
quarter as the industry reacts to a global economic recovery and a shortage of
hydrocarbon products in certain markets. Asphalt markets continued to improve
with seasonal demand strength through the end of summer into early fall. These
fundamentals allowed for healthy unit margins in the third quarter of 2021
compared to the third quarter of 2020, despite a significantly higher price
environment during this quarter. The following factors have impacted or may
impact our results of operations during 2021:
•We continue to see an increase in demand for our products as the domestic and
global economies recover from the COVID-19 pandemic. We continue to monitor for
the impact of COVID-19 variants, any increase in cases and/or the reinstatement
of lockdowns and other restrictions, each of which could negatively impact the
recovery from the COVID-19 pandemic.
•We expect supply chains to remain disrupted, which is expected to continue to
provide challenges to the availability and pricing of feedstocks, additives,
packaging materials and transportation.
•We continue to focus on improving operations. Our total feedstock runs were
80,021 barrels per day ("bpd") during the third quarter 2021 compared to 81,813
bpd during the third quarter 2020. This decrease is primarily attributed to
lower production volumes at our Shreveport facility.
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•Our Specialty Products and Solutions margins have remained strong but certain
of our end markets are susceptible to changes in Gross Domestic Product. As
markets and results improve, we expect to make small investments in this segment
that we believe are low-risk, high-return investments.
•It is not possible to predict what future RINs costs may be given the price
volatility, but RINs continue to have the potential to remain a significant
non-cash expense in our results of operations. The approximate 25% decrease in
the third quarter 2021 period-end market price of RINs in comparison to the
second quarter 2021 market price of RINs favorably affected our financial
results. See Note 7 - "Commitments and Contingencies" under Part I, Item 1
"Financial Statements - Notes to Unaudited Condensed Consolidated Financial
Statements" in this Quarterly Report for further information on the Company's
RINs obligation.
•We continue to evaluate opportunities to divest non-core businesses and assets
in line with our strategy of de-leveraging and streamlining our business to
better focus on the advancement of our core business. In addition, we may also
consider the disposition of certain core assets or businesses, to the extent
such a transaction would improve our capital structure or otherwise be accretive
to the Company. Lastly, we may seek acquisitions of assets that management
believes will be financially accretive and consistent with our strategic goals.
We developed and executed a plan to manage health and safety risks and business
continuity to protect our workforce and business during the COVID-19
pandemic. Comprehensive guidelines and requirements for the return to work of
personnel to their locations have been implemented and these will continue to be
monitored as we manage COVID-19. To reinforce cost control and preserve cash, we
expect to continue to diligently manage operating and capital costs. As markets
continue to improve, high-return low risk projects may be added
opportunistically. Furthermore, the Company's conversion of our Great Falls, MT
asset into a leading Renewable Diesel facility is on track. In addition to other
project-related agreements, the Company has entered into an Engineering,
Procurement and Construction Agreement with Burns & McDonnell Engineering
Company, Inc. (as general contractor for the project); a License Agreement and
Engineering Agreement with Haldor Topsoe A/S and Haldor Topsoe, Inc.,
respectively (as technology provider for the Renewable Diesel process); and an
Engineering and Procurement Agreement with Technip Stone & Webster Process
Technology, Inc. (as technology provider for the Renewable Hydrogen process).
Contingencies
For a summary of litigation and other contingencies, please read Note 7 -
"Commitments and Contingencies" under Part I, Item 1 "Financial Statements -
Notes to Unaudited Condensed Consolidated Financial Statements." Based on
information available to us at the present time, we do not believe that any
liabilities beyond the amounts already accrued, which may result from these
contingencies, will have a material adverse effect on our liquidity, financial
condition or results of operations.
Financial Results
We reported net income of $51.5 million in the third quarter 2021 versus a net
loss of $56.1 million in the third quarter 2020. We reported Adjusted EBITDA (as
defined in Note 13 - "Segments and Related Information" under Part I, Item 1
"Financial Statements - Notes to Unaudited Condensed Consolidated Financial
Statements") of $58.8 million in the third quarter 2021 versus $34.7 million in
the third quarter 2020. We generated cash from operating activities of $59.4
million in the third quarter 2021 versus generating cash of $14.5 million in the
third quarter of 2020, driven by an increase of $107.6 million in net income
between the comparative periods, which was partially offset by an increase in
the cash required for working capital.
Please read Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Non-GAAP Financial Measures" for a reconciliation of
EBITDA, Adjusted EBITDA and Distributable Cash Flow to Net income (loss), our
most directly comparable financial performance measure calculated and presented
in accordance with U.S. generally accepted accounting principles ("GAAP").
Specialty Products and Solutions segment Adjusted EBITDA was $46.3 million in
the third quarter 2021 versus $23.2 million in the third quarter 2020. Compared
to the third quarter of 2020, Specialty Products and Solutions third quarter
2021 segment Adjusted EBITDA was favorably impacted by a significant increase in
specialty products net unit margins as a result of higher specialty product
pricing and continued fuels market recovery, partially offset by the absence of
$8.8 million in realized gains on derivative instruments in the prior year
comparative period.
Montana/Renewables segment Adjusted EBITDA was $24.4 million in the third
quarter 2021 versus $9.7 million in the third quarter 2020. Compared to the
third quarter of 2020, Montana/Renewables third quarter 2021 segment Adjusted
EBITDA was favorably impacted by an increase in net unit margins as a result of
a wider WCS-WTI crude spread and improved crack spreads for transportation
fuels, which was partially offset by the absence of $8.3 million in realized
gains on derivative instruments in the prior year comparative period.
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Performance Brands segment Adjusted EBITDA was $6.8 million in the third quarter
2021 versus $18.9 million in the third quarter 2020. Compared to the third
quarter of 2020, Performance Brands segment Adjusted EBITDA was unfavorably
impacted by a $5.4 million decrease in gross profit due to the natural lag in
passing increasing costs through to customers in these branded and consumer
markets. Further, supply chain difficulties, including packaging availability,
difficult logistics markets, and additive and grease supply shortages continue
to challenge our ability to keep pace with strong demand. Despite the ongoing
supply chain difficulties, we have seen favorable improvements in pricing and
demand for our TruFuel, Royal Purple, and Bel-Ray brands, which remained
resilient and continued to see demand growth. Unfortunately, much of the demand
currently sits in our backorder queue pending our industry's supply chains
return to normal.
Corporate Adjusted EBITDA was negative $18.7 million in the third quarter 2021
versus negative $17.1 million in the third quarter 2020 primarily due to higher
labor and benefit expenses.
Liquidity Update
As of September 30, 2021, we had total liquidity of $280.7 million comprised of
$10.8 million of unrestricted cash and $269.9 million of availability under our
revolving credit facility. As of September 30, 2021, our revolving credit
facility had a $345.9 million borrowing base, $27.9 million in outstanding
standby letters of credit and $48.1 million of outstanding borrowings. We
believe we will continue to have sufficient liquidity from cash on hand,
projected cash flow from operations, borrowing capacity and other means by which
to meet our financial commitments, debt service obligations, contingencies and
anticipated capital expenditures for at least the next 12 months. Please read
Item 2 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources" for additional information.
Renewable Fuel Standard Update
Along with the broader refining industry, we remain subject to compliance costs
under the RFS unless or until we receive a small refiner exemption from the EPA,
which we have historically received. Under the regulation of the EPA, the RFS
