UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation)		000-51734 (Commission File Number)		37-1516132 (IRS Employer Identification No.)

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (317) 328-5660

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

	(1)		Audited financial statements of Penreco, a Texas general partnership, as of December 31, 2006 and 2005 and for each of the three years ended December 31, 2006.

Report of Independent Auditors

To the Partners of
Penreco

In our opinion, the accompanying balance sheets and the related statements of income, of partners’ capital and of cash flows present fairly, in all material respects, the financial position of Penreco (a general partnership) at December 31, 2006 and 2005, and the results of its operations and its cash flows for the three years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Penreco’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 8 to the financial statements, Penreco has significant transactions and relationships with its partners.

/s/ PricewaterhouseCoopers LLP

March 28, 2007

Penreco
(A general partnership)
Balance Sheets
December 31, 2006 and 2005

		2006				2005
		(in thousands of dollars)
Assets
Current assets:
Cash and cash equivalents		$	1,882			$	1,480
Accounts receivable, net of allowance of $215 and $216, respectively			41,920				39,724
Accounts receivable due from partner			63				23
Inventory			31,633				31,815
Other current assets			1,051				673
Total current assets			76,549				73,715
Property, plant and equipment, net			36,387				36,310
Other asset			1,961				3,669
Total assets		$	114,897			$	113,694
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable and accrued liabilities		$	25,297			$	28,254
Accounts payable due to partner			9,058				10,442
Total current liabilities			34,355				38,696
Employee benefit obligations			2,686				4,439
Total liabilities			37,041				43,135
Commitments and contingencies
Partners’ capital			77,856				70,559
Total liabilities and partners’ capital		$	114,897			$	113,694

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
Statements of Income
Years Ended December 31, 2006, 2005 and 2004

		2006				2005				2004
		(in thousands of dollars)
Revenue		$	432,191			$	336,444			$	299,001
Cost of sales			342,849				264,312				223,296
Operating expenses			43,540				40,753				39,227
Selling, general and administrative expenses			23,808				22,163				25,823
Depreciation and amortization			2,940				3,028				3,121
Total operating expenses			413,137				330,256				291,467
Gain/(loss) on sale of assets			(11	)			625				16
Operating income			19,043				6,813				7,550
Interest expense			(139	)			(134	)			(75	)
Other income, net			393				372				554
Net income		$	19,297			$	7,051			$	8,029

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
Statements of Partners’ Capital
Years Ended December 31, 2006, 2005 and 2004

						M.E. Zukerman
						Specialty Oil
		ConocoPhillips				Corporation				Total
		(in thousands of dollars)
Balance at December 31, 2003		$	50,315			$	51,464			$	101,779
Distributions to partners			(11,650	)			(11,650	)			(23,300	)
Net income			4,015				4,014				8,029
Balance at December 31, 2004			42,680				43,828				86,508
Distributions to partners			(11,500	)			(11,500	)			(23,000	)
Net income			3,525				3,526				7,051
Balance at December 31, 2005			34,705				35,854				70,559
Distributions to partners			(6,000	)			(6,000	)			(12,000	)
Net income			9,649				9,648				19,297
Balance at December 31, 2006		$	38,354			$	39,502			$	77,856

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
Statements of Cash Flows
Years Ended December 31, 2006, 2005, 2004

		Year Ended December 31,
		2006				2005				2004
		(In thousands)
Cash flows from operating activities
Net income		$	19,297			$	7,051			$	8,029
Adjustments to reconcile net income to net cash provided by operating activities
PQS receivable			—				—				8,000
Provision for doubtful accounts			50				—				—
Employee benefit obligations			(342	)			(786	)			93
Depreciation and amortization			2,940				3,028				3,121
Change in LIFO reserve			2,816				10,937				6,027
(Gain) loss on disposals of property			11				(625	)			(16	)
Change in operating assets and liabilities
Accounts receivable			(2,246	)			(587	)			(5,549	)
Accounts receivable due from partner			(40	)			2,760				2,261
Inventory			(2,634	)			(7,863	)			(1,006	)
Other current assets			(423	)			117				43
Accounts payable and accrued liabilities			(2,957	)			5,044				(706	)
Accounts payable due to partner			(1,384	)			7,976				1,251
Other assets			297				(150	)			(66	)
Net cash provided by operating activities			15,385				26,902				21,482
Cash flows from investing activities
Proceeds from sale of property, plant and equipment			7				1,267				19
Additions to property, plant and equipment			(2,990	)			(3,250	)			(3,401	)
Net cash used in investing activities			(2,983	)			(1,983	)			(3,382	)
Cash flows from new financing activities
Proceeds from revolving credit agreement			7,000				3,000				—
Repayment of revolving credit agreement			(7,000	)			(6,000	)			—
Cash distributions to partners			(12,000	)			(23,000	)			(23,300	)
Net cash used in financing activities			(12,000	)			(26,000	)			(23,300	)
Net increase (decrease) in cash			402				(1,081	)			(5,200	)
Cash balance
Beginning of year			1,480				2,561				7,761
End of year		$	1,882			$	1,480			$	2,561
Supplemental cash flow disclosures
Cash paid for interest		$	100			$	134			$	(75	)

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
Notes to Financial Statements
December 31, 2006, 2005 and 2004
(in thousands of dollars)

1. Organization

Organization

Penreco, a general partnership, was formed pursuant to the laws of the state of Texas on October 1, 1997, as a joint venture between Pennzoil Products Company (“Pennzoil”, a wholly owned subsidiary of Pennzoil-Quaker State Company (“PQS”)) and Conoco Inc., now ConocoPhillips. Penreco was formed by combining portions of the two companies’ specialty petroleum products businesses. Pennzoil contributed its Penreco and Magie Brothers divisions which manufacture and market highly refined products including white oils, petrolatum and specialty solvents which are used in cosmetics, pharmaceuticals, plastics, textiles, agricultural products, food processing, inks, aluminum rolling oils and other specialty petroleum products. ConocoPhillips contributed its cash and Conosol solvents business which manufactures solvents for use in drilling fluids, mining, cleaning products and other specialty solvents.

