The historical consolidated financial statements included in this Annual Report reflect all of the assets, liabilities and results of operations of the Company. The following discussion analyzes the financial condition and results of operations of the Company for the years ended December 31, 2012, 2011 and 2010. Unitholders should read the following discussion and analysis of the financial condition and results of operations of the Company in conjunction with the historical consolidated financial statements and notes of the Company included elsewhere in this Annual Report.
Overview
We are a leading independent producer of high-quality, specialty hydrocarbon products and fuel products in North America. We are headquartered in Indianapolis, Indiana and own facilities primarily located in Louisiana, Wisconsin, Montana, Texas and Pennsylvania. We own and lease additional facilities, primarily related to production and distribution of specialty products, throughout the U.S. Our business is organized into two segments:
specialty products and fuel products. In our specialty products segment, we process crude oil and other feedstocks into a wide variety of customized lubricating oils, white mineral oils, solvents, petrolatums, waxes and asphalt. 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. We also blend and market specialty products through our Royal Purple brand. In our fuel products segment, we process crude oil into a variety of fuel and fuel-related products, including gasoline, diesel, jet fuel and heavy fuel oils. In connection with our production of specialty products and fuel products, we also produce asphalt and a limited number of other by-products.
2012 Update
For the years ended December 31, 2012 and 2011, 39.1% and 46.8%, respectively, of our sales volume and 60.1% and 94.4%, respectively, of our gross profit was generated from our specialty products segment while, for the same periods, 60.9% and 53.2%, respectively, of our sales volume and approximately 39.9% and 5.6%, respectively, of our gross profit was generated from our fuel products segment. Generally, we continued to see strength in product demand in our specialty products segment in 2012, noting a slight softening in demand toward the end of 2012 due to some seasonality of product demand in the segment. Overall, we achieved a 23.6% increase in barrels of specialty products sold, including the impact of incremental sales from the Superior, Royal Purple, Montana, TruSouth and Missouri Acquisitions. Our specialty products segment generated a gross profit margin of 13.8% in 2012, as compared to a gross profit margin of 14.3% in 2011, as specialty products sales pricing slightly lagged fluctuations in crude oil prices.
Higher sales and production volume in our fuel products segment during 2012 allowed us to take advantage of higher market crack spreads. We achieved a 69.2% increase in barrels of fuel products sold in 2012 compared to 2011, driven primarily by incremental sales from the Superior and Montana refineries. Negatively impacting production levels during the second half of 2012 were reduced run rates at our Shreveport refinery resulting from the April 28, 2012 shutdown by ExxonMobil of a crude oil pipeline serving the refinery for a portion of its crude oil requirements. During the fourth quarter of 2012, the Shreveport refinery began receiving Bakken crude oil by rail from the Superior refinery to supplement the loss of crude oil related to the ExxonMobil pipeline shutdown and to take advantage of lower priced Bakken crude oil. The fuel products segment generated a gross profit margin of 8.4% in 2012 compared to 1.2% in 2011 despite the recognition of increased realized derivative losses of $55.2 million during 2012 compared to 2011 due to the strength of settled market crack spreads compared to our hedged crack spreads. As of December 31, 2012, we have entered 17.8 million barrels of crack spread derivatives for calendar years 2013 through 2015 at an average of $26.74 per barrel.
During 2012, the Western Canadian Select ("WCS") heavy crude oil differential to NYMEX WTI averaged $21.98 per barrel below NYMEX WTI, an increase of $6.34 from 2011. During 2012, the Bakken light crude oil differential to NYMEX WTI averaged $5.74 per barrel below NYMEX WTI, an increase of $8.26 from 2011. Both the WCS and Bakken differentials to NYMEX WTI create an unhedged crude oil cost advantage for our Superior refinery. During 2012, the Bow River heavy crude oil differential to NYMEX WTI averaged $19.88 per barrel below NYMEX WTI, an increase of $3.68 from 2011, creating an unhedged crude oil cost advantage for our Montana refinery. On the sales side, while Group 3 fuel product differentials to U.S. Gulf Coast were not quite as strong as in 2011, we saw continued increases throughout the second half of 2012 with the Group 3 diesel pricing differential to U.S. Gulf Coast diesel, for example, widening $0.30 per barrel compared to the average differential in the third quarter of 2012 and hitting a high of $16.32 per barrel in October 2012. As we currently use U.S. Gulf Coast fuel products swaps to hedge a portion of our Group 3 fuel products selling price exposure, we continue to benefit from this Group 3 pricing strength relative to U.S. Gulf Coast pricing.