provides annual requirements for the total volume of renewable transportation
fuels which are mandated to be blended into finished petroleum fuels. If a
refiner does not meet its required annual Renewable Volume Obligation, the
refiner can purchase blending credits in the open market, referred to as RINs.
During the third quarter 2021, we recorded a non-cash benefit of $42.4 million
for RINs, as compared to a non-cash RINs expense of $16.0 million for the third
quarter 2020. Our annual gross RINs Obligation, which includes RINs that are
required to be secured through either our own blending or through the purchase
of RINs in the open market, is approximately 80 million RINs spread across four
compliance categories (D3, D4, D5 and D6). The gross RINs obligations exclude
our own renewables blending as well as the potential for any subsequent hardship
waivers.
Expenses related to RFS compliance have the potential to remain a significant
expense for our two segments containing fuels products. If legal or regulatory
changes occur that have the effect of increasing our RINs Obligation or
eliminating or narrowing the availability of the small refinery exemption under
the RFS program, we could be required to purchase additional RINs in the open
market, which may materially increase our costs related to RFS compliance and
could have a material adverse effect on our results of operations and liquidity.
See Note 7 - "Commitments and Contingencies" under Part I, Item 1 "Financial
Statements - Notes to Unaudited Condensed Consolidated Financial Statements" in
this Quarterly Report for further information on the Company's RINs obligation.
Key Performance Measures
Our sales and results of operations are principally affected by demand for
specialty products, fuel product demand, global fuel crack spreads, the price of
natural gas used as fuel in our operations, our ability to operate our
production facilities at high utilization, and our results from derivative
instrument activities.
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Our primary raw materials are crude oil and other specialty feedstocks, and our
primary outputs are specialty consumer-facing and industrial products, specialty
branded products, and fuel products. The prices of crude oil, specialty products
and fuel products are subject to fluctuations in response to changes in supply,
demand, market uncertainties and a variety of factors beyond our control. We
monitor these risks and from time-to-time enter into derivative instruments
designed to help 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. We also may
hedge when market conditions exist that we believe to be out of the ordinary and
particularly supportive of our financial goals. We enter into derivative
contracts for future periods in quantities that do not exceed our projected
purchases of crude oil and natural gas and sales of fuel products. Please read
Note 10 - "Derivatives" under Part I, Item 1 "Financial Statements - Notes to
Unaudited Condensed Consolidated Financial Statements" for additional
information.
Our management uses several financial and operational measurements to analyze
our performance. These measurements include the following:
•sales volumes;
•segment gross profit;
•segment Adjusted gross profit;
•segment Adjusted EBITDA; and
•selling, general and administrative expenses.
Sales volumes. We view the volumes of Specialty Products and Solutions products,
Montana/Renewables products and Performance Brands products sold as an important
measure of our ability to effectively utilize our operating assets. Our ability
to meet the demands of our customers is driven by the volumes of feedstocks that
we run at our facilities. Higher volumes improve profitability both through the
spreading of fixed costs over greater volumes and the additional gross profit
achieved on the incremental volumes.
Segment gross profit. Specialty Products and Solutions, Montana/Renewables and
Performance Brands products gross profit are important measures of profitability
of our segments. We define gross profit as sales less the cost of crude oil and
other feedstocks, LCM/LIFO adjustments, and other production-related expenses,
the most significant portion of which includes labor, plant fuel, utilities,
contract services, maintenance, transportation, RINs, depreciation and
amortization and processing materials. We use gross profit as an indicator of
our ability to manage margins in our business over the long-term. The increase
or decrease in selling prices typically lags behind the rising or falling costs,
respectively, of feedstocks throughout our business. Other than plant fuel, RINs
mark-to-market adjustments, and LCM/LIFO adjustments, production related
expenses generally remain stable across broad ranges but can fluctuate depending
on maintenance activities performed during a specific period.
Segment Adjusted gross profit. Specialty Products and Solutions,
Montana/Renewables and Performance Brands products segment Adjusted gross profit
measures are useful as they exclude transactions not related to our core cash
operating activities and provide metrics to analyze the profitability of the
core cash operations of our segments. We define segment Adjusted gross profit as
segment gross profit excluding the impact of (a) LCM inventory adjustments; (b)
the impact of liquidation of inventory layers calculated using the LIFO method;
(c) RINs mark-to-market adjustments; and (d) depreciation and amortization.
Segment Adjusted EBITDA. We believe that Specialty Products and Solutions,
Montana/Renewables and Performance Brands segment Adjusted EBITDA measures are
useful as they exclude transactions not related to our core cash operating
activities and provide metrics to analyze our ability to pay interest to our
noteholders. Adjusted EBITDA allows us to meaningfully analyze the trends and
performance of our core cash operations as well as to make decisions regarding
the allocation of resources to segments. Corporate Adjusted EBITDA primarily
reflects general and administrative costs.
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Results of Operations for the Three and Nine Months Ended September 30, 2021 and
2020
Production Volume. The following table sets forth information about our
continuing operations. Facility production volume differs from sales volume due
to changes in inventories and the sale of purchased blendstocks such as ethanol
and specialty blendstocks, as well as the resale of crude oil.
                                                      Three Months Ended September 30,                                 Nine Months Ended September 30,
                                                2021                 2020              % Change                 2021                 2020              % Change
                                                       (In bpd)                                                        (In bpd)
Total sales volume (1)                           82,844             85,529                  (3.1) %              79,511             88,429                 (10.1) %
Total feedstock runs (2)                         80,021             81,813                  (2.2) %              73,988             85,282                 (13.2) %
Facility production: (3)
Specialty Products and Solutions:
Lubricating oils                                 10,817             10,634                   1.7  %               9,537              9,839                  (3.1) %
Solvents                                          7,163              6,323                  13.3  %               6,832              6,500                   5.1  %
Waxes                                             1,529              1,199                  27.5  %               1,305              1,253                   4.2  %
Fuels, asphalt and other by-products             29,242             32,696                 (10.6) %              25,492             36,376                 (29.9) %
Total Specialty Products and Solutions           48,751             50,852                  (4.1) %              43,166             53,968                 (20.0) %
Montana/Renewables:
Gasoline                                          4,763              5,670                 (16.0) %               4,979              5,436                  (8.4) %
Diesel                                           10,328             10,412                  (0.8) %              10,147             10,466                  (3.0) %
Jet fuel                                          1,169                764                  53.0  %                 974                698                  39.5  %
Asphalt, heavy fuel oils and other               10,883              9,605                  13.3  %              11,035             10,306                   7.1  %
Total Montana/Renewables                         27,143             26,451                   2.6  %              27,135             26,906                   0.9  %