Effective February 1, 2001, Pennzoil sold its interest in Penreco to M.E. Zukerman & Co. (“Zukerman”) for approximately $71,844. Zukerman maintains the same ownership interest and voting rights previously held by Pennzoil. The difference between the purchase price, which was paid directly to Pennzoil by Zukerman, and the equity in the net assets of Penreco, is reflected on the financial statements of Zukerman.

Voting and profits are split evenly between the two partners. A management committee effectively functions as a board of directors of Penreco with three members from each partner. Each partner has one vote and all actions by the management committee require a unanimous vote.

2. Summary of Significant Accounting Policies

Estimates

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash consists of cash on deposit at financial institutions and marketable securities with original maturities of three months or less at the time of purchase.

Allowance for Doubtful Accounts

Penreco estimates losses for uncollectible accounts based on a five year historical average. Additionally, Penreco reviews specific customer accounts and establishes or adjusts allowances for those customers as considered necessary.

Inventories

Inventories consist principally of feedstocks, intermediates and finished products. Inventories are valued at the lower of cost or market, cost being determined by the last-in, first-out (“LIFO”) method for all inventories except materials and supplies, which are valued at average cost.

Property, Plant and Equipment

Property, plant and equipment is carried at cost and consists primarily of plant and equipment which is being depreciated on a straight-line basis over a period ranging from 5 to 40 years, the estimated life of the assets. When fixed assets are sold or retired, cost and accumulated depreciation are eliminated from the accounts, and gains or losses are recorded in income.

Long-lived assets are reviewed periodically for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized in the accompanying statement of income for the difference. Fair value is determined based on estimated, discounted, future net cash flows.

Asset Retirement Obligations and Environmental Costs

Penreco records a liability for the fair value of asset retirement obligations, on a discounted basis, in the period in which the liability is incurred, which is typically at the time the assets are installed or acquired, if a reasonable estimate of fair value can be made. Penreco also capitalizes the costs associated with the asset retirement obligations as part of the carrying cost of the related assets. Ongoing period costs are incurred for the interest component of the liability and depreciation of the capitalized costs over the useful lives of the related assets. Penreco extinguishes the liabilities for asset retirement obligations when assets are taken out of service or otherwise abandoned.

Though a legal obligation exists for retiring Penreco’s chemical facilities, Penreco has not recorded an asset retirement obligation because such potential obligations cannot be measured since it is not possible to estimate the settlement dates.

Penreco had no asset retirement obligation recorded as of December 31, 2006, 2005 and 2004.

Liabilities for environmental costs are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Included in such obligations are the estimated direct costs to investigate and address the conditions on Penreco’s property and the associated engineering, legal and consulting costs. Projected cash expenditures are not discounted.

Pursuant to the terms of the Partnership agreement, certain environmental compliance and regulatory compliance liabilities that existed prior to the creation of the Partnership are the responsibility of the contributing partners.

Penreco had no environmental liabilities recorded as of December 31, 2006, 2005 and 2004.

Turnaround Costs

Plant turnaround costs are expensed in the period in which they are incurred.

Revenue Recognition

Revenues from the sale of products and co-products produced are recognized when title and risk of loss passes, generally upon delivery, and are presented net of customer rebates.

During the ordinary course of business, Penreco enters into rebate agreements with certain customers. Rebates are based on targeted volume levels or invoice amounts, depending on the customer. Accruals are recorded at the time of sale for all customers with rebates under the assumption that all requirements under the rebate agreement will be fulfilled, which is consistent with historical experience. Rebate payments are made to customers monthly, quarterly, or annually, depending on the agreement. If an agreement expires before the customer has fulfilled their obligations under the rebate agreement, the accrual for rebates is reversed.

Shipping and Handling

Costs incurred by Penreco for shipping and handling on customer orders are recorded in cost of sales. Penreco recognized cost of $10,869, $4,505 and $2,051 in cost of sales for the years ended December 31, 2006, 2005 and 2004, respectively.

Research and Development Expenditures

Research and development expenditures are recorded in selling, general and administrative expenses and primarily represent costs associated with technical support and new product development. Penreco recognized expenses of $2,822, $2,507 and $3,098 for research and development for the years ended December 31, 2006, 2005 and 2004, respectively.

Income Taxes

Penreco is treated as a tax partnership under the provisions of Subchapter K of the Internal Revenue Code. Accordingly, the accompanying financial statements do not reflect a provision for income taxes since Penreco’s results of operations and related credits and deductions will be passed through to and taken into account by its partners in computing their respective tax liabilities.

Fair Value of Financial Instruments

The reported amounts of cash equivalents, accounts receivable and accounts payable approximate their fair values because of their short maturities. The note payable under Penreco’s line of credit facility approximates fair value as the interest rate adjusts based on current market rates.

Concentration of Credit Risk

Penreco grants credit, generally without collateral, to its customers. Consequently, it is subject to potential credit risk related to changes in business and economic conditions in the market place. Management believes Penreco’s billing and collection policies are adequate to minimize any potential credit risk.

Penreco routinely maintains cash and cash equivalent balances in financial institutions in excess of federally insured limits. Management periodically assesses the financial stability of such institutions and does not believe it is exposed to significant risk for uninsured cash balances.

Reclassifications

Certain reclassifications have been made in the prior year financial statements to conform to the 2006 financial statement presentation. These reclassifications have no impact on net income or partners’ capital.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Benefits, an Amendment of FASB Statements No. 87, 88, 106 and 123R. SFAS No. 158 requires an employer with a defined benefit pension plan to (1) recognize the funded status of the benefit plan in its statement of financial position, (2) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to FASB Statement No. 87 or FASB Statement No. 106, (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position, and (4) disclose in the notes to the financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. SFAS No. 158 is required to be adopted by December 31, 2007. We expect the adoption of SFAS No. 158 will have the following impact on Penreco’s financial position, results of operations or cash flows based on reflection at December 31, 2006:

		Pension Plan								Postretirement
										Welfare Plan
						As Reported								As Reported
						Adjusted for SFAS								Adjusted for SFAS
		As Reported				158 Adoption				As Reported				158 Adoption
Accrued pension expense		$	1,211			$	1,211			$	(2,155	)		$	(2,155	)
Assets
Prepaid benefit cost			—				—				—				—
Intangible asset			1,742				—				—				—
Liabilities
Accrued benefit liability			(531	)			(4,742	)			(1,121	)			(1,121	)
Net equity			1,211				(4,742	)			(1,121	)			(1,121	)
Accumulated other comprehensive income			—				(5,953	)			—				1,034
Net asset (liability) recognized in retained earnings			1,211				1,211				(2,155	)			(2,155	)
Net equity recognized		$	1,211			$	(4,742	)		$	(2,155	)		$	(1,121	)

3. Inventory

Inventory at December 31, 2006 and 2005, consisted of the following:

		December 31,
		2006				2005
White oils		$	20,167			$	17,725
Solvents			23,071				20,947
Petrolatum			8,763				6,961
Sulfonates			1,788				1,162
Cable fiber			1,625				1,845
Other			4,199				8,300
Materials and supplies			2,196				2,235
LIFO reserve			(30,176	)			(27,360	)
		$	31,633			$	31,815

The difference between replacement cost and LIFO value was $30,176, $27,360 and $16,423 at December 31, 2006, 2005 and 2004, respectively.

During 2006 and 2005, inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 2006 and 2005 purchases. The effect of the liquidation of LIFO inventory quantities decreased cost of goods sold and increased net income by approximately $257, $1,535 and $1,391, in 2006, 2005 and 2004, respectively.

4. Property, Plant and Equipment

Property, plant and equipment at December 31, 2006 and 2005, consisted of the following:

		Estimated				December 31,
		Useful Life				2006				2005
Land						$	1,227			$	1,227
Plant and equipment		5 — 16 years					75,369				74,421
Building/tanks		40 years					23,363				22,965
Improvements		30 years					1,187				1,161
Office furniture and equipment		6 — 10 years					1,019				1,019
Construction in process							2,641				1,338
							104,806				102,131
Accumulated depreciation							(68,419	)			(65,821	)
						$	36,387			$	36,310

5. Other Assets

Other assets at December 31, 2006 and 2005, consisted of the following:

		December 31,
		2006				2005
Other assets		$	219			$	516
Employee benefit plan asset (Note 7)			1,742				3,153
		$	1,961			$	3,669

Other assets consist primarily of catalyst used by the Hydrotreating Unit. Penreco recognized operating expense of $372, $1,184 and $261 relating to the deterioration of the catalyst during the years ended December 31, 2006, 2005 and 2004, respectively.

6. Line of Credit Facility

In May 2003, Penreco entered into an unsecured credit facility with Comerica Bank which provided for a $15,000 line of credit. The interest rate for short-term borrowings is prime, and for borrowings exceeding 30 days, the rate is Eurodollar plus 1%. At December 31, 2006 and 2005, Penreco had no outstanding borrowings under the credit facility.

The credit agreement with Comerica Bank requires Penreco to maintain a $30,000 accounts receivable balance in order to remain in compliance with covenants. Penreco must receive approval from its management committee before drawing more than $10,000 under this credit facility.

7. Employee Benefit Plans

Penreco has a defined contribution retirement plan covering all employees. All contributions due the plan are accrued currently and are paid to the trustees. Contribution expense was approximately $483 and $470 for the years ended December 31, 2006 and 2005, respectively.

Penreco also has a noncontributory defined benefit plan (“Pension Plan”) and contributory defined benefit medical and for salaried employees only a noncontributory disability plan (“Other Plans”) which cover all eligible Penreco employees (USW and International Union of Operating Engineers (“I.U.O.E.”) represented employees and salaried employees International Brotherhood of Teamsters (“I.B.T.”) 743 represented employees for medical only. The pension benefits are based primarily on years of service (USW and I.U.O.E. represented) and for salaried employees both years of service and the employee’s final 60 months average compensation. The funding policy is consistent with funding requirements of applicable laws and regulations. The assets of these plans consist of corporate equity securities, municipal and government bonds, and cash equivalents.

     Plan assets, costs, and key assumptions were as follows for December 31, 2006, 2005 and 2004:

		December 31,
		2006								2005								2004
						Other								Other								Other
						Post retirement								Post retirement								Post retirement
						Employee								Employee								Employee
		Pension Benefits				Benefits				Pension Benefits				Benefits				Pension Benefits				Benefits
Change in projected benefit obligation (PBO)*
Benefit obligation at beginning of year		$	17,365			$	1,251			$	15,479			$	1,578			$	10,784			$	5,636
Service cost			1,340				13				1,247				13				1,451				71
Interest cost			1,032				65				860				73				763				153
Participant contributions			—				66				—				71				—				61
Plan amendments			388				—				128				—				—				(3,954	)
Benefits paid			(336	)			(190	)			(278	)			(229	)			(169	)			(203	)
Actuarial gain			(5	)			(84	)			(71	)			(255	)			2,650				(186	)
Benefit obligation at end of year			19,784				1,121				17,365				1,251				15,479				1,578
Change in plan assets
Fair value of plan assets at beginning of year			11,001				—				7,962				—				4,190				—
Actual return on plan assets			2,051				—				625				—				696				—
Participant contributions			—				66				—				71				—				61
Employer contributions			2,430				124				2,738				158				3,245				142
Actuarial benefit payments			(336	)			(190	)			(278	)			(229	)			(169	)			(203	)
Administrative expenses			(104	)			—				(46	)			—				—				—
Fair value of plan assets at end of year			15,042				—				11,001				—				7,962				—
Accumulated benefit obligation (ABO)**
Accumulated benefit obligation (ABO)			(15,573	)			—				(13,107	)			—				(10,395	)			—
Fair value of assets			15,042				—				11,001				—				7,962				—
ABO funded status at end of year			(531	)			—				(2,106	)			—				(2,433	)			—
Reconciliation of funded status
Funded status — benefit obligation in excess of plan assets			(4,742	)			(1,121	)			(6,364	)			(1,251	)			(7,517	)			(1,577	)
Unrecognized prior service cost			3,309				(2,680	)			3,467				(2,968	)			3,855				(3,256	)
Unrecognized loss			2,644				1,646				3,930				1,886				4,116				2,295
Accrued pension expense		$	1,211			$	(2,155	)		$	1,033			$	(2,333	)		$	454				($2,538	)

 

*		The projected benefit obligation is the actuarial present value of benefits earned based upon service and compensation prior to the valuation date and includes assumptions regarding future compensation levels when benefits are based on those amounts.
**		The accumulated benefit obligation is the actuarial present value of benefits earned based on service and compensation prior to the valuation date.

