MARTIN MIDSTREAM PARTNERS L.P. Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in theU.S. Gulf Coast region. Our four primary business lines include:
• Terminalling, processing, storage and packaging services for petroleum
products and by-products including the refining of naphthenic crude oil;
• Land and marine transportation services for petroleum products and
by-products, chemicals, and specialty products;
• Sulfur and sulfur-based products processing, manufacturing, marketing, and
distribution; and
• NGL marketing, distribution, and transportation services.
The petroleum products and by-products we collect, transport, store and market are produced primarily by major and independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, and other wholesale purchasers of these products. We operate primarily in theU.S. Gulf Coast region. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry. We were formed in 2002 byMartin Resource Management Corporation , a privately-held company whose initial predecessor was incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then,Martin Resource Management Corporation has expanded its operations through acquisitions and internal expansion initiatives as its management identified and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids.Martin Resource Management Corporation is an important supplier and customer of ours. As ofDecember 31, 2019 ,Martin Resource Management Corporation owned 15.7% of our total outstanding common limited partner units. Furthermore,Martin Resource Management Corporation controls MMGP, our general partner, by virtue of its 51% voting interest in Holdings, the sole member of MMGP. MMGP owns a 2.0% general partner interest in us and all of our incentive distribution rights.Martin Resource Management Corporation directs our business operations through its ownership interests in and control of our general partner. Our Omnibus Agreement withMartin Resource Management Corporation governs, among other things, potential competition and indemnification obligations among the parties to the agreement, related party transactions, the provision of general administration and support services byMartin Resource Management Corporation and our use of certain ofMartin Resource Management Corporation's trade names and trademarks. Under the terms of the Omnibus Agreement, the employees ofMartin Resource Management Corporation are responsible for conducting our business and operating our assets.Martin Resource Management Corporation has operated our business since 2002.Martin Resource Management Corporation began operating our NGL business in the 1950s and our sulfur business in the 1960s. It began our land transportation business in the early 1980s and our marine transportation business in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s. 45
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Beginning in 2018, we committed to strengthening our balance sheet through strategic initiatives aimed at reducing leverage by divesting non-core assets and businesses, creating the ability to focus on a streamlined corporate strategy and position the Partnership for growth.
The first set of initiatives was executed in 2018 with the divestiture of our 20% interest inWest Texas LPG Pipeline Limited Partnership for$195.0 million and the sale of a non-strategic terminal asset located inNevada for$8.0 million . OnJanuary 1, 2019 , we completed the next initiative with the acquisition ofMartin Transport, Inc. fromMartin Resource Management Corporation for$135.0 million , positioning us for cash flow growth. OnJuly 1, 2019 , we completed the sale of our natural gas storage assets for$215.0 million , which was an important piece of the Partnership's strategy to strengthen the balance sheet and re-focus our operational expertise on the refinery services industry. OnAugust 12, 2019 we completed the sale of our East Texas Pipeline for$17.5 million . As a result of dispositions, offset by acquisitions, we were able to pay down$300.5 million of outstanding debt while incurring only a slight reduction to projected EBITDA. Consistent with our strategy of reducing leverage and improving liquidity, onJanuary 28, 2020 , we announced a$0.75 per unit reduction of our cash distribution on an annual basis, allowing us to retain$29.2 million to continue to strengthen our balance sheet.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on the historical consolidated financial statements included elsewhere herein. We prepared these financial statements in conformity withUnited States generally accepted accounting principles ("U.S. GAAP" or "GAAP"). The preparation of these financial statements required us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We based our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. We routinely evaluate these estimates, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Our results may differ from these estimates, and any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Changes in these estimates could materially affect our financial position, results of operations or cash flows. You should also read Note 2, "Significant Accounting Policies" in Notes to Consolidated Financial Statements. The following table evaluates the potential impact of estimates utilized during the periods endedDecember 31, 2019 and 2018: Effect if Actual Results Judgments and Differ from Estimates and Description Uncertainties Assumptions Impairment of Long-Lived Assets We periodically evaluate Our impairment analyses Applying this impairment whether the carrying require management to use review methodology, no value of long-lived judgment in estimating impairment of long-lived assets has been impaired future cash flows and assets was recorded during when circumstances useful lives, as well as the years ended December indicate the carrying assessing the probability 31, 2019 or 2018. In 2017, value of the assets may of different outcomes. we recorded an impairment not be recoverable. These charge of$1.6 million in evaluations are based on our Transportation segment undiscounted cash flow and$0.6 million in our projections over the Terminalling and Storage remaining useful life of segment. the asset. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows. Any impairment loss is measured as the excess of the asset's carrying value over its fair value. Asset Retirement Obligations Asset retirement Determining the fair value If actual results differ obligations ("AROs") of AROs requires from judgments and associated with a management judgment to assumptions used in contractual or regulatory evaluate required valuing an ARO, we may remediation requirement remediation activities, experience significant are recorded at fair estimate the cost of those changes in ARO balances. value in the period in activities and determine The establishment of an which the obligation can the appropriate interest ARO has no initial impact be reasonably estimated rate. on earnings. and the related asset is depreciated over its useful life or contractual term. The liability is determined using a credit-adjusted risk-free interest rate and is accreted over time until the obligation is settled. 46
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Our Relationship with
Martin Resource Management Corporation directs our business operations through its ownership and control of our general partner and under the Omnibus Agreement. In addition to the direct expenses payable toMartin Resource Management Corporation under the Omnibus Agreement, we are required to reimburseMartin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. For the years endedDecember 31, 2019 , 2018 and 2017, the Conflicts Committee approved reimbursement amounts of$16.7 million ,$16.4 million and$16.4 million , respectively, reflecting our allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually. We are required to reimburseMartin Resource Management Corporation for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business.Martin Resource Management Corporation also licenses certain of its trademarks and trade names to us under the Omnibus Agreement. We are both an important supplier to and customer ofMartin Resource Management Corporation . All of these services and goods are purchased and sold pursuant to the terms of a number of agreements between us andMartin Resource Management Corporation . For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into withMartin Resource Management Corporation , please see "Item 13. Certain Relationships and Related Transactions, and Director Independence."
How We Evaluate Our Operations
Our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance withU.S. GAAP to analyze our performance. These include: (1) net income before interest expense, income tax expense, and depreciation and amortization ("EBITDA"), (2) adjusted EBITDA and (3) distributable cash flow. Our management views these measures as important performance measures of core profitability for our operations and the ability to generate and distribute cash flow, and as key components of our internal financial reporting. We believe investors benefit from having access to the same financial measures that our management uses. EBITDA and Adjusted EBITDA. Certain items excluded from EBITDA and adjusted EBITDA are significant components in understanding and assessing an entity's financial performance, such as cost of capital and historic costs of depreciable assets. We have included information concerning EBITDA and adjusted EBITDA because they provide investors and management with additional information to better understand the following: financial performance of our assets without regard to financing methods, capital structure or historical cost basis; our operating performance and return on capital as compared to those of other similarly situated entities; and the viability of acquisitions and capital expenditure projects. Our method of computing adjusted EBITDA may not be the same method used to compute similar measures reported by other entities. The economic substance behind our use of adjusted EBITDA is to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make distributions to our unit holders. Distributable Cash Flow. Distributable cash flow is a significant performance measure used by our management and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders. Distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit's yield, which in turn is based on the amount of cash distributions the entity pays to a unitholder. EBITDA, adjusted EBITDA and distributable cash flow should not be considered alternatives to, or more meaningful than, net income, cash flows from operating activities, or any other measure presented in accordance withU.S. GAAP. Our method of computing these measures may not be the same method used to compute similar measures reported by other entities.