Our 2012 total legacy facility production decreased by 1.9% year over year, excluding the impact of the Superior, Missouri, TruSouth, Royal Purple and Montana Acquisitions, due primarily to decreased run rates at our Superior, Karns City and Dickinson facilities.
We remained active in the capital markets in 2012 by completing a public offering of common units in May 2012 which generated net proceeds (including our general partner's contribution) of $149.7 million and completing in June 2012 a private placement offering of an aggregate of $275.0 million in senior unsecured notes due 2020 ("June 2012 Notes Offering"), which generated net proceeds of $262.6 million. We used the net proceeds from the June 2012 Notes Offering to fund a portion of the Royal Purple Acquisition.
We generated $380.1 million in cash flow from operations during 2012. We generated distributable cash flow (as defined in Part II, Item 6 "Non-GAAP Financial Measures") of $281.1 million in 2012, an increase of $154.0 million over 2011 and paid distributions of $132.4 million to our unitholders in 2012, an increase of $49.7 million over 2011. We plan to continue focusing our efforts on generating positive cash flows from operations which we expect will be used to (i) improve our liquidity position, (ii) service our debt obligations,
(iii) pay quarterly distributions to our unitholders and (iv) provide funding for general partnership purposes. Acquisitions
Hercules Synthetic Lubricants Business
On January 3, 2012, we completed the acquisition of the aviation and refrigerant lubricants business (a polyolester based synthetic lubricants business) and a manufacturing facility located in Louisiana, Missouri from Hercules Incorporated, a subsidiary of Ashland, Inc., for aggregate consideration of approximately $19.6 million. We believe the Missouri Acquisition provides greater diversity to our specialty products segment. The acquisition was financed with borrowings under our revolving credit facility and cash on hand. TruSouth Oil
On January 6, 2012, we completed the acquisition of TruSouth Oil, LLC, a specialty petroleum packaging and distribution company located in Shreveport, Louisiana for aggregate consideration of approximately $26.8 million, which was financed with borrowings under our revolving credit facility. We believe the TruSouth Acquisition provides greater diversity to our specialty products segment. Please read Part III, Item 13 "Certain Relationships and Related Transactions and Director Independence - TruSouth Acquisition" for further discussion of our acquisition of TruSouth. Royal Purple
On July 3, 2012, we completed the acquisition of Royal Purple, Inc., a Texas corporation which was converted into a Delaware limited liability company at closing, for aggregate consideration of approximately $331.2 million, net of cash acquired. Royal Purple is a leading independent formulator and marketer of premium industrial and consumer synthetic lubricants to a diverse customer base across several large markets including oil and gas, chemicals and refining, power generation, manufacturing and transportation, food and drug manufacturing and automotive aftermarket. The Royal Purple Acquisition was financed with net proceeds of $262.6 million from our June 2012 Notes Offering and cash on hand. We believe the Royal Purple Acquisition increases our position in the specialty lubricants markets, expands our geographic reach, increases our asset diversity and enhances our specialty products segment. Montana
On October 1, 2012, we completed the acquisition from Connacher of all the shares of common stock of Montana Refining Company, Inc., which was converted into a Delaware limited liability company, Calumet Montana Refining, LLC, at closing, and an insignificant affiliated company for aggregate consideration of approximately $191.6 million, net of cash acquired, including an estimated $27.6 million of income taxes due to the conversion to a Delaware limited liability company and excluding certain purchase price adjustments. Montana produces gasoline, diesel, jet fuel and asphalt which are marketed primarily into local markets in Washington, Montana, Idaho and Alberta, Canada. The Montana Acquisition was funded primarily with cash on hand with the balance through borrowings under our revolving credit facility. We believe the Montana Acquisition further diversifies our crude oil feedstock slate, operating asset base and geographical presence.
San Antonio
On January 2, 2013, we completed the acquisition of the San Antonio, Texas refinery, together with the associated crude oil pipeline, crude oil terminal, other operating and logistics assets and inventories of NuStar Refining, LLC and NuStar Logistics, L.P., both wholly owned subsidiaries of NuStar Energy L.P., for aggregate consideration of approximately $115.7 million, including approximately $15.0 million for inventories acquired at closing, subject to certain post-closing adjustments.