The components of net periodic pension and other benefits cost for the years ended December 31, 2006, 2005 and 2004, were as follows:

		December 31,
		2006								2005								2004
						Other								Other								Other
						Post								Post								Post
						retirement								retirement								retirement
						Employee								Employee								Employee
		Pension Benefits				Benefits				Pension Benefits				Benefits				Pension Benefits				Benefits
Service cost		$	1,340			$	13			$	1,247			$	13			$	1,451			$	71
Interest cost			1,032				65				860				73				763				153
Expected return on assets			(909	)			—				(666	)			—				(407	)			—
Amortization of prior service cost			547				(288	)			515				(288	)			504				(200	)
Amortization of (gain) loss			244				155				201				155				264				186
Net periodic pension cost		$	2,254			$	(55	)		$	2,157			$	(47	)		$	2,575			$	210
Accrued benefit cost recognized in the statement of financial position		$	(531	)		$	(2,155	)		$	(2,106	)		$	(2,333	)		$	(2,433	)		$	(2,538	)
Prepaid benefit cost recognized in other assets in the statement of financial position			—				—				—				12				—				—
Plan intangible asset recognized in other assets in the statement of financial position			(1,742	)			—				3,141				—				2,887				—
Weighted-average assumptions
Discount rate			5.94	%			5.74	%			5.75	%			5.50	%			5.75	%			5.75	%
Rate of compensation increase			4.50				0.00				4.50				0.00				4.50				0.00
Assumption used to determine net periodic cost
Discount rate			5.75	%			5.50	%			5.75	%			5.75	%			6.00	%			6.00	%
Expected return on plan assets			7.50				0.00				7.50				0.00				7.50				0.00
Rate of compensation increase			4.50				0.00				4.50				0.00				4.50				0.00

The measurement date of the plan is December 31. For measurement purposes, a 10.25% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2006. The rate was assumed to decrease by .75% per year for an ultimate rate of 5% for 2013 and remains at that level thereafter. Penreco considered the historical returns and the future expectation for returns for each asset class, as well as the target asset allocation of the Pension Plan portfolio, to develop the expected long-term rate of return on plan assets.

Penreco’s Pension Plan and Other Plans asset allocations at December 31, 2006 and 2005, by asset category are as follows:

		December 31,
		2006								2005
						Other								Other
		Pension Benefits				Plans				Pension Benefits				Plans
Cash			3	%			100	%			1	%			100	%
U.S. Equities			60				0				60				0
Foreign Equities			20				0				20				0
Fixed Income			17				0				19				0
Other			0				0				0				0
			100	%			100	%			100	%			100	%

The purpose of the Penreco Pension Plan Trust (the “Trust”) is to fund pension benefits as determined by the Penreco Pension Plan for qualified employees of Penreco.

The investment objective of the Trust is to generate a long-term rate of return which will fund the related pension liabilities and minimize Penreco’s contributions to the Trust. Trust assets are to be invested with an emphasis on providing a high level of current income through fixed income investments and longer-term capital appreciation through equity investments. Trust assets are targeted to achieve an investment return of 7.75% or more compounded annually over any 5-year period. Due to the long-term nature of pension liabilities, the Trust will assume moderate risk only to the extent necessary to achieve its return objective.

The Trust will pursue its investment objectives by investing in a customized profile of asset allocation which corresponds to the investment return target. Full discretion in portfolio investment decisions is given to Wells Fargo or its affiliates (“the manager”) subject to the investment policy guidelines. The manager is required to utilize fiduciary care in all investment decisions and is expected to minimize all costs and expenses involved with the managing of these assets.

With consideration given to the long-term goals of the Trust, the following ranges reflect the long-term strategy for achieving the stated objectives:

Asset Class		Range of Asset Allocation				Target Allocation
Cash			0 — 5	%		Minimal
Fixed income			20 — 50	%			35	%
Equities			50 — 80	%			65	%

Trust assets will be invested in accordance with the prudent expert standard as mandated by ERISA. In the event market environments create asset exposures outside of the policy guidelines, reallocations will be effected in an orderly manner.

     Fixed Income Guidelines

U.S. Treasury, Agency securities, and corporate bond issues rated “investment grade” or higher are considered appropriate for this portfolio. Written approval will be obtained to hold securities downgraded below “investment grade” by either Moody’s or Standard & Poors. Money market and fixed-income funds that are consistent with the stated investment objective of this Trust are also considered acceptable.

Excluding U.S. Treasury and Agency obligations, money market or fixed-income mutual funds, no single issuer shall exceed more than 10% of the total portfolio market value. The average maturity range shall be consistent with the objective of providing a high level of current income and long-term growth within the acceptable risk level established for the Trust.

     Equity Guidelines

Any equity security that is on a Wells Fargo or affiliate working list is considered appropriate for this portfolio. Equity mutual funds that are consistent with the stated investment objective of the Trust are also considered acceptable.

No individual equity position, with the exception of equity mutual funds, should exceed 10% of the total market value.

Performance of investment results will be reviewed, at least semi-annually, by the Penreco Employee Benefit Plans Board (“EBPB”) and annually at a joint meeting between the EBPB and Wells Fargo investment management personnel. Written communication regarding investment performance will occur quarterly. Any major changes in the manager’s investment strategy will be communicated to the Chairman of the EBPB on an ongoing basis and as frequently as necessary. The investment managers shall be informed of special situations affecting Trust investments including substantial withdrawal or funding pattern changes and changes in investment policy guidelines and objectives.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

		Pension				Other
		Benefits				Plans
2007		$	410			$	167
2008			498				140
2009			579				122
2010			682				85
2011			785				110
2012 — 2016			6,261				411

Penreco expects to contribute $2,050 to its Pension Plan and $167 to its Other Plans in 2007.