Performance Brands                                1,226              1,458                 (15.9) %               1,355              1,407                  (3.7) %

Total facility production (3)                    77,120             78,761                  (2.1) %              71,656             82,281                 (12.9) %




(1)Total sales volume includes sales from the production at our facilities and
certain third-party facilities pursuant to supply and/or processing agreements,
sales of inventories and the resale of crude oil to third-party customers. Total
sales volume includes the sale of purchased blendstocks.
(2)Total feedstock runs represent the barrels per day of crude oil and other
feedstocks processed at our facilities and at certain third-party facilities
pursuant to supply and/or processing agreements.
(3)The difference between total facility production and total feedstock runs is
primarily a result of the time lag between the input of feedstocks and
production of finished products and volume loss.
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The following table reflects our unaudited condensed consolidated results of
operations and includes the non-GAAP financial measures EBITDA, Adjusted EBITDA
and Distributable Cash Flow. For a reconciliation of EBITDA, Adjusted EBITDA and
Distributable Cash Flow to Net income (loss), our most directly comparable
financial performance measure calculated and presented in accordance with GAAP,
please read "- Non-GAAP Financial Measures."
                                             Three Months Ended September 30,            Nine Months Ended September 30,
                                                  2021                   2020               2021                2020
                                                                           (In millions)
Sales                                     $           874.9          $   568.0          $  2,282.2          $  1,714.3
Cost of sales                                         741.6              551.5             2,171.8             1,609.8
Gross profit                                          133.3               16.5               110.4               104.5
Operating costs and expenses:
Selling                                                12.4               11.2                40.0                37.1
General and administrative                             30.9               29.7                97.3                76.7

Other operating expense                                (3.3)               6.4                20.0                22.6
Operating income (loss)                                93.3              (30.8)              (46.9)              (31.9)

Other income (expense):
Interest expense                                      (38.2)             (33.3)             (109.3)              (93.2)

Gain (loss) on derivative instruments                  (3.3)               7.9               (15.4)               57.7

Other                                                   0.1                0.2                 0.1                 1.3
Total other expense                                   (41.4)             (25.2)             (124.6)              (34.2)
Net income (loss) before income taxes                  51.9              (56.0)             (171.5)              (66.1)
Income tax expense                                      0.4                0.1                 1.5                 0.8

Net income (loss)                         $            51.5          $   (56.1)         $   (173.0)         $    (66.9)
EBITDA                                    $           116.6          $     3.5          $     16.5          $    105.9
Adjusted EBITDA                           $            58.8          $    34.7          $     85.7          $    183.5
Distributable Cash Flow                   $            12.6          $    (5.6)         $    (75.1)         $     50.9


Non-GAAP Financial Measures
We include in this Quarterly Report the non-GAAP financial measures EBITDA,
Adjusted EBITDA and Distributable Cash Flow. We provide reconciliations of
EBITDA, Adjusted EBITDA and Distributable Cash Flow to Net income (loss), our
most directly comparable financial performance measure.
EBITDA, Adjusted EBITDA and Distributable Cash Flow 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 and
support our indebtedness;
•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.
Management believes that these non-GAAP measures are useful to analysts and
investors as they exclude transactions not related to our core cash operating
activities and provide metrics to analyze our ability to pay interest to our
noteholders. However, the indentures governing our senior notes contain
covenants that, among other things, restrict our ability to pay distributions.
We believe that excluding these transactions allows investors to meaningfully
analyze trends and performance of our core cash operations.
We define EBITDA for any period as net income (loss) plus interest expense
(including amortization of debt issuance costs), income taxes and depreciation
and amortization.
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During the first quarter of 2021, the CODM changed the definition and
calculation of Adjusted EBITDA, which we use for evaluating performance,
allocating resources and managing the business. The revised definition and
calculation of Adjusted EBITDA now excludes RINs mark-to-market adjustments (see
item (j) below), which were previously included. This revised definition and
calculation better reflects the performance of our Company's business segments
including cash flows and core operating activities. Adjusted EBITDA has been
revised for all periods presented to reflect this change. Please read Note 13 -
"Segments and Related Information" under Part I, Item 1 "Financial Statements -
Notes to Unaudited Condensed Consolidated Financial Statements" for further
information.
We define Adjusted EBITDA for any period as EBITDA adjusted for (a) impairment;
(b) unrealized gains and losses from mark-to-market accounting for hedging
activities; (c) realized gains and losses under derivative instruments excluded
from the determination of net income (loss); (d) non-cash equity-based
compensation expense and other non-cash items (excluding items such as accruals
of cash expenses in a future period or amortization of a prepaid cash expense)
that were deducted in computing net income (loss); (e) debt refinancing fees,
extinguishment costs, premiums and penalties; (f) any net gain or loss realized
in connection with an asset sale that was deducted in computing net income
(loss); (g) amortization of turnaround costs; (h) LCM inventory adjustments; (i)
the impact of liquidation of inventory layers calculated using the LIFO method;
(j) RINs mark-to-market adjustments; and (k) all extraordinary, unusual or
non-recurring items of gain or loss, or revenue or expense.
We define Distributable Cash Flow for any period as Adjusted EBITDA less
replacement and environmental capital expenditures, turnaround costs, cash
interest expense (consolidated interest expense less non-cash interest expense),
gain (loss) from unconsolidated affiliates, net of cash distributions and income
tax expense (benefit).
We define Adjusted EBITDA Margin as Adjusted EBITDA divided by sales.
The definition of Adjusted EBITDA presented in this Quarterly Report is similar
to the calculation of "Consolidated Cash Flow" contained in the indentures
governing our Senior Notes (as defined in this Quarterly Report) and the
calculation of "Consolidated EBITDA" contained in the Credit Agreement. We are
required to report Consolidated Cash Flow to the holders of our Senior Notes and
Consolidated EBITDA to the lenders under our revolving credit facility, and
these measures are used by them to determine our compliance with certain
covenants governing those debt instruments. Please read Note 9 - "Long-Term
Debt" under Part I, Item 1 "Financial Statements - Notes to Unaudited Condensed
Consolidated Financial Statements" in this Quarterly Report for additional
details regarding the covenants governing our debt instruments.
EBITDA, Adjusted EBITDA and Distributable Cash Flow should not be considered
alternatives to Net income (loss) or Operating income (loss) or any other
measure of financial performance presented in accordance with GAAP. In
evaluating our performance as measured by EBITDA, Adjusted EBITDA and
Distributable Cash Flow, management recognizes and considers the limitations of
these measurements. EBITDA and Adjusted EBITDA do not reflect our liabilities
for the payment of income taxes, interest expense or other obligations such as
capital expenditures. Accordingly, EBITDA, Adjusted EBITDA and Distributable
Cash Flow are only three of several measurements that management utilizes.
Moreover, our EBITDA, Adjusted EBITDA and Distributable Cash Flow may not be
comparable to similarly titled measures of another company because all companies
may not calculate EBITDA, Adjusted EBITDA and Distributable Cash Flow in the
same manner.
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The following tables present a reconciliation of Net income (loss), our most
directly comparable GAAP financial performance measure to EBITDA, Adjusted
EBITDA and Distributable Cash Flow, for each of the periods indicated.
                                             Three Months Ended September 30,         Nine Months Ended September 30,
                                                  2021                2020                2021                2020
                                                                           (In millions)
Reconciliation of Net income (loss) to
EBITDA, Adjusted EBITDA and Distributable
Cash Flow:
Net income (loss)                            $      51.5          $   (56.1)         $    (173.0)         $    (66.9)
Add:
Interest expense                                    38.2               33.3                109.3                93.2
Depreciation and amortization                       26.5               26.2                 78.7                78.8
Income tax expense                                   0.4                0.1                  1.5                 0.8
EBITDA                                       $     116.6          $     3.5          $      16.5          $    105.9
Add:
LCM / LIFO (gain) loss                       $      (4.7)         $     1.1          $     (45.1)         $     35.5
Unrealized (gain) loss on derivative
instruments                                          3.3                9.2                 16.5               (21.2)
Amortization of turnaround costs                     4.0                4.0                 12.2                12.7
Debt extinguishment costs                              -                  -                  0.4                   -
Loss on impairment and disposal of assets              -                  -                  1.9                 6.7
Gain on sale of business, net                       (0.2)                 -                 (0.2)                  -