San Antonio produces jet fuel, diesel, other fuel products and specialty solvents. The San Antonio Acquisition was funded primarily with borrowings under our revolving credit facility with the balance through cash on hand. We believe the San Antonio Acquisition further diversifies our crude oil feedstock slate, operating asset base and geographical presence. Key Performance Measures
Our sales and net income are principally affected by the price of crude oil, demand for specialty and fuel products, prevailing crack spreads for fuel products, the price of natural gas used as fuel in our operations and our results from derivative instrument activities.
Our primary raw materials are crude oil and other specialty feedstocks and our primary outputs are specialty petroleum 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 additional factors beyond our control. We monitor these risks and enter into derivative instruments designed to mitigate the impact of commodity price fluctuations on our business. The primary purpose of our commodity risk management activities is to economically hedge our cash flow exposure to commodity price risk so that we can meet our cash distribution, debt service and capital expenditure requirements despite fluctuations in crude oil and fuel products prices. We enter into derivative contracts for future periods in quantities that do not exceed our projected purchases of crude oil and natural gas and sales of fuel products. As of December 31, 2012, we have hedged refining margins, or crack spreads, on approximately 17.8 million barrels of fuel products through December 2015 at an average refining margin of $26.74 per barrel with average refining margins ranging from a low of $23.77 per barrel in the first quarter of 2013 to a high of $29.55 per barrel in the fourth quarter of 2013. Please refer to Note 7 under Item 8 "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements" and Item 7A "Quantitative and Qualitative Disclosures About Market Risk - Commodity Price Risk" for detailed information regarding our derivative instruments and our commodity price.
Our management uses several financial and operational measurements to analyze our performance. These measurements include the following:
• sales volumes;

• production yields; and

• specialty products and fuel products gross profit.

Sales volumes. We view the volumes of specialty products and fuel 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 crude oil and 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.
Production yields. In order to maximize our gross profit and minimize lower margin by-products, we seek the optimal product mix for each barrel of crude oil we refine or feedstocks we, or third parties, process, which we refer to as production yield.
Specialty products and fuel products gross profit. Specialty products and fuel products gross profit are important measures of our ability to maximize the profitability of our specialty products and fuel products segments. We define specialty products and fuel products gross profit as sales less the cost of crude oil and other feedstocks and other production-related expenses, the most significant portion of which includes labor, plant fuel, utilities, contract services, maintenance, depreciation and processing materials. We use specialty products and fuel products gross profit as indicators of our ability to manage our business during periods of crude oil and natural gas price fluctuations, as the prices of our specialty products and fuel products generally do not change immediately with changes in the price of crude oil and natural gas. The increase in selling prices typically lags behind the rising costs of crude oil feedstocks for specialty products. Other than plant fuel, production-related expenses generally remain stable across broad ranges of throughput volumes, but can fluctuate depending on maintenance activities performed during a specific period.
Our fuel products segment gross profit may differ from a standard U.S. Gulf Coast, Group 3, PADD 4 Billings, Montana or 3/2/1 and 2/1/1 market crack spreads due to many factors, including derivative activities to hedge both our fuel products segment revenues and the cost of crude oil reflected in gross profit, our fuel products mix as shown in our production table being different than the ratios used to calculate such market crack spreads, the allocation of by-product (primarily asphalt) losses to the fuel products segment, operating costs including fixed costs and actual crude oil costs differing from market indices and our local market pricing differentials for fuel products in the Shreveport, Louisiana, Superior, Wisconsin and Great Falls, Montana vicinities as compared to U.S. Gulf Coast, Group 3 and PADD 4 Billings, Montana postings, respectively. In addition to the foregoing measures, we also monitor our selling and general and administrative expenditures.