8. Related Party Transactions

In the ordinary course of business, Penreco purchases raw materials from ConocoPhillips. Raw materials purchased from ConocoPhillips for the years ended December 31, 2006, 2005 and 2004, amounted to $197,798, $142,082 and $111,588, respectively, and are included in cost of sales or ending inventory. Penreco also recognized expenses of $1,927, $1,451 and $2,224 for the years ended December 31, 2006, 2005 and 2004, respectively, for certain administrative services performed by ConocoPhillips on Penreco’s behalf which are included in selling, general and administrative expense in the statement of income. Other expenses paid by ConocoPhillips on Penreco’s behalf totaling $4,105, $10,492 and $6,543 were recognized by Penreco for the years ended December 31, 2006, 2005 and 2004, respectively, and are recorded as a component of selling, general and administrative expenses in the statement of income. These are primarily taxes and rail car charges paid by ConocoPhillips on behalf of Penreco. At December 31, 2006 and 2005, Penreco had payables due to ConocoPhillips of $9,058 and $10,442, respectively.

In the ordinary course of business, ConocoPhillips purchases certain finished products from Penreco. Penreco recognized sales revenue of $676, $9,011 and $11,977 from ConocoPhillips for the years ended December 31, 2006, 2005 and 2004, respectively. Accounts receivable due from ConocoPhillips at December 31, 2006 and 2005, was $63 and $23, respectively. Penreco also had a long-term receivable due from ConocoPhillips of $1,150 as of December 31, 2006 and 2005, which will become due at the dissolution of the partnership as a working capital adjustment. The long-term receivable is recorded as a reduction to ConocoPhillips’ partner’s equity.

Penreco recognized $1,574, $2,292 and $2,788 in revenue in 2006, 2005 and 2004, respectively, pursuant to a contract with ConocoPhillips. Penreco entered into the contract in late 2003 in order to obtain services in support of Penreco’s arrangements in the United Kingdom related to sales of gas condensate. ConocoPhillips provides Penreco with commercial services, including but not limited to, contract negotiation and commercial trading activities on behalf of Penreco. ConocoPhillips collects amounts from third parties under the arrangement and remits the proceeds to Penreco net of a two U.S. dollar per metric ton fee plus a cost recovery factor.

9. Operating Leases

Future commitments under operating leases for premises and equipment (primarily rail cars) as of December 31, 2006, are as follows:

2007		$	4,194
2008			2,494
2009			1,547
2010			947
2011			516
Thereafter			72
		$	9,770

Rental expense under operating leases (recorded as a component of selling, general, administrative and operating expenses in the statement of income) was $5,349, $6,267 and $5,885 for the years ended December 31, 2006, 2005 and 2004, respectively.

10. Commitments and Contingencies

Penreco is named as defendant in two lawsuits which have arisen in the ordinary course of business. Penreco believes that any litigation is unlikely to have a material adverse effect on its financial condition, results of operations, or cash flows and, therefore, has made no provision in these financial statements.

ConocoPhillips is obligated to supply Penreco with certain feedstocks for manufacturing specialty products. All of these feedstock supply obligations are defined in approximately six feedstock agreements between the Penreco Partnership and ConocoPhillips. These agreements are based on quoted market prices and have primary terms of 20 years.

Penreco’s contract with Local 889 of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (“USW”) at the Karns City plant expired at midnight on January 31, 2006. The union continued to work under mutually agreed rolling 24 hour extensions to the contract while settlement negotiations continued. However the parties were unable to reach an agreement regarding wages and benefits provided to USW employees. After a vote on February 11, the union went on strike on February 13. The Karns City plant was being operated by Penreco salaried personnel. On May 17, 2006, the membership of USW Local 889 ratified the offer that the Company had placed on the table on February 9, 2006. The striking employees returned to work on May 22, 2006, and have reintegrated into the workplace.

11. Subsequent Events

     Product Allocation

On February 8, 2007, Penreco invoked the Excuse of Performance provision (Section 2-612) of the Uniform Commercial Code and any applicable force majeure provision existing by agreement between Penreco and its customers with regard to certain solvent products produced for Penreco at the “LVT” unit of the ConocoPhillips Lake Charles Refinery. Penreco took this position because the feedstock supplier, ConocoPhillips, declared force majeure under the feedstock supply agreement as a result of an explosion and fire at their feedstock supplier’s plant and subsequent notification of force majeure by their feedstock supplier. At the same time Penreco announced allocation of some of these solvent products and subsequently on March 7, 2007, announced allocation of all of the solvent products produced at the “LVT” unit. Specifically these products were allocated at zero percent due to the fulfillment of orders on hand and the depletion of existing inventories.

Management believes that the “LVT” unit will restart in late April based on information provided by the feedstock supplier, resulting in approximately an 11 to 12 week loss of production. Penreco management anticipates that this loss of production will result in a reduction of 2007 budgeted net income of less than 10%.

(2)

Unaudited financial statements of Penreco, a Texas general partnership, as of September 30, 2007 and September 30, 2006 and for each of the years then ended.

Penreco
(A general partnership)
Balance Sheets

		September 30, 2007
		(Unaudited)				December 31, 2006
		(in thousands of dollars)
Assets
Current assets:
Cash and cash equivalents		$	—			$	1,882
Accounts receivable, net of allowance of $263 and $215, respectively			41,280				41,920
Accounts receivable due from partner			64				63
Inventory			29,188				31,633
Other current assets			1,196				1,051
Total current assets			71,728				76,549
Property, plant and equipment, net			35,245				36,387
Other asset			1,911				1,961
Total assets		$	108,884			$	114,897
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable and accrued liabilities		$	24,599			$	25,297
Accounts payable due to partner			8,931				9,058
Total current liabilities			33,530				34,355
Employee benefit obligations			68				2,686
Total liabilities			33,598				37,041
Commitments and contingencies
Partners’ capital			75,286				77,856
Total liabilities and partners’ capital		$	108,884			$	114,897