Non-GAAP Financial Measures
The following table reconciles the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the years endedDecember 31, 2019 , 2018, and 2017, which represents EBITDA, Adjusted EBITDA and Distributable Cash Flow from continuing operations. 47 -------------------------------------------------------------------------------- Reconciliation of EBITDA, Adjusted EBITDA, and Distributable Cash Flow
Year Ended December 31,
2019 2018 2017
(in thousands)
Net income (loss) $ (174,946 ) $ 55,655 $ 19,916
Less: (Income) loss from discontinued
operations, net of income taxes 179,466 (63,486 ) (21,099 )
Income (loss) from continuing operations 4,520 (7,831 ) (1,183 )
Adjustments:
Interest expense 51,690 52,349 47,770
Income tax expense 1,900 577 158
Depreciation and amortization 60,060 61,484 65,108
EBITDA from Continuing Operations 118,170 106,579
111,853
Adjustments:
Gain on sale of property, plant and equipment (13,332 ) (1,041 ) (2,090 ) Impairment of long-lived assets
- - 2,225
Unrealized mark-to-market on commodity derivatives 671 (76 ) (3,832 ) Non-cash insurance related accruals 500 - - Lower of cost or market adjustments 633 - - Hurricane damage repair accrual - -
657
Asset retirement obligation revision - -
5,547
Unit-based compensation 1,424 1,224
650
Transaction costs associated with acquisitions 224 465 -
Adjusted EBITDA from Continuing Operations 108,290 107,151
115,010
Adjustments:
Interest expense (51,690 ) (52,349 ) (47,770 )
Income tax expense (1,900 ) (577 ) (158 )
Amortization of deferred debt issuance costs 4,041 3,445 2,897
Amortization of debt premium (306 ) (306 ) (306 ) Deferred income taxes 1,360 208 (156 ) Payments for plant turnaround costs (5,677 ) (1,893 ) (1,583 ) Maintenance capital expenditures (12,368 ) (19,553 ) (16,774 ) Distributable Cash Flow from Continuing Operations$ 41,750 $ 36,126
Income (loss) from discontinued operations, net of income taxes$ (179,466 ) $ 63,486 $ 21,099 Adjustments: Depreciation and amortization$ 8,161 $ 18,795 $ 22,370 EBITDA from Discontinued Operations$ (171,305 ) $ 82,281 $ 43,469 Equity in earnings of unconsolidated entities $ -$ (3,382 ) $ (4,314 ) Distributions from unconsolidated entities $ -$ 3,500 $ 5,400 Gain on disposition of Investment in WTLPG $ -$ (48,564 ) $ - Loss on sale of property, plant and equipment, net$ 178,781 $ 824 $ 82 Non-cash insurance related accruals$ 3,213 $ - $ - Adjusted EBITDA from Discontinued Operations$ 10,689 $ 34,659 $ 44,637 Maintenance capital expenditures$ (912 ) $ (1,952 ) $ (1,306 ) Distributable Cash Flow from Discontinued Operations$ 9,777 $ 32,707 $ 43,331 Results of Operations 48
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The results of operations for the years ended
We evaluate segment performance on the basis of operating income, which is derived by subtracting cost of products sold, operating expenses, selling, general and administrative expenses, and depreciation and amortization expense from revenues.
Our consolidated results of operations are presented on a comparative basis below. There are certain items of income and expense which we do not allocate on a segment basis. These items, including interest expense, and indirect selling, general and administrative expenses, are discussed after the comparative discussion of our results within each segment.