Results of Operations
The following table sets forth information about our combined operations. Facility production volume differs from sales volume due to changes in inventories and the sale of purchased fuel product blendstocks such as ethanol and biodiesel in our fuel products segment. The tables include the results of operations at our Superior refinery commencing October 1, 2011, Missouri facility commencing January 3, 2012, TruSouth facility commencing January 6, 2012, Royal Purple facility commencing July 3, 2012 and Montana refinery commencing October 1, 2012.

                                                  Year Ended December 31,
                                                 2012        2011      2010
                                                         (In bpd)
Total sales volume (1)                         97,789       66,134    55,668
Total feedstock runs (2)                       97,600       69,295    55,957
Facility production: (3)
Specialty products:
Lubricating oils                               14,524       14,427    13,697
Solvents                                        9,332       10,508     9,347
Waxes                                           1,280        1,269     1,220
Packaged and synthetic specialty products (4)   1,351            -         -
Fuels                                             669          556     1,050
Asphalt and other by-products                  14,219       10,090     6,907
Total specialty products                       41,375       36,850    32,221
Fuel products:
Gasoline                                       24,394       13,409     8,754
Diesel                                         22,438       14,721    10,800
Jet fuel                                        4,325        4,520     5,004
Heavy fuel oils and other                       3,640        1,409       535
Total fuel products                            54,797       34,059    25,093
Total facility production (3)                  96,172       70,909    57,314

(1) Total sales volume includes sales from the production at our facilities and certain third-party facilities pursuant to supply and/or processing agreements, and sales of inventories. Total sales volume includes the sale of purchased fuel product blendstocks such as ethanol and biodiesel as components of finished fuel products in our fuel products segment sales.

The increase in total sales volume in 2012 compared to 2011 is due primarily to incremental sales of fuel products, asphalt and packaged and synthetic specialty products subsequent to the Superior, Missouri, TruSouth, Royal Purple and Montana Acquisitions. The increase in total sales volume in 2011 compared to 2010 is due primarily to incremental sales of fuel products subsequent to the Superior Acquisition on September 30, 2011, as well as our decision to increase crude oil run rates at our facilities overall during 2011 because of the favorable economics of running additional barrels.
(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.

The increase in total feedstock runs in 2012 compared to 2011 is due primarily to incremental feedstock runs from the Superior, Missouri, TruSouth, Royal Purple and Montana Acquisitions. The increase in total feedstock runs in 2011 compared to 2010 is due primarily to incremental feedstock runs from the acquisition of the Superior refinery on September 30, 2011, our decision to increase feedstock run rates at our facilities overall during 2011 because of the favorable economics of running additional barrels and the failure of an environmental operating unit at our Shreveport refinery during the first quarter of 2010 which impacted run rates in 2010, partially offset by the impact of the approximately three week shutdown during May and June 2011 of the ExxonMobil crude oil pipeline serving our Shreveport refinery resulting from the Mississippi River flooding occurring during the period.
(3) Total facility production represents the barrels per day of specialty products and fuel products yielded from processing crude oil and other feedstocks at our facilities and at certain third-party facilities pursuant to supply and/or processing agreements. 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.

The increase in total facility production in 2012 over 2011 is due primarily to the operational items discussed above in footnote 2 of this table. The increase in total facility production in 2011 over 2010 is due primarily to increased feedstock runs from the acquisition of the Superior refinery on September 30, 2011 and increased feedstock runs at our facilities overall, as discussed above in footnote 2 of this table.
(4) Represents packaged and synthetic specialty products from our Royal Purple, TruSouth and Missouri facilities.

The following table reflects our 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 and net cash provided by operating activities, our most directly comparable financial performance and liquidity measures calculated in accordance with GAAP, please read "- Non-GAAP Financial Measures."