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
(Unaudited) Statements of Income
Nine Months Ended September 30, 2007 and 2006

		Nine Months Ended September 30,
		2007				2006
		(in thousands of dollars)
Revenue		$	324,606			$	319,010
Cost of sales			258,205				258,188
Operating expenses			29,791				32,943
Selling, general and administrative expenses			18,517				17,705
Depreciation and amortization			2,172				2,416
Gain on sale of assets			6				1
Total operating expenses			308,679				311,251
Operating income			15,927				7,759
Interest expense			(7	)			(102	)
Other income, net			511				308
Net income		$	16,431			$	7,965

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
Statements of Partners’ Capital

						M.E. Zukerman
						Specialty Oil
		ConocoPhillips				Corporation				Total
		(in thousands of dollars)
Balance at December 31, 2005		$	34,705			$	35,853			$	70,559
Distributions to partners			(6,000	)			(6,000	)			(12,000	)
Net income			9,649				9,648				19,297
Balance at December 31, 2006			38,354				39,501				77,856
Distributions to partners (unaudited)			(9,500	)			(9,500	)			(19,000	)
Net income (unaudited)			8,216				8,215				16,431
Balance at September 30, 2007 (unaudited)		$	37,070			$	38,216			$	75,287

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
(Unaudited) Statements of Cash Flows
Nine Months Ended September 30, 2007 and 2006

		Nine Months Ended
		September 30,
		2007				2006
		(In thousands)
Cash flows from operating activities
Net income		$	16,431			$	7,965
Adjustments to reconcile net income to net cash provided by operating activities
Provision for doubtful accounts			263				279
Employee benefit obligations			(2,650	)			(2,431	)
Depreciation and amortization			2,172				2,416
Change in LIFO reserve			3,751				8,058
Gain on disposals of property			(6	)			(1	)
Change in operating assets and liabilities
Accounts receivable			377				(2,761	)
Accounts receivable due from partner			(1	)			(83	)
Inventory			(1,306	)			(9,480	)
Other current assets			(180	)			(379	)
Accounts payable and accrued liabilities			(698	)			1,837
Accounts payable due to partner			(127	)			(4,557	)
Other assets			82				(212	)
Net cash provided by operating activities			18,108				651
Cash flows from investing activities
Proceeds from sale of property, plant and equipment			6				7
Additions to property, plant and equipment			(996	)			(2,138	)
Net cash used in investing activities			(990	)			(2,131	)
Cash flows from new financing activities
Proceeds from revolving credit agreement			—				4,000
Cash distributions to partners			(19,000	)			(4,000	)
Net cash used in financing activities			(19,000	)			—
Net increase (decrease) in cash			(1,882	)			(1,480	)
Cash balance
Beginning of period			1,882				1,480
End of period		$	—			$	—
Supplemental cash flow disclosures
Cash paid for interest		$	7			$	102

The accompany notes are an integral part of these financial statements.

Penreco
(A general partnership)
Notes to the Unaudited Financial Statements
(in thousands of dollars)

1. Business and Organization

Penreco is a partnership owned by ConocoPhillips Company and M.E. Zukerman Specialty Oil Corporation. Penreco manufactures and markets highly refined petroleum products and specialty solvents including white mineral oils, petrolatums, natural petroleum sulfonates, cable-filling compounds, refrigeration oils, compressor lubricants and gelled products.

Interim Financial Information

These unaudited financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to those rules and regulations. Penreco believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim financial statements have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year.

Penreco recommends that these unaudited financial statements be read in conjunction with the audited financial statements and notes thereto of Penreco for the year ended December 31, 2006.

Estimates

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

Allowance for Doubtful Accounts

Penreco estimates losses for uncollectible accounts based on a five year historical average. Additionally, Penreco reviews specific customer accounts and establishes or adjusts allowances for those customers as considered necessary.

Asset Retirement Obligations and Environmental Costs

Penreco records a liability for the fair value of asset retirement obligations, on a discounted basis, in the period in which the liability is incurred, which is typically at the time the assets are installed or acquired, if a reasonable estimate of fair value can be made. Penreco also capitalizes the costs associated with the asset retirement obligations as part of the carrying cost of the related assets. Ongoing period costs are incurred for the interest component of the liability and depreciation of the capitalized costs over the useful lives of the related assets. Penreco extinguishes the liabilities for asset retirement obligations when assets are taken out of service or otherwise abandoned.

Though a legal obligation exists for retiring Penreco’s chemical facilities, Penreco has not recorded an asset retirement obligation because such potential obligations cannot be measured since it is not possible to estimate the settlement dates.

Penreco had no asset retirement obligation recorded as of September 30, 2007.

Liabilities for environmental costs are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Included in such obligations are the estimated direct costs to investigate and address the conditions on Penreco’s property and the

Page 22 of 40

associated engineering, legal and consulting costs. Projected cash expenditures are not discounted.

Pursuant to the terms of the Partnership agreement, certain environmental compliance and regulatory compliance liabilities that existed prior to the creation of the Partnership are the responsibility of the contributing partners.

Penreco had no environmental liabilities recorded as of September 30, 2007.

Concentration of Credit Risk

Penreco grants credit, generally without collateral, to its customers. Consequently, it is subject to potential credit risk related to changes in business and economic conditions in the market place. Management believes Penreco’s billing and collection policies are adequate to minimize any potential credit risk.

Penreco routinely maintains cash and cash equivalent balances in financial institutions in excess of federally insured limits. Management periodically assesses the financial stability of such institutions and does not believe it is exposed to significant risk for uninsured cash balances.

2. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes methods used to measure fair value and expands disclosure requirements about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal periods. Penreco is currently evaluating the impact of this statement, if any, on its financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure at fair value many financial instruments and certain other items at fair value that are not currently required to be measured. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Penreco is currently evaluating the impact of this statement, if any, on its financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Benefits, an Amendment of FASB Statements No. 87, 88, 106 and 123R. SFAS No. 158 requires an employer with a defined benefit pension plan to (1) recognize the funded status of the benefit plan in its statement of financial position, (2) recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to FASB Statement No. 87 or FASB Statement No. 106, (3) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position, and (4) disclose in the notes to the financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. SFAS No. 158 is required to be adopted by December 31, 2007. Penreco is currently evaluating the impact of this statement, on its financial position, results of operations or cash flows. Refer to the chart in the 2006 audit report for a break down of the potential impact valued at 12/31/2006.

