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Executives

Jennifer Straumins - President and Chief Operating Officer

Pat Murray - Chief Financial Officer

Analysts

Cory Garcia - Raymond James

Aaron Whiteman - Appaloosa Management

Eric Seeve - GoldenTree

Peter Madsen - Drakkar Capital

Randy Rochman - West Family Investments

Calumet Specialty Products Partners, L.P. (CLMT) Agreement to Acquire Royal Purple Conference Call June 8, 2012 9:00 AM ET

Operator

Good day, ladies and gentlemen and welcome to the Calumet Specialty Products Partners, L.P. Announces Agreement to Acquire Royal Purple Conference Call. My name is Pam and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Jennifer Straumins, President and Chief Operating Officer. Please proceed.

Jennifer Straumins

Thank you, operator. Good morning and welcome to the Calumet Specialty Products Partners’ investors call to discuss the Royal Purple acquisition. During this call Calumet Specialty Products Partners will be referred to as the partnership or Calumet. Also joining me on this call is Pat Murray, our CFO. Following the presentation we will hold the line open for a question-and-answer session.

During the course of this call we will make various forward-looking statements, such statements are based on the beliefs of the management as well as assumptions made by them and in each case based on the information currently available to them. Although our management believes the expectations reflected in such forward-looking statements are reasonable, neither the partnership, it’s general partner, nor our management can provide any assurance that such expectations will prove to be correct. Please refer to the partnership’s press release that was issued on June 6, as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our actual results and could cause them to differ from our forward-looking statements made on this call. Additionally, please refer to the investor relations section of our website for the slides associated with this presentation.

I would like to now turn to those slides and talk a little bit about where Calumet is and the rationale for this acquisition, and talk a little bit about the company itself. Royal Purple is a privately held company and a very recognizable brand name in its space and Calumet is very excited to be doing this acquisition. Calumet is a leading producer of specialty products. We own and operate 8 facilities and 6 terminals throughout the U.S. And this is a great asset to add to our asset base. We currently produce products such as naphthenic and paraffinic base oils and process oils, aliphatic and isoparaffinic solvents, USP and technical white oils, pharmaceutical and technical grade petrolatums, natural petroleum sulfonates, hydrocarbon gels and polyol-based synthetic lubricants.

Calumet was started back in 1990 and was taken public in 2006 by the two founding families. The families of the Chairman and CEO still control approximately 32% of our limited partner interest in Calumet and own 100% of the general partner. Calumet currently produces over 1500 specialty products which are sold to 2700 different customers. These are very special applications with very long approval processes and the ability to pass through feedstock price changes to our customers in timely manner. Our customers who purchase our products use them as raw material components for industrial consumer and automotive products.

Calumet currently employs approximately 900 people throughout the U.S. and with this acquisition that will push us over 1000 people that will be employed by Calumet throughout the United States. We currently own and operate 8 facilities and have an aggregate throughout capacity of 135,000 barrels a day of crude. We have total storage capacity across all our facilities of over 10 million barrels of both crude and finished products.

Our management team has been together for a significant period of time and on average each member of the management team has over 25 years of industry experience. And you can see on the slide five, the Calumet milestones of growth. Calumet has been very active in the acquisition space over the last couple of -- over the last year or so. We were able -- our business strategy is really to take advantage of majors leading the space or small, privately companies deciding that they want to move on and do something else. And we have been able to buy refineries off of ConocoPhillips, off of Pennzoil, and most recently also Murphy Oil when these chose to leave the refining space.

This Royal Purple acquisition, as I mentioned, was a privately held company started back in 1986 by three gentlemen who have been very involved in the business and have done a phenomenal job of growing it over the last 25 years. This acquisition will join two acquisitions that we have done so far in 2012. In January we acquired a polyol/ester synthetic lubricant from Ashland based in St. Louis, Missouri. And also a packaging facility called TruSouth that’s based outside of Shreveport in Louisiana. Really all three of these businesses will integrate very nicely with each other. There are lot of synergies between the three. Calumet also is a current supplier to Royal Purple, so there are some synergies with that as well.

We plan on growing both the packaging part of the business as well as the feedstock part of the business as we expand the synthetic-ester production out of St. Louis. Our growth strategy has been and will continue to be to acquire niche assets that, again, major oil companies no longer desire to have. We strive to acquire assets that support the stability of cash flows, and this Royal Purple acquisition will do just that. They have had very very stable and growing cash flows over the whole time that they have been in existence. We also look to provide geographic diversification and the Superior refinery acquisition is a great example of that.