RINs mark-to-market (gain) loss                    (66.9)               9.3                 56.3                33.4
Equity-based compensation and other items            6.7                2.1                 24.4                 6.2
Other non-recurring expenses                           -                5.5                  2.8                 4.3
Adjusted EBITDA                              $      58.8          $    34.7          $      85.7          $    183.5
Less:
Replacement and environmental capital
expenditures (1)                             $       0.5          $     5.0          $      14.3          $     23.7
Cash interest expense (2)                           36.6               31.6                104.2                88.4
Turnaround costs                                     8.7                3.6                 40.8                19.7

Income tax expense                                   0.4                0.1                  1.5                 0.8
Distributable Cash Flow                      $      12.6          $    (5.6)         $     (75.1)         $     50.9




(1)Replacement capital expenditures are defined as those capital expenditures
which do not increase operating capacity or reduce operating costs and exclude
turnaround costs. Environmental capital expenditures include asset additions to
meet or exceed environmental and operating regulations.
(2)Represents consolidated interest expense less non-cash interest expense.
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Changes in Results of Operations for the Three Months Ended September 30, 2021
and 2020
Sales. Sales increased $306.9 million, or 54.0%, to $874.9 million in the three
months ended September 30, 2021, from $568.0 million in the same period in 2020.
Sales for each of our principal product categories in these periods were as
follows:
                                                                                    Three Months Ended September 30,
                                                                          2021                        2020                 % Change
                                                                        (Dollars in millions, except barrel and per barrel data)
Sales by segment:
Specialty Products and Solutions:
Lubricating oils                                               $        192.0                    $     122.5                      56.7  %
Solvents                                                                 81.7                           54.6                      49.6  %
Waxes                                                                    40.6                           33.8                      20.1  %
Fuels, asphalt and other by-products (1)                                269.2                          155.3                      73.3  %

Total Specialty Products and Solutions                         $        583.5                    $     366.2                      59.3  %

Total sales volume of specialty products and solutions (in barrels)

                                                            4,836,000                      4,983,000                      (3.0) %
Average Specialty Products and Solutions sales price per
barrel                                                         $       120.66                    $     73.49                      64.2  %

Montana/Renewables:
Gasoline                                                       $         53.9                    $      38.8                      38.9  %
Diesel                                                                   92.6                           50.9                      81.9  %
Jet Fuel                                                                  8.6                            3.7                     132.4  %
Asphalt, heavy fuel oils and other (2)                                   73.3                           47.5                      54.3  %
Total Montana/Renewables                                       $        228.4                    $     140.9                      62.1  %
Total Montana/Renewables sales volume (in barrels)                  2,664,000                      2,756,000                      (3.3) %
Average Montana/Renewables sales price per barrel              $        85.74                    $     51.12                      67.7  %
Performance Brands:

Total Performance Brands (3)                                   $         63.0                    $      60.9                       3.4  %
Total Performance Brands sales volume (in barrels)                    121,000                        130,000                      (6.9) %
Average Performance Brands sales price per barrel              $       520.66                    $    468.46                      11.1  %

Total sales                                                    $        874.9                    $     568.0                      54.0  %

Total specialty products and solutions, Montana/ Sales volume of renewable energies and performance brands (in barrels)

7,621,000                      7,869,000                      (3.2) %




(1)Represents (a) by-products, including fuels and asphalt, produced in
connection with the production of specialty products at the Princeton and Cotton
Valley refineries and Dickinson and Karns City facilities, (b) polyolester
synthetic lubricants produced at the Missouri facility, and (c) fuels products
produced at the Shreveport refinery.
(2)Represents asphalt, heavy fuel oils and other products produced in connection
with the production of fuels at the Great Falls refinery.
(3)Represents packaged and synthetic specialty products at the Royal Purple,
Bel-Ray and Calumet Packaging facilities.
The components of the $217.3 million increase in Specialty Products and
Solutions segment sales for the three months ended September 30, 2021, as
compared to the three months ended September 30, 2020, were as follows:
                                                                   Dollar Change
                                                                   (In millions)
Volume                                                            $        (10.8)
Sales price                                                                228.1