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3. Inventory

     Inventory consisted of the following:

		September 30, 2007				December 31, 2006
		(Unaudited)
White oils		$	24,473			$	20,167
Solvents			19,556				23,071
Petrolatum			7,907				8,763
Sulfonates			1,063				1,788
Cable filler			1,102				1,625
Other			6,934				4,199
Materials and supplies			2,080				2,196
LIFO reserve			(33,927	)			(30,176	)
		$	29,188			$	31,633

The difference between replacement cost and LIFO value was $33,927 at September 30, 2007 and $30,176 at December 31, 2006, respectively.

Costs incurred by Penreco for shipping and handling on customer orders are recorded in cost of sales. Penreco incurred $8,773 and $8,606 in shipping and handling cost for the first nine months ended September 30, 2007 and 2006, respectively.

4. Property, Plant and Equipment

     Property, plant and equipment consisted of the following:

		Estimated
		Useful Life				September 30, 2007				December 31, 2006
						(Unaudited)
Land						$	1,227			$	1,227
Plant and equipment		5 — 16 years					76,802				75,369
Building/tanks		40 years					23,363				23,363
Improvements		30 years					1,187				1,187
Office furniture and equipment		6 — 10 years					1,049				1,019
Construction in process							2,060				2,641
							105,688				104,806
Accumulated depreciation							(70,443	)			(68,419	)
						$	35,245			$	36,387

5. Other Assets

     Other assets consisted of the following:

		September 30, 2007				December 31, 2006
		(Unaudited)
Other assets		$	137			$	219
Employee benefit plan asset			1,774				1,742
		$	1,911			$	1,961

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Other assets consist primarily of catalyst used by the Hydrotreating Unit. Penreco recognized operating expense of $82 and $316 relating to the deterioration of the catalyst during the first nine months ended September 30, 2007 and 2006, respectively.

6. Line of Credit Facility

In May 2003, Penreco entered into an unsecured credit facility with Comerica Bank which provided for a $15,000 line of credit. The interest rate for short-term borrowings is prime, and for borrowings exceeding 30 days, the rate is Eurodollar plus 1%. At September 30, 2007 and December 31, 2006 Penreco had no outstanding borrowings under the credit facility.

The credit agreement with Comerica Bank requires Penreco to maintain a $30,000 accounts receivable balance in order to remain in compliance with covenants. Penreco must receive approval from its management committee before drawing more than $10,000 under this credit facility.

7. Partners’ Capital

For the first nine months ended September 30, 2007, Penreco has made a total of $19,000 in distributions to it’s Partners

8. Employee Benefit Plans

Penreco has a defined contribution retirement plan covering all employees. All contributions due the plan are accrued currently and are paid to the trustees.

Penreco also has a noncontributory defined benefit plan (“Pension Plan”) and contributory defined benefit medical and for salaried employees only a noncontributory disability plan (“Other Plans”) which cover all eligible Penreco employees (USW and International Union of Operating Engineers (“I.U.O.E.”) represented employees and salaried employees International Brotherhood of Teamsters (“I.B.T.”) 743 represented employees for medical only. The pension benefits are based primarily on years of service (USW and I.U.O.E. represented) and for salaried employees both years of service and the employee’s final 60 months average compensation. The funding policy is consistent with funding requirements of applicable laws and regulations. The assets of these plans consist of corporate equity securities, municipal and government bonds, and cash equivalents.

The following table summarizes the components of the net periodic pension cost under this plan for the nine month periods ended September 30, 2007 and 2006:

		Pension Plan								Postretirement Welfare Plan
		September 30, 2007				September 30, 2006				September 30, 2007				September 30, 2006
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Service cost		$	1,090			$	1,005			$	9			$	10
Interest cost			943				774				40				48
Expected return on plan assets			(939	)			(682	)			—				—
Net amortization and deferral			569				593				(120	)			(99	)
Net periodic pension cost		$	1,663			$	1,690			$	(71	)		$	(41	)

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9. Related Party Transactions

In the ordinary course of business, Penreco purchases raw materials from ConocoPhillips. Raw materials purchased from ConocoPhillips for the first nine months of 2007 was $146,605 and for the year ended December 31, 2006, amounted to $197,798, and are included in cost of sales or ending inventory. Penreco also recognized expenses of $1,037 and $1,417 for the first nine months ended September 30, 2007 and 2006, respectively, for certain administrative services performed by ConocoPhillips on Penreco’s behalf which are included in selling, general and administrative expense in the statement of income. Other expenses paid by ConocoPhillips on Penreco’s behalf totaling $3,698 and $2,709 were recognized by Penreco for the first nine months ended September 30, 2007 and 2006, respectively, and are recorded as a component of selling, general and administrative expenses in the statement of income. These are primarily taxes and rail car charges paid by ConocoPhillips on behalf of Penreco. At September 30, 2007 and December 31, 2006, Penreco had payables due to ConocoPhillips of $8,931 and $9,058, respectively.

In the ordinary course of business, ConocoPhillips purchases certain finished products from Penreco. Penreco recognized sales revenue of $528 and $521 from ConocoPhillips for the first nine months ended September 30, 2007 and 2006, respectively. Accounts receivable due from ConocoPhillips at September 30, 2007 and December 31, 2006, was $64 and $63, respectively. Penreco also had a long-term receivable due from ConocoPhillips of $1,150 as of September 30, 2007 and December 31, 2006, which will become due at the dissolution of the partnership as a working capital adjustment. The long-term receivable is recorded as a reduction to ConocoPhillips’ partner’s equity.