Additionally, we strive for vertical integration and the Esters acquisition, the TruSouth acquisition and now this Royal Purple acquisition, all help us to vertically integrate our production and our product line, moving closer and closer to the consumer. Another goal of ours is to increase our total refining capacity and again the Superior acquisition is a great example of our ability to do that. And we continue to look for acquisitions that will help us increase our total refining capacity. We feel like there are a lot of opportunities available to us at this point in time.

And, finally, our goals are to maximize cash flow contribution of all of our existing assets through internal growth projects. And we have invested a substantial amount of growth CapEx in our existing business over the last several years. And really that’s all primarily dominated by the Shreveport refinery which is our largest refinery. We have spent growth CapEx at all of our facilities and have strived to grow all of our product lines.

I’d like now to turn a little bit and talk about Royal Purple and some of the highlights of that acquisition. Royal Purple is a leading, independent formulator and marketer of very high performance lubricants. They sell to a very diverse customer base in the oil and gas, chemical and refining, power generation, manufacturing and transportation, food and drug manufacturing and automotive aftermarket end markets. Royal Purple and Calumet share a strong customer base and that will lead to substantial marketing synergies between the two companies.

Royal Purple has a reputation for providing the industry’s best performing line of lubricants and it enabled its long-term loyal customers to achieve the lowest total cost of operation. The company has several studies that it’s done over time that shows the amount of maintenance costs that it can help its customers take out of their processes by providing these high value lubricants. It also helps companies that use these lubricants, also exhibit higher levels of reliability which again leads to stronger profits.

Royal Purple had full year 2011 net sales of $109.5 million and full year 2011 adjusted EBITDA of $28.5 million. And we will be providing more details on those financials and what 2012 financials look like, in the subsequent weeks as we work on closing this transaction. But, again, they are having a 2012 and they continue on the strong growth path that they have exhibited over the last many years.

Royal Purple also has a very strong in-house formulation and R&D department. The technology that they have worked to create over the last several years has positioned them well for many years to come. Their product lines are very sustainable in the long term. And their existing operations are very scalable and they have a very efficient operating platform. They currently outsource some of their production and so there is room for expansion and the room for growing the base line in this business without significant amounts of capital expenditure.

Their sales team are very technical focused in nature and work very closely with the customers to provide them the products that they need. And, again, there are significant growth opportunities in this business and I think by being part of the Calumet family and joining in with the marketing efforts that we have and the customer relationships that Calumet has built over the years, there are synergies between both companies with Calumet products being introduced to current Royal Purple customers and Royal Purple products being introduced to current Calumet customers.

On slide eight of the presentation, you can see a overhead view of their facility layout. The facility is located about 30 miles north of Houston. This is a blending and packaging facility and you can see they have got quite a few tanks there. They have got abilities to pail, drum and fill totes. They have got several dedicated lines for these products and they have gone many heated tanks and they have got tanks inside the building as well. And again, there is room to grow. There is unused parts of the facility and there is also ability to move as the company grows to utilize some unused capacity at TruSouth. So we are, again, lot of synergies between these assets.

The Royal Purple team comes with 94 full time, non-union employees. Overall tenure of these employees is 8.5 years, and the management level tenure is 15 years. All the management at this point in time has agreed to stay with the acquisition, and we are again very excited about learning from them and working with them to continue to grow this business.

And at this point in time I would be happy to take any questions anyone has about this.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Cory Garcia with Raymond James. Please proceed.

Cory Garcia - Raymond James

Good morning and appreciate the color you gave. I was just wondering if you would be able to provide any more detail, I guess, in terms of a breakdown within the actual Royal Purple business between the industrial customers and their consumer markets, whether it be from an overall volume standpoint, sales or EBITDA. Any sort of metric we can sort of gauge those two buckets.

Jennifer Straumins

Sure. And I think these will -- as we are working to determine what level of detail that we share with the public. This has been a privately held company, not a lot of competitors, so we are going to be careful in how much we share with people. But I think we can lead you to say that the retail segment of their business has been growing substantially. They have moved from about 500 retail outlets to 25,000 currently over the last, just over the last 2 years. So that part of the business has been growing. However, they are more heavily weighted from a volume standpoint to the industrial side of the business. Lot of opportunities there with both oil and gas and the wind market has been a great growth opportunity for them.