Increase in total sales of the Specialty Products and Solutions segment $ 217.3


Specialty Products and Solutions segment sales increased period over period
primarily due to significantly higher prices for both specialty products and
transportation fuels. The favorable price impact was partially offset by a
decrease in sales volumes as a result of unplanned downtime at our Shreveport
facility in the third quarter of 2021.
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The components of the $87.5 million increase in Montana/Renewables segment sales
for the three months ended September 30, 2021, as compared to the three months
ended September 30, 2020, were as follows:
                                                    Dollar Change
                                                    (In millions)
Volume                                             $         (4.7)
Sales price                                                  92.2

Total Montana/ Renewable energy segment sales increase by $ 87.5


Montana/Renewables segment sales increased due to significantly higher global
commodity prices. Sales volumes were relatively flat between the two comparative
periods.
The components of the $2.1 million increase in Performance Brands segment sales
for the three months ended September 30, 2021, as compared to the three months
ended September 30, 2020, were as follows:
                                                    Dollar Change
                                                    (In millions)

Volume                                             $         (3.9)
Sales price                                                   6.0

Total sales of the Performance Brands segment increase by $ 2.1


Performance Brands segment sales increased due to an increase in product prices
and partially offset by slightly lower sales volumes due to industry wide supply
chain disruptions.
Gross Profit. Gross profit increased $116.8 million, or 707.9%, to $133.3
million in the three months ended September 30, 2021, from $16.5 million in the
same period in 2020. Gross profit for our business segments were as follows:
                                                                                         Three Months Ended September 30,
                                                                      2021                                     2020                  % Change
                                                                                   (Dollars in millions, except per barrel data)
Gross profit by segment:
Specialty Products and Solutions:
Gross profit                                                   $          74.0                             $      0.5                    14,700.0  %

Percentage of sales                                                       12.7   %                                0.1  %                     12.6  %
Specialty Products and Solutions gross profit per barrel       $         15.30                             $     0.10                    15,200.0  %

Montana/Renewables:
Gross profit (loss)                                            $          42.7                             $     (6.0)                      811.7  %
Percentage of sales                                                       18.7   %                               (4.3) %                     23.0  %
Montana/Renewables gross profit (loss) per barrel              $         16.03                             $    (2.18)                      835.3  %

Performance Brands:
Gross profit                                                   $          16.6                             $     22.0                       (24.5) %

Percentage of sales                                                       26.3   %                               36.1  %                     (9.8) %
Performance Brands gross profit per barrel                     $        137.19                             $   169.23                       (18.9) %

Total gross profit                                             $         133.3                             $     16.5                       707.9  %
Percentage of sales                                                       15.2   %                                2.9  %                     12.3  %


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The components of the $73.5 million increase in Specialty Products and Solutions
segment gross profit for the three months ended September 30, 2021, as compared
to the three months ended September 30, 2020, were as follows:
                                                                Dollar 

Switch

                                                                (In 

millions)

Three months ended September 30, 2020 reported gross profit    $          0.5
Cost of materials                                                      (173.4)
Operating costs                                                         (15.9)
LCM / LIFO inventory adjustments                                          1.3
Volumes                                                                  (2.4)
Sales price                                                             228.1
RINs expense                                                             35.8

Three months ended September 30, 2021 reported gross profit $ 74.0


The increase in Specialty Products and Solutions segment gross profit for the
three months ended September 30, 2021, as compared to the same period in 2020,
was primarily due to stronger net unit margins as a result of higher specialty
product pricing and a decrease in non-cash RINs expense as a result of lower
market prices for RINs. These factors were partially offset by higher operating
costs as a result of increases in repairs and maintenance expenses and higher
utility costs.
The components of the $48.7 million increase in Montana/Renewables segment gross
profit (loss) for the three months ended September 30, 2021, as compared to the
three months ended September 30, 2020, were as follows:
                                                                            

Change in dollars

                                                                               (In millions)
Three months ended September 30, 2020 reported gross profit (loss)           $         (6.0)
Cost of materials                                                           

(61.6)

LCM / LIFO inventory adjustments                                                        0.3
Volumes                                                                                (0.9)
Operating costs                                                                        (3.9)
RINs expense                                                                           22.6
Sales price                                                                            92.2
Three months ended September 30, 2021 reported gross profit                 

$ 42.7


The increase in Montana/Renewables segment gross profit (loss) for the three
months ended September 30, 2021, as compared to the same period in 2020, was
primarily due to a wider crude WCS-WTI differential and improved crack spreads
for transportation fuels during the current quarter driven by the overall
improvement in market conditions and a decrease in non-cash RINs expense as a
result of lower market prices for RINs.
The components of the $5.4 million decrease in Performance Brands segment gross
profit for the three months ended September 30, 2021, as compared to the three
months ended September 30, 2020, were as follows:
                                                                Dollar 

Switch

                                                                (In 

millions)

Three months ended September 30, 2020 declared gross profit $ 22.0 Cost of materials

(13.9)

LCM / LIFO inventory adjustments                                          4.2
Volumes                                                                  (1.9)
Operating costs                                                           0.1
Sales price                                                               6.1

Three months ended September 30, 2021 reported gross profit $ 16.6


The decrease in Performance Brands segment gross profit for the three months
ended September 30, 2021, as compared to the same period in 2020, was primarily
driven by inflating material costs and the impact of supply chain disruptions
during the current quarter. These factors were partially offset by higher
product prices.
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General and administrative. General and administrative expenses increased $1.2
million, or 4.0%, to $30.9 million in the three months ended September 30, 2021,
from $29.7 million in the same period in 2020. The increase was primarily due to
a $2.0 million increase in labor and benefits related expenses.
Interest expense. Interest expense increased $4.9 million, or 14.7%, to $38.2
million in the three months ended September 30, 2021, from $33.3 million in the
same period in 2020. The increase was primarily due to higher financing costs
related to our Supply and Offtake Agreements in the current quarter in
comparison to the prior year comparative period.
Gain (loss) on derivative instruments. There was a $3.3 million loss on
derivative instruments in the three months ended September 30, 2021, compared to
a $7.9 million gain in the same period in 2020. The $17.1 million realized gain
on derivative instruments in the third quarter of 2020 was due to the settlement
of our crack spread swaps and WCS crude oil basis swaps positions during the
prior year period. There were no outstanding derivative positions settled in the
third quarter of 2021. The impact of this item was partially offset by a $5.9
million decrease in unrealized losses on derivatives in the third quarter of
2021 in comparison to the prior year comparative period.
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Changes in Results of Operations for the Nine Months Ended September 30, 2021
and 2020
Sales. Sales increased $567.9 million, or 33.1%, to $2,282.2 million in the nine
months ended September 30, 2021, from $1,714.3 million in the same period in
2020. Sales for each of our principal product categories in these periods were
as follows:
                                                                                    Nine Months Ended September 30,
                                                                         2021                       2020                  % Change
                                                                       (Dollars in millions, except barrel and per barrel data)
Sales by segment:
Specialty Products and Solutions:
Lubricating oils                                               $        482.2                  $      352.5                      36.8  %
Solvents                                                                223.0                         179.0                      24.6  %
Waxes                                                                   110.1                          92.2                      19.4  %
Fuels, asphalt and other by-products (1)                                692.1                         532.9                      29.9  %