                                                      Year Ended December 31,
                                             2012              2011              2010
                                                          (In thousands)
Sales                                   $   4,657,282     $   3,134,923     $   2,190,752
Cost of sales                               4,144,105         2,860,793         1,992,003
Gross profit                                  513,177           274,130           198,749
Operating costs and expenses:
Selling                                        41,556            12,237             8,436
General and administrative                     60,904            38,599            26,788
Transportation                                107,900            94,187            85,471
Taxes other than income taxes                   9,073             5,661             4,601
Insurance recoveries                                -            (8,698 )               -
Other                                           7,816             6,852             1,963
Operating income                              285,928           125,292            71,490
Other income (expense):
Interest expense                              (85,573 )         (48,747 )         (30,497 )
Debt extinguishment costs                           -           (15,130 )               -
Realized gain (loss) on derivative
instruments                                     9,452            (7,909 )          (7,704 )
Unrealized loss on derivative
instruments                                    (3,787 )         (10,383 )         (15,843 )
Other                                             470               842              (147 )
Total other expense                           (79,438 )         (81,327 )         (54,191 )
Income before income taxes                    206,490            43,965            17,299
Income tax expense                                753               929               598
Net income                              $     205,737     $      43,036     $      16,701
EBITDA                                  $     383,732     $     170,851     $     108,083
Adjusted EBITDA                         $     404,610     $     211,020     $     138,462
Distributable Cash Flow                 $     281,125     $     127,158     $      76,202

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011 Sales. Sales increased $1,522.4 million, or 48.6%, to $4,657.3 million in 2012 from $3,134.9 million in 2011. The results of operations related to the Superior and Montana Acquisitions have been included in both segments since the dates of acquisition, September 30, 2011 and October 1, 2012, respectively. The results of operations related to the Missouri, TruSouth and Royal Purple Acquisitions have been included in the specialty products segment since the dates of acquisition, January 3, 2012, January 6, 2012 and July 3, 2012, respectively. Sales for each of our principal product categories in these periods were as follows:

                                                           Year Ended December 31,
                                               2012                   2011               % Change
                                               (Dollars in thousands, except per barrel data)
Sales by segment:
Specialty products:
Lubricating oils                        $      1,007,928       $        947,798                6.3  %
Solvents                                         491,114                495,934               (1.0 )%
Waxes                                            142,765                143,111               (0.2 )%
Packaged and synthetic specialty
products (1)                                     161,673                      -                  -  %
Fuels (2)                                          2,029                  3,432              (40.9 )%
Asphalt and by-products (3)                      426,093                217,351               96.0  %
Total specialty products                $      2,231,602       $      1,807,626               23.5  %
Total specialty products sales volume
(in barrels)                                  13,964,000             11,296,000               23.6  %
Average specialty products sales price
per barrel                              $         159.81       $         160.02               (0.1 )%
Fuel products:
Gasoline                                $      1,213,247       $        649,098               86.9  %
Diesel                                         1,081,088                671,088               61.1  %
Jet fuel                                         211,360                172,565               22.5  %
Heavy fuel oils and other (4)                    125,821                 46,297              171.8  %
Hedging activities loss                         (205,836 )             (211,751 )             (2.8 )%
Total fuel products                     $      2,425,680       $      1,327,297               82.8  %
Total fuel products sales volume (in
barrels)                                      21,729,000             12,843,000               69.2  %
Average fuel products sales price per
barrel (excluding hedging activities)   $         121.11       $         119.84                1.1  %
Average fuel products sales price per
barrel (including hedging activities
loss)                                   $         111.63       $         103.35                8.0  %
Total sales                             $      4,657,282       $      3,134,923               48.6  %
Total sales volume (in barrels)               35,693,000             24,139,000               47.9  %

(1) Represents packaged and synthetic specialty products from the Royal Purple, TruSouth and Missouri facilities.

(2) Represents fuels produced in connection with the production of specialty products at the Princeton and Cotton Valley refineries.

(3) Represents asphalt and other by-products produced in connection with the production of specialty and fuel products at the Shreveport, Superior, Montana, Princeton and Cotton Valley refineries.

(4) Represents heavy fuel oils and other products produced in connection with the production of fuels at the Shreveport, Superior and Montana refineries.

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