Cory Garcia - Raymond James

Okay. Fair enough. And also, have you guys been able to put any sort of cost number or synergistic value add number for folding in the Purple brand. I know you mentioned some of the flat capacity that you could use with the TruSouth packaging plant and what not. Have you been able to get your arms around a number yet or we still going to have to wait on?

Jennifer Straumins

We are still working through that. You know we did not do this acquisition based totally on synergy, there is no SG&A synergies, we are keeping on the people, we are keeping the facilities, really as they are today. We just see a lot of future -- I mean today it’s a phenomenal base business, but we see a lot of future potential here. And as we, part of it’s going to come with as we expand the Esters business that we have in St. Louis. We will closely in conjunction with the R&D team at Royal Purple to create in-house products to help create new products for the Royal Purple brand. So the synergies and the growth will be evolving over the next many months.

Operator

And your next question comes from the line of [Jaron Holker] with Barclays Capital. Please proceed.

Unidentified Analyst

Good morning. Can you provide the maintenance CapEx for this transaction as you know at this time?

Jennifer Straumins

Sure. They spend less than $1 million a year on average on CapEx. And in some years if they have got some growth CapEx they will spent a little bit more, but their maintenance CapEx is very very small.

Operator

And your next question comes from the line of Aaron Whiteman with Appaloosa Management. Please proceed.

Aaron Whiteman - Appaloosa Management

It looked like you guys, or I guess Royal Purple, had recently added some new lines. What's the potential benefit from that and should we see that growing through ’12?

Jennifer Straumins

Yes, they have been -- a lot of the new products that they have been working on will serve the oil and gas space. And they have got contracts lined up and customers lined up, so again, very very steep growth chart here.

Aaron Whiteman - Appaloosa Management

Can you quantify what the magnitude of that growth in sales and potential EBITDA might be?

Jennifer Straumins

We will be quantifying that more at a later point in time.

Aaron Whiteman - Appaloosa Management

Okay. And then in terms of I guess the overall synergy benefits and growth benefits that you see here, is there an order of magnitude that you guys are looking at? Is it $10 million to $20 million, or how are you guys looking at that?

Jennifer Straumins

No, I don’t think it’s $20 million. I think it’s probably between $5 million and $10 million.

Aaron Whiteman - Appaloosa Management

Okay. And then I guess looking at the growth opportunities, what's the timing on that?

Jennifer Straumins

Well, they will begin immediately upon closing. I would anticipate -- you know they are growing on their own today but as far as the synergies and the growth that comes with the synergies, those should all be happening right around the first of the year. I think it will take six months or so to the integration and to make sure that the cultures of the two companies mesh appropriately, and that we work through everything and make sure that we do it correctly so as not to hurt their brand or to put any of the products at risk.

Aaron Whiteman - Appaloosa Management

Okay. And you guys aren’t able to provide a Q1 ’12 EBITDA at this point, right?

Jennifer Straumins

Not at this point in time. As we work through our SEC K filing requirements, those numbers will come to light.

Aaron Whiteman - Appaloosa Management

How seasonal is the business?

Jennifer Straumins

Business is not seasonal at all. It’s very consistent.

Aaron Whiteman - Appaloosa Management

So again the main rationale is you see a lot of growth and then you think the addition of this business adds future growth and adds, I guess, stability and diversification to the cash flows of the business.

Jennifer Straumins

That’s right. They will cash from growth, we have spoken to this several times on prior conference calls, Calumet has been very interested in building or acquiring a brand. We have been -- with the TruSouth acquisition we acquired the [Trufield] brand which is the premixed mixed small engine oil -- I am sorry, small engine fuel, and really wanted to leverage off of that and again get close to the consumer and Royal Purple is a highly recognized brand in its space. And really about the highest respected brand out there in their space.

Aaron Whiteman - Appaloosa Management

Okay. And as I try to calculate how accretive this acquisition was, is there a number that you guys are using? Should I be thinking of it as maybe $0.30 or $0.50 accretive to potential distributions or cash flows? Is there a number that you guys are using?

Jennifer Straumins

It’s going to be a little bit less than that. And again it just depends on our final part of closing price, it depends on how we choose to finance the balance of the acquisition.

Aaron Whiteman - Appaloosa Management

Okay. Roughly, are you thinking of it as in that $0.20 range?