Total Specialty Products and Solutions                         $      1,507.4                  $    1,156.6                      30.3  %

Total sales volume of specialty products and solutions (in barrels)

                                                           13,557,000                    15,992,000                     (15.2) %
Average Specialty Products and Solutions sales price per
barrel                                                         $       111.19                  $      72.32                      53.7  %

Montana/Renewables:
Gasoline                                                       $        137.4                  $      103.0                      33.4  %
Diesel                                                                  241.7                         150.3                      60.8  %
Jet Fuel                                                                 21.0                          11.7                      79.5  %
Asphalt, heavy fuel oils and other (2)                                  180.3                         115.4                      56.2  %
Total Montana/Renewables                                       $        580.4                  $      380.4                      52.6  %
Total Montana/Renewables sales volume (in barrels)                  7,754,000                     7,857,000                      (1.3) %
Average Montana/Renewables sales price per barrel              $        74.85                  $      48.42                      54.6  %
Performance Brands:

Total Performance Brands (3)                                   $        194.4                  $      177.3                       9.6  %
Total Performance Brands sales volume (in barrels)                    395,000                       380,000                       3.9  %
Average Performance Brands sales price per barrel              $       492.15                  $     466.58                       5.5  %

Total sales                                                    $      2,282.2                  $    1,714.3                      33.1  %

Total specialty products and solutions, Montana/ Sales volume of renewable energies and performance brands (in barrels)

21,706,000                    24,229,000                     (10.4) %




(1)Represents (a) by-products, including fuels and asphalt, produced in
connection with the production of specialty products at the Princeton and Cotton
Valley refineries and Dickinson and Karns City facilities, (b) polyolester
synthetic lubricants produced at the Missouri facility, and (c) fuels products
produced at the Shreveport refinery.
(2)Represents asphalt, heavy fuel oils and other products produced in connection
with the production of fuels at the Great Falls refinery.
(3)Represents packaged and synthetic specialty products at the Royal Purple,
Bel-Ray and Calumet Packaging facilities.
The components of the $350.8 million increase in Specialty Products and
Solutions segment sales for the nine months ended September 30, 2021, as
compared to the nine months ended September 30, 2020, were as follows:
                                                                   Dollar Change
                                                                   (In millions)
Volume                                                            $       (176.1)
Sales price                                                                526.9

Increase in total sales of the Specialty Products and Solutions segment $ 350.8


Specialty Products and Solutions segment sales increased period over period,
primarily due to the significantly higher price environment in the current year
period. The favorable price impact was partially offset by a decrease in sales
volumes as a result of the planned turnaround at our Shreveport facility in the
first quarter of 2021, unplanned downtime resulting from the polar vortex and
supply chain disruptions.

                                       42

————————————————– ——————————

Table of contents The components of $ 200.0 million increase in Montana/ Revenues for the Renewables segment for the nine-month period ended September 30, 2021, compared to the nine months ended September 30, 2020, were the following:

                                                    Dollar Change
                                                    (In millions)
Volume                                             $         (5.0)
Sales price                                                 205.0

Total Montana/ Increased sales in the renewable energy segment $ 200.0


Montana/Renewables segment sales increased primarily due to increased sales
prices as a result of the significantly higher price environment in the current
year, in-line with the overall improvement in market conditions. Sales volumes
were relatively flat between the two comparative periods.
The components of the $17.1 million increase in Performance Brands segment sales
for the nine months ended September 30, 2021, as compared to the nine months
ended September 30, 2020, were as follows:
                                                    Dollar Change
                                                    (In millions)

Volume                                             $          7.0
Sales price                                                  10.1

Total sales of the Performance Brands segment increase by $ 17.1


Performance Brands segment sales increased due to increases in volumes and
prices, which were both driven by continued growth in the business for our
TruFuel, Royal Purple, and Bel-Ray brands.
Gross Profit. Gross profit increased $5.9 million, or 5.6%, to $110.4 million in
the nine months ended September 30, 2021, from $104.5 million in the same period
in 2020. Gross profit for our business segments were as follows:
                                                                                         Nine Months Ended September 30,
                                                                      2021                                     2020                 % Change
                                                                                  (Dollars in millions, except per barrel data)
Gross profit by segment:
Specialty Products and Solutions:
Gross profit                                                   $          43.4                             $     26.8                      61.9  %

Percentage of sales                                                        2.9   %                                2.3  %                    0.6  %
Specialty Products and Solutions gross profit per barrel       $          3.20                             $     1.68                      90.5  %

Montana/Renewables:
Gross profit                                                   $          10.5                             $     18.0                     (41.7) %
Percentage of sales                                                        1.8   %                                4.7  %                   (2.9) %
Montana/Renewables gross profit per barrel                     $          1.35                             $     2.29                     (41.0) %

Performance Brands:
Gross profit                                                   $          56.5                             $     59.7                      (5.4) %

Percentage of sales                                                       29.1   %                               33.7  %                   (4.6) %
Performance Brands gross profit per barrel                     $        143.04                             $   157.11                      (9.0) %

Total gross profit                                             $         110.4                             $    104.5                       5.6  %
Percentage of sales                                                        4.8   %                                6.1  %                   (1.3) %


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The components of the $16.6 million increase in Specialty Products and Solutions
segment gross profit for the nine months ended September 30, 2021, as compared
to the nine months ended September 30, 2020, were as follows:
                                                                Dollar 

Switch

                                                                (In 

millions)

Nine months ended September 30, 2020 reported gross profit     $         26.8
Cost of materials                                                      (477.0)
Operating costs                                                         (31.0)
LCM / LIFO inventory adjustments                                         60.9
Volumes                                                                 (41.7)
Sales price                                                             526.9
RINs expense                                                            (21.5)

Nine months ended September 30, 2021 reported gross profit $ 43.4


The increase in Specialty Products and Solutions segment gross profit for the
nine months ended September 30, 2021, as compared to the same period in 2020,
was primarily due to stronger net unit margins as a result of strong specialty
market demand and a decrease in non-cash LCM charges as the value of our
inventory increases with global commodity inflation. These factors were
partially offset by the unfavorable volumes impact resulting from the planned
turnaround at our Shreveport facility in the first quarter of 2021 and unplanned
downtime resulting from the polar vortex and logistics disruptions. Higher
operating costs were due to expenses for freeze-related repairs and higher
utility costs.
The components of the $7.5 million decrease in Montana/Renewables segment gross
profit for the nine months ended September 30, 2021, as compared to the nine
months ended September 30, 2020, were as follows:
                                                                Dollar 