The Natural Gas Liquids segment information below excludes the discontinued
operations of the Natural Gas Storage Assets and WTLPG partnership interests
disposed of on
The following table sets forth our operating revenues and operating income by
segment for the years ended
Operating Operating
Revenues Revenues Operating Income Income (loss)
Operating Intersegment after Operating Income Intersegment after
Revenues Eliminations Eliminations (loss) Eliminations Eliminations
(In thousands)
Year Ended December
31, 2019:
Terminalling and
storage $ 216,313 $ (6,659 ) $ 209,654 $ 17,670 $ (938 ) $ 16,732
Natural gas liquids 366,502 - 366,502 27,596 16,424 44,020
Sulfur services 111,340 - 111,340 13,989 8,732 22,721
Transportation 183,740 (24,118 ) 159,622 16,830 (24,218 ) (7,388 )
Indirect selling,
general and
administrative - - - (17,981 ) - (17,981 )
Total $ 877,895 $ (30,777 ) $ 847,118 $ 58,104 $ - $ 58,104
Year Ended December
31, 2018:
Terminalling and
storage $ 247,840 $ (6,400 ) $ 241,440 $ 17,820 $ (280 ) $ 17,540
Natural gas liquids 496,026 (19 ) 496,007 13,152 18,429 31,581
Sulfur services 132,536 - 132,536 17,216 10,181 27,397
Transportation 178,163 (28,042 ) 150,121 14,770 (28,330 ) (13,560 )
Indirect selling,
general and
administrative - - - (17,901 ) - (17,901 )
Total $ 1,054,565 $ (34,461 ) $ 1,020,104 $ 45,057 $ - $ 45,057
Year Ended December
31, 2017:
Terminalling and
storage $ 236,169 $ (6,134 ) $ 230,035 $ 3,305 $ (2,676 ) $ 629
Natural gas liquids 473,548 (231 ) 473,317 32,408 2,472 34,880
Sulfur services 134,684 - 134,684 25,862 (2,657 ) 23,205
Transportation 164,043 (28,693 ) 135,350 1,373 2,861 4,234
Indirect selling,
general and
administrative - - - (17,332 ) - (17,332 )
Total $ 1,008,444 $ (35,058 ) $ 973,386 $ 45,616 $ - $ 45,616
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Terminalling and Storage Segment
Comparative Results of Operations for the Years EndedDecember 31, 2019 and 2018 Year Ended December 31, Percent 2019 2018 Variance Change (In thousands) Revenues: Services$ 93,980 $ 102,514 $ (8,534 ) (8)% Products 122,333 145,326 (22,993 ) (16)% Total revenues 216,313 247,840 (31,527 ) (13)% Cost of products sold 107,081 132,384 (25,303 ) (19)% Operating expenses 53,279 54,129 (850 ) (2)% Selling, general and administrative expenses 5,997 5,327 670 13% Depreciation and amortization 30,952
39,508 (8,556 ) (22)%
19,004 16,492 2,512 15%
Other operating income (loss), net (1,334 ) 1,328 (2,662 ) (200)%
Operating income $ 17,670 $
17,820
Shore-based throughput volumes (guaranteed minimum) (gallons) 80,000 80,000 - -%Smackover refinery throughput volumes (guaranteed minimum BBL per day) 6,500 6,500 - -% Services revenues. Services revenue decreased$8.5 million , of which$5.2 million was primarily a result of decreased throughput fees at our shore-based terminals combined with a$1.7 million decrease at our specialty terminals as a result of the disposition of our sulfuric acid terminal inElko, Nevada . In addition,$1.6 million was a result of decreased activity at ourTampa specialty terminal. Products revenues. A 31% decrease in sales volumes combined with a 29% decrease in average sales price at our shore-based terminals resulted in a$33.1 million decrease to products revenues. Offsetting this decrease was a 10% increase in sales volumes combined with a 3% increase in average sales price at our blending and packaging facilities resulting in an$11.1 million increase in products revenues. Cost of products sold. A 31% decrease in sales volumes combined with a 32% decrease in average cost per gallon at our shore-based terminals resulted in a$31.7 million decrease in cost of products sold. Offsetting this decrease was a 10% increase in sales volume combined with a 1% increase in average cost per gallon at our blending and packaging facilities resulting in a$7.4 million increase in cost of products sold. Operating expenses. Operating expenses decreased$0.9 million , of which$0.8 million is a result of the disposition of our sulfuric acid terminal inElko, Nevada combined with decreases in lease expense of$0.9 million and utilities of$0.8 million across our terminals. Offsetting these decreases were increases in repairs and maintenance of$1.2 million across our terminals and$0.5 million in wharfage and dockage fees at ourTampa specialty terminal.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased primarily as a result of increases in legal
expenses of
Depreciation and amortization. The decrease in depreciation and amortization is due to the disposition of assets at several closed shore-based facilities, offset by recent capital expenditures.