Jennifer Straumins

That’s right.

Aaron Whiteman - Appaloosa Management

Okay. And then I guess in terms of the financing of the acquisition, shouldn’t you be able to use mostly just a revolver and the cash flow that’s being coming of the, I guess, higher earnings of the rest of the refining business.

Jennifer Straumins

That’s certainly one of our options. And we are exploring all of our options at this point in time.

Aaron Whiteman - Appaloosa Management

Okay. And then I guess as you guys finish and complete this acquisition, are you seeing a lot of other acquisitions of similar size or how does the future pipeline of additional acquisitions look from here?

Jennifer Straumins

We are not very -- there are a lot of opportunities out there of various sizes, I would say none of them are -- they could be in this size range and they could be a little bit smaller. Nothing is real close to being finished at this point in time. This one was -- we have mentioned the people that we have been working on a handful of things over the course of the spring. This one was closest to the finish line. But as long as the market will allow us, we will continue to explore all growth opportunities.

Operator

And your next question comes from the line of [Doyan Cha with Macka] Please proceed.

Unidentified Analyst

Can you talk a little bit about valuation and how you determine what the right price was to pay for Royal Purple? And then secondly, it’s more strategic, I am just trying to understand if there are any retail or industrial channels that you previously didn’t have access to that you would gain access to through this acquisition and possibly sell some other products?

Jennifer Straumins

Sure. As far as valuation, our senior management worked closely with our Board to determine the appropriate valuation. We looked at several of these types of assets in the past and had a feel for where the bid needed to be in order to win. And certainly, we feel like there is a lot of upside here and as far as channels to market for our --

Unidentified Analyst

I am sorry, was this also a competitive bidding process?

Jennifer Straumins

This was -- yes, this was an auction run process by an investment bank called Cleary Gull.

Unidentified Analyst

Okay.

Jennifer Straumins

Yeah, it’s been going on since really February, so it’s been a several month process.

Unidentified Analyst

Okay. And then, I mean just quantitatively, how would you, what would you have viewed as being -- I mean, I guess in general, I am just trying to better understand your, the process by which you determine whether there is a price that might be too much and therefore unattractive to you. I am just trying to better understand how you are looking at it from a financial returns perspective when bidding on assets like this?

Jennifer Straumins

Sure. Obviously, bidding on an asset like this is a lot different than bidding on a refinery. The EBITDA multiples are higher. And really what we do is we look at where the company has been, the growth rates that they have been able to be on. And there they outlined a very robust five-year plan during the process and given that we have very similar customer bases, we were able to get a lot of comfort in the validity of that plan and knowing some of the upsides that we could bring to the table as Calumet and with our customer base. And where we wanted to go with the future of the company we were able to, I think, put together a pretty competitive bid.

Unidentified Analyst

Okay. As part of your due diligence, have you been able to get a sense of what the inventory situation looks like in the channels for their products both on the retail and industrial side?

Jennifer Straumins

Yes, I mean they don’t have a substantial amount of inventory, the working capital in this business is very small.

Unidentified Analyst

I am talking about at their customer level. Not--

Jennifer Straumins

I am not sure what you are asking.

Unidentified Analyst

I am asking whether the inventory levels at their customers, both retail locations as well as industrial customers, whether the inventory levels have been growing or if you have determined that it was at a static level. You know, just in my research I found that they have done some, I guess they did some sales, pretty aggressive sales late in the year last year and I am just trying to understand if some of that inventory or a lot of that inventory has been cleared up?

Jennifer Straumins

I mean they are looking at a very good 2012, so we don’t have any concerns at all with inventory levels at their customers, or customers slowing down purchases over the course of 2012.

Unidentified Analyst

And then another question I asked earlier on about the [extent] of your opportunities?

Jennifer Straumins

You know I think there are some opportunities -- again, Calumet did not have a brand. Did not have, where we sell components to our customers who then have to brand, but with the TruSouth acquisition we do have the [Trufield] brand. We have been working on our, a TruSouth type of brand in motor oil. So there will be some doors that are open to those products through relationships that Royal Purple has primarily on the retail side of their space.

Unidentified Analyst

Are their significant industrial customers that you previously didn’t work with, that potentially creates some opportunity here?

Jennifer Straumins

No. I don’t believe so. That customer base overlaps our customer base very well.

Operator

And your next question comes from the line of Eric Seeve with GoldenTree. Please proceed.