Penreco recognized $289 and $1,462 in revenue for the first nine months ended September 30, 2007 and 2006, respectively, pursuant to a contract, which has been terminated, with ConocoPhillips. Penreco entered into the contract in late 2003 in order to obtain services in support of Penreco’s arrangements in the United Kingdom related to sales of gas condensate. ConocoPhillips provided Penreco with commercial services, including but not limited to, contract negotiation and commercial trading activities on behalf of Penreco. ConocoPhillips collected amounts from third parties under the arrangement and remitted the proceeds to Penreco net of a two U.S. dollar per metric ton fee plus a cost recovery factor. These agreements were terminated in the third quarter 2007.

10. Operating Leases

Future commitments under operating leases for premises and equipment (primarily rail cars) for the years ending December 31 are as follows:

2007 (excludes nine months ended September 30, 2007)		$	4,684
2008			2,985
2009			2,037
2010			1,370
2011			558
Thereafter			72
		$	11,706

Rental expense under operating leases (recorded as a component of selling, general, administrative and operating expenses in the statement of income) was $4,444 and 4,333 for the first nine months ended September 30, 2007 and 2006, respectively.

11. Commitments and Contingencies

Penreco is from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract and/or property damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, Penreco records reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Penreco does not believe that any of these proceedings, separately or in the aggregate, would be expected to have a material adverse effect on Penreco’s financial position, results of operations or cash flows.

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ConocoPhillips is obligated to supply Penreco with certain feedstocks for manufacturing specialty products. All of these feedstock supply obligations are defined in approximately six feedstock agreements between the Penreco Partnership and ConocoPhillips. These agreements are based on quoted market prices and have primary terms of 20 years.

12. Subsequent Events

On October 22, Calumet Specialty Products Partners, L.P. signed a definitive purchase agreement to acquire Penreco for approximately $240 million in cash, subject to customary purchase price adjustments. The transaction is expected to close in the fourth quarter of 2007, subject to customary closing conditions and regulatory approval.

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(b) Unaudited Pro Forma consolidated Financial Information.

Pro forma financial statements as of September 30, 2007, for the year ended December 31, 2006 and the nine month period ended September 30, 2007.

INTRODUCTION

     Following are the unaudited pro forma consolidated financial statements of Calumet Specialty Products Partners, L.P. (“Calumet”) as of September 30, 2007, for the year ended December 31, 2006 and for the nine months ended September 30, 2007. The unaudited pro forma consolidated financial statements give effect to (i) Calumet’s initial public offering and related transactions in January 2006, (ii) its follow on offering and related transactions in July 2006, (iii) Calumet’s proposed acquisition of Penreco, a Texas general partnership, (“Penreco”), and (iv) the sale by Calumet of 2,800,000 common units and the issuance of debt under a new credit facility related to the proposed acquisition of Penreco (collectively, the “Transactions”). The unaudited pro forma consolidated balance sheet assumes that the Transactions occurred as of September 30, 2007. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2006 and for the nine months ended September 30, 2007 assume that the Transactions occurred on January 1, 2006. Adjustments related to the Transactions are described in the accompanying notes to the unaudited pro forma consolidated financial statements.

     The unaudited pro forma consolidated financial statements and accompanying notes should be read together with Calumet’s related historical consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2006 and the Quarterly Report on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission and Penreco’s historical financial statements and notes thereto beginning on page 3. The unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations were derived by adjusting the historical consolidated financial statements of Calumet and Penreco. These adjustments are based on currently available information and certain estimates and assumptions and, therefore, the actual effects of the Transactions may differ from the effects reflected in the unaudited pro forma consolidated financial statements. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the Transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited consolidated pro forma financial statements.

     The unaudited pro forma consolidated financial statements are not necessarily indicative of the consolidated financial condition or results of operations of Calumet had the Transactions actually been completed at the beginning of the period or as of the date specified. Moreover, the unaudited pro forma consolidated financial statements do not project consolidated financial position or results of operations of Calumet for any future period or at any future date.

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CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)

		As of September 30, 2007
		Calumet				Penreco
		Historical				Historical (s)				Adjustments				Pro Forma
Assets
Current assets:
Cash		$	28			$	—			$	2,506	(b)		$	54,907
											(266,584	)(c)
											116,362	(a)
											266,788	(d)
											(64,193	)(j)
Accounts receivable:
Trade, less allowance for doubtful accounts			115,008				41,344				—				156,352
Other			2,151				—				—				2,151
			117,159				41,344				—				158,503
Inventories			101,380				29,188				39,440	(e)			170,008
Derivative Assets			—				—				—				—
Prepaid expenses and other current assets			1,694				1,065				—				2,759
Total current assets			220,261				71,597				94,319				386,177
Property, plant and equipment, net			350,751				35,376				55,757	(f)			440,077
											(1,807	)(r)
Intangibles			—				—				82,555	(g)			82,555
Goodwill			—				—				21,252	(h)			21,252
Other noncurrent assets, net			6,090				1,911				8,212	(d)			15,652
											(561	)(i)
Total assets		$	577,102			$	108,884			$	259,727			$	945,713
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable		$	123,712			$	26,262			$	—			$	149,974
Accrued salaries, wages and benefits			4,598				4,292				(1,959	)(r)			6,931
Other taxes payable			7,399				583				—				7,982
Other current liabilities			3,167				2,393				—				5,560
Current portion of long-term debt			1,990				—				2,450	(j)			4,440
Derivative liabilities			41,480				—				—				41,480
Total current liabilities			182,346				33,530				491				216,367
Long-term debt, less current portion			65,828				—				208,357	(j)			274,185
Other noncurrent liabilities			—				68				7,706	(p)			7,774
Total liabilities			248,174				33,598				216,554				498,326
Commitments and contingencies
Partners’ capital:
Penreco partners’ capital			—				75,286				(75,286	)(k)			—
Common unitholders			284,257												400,444
											116,362	(a)
											(327	)(i)
											(1,807	)(r)
											1,959	(r)
Subordinated unitholders			49,924				—				(223	)(i)			49,701
General partner’s interest			16,768				—				2,506	(b)			19,263
											(11	)(i)
Accumulated other comprehensive income			(22,021	)			—				—				(22,021	)
Total partners’ capital			328,928				75,286				43,173				447,387
Total liabilities and partners’ capital		$	577,102			$	108,884			$	259,727			$	945,713