Switch

                                                                (In 

millions)

Nine months ended September 30, 2020 declared gross profit $ 18.0 Cost of materials

(203.0)

LCM / LIFO inventory adjustments                                         15.0
Volumes                                                                  (1.6)
Operating costs                                                          (7.6)
RINs expense                                                            (15.3)
Sales price                                                             205.0

Nine months ended September 30, 2021 reported gross profit $ 10.5


The decrease in Montana/Renewables segment gross profit for the nine months
ended September 30, 2021, as compared to the same period in 2020, was primarily
due to an increase in operating costs driven by higher utility costs.
The components of the $3.2 million decrease in Performance Brands segment gross
profit for the nine months ended September 30, 2021, as compared to the nine
months ended September 30, 2020, were as follows:
                                                                Dollar 

Switch

                                                                (In 

millions)

Nine months ended September 30, 2020 declared gross profit $ 59.7 Cost of materials

(24.0)

LCM / LIFO inventory adjustments                                          4.7
Volumes                                                                   3.3
Operating costs                                                           2.7
Sales price                                                              10.1

Nine months ended September 30, 2021 reported gross profit $ 56.5


The decrease in Performance Brands segment gross profit for the nine months
ended September 30, 2021, as compared to the same period in 2020, was primarily
driven by higher material and feedstock costs and supply chain challenges that
resulted in a growing order backlog. The impact of this item was partially
offset by higher volumes and sales prices as a result of our continued growth in
the business for our TruFuel, Royal Purple, and Bel-Ray brands.

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General and administrative. General and administrative expenses increased $20.6
million, or 26.9%, to $97.3 million in the nine months ended September 30, 2021,
from $76.7 million in the same period in 2020. The increase was primarily due to
a $21.9 million increase in equity-based compensation related expenses, which
was primarily the result of an increase in the Company's unit price.
Interest expense. Interest expense increased $16.1 million, or 17.3%, to $109.3
million in the nine months ended September 30, 2021, from $93.2 million in the
same period in 2020. The increase was primarily due to higher financing costs
related to our Supply and Offtake Agreements in the current year period in
comparison to the prior year comparative period.
Gain (loss) on derivative instruments. There was a $15.4 million loss on
derivative instruments in the nine months ended September 30, 2021, compared to
a $57.7 million gain in the same period in 2020. The $36.5 million realized gain
on derivative instruments in the prior year comparative period was due to the
settlement of our crack spread swaps and WCS crude oil basis swaps positions
during the period. We recorded a realized gain of $1.1 million for the
settlement of our WCS crude oil basis swaps position in the current year period.
In addition, the unrealized loss on the inventory financing embedded derivative
was $17.8 million in the current year period, compared to an unrealized gain of
$9.2 million in the prior year comparative period.
Liquidity and Capital Resources
General
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" included under Part II, Item 7 in our 2020 Annual Report.
There have been no material changes in that information other than as discussed
below. Also, see Note 8 - "Inventory Financing Agreements" and Note 9 -
"Long-Term Debt" under Part I, Item 1 "Financial Statements - Notes to Unaudited
Condensed Consolidated Financial Statements" in this Quarterly Report for
additional discussions related to our Supply and Offtake Agreements and our
long-term debt.
Cash Flows from Operating, Investing and Financing Activities
We believe that we have sufficient liquid assets, cash flow from operations,
borrowing capacity and adequate access to capital markets to meet our financial
commitments, debt service obligations and anticipated capital expenditures for
at least the next 12 months. We continue to seek to lower our operating costs,
selling expenses and general and administrative expenses as a means to further
improve our cash flow from operations with the objective of having our cash flow
from operations support all of our capital expenditures and interest payments.
However, we are subject to business and operational risks that could materially
adversely affect our cash flows. A material decrease in our cash flow from
operations including a significant, sudden decrease in crude oil prices would
likely produce a corollary effect on our borrowing capacity under our revolving
credit facility and potentially our ability to comply with the covenants under
our revolving credit facility. A significant, sudden increase in crude oil
prices, if sustained, would likely result in increased working capital
requirements which would be funded by borrowings under our revolving credit
facility. In addition, our cash flow from operations may be impacted by the
timing of settlement of our derivative activities. Gains and losses from
derivative instruments that do not qualify as cash flow hedges are recorded in
unrealized gain (loss) on derivative instruments until settlement and will
impact operating cash flow in the period settled.
The following table summarizes our primary sources and uses of cash in each of
the periods presented:
                                                                      Nine Months Ended September 30,
                                                                         2021                 2020
                                                                               (In millions)
Net cash provided by (used in) operating activities                 $      (29.9)         $     64.9
Net cash used in investing activities                                      (34.2)              (37.2)
Net cash provided by (used in) financing activities                        (34.5)               62.6
Net increase (decrease) in cash and cash equivalents                $      

(98.6) $ 90.3


Operating Activities. Operating activities used cash of $29.9 million during the
nine months ended September 30, 2021 compared to providing cash of $64.9 million
during the same period in 2020. The change was impacted by an increase in net
loss of $106.1 million, which was partially offset by a decrease in the cash
required for working capital.
Investing Activities. Investing activities used cash of $34.2 million during the
nine months ended September 30, 2021 compared to a use of cash of $37.2 million
during the same period in 2020. The change is related to decreases in cash
expenditures for additions to property, plant and equipment in the current year
period relative to the prior year comparative period.
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Financing Activities. Financing activities used cash of $34.5 million in the
nine months ended September 30, 2021 compared to providing cash of $62.6 million
during the same period in 2020. The change is primarily due to a $160.0 million
change resulting from lower borrowings on our revolving credit facility in the
current year compared to the prior year, which was partially offset by a $70.0
million change due to an increase in net proceeds received from our inventory
financing arrangements in the current year as compared to the prior year. In
addition, the $70.0 million proceeds from our sale and leaseback transaction
offset the repurchase of a portion of our 2022 Notes.
Capital Expenditures
Our property, plant and equipment capital expenditure requirements consist of
capital improvement expenditures, replacement capital expenditures,
environmental capital expenditures and turnaround capital expenditures. Capital
improvement expenditures include the acquisition of assets to grow our business,
facility expansions, or capital initiatives that reduce operating costs.
Replacement capital expenditures replace worn out or obsolete equipment or
parts. Environmental capital expenditures include asset additions to meet or
exceed environmental and operating regulations. Turnaround capital expenditures
represent capitalized costs associated with our periodic major maintenance and
repairs.
The following table sets forth our capital improvement expenditures, replacement
capital expenditures, environmental capital expenditures and turnaround capital
expenditures in each of the periods shown (including capitalized interest):
                                              Nine Months Ended September 30,
                                                     2021                       2020
                                                       (In millions)
Capital improvement expenditures     $           20.0                         $ 11.1
Replacement capital expenditures                 11.4                       