Eric Seeve - GoldenTree

Hi, I have questions on two topics. The first is regarding working capital. When you guys did your analyst day and you showed the usage of proceeds from the May equity offering, a significant portion went to fund working capital in, looks like in April and May. You also had the use of working capital in calendar Q1 this year and I am just wondering with the pullback in oil prices, should we expect you guys to recapture a significant amount of that working capital investment that you made over the first five months. And can you just talk a little bit to what you are seeing in terms of the working capital. And then I have a separate question as well.

Jennifer Straumins

Sure. Yes, you are exactly right when you say that with oil prices going back down obviously our working capital situation will be in a stronger position.

Eric Seeve - GoldenTree

Can you give some sense of the numbers?

Jennifer Straumins

I don’t really have any of those numbers in front of me.

Eric Seeve - GoldenTree

Okay. My second question is again regarding the acquisition, the purchase price. Just curious, what kind of hurdle rate do you guys use in terms of deploying capital?

Jennifer Straumins

That answer is going to vary depending on the project. With something like this, obviously the hurdle rate or the return that we would -- we are prepared to pay a higher EBITDA multiple for a business like this then we were to be for a refining asset. Again, we looked at the future growth opportunities here, what Calumet could bring to the table -- the synergies that Calumet could bring to the table, and based our bid accordingly on that.

Operator

And your next question comes from the line of Peter Madsen with Drakkar Capital. Please proceed.

Peter Madsen - Drakkar Capital

I think a lot of questions have been answered but one quick one. So what's the fully diluted share count right now, I mean as we stand?

Jennifer Straumins

We have got about 57 million units outstanding today.

Peter Madsen - Drakkar Capital

And I guess, you know a lot of the questions of my prior -- you know the prior questions have kind of all revolved around my same question which is just if you could walk us through the economics, the apparent economics of share issuance at your enterprise value to EBITDA multiple versus the acquisition and how that generates accretion and value. And then I guess as a second question, in a bidding process like this is it relatively close competition, I mean is the nearest bid one EBITDA turn away or two EBITDA turns or, maybe you could give us a little color on how tight bidding spread is as well?

Jennifer Straumins

Obviously they were close bids, so we don’t know exactly how tight that spread is.

Peter Madsen - Drakkar Capital

Okay.

Jennifer Straumins

You know we in talking with the company and the investment bank running the process, we had a sense that there were quite a few participants. This is a great asset for a private equity type of group to want to have. I know that the management team liked Calumet because we are employee focused, we are dedicated to the long-term growth of the company. We are not in it just to hold it for a few years and then resell it. We are keeping all the people. So Calumet was able to offer some soft side benefits that maybe some of the other non-strategic buyers were not. And we felt like that we had developed a great relationship with the management team as we went through the process. This is an accretive acquisition for us. It’s accretive based off of 2011 numbers, and as we move into 2012 it will be even, those accretion numbers will be even stronger.

Operator

And your next question comes from the line of Randy Rochman with West Family Investments. Please proceed.

Randy Rochman - West Family Investments

Hey, Jennifer, thank you for all this information. It sounds like an interesting growth platform. Quick question for you. You have said that the cash flows have very little seasonality, you have said the company is on a good growth trajectory, the Purple brand. So when we see the first quarter numbers that are filed with the Q, what kind of assumptions should we use on a go-forward basis, because you’ve also said ’12 will have a nice jump versus ’11. So when we see the first quarter jump, should we just annualize that kind of an increase or how should we think about that whatever it is?

Jennifer Straumins

I think that will be a great base to start with.

Randy Rochman - West Family Investments

That kind of a jump I should think about as a....

Jennifer Straumins

Yes.

Randy Rochman - West Family Investments

Something you can do on a recurring basis?

Jennifer Straumins

Yes.

Randy Rochman - West Family Investments

Okay. Thank you.

Jennifer Straumins

You know they have got a lot of products in the pipeline, they have got a lot of new customers in the pipeline. Again, they have got a very robust growth plan, it’s very well thought out and we are very excited to be implementing that with them.

Operator

And with no further questions in queue, I would like to turn the call back over to Ms. Straumins for closing remarks.

Jennifer Straumins

Thank you everybody for your participation on today's call. A replay will be available on our website for the next couple of weeks. And again, appreciate it, have a great day everybody.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may disconnect and have a great day.

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