20.2

Environmental capital expenditures                2.9                       

3.5

Turnaround capital expenditures                  40.8                           19.7

Total                                $           75.1                         $ 54.5


2021 Capital Spending Forecast
We expect to incur capital expenditures of approximately $165.0 million to
$175.0 million in 2021, which includes $70.0 million to $75.0 million on the
Renewable Diesel project and $90.0 million to $100.0 million on sustaining,
environmental, and small growth capital expenditures. The Renewable Diesel
capital includes spending advanced from 2022 following early receipt of permits.
We have also released equipment purchase orders ahead of schedule to mitigate
the potential risk of being negatively impacted by global supply chain
challenges. As announced last quarter, the sustaining capital includes
approximately $30.0 million of Montana turnarounds that were advanced from 2022;
our strategy is to level Montana site workload across 2021 and 2022 to manage
scope and risk during this heavy construction period. We anticipate that our
total capital expenditure requirements will be provided primarily through cash
flow from operations, cash on hand, available borrowings under our revolving
credit facility, Renewable Diesel partnership, or by accessing capital markets
as necessary. If future capital expenditures require expenditures in excess of
our then-current cash flow from operations and borrowing availability under our
revolving credit facility, we may be required to issue debt or equity securities
in public or private offerings or incur additional borrowings under bank credit
facilities to meet those costs, if such options are available to us.
Debt and Credit Facilities
As of September 30, 2021, our primary debt and credit instruments consisted of
the following:
•$600.0 million senior secured revolving credit facility maturing in February
2023 ("revolving credit facility");
•$80.0 million of 7.625% Senior Notes due 2022 ("2022 Notes");
•$325.0 million of 7.75% Senior Notes due 2023 ("2023 Notes");
•$200.0 million of 9.25% Senior Secured First Lien Notes due 2024 ("2024 Secured
Notes"); and
•$550.0 million of 11.00% Senior Notes due 2025 ("2025 Notes").
We were in compliance with all covenants under the debt instruments in place as
of September 30, 2021 and believe we have adequate liquidity to conduct our
business.
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The borrowing base on our revolving credit facility increased from approximately
$289.7 million as of September 30, 2020, to approximately $345.9 million at
September 30, 2021, resulting in a corresponding increase in our borrowing
availability from approximately $159.9 million at September 30, 2020, to
approximately $269.9 million at September 30, 2021. Total liquidity, consisting
of unrestricted cash and available funds under our revolving credit facility,
increased from $269.3 million at September 30, 2020 to $280.7 million at
September 30, 2021.
Inventory Financing
Please refer to Note 8 - "Inventory Financing Agreements" in Part I, Item 1
"Financial Statements - Notes to Unaudited Condensed Consolidated Financial
Statements" for additional information regarding our Supply and Offtake
Agreements.
Short-Term Liquidity
As of September 30, 2021, our principal sources of short-term liquidity were (i)
$269.9 million of availability under our revolving credit facility, (ii)
inventory financing agreements related to the Great Falls and Shreveport
refineries and (iii) $10.8 million of cash on hand. Borrowings under our
revolving credit facility can be used for, among other things, working capital,
capital expenditures and other lawful partnership purposes including
acquisitions. For additional information regarding our revolving credit
facility, see Note 9 - "Long-Term Debt" under Part I, Item 1 "Financial
Statements - Notes to Unaudited Condensed Consolidated Financial Statements" in
this Quarterly Report.
Long-Term Financing
In addition to our principal sources of short-term liquidity listed above,
subject to market conditions, we may meet our cash requirements (other than
distributions of Available Cash (as defined in our partnership agreement) to our
common unitholders) through the issuance of long-term notes or additional common
units.
From time to time, we issue long-term debt securities referred to as our senior
notes. All of our outstanding senior notes, other than the 2024 Secured Notes,
are unsecured obligations that rank equally with all of our other senior debt
obligations to the extent they are unsecured. As of September 30, 2021 we had
$80.0 million in 2022 Notes, $325.0 million in 2023 Notes, $200.0 million in
2024 Secured Notes, and $550.0 million in 2025 Notes outstanding. The 2024
Secured Notes and the related guarantees are secured by a first priority lien
(subject to certain exceptions) on all the fixed assets that secure our
obligations under the secured hedge agreements, as governed by the Collateral
Trust Agreement, which governs how secured hedging counterparties and holders of
the 2024 Secured Notes share collateral pledged as security for the payment
obligations owed by us to the secured hedging counterparties under their
respective master derivatives contracts and the holders of the 2024 Secured
Notes. In addition, as of September 30, 2021, we had $66.4 million of other debt
outstanding for the Shreveport terminal asset financing arrangement.
During the nine months ended September 30, 2021, we repurchased $70.0 million in
aggregate principal amount of the 2022 Notes at a redemption price of par, plus
accrued and unpaid interest to the redemption date of June 5, 2021.
To date, our debt balances have not adversely affected our operations, our
ability to repay or refinance our indebtedness. Based on our historical record,
we believe that our capital structure will continue to allow us to achieve our
business objectives.
For additional information regarding our senior notes, please read Note 9 -
"Long-Term Debt" under Part I, Item 1 "Financial Statements - Notes to Unaudited
Condensed Consolidated Financial Statements" in this Quarterly Report and Note
10 - "Long-Term Debt" in Part II, Item 8 "Financial Statements and Supplementary
Data" of our 2020 Annual Report.
On February 12, 2021, we entered into a sale and leaseback transaction with
Stonebriar Commercial Finance LLC ("Stonebriar"), whereby we sold and leased
back certain of our fuels terminal assets at the Shreveport refinery. We
received gross proceeds of $70.0 million from the sale, with the leaseback
having a term of seven years. Please read Note 21 - "Subsequent Events" in Part
II, Item 8 "Financial Statements and Supplementary Data" of our 2020 Annual
Report for additional information.
Master Derivative Contracts and Collateral Trust Agreement
For additional discussion regarding our master derivative contracts and
collateral trust agreement, see "Master Derivative Contracts and Collateral
Trust Agreement" under Part II, Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of our 2020 Annual Report.
Off-Balance Sheet Arrangements
We did not enter into any material off-balance sheet transactions during the
three and nine months ended September 30, 2021.
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Critical Accounting Estimates
For additional discussion regarding our critical accounting estimates, see
"Critical Accounting Estimates" under Part II, Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of our 2020
Annual Report.
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