50
--------------------------------------------------------------------------------Other operating income (loss), net. Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.
Comparative Results of Operations for the Years EndedDecember 31, 2018 and 2017 Year Ended December 31, Percent 2018 2017 Variance Change (In
thousands)
Revenues:
Services$ 102,514 $ 105,703 $ (3,189 ) (3)% Products 145,326 130,466 14,860 11% Total revenues 247,840
236,169 11,671 5%
Cost of products sold 132,384 118,832 13,552 11% Operating expenses 54,129 63,191 (9,062 ) (14)% Selling, general and administrative expenses 5,327 5,832 (505 ) (9)% Impairment of long-lived assets - 600 (600 ) (100)% Depreciation and amortization 39,508
45,160 (5,652 ) (13)%
16,492 2,554 13,938 546%
Other operating income, net 1,328 751 577 77%
Operating income $ 17,820 $ 3,305 $ 14,515 439%
Shore-based throughput volumes (guaranteed
minimum) (gallons) 80,000 144,998 (64,998 ) (45)%
Smackover refinery throughput volumes
(guaranteed minimum BBL per day) 6,500 6,500 - -%
Services revenues. Services revenue decreased $3.2 million , of which $7.6
million was primarily a result of decreased throughput fees at our shore-based
terminals, offset by a $4.1 million increase at our specialty terminals
primarily as a result of the Hondo asphalt plant being put into service on July
1, 2017 .
Products revenues. A 28% increase in sales volumes combined with a 4% increase
in average sales price at our blending and packaging facilities resulted in a
$20.3 million increase to products revenues. Offsetting this increase was a 9%
decrease in sales volumes offset by a 1% increase in average sales price at our
shore-based terminals resulting in a $5.4 million decrease in products revenues.
Cost of products sold. A 28% increase in sales volumes combined with a 10%
increase in average cost per gallon at our blending and packaging facilities
resulted in a $19.0 million increase in cost of products sold. Offsetting this
increase was a 9% decrease in sales volume offset by a 2% increase in average
cost per gallon at our shore-based terminals resulting in a $5.5 million
decrease in cost of products sold.
Operating expenses. Operating expenses at our shore-based terminals decreased by
$8.0 million primarily due to the 2017 period including an increase in the
accrual related to asset retirement obligations of $6.3 million . Additionally,
lease expense decreased $0.7 million as a result of closing several facilities.
Operating expenses at our specialty terminals decreased $1.8 million , primarily
due to the 2017 period including $2.5 million in hurricane expenses offset by an
increase of $1.0 million in expenses at our Hondo facility which was placed in
service in July of 2017. Offsetting this decrease was a $0.8 million increase at
our Smackover refinery due to an increase in utilities of $0.4 million , $0.2
million in repairs and maintenance, and $0.2 million in professional fees.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased primarily as a result of decreased legal expenses.
Impairment of long-lived assets. This represents the loss on impairment of non-core operating assets in 2017.
51
--------------------------------------------------------------------------------Depreciation and amortization. The decrease in depreciation and amortization is due to the disposition of assets at several closed shore-based facilities, offset by recent capital expenditures.
Other operating income, net. Other operating income, net represents gains from the disposition of property, plant and equipment.
Transportation Segment
Comparative Results of Operations for the Years EndedDecember 31, 2019 and 2018 Year Ended December 31, Percent 2019 2018 Variance Change (In thousands) Revenues$ 183,740 $ 178,163 $ 5,577 3% Operating expenses 141,713 146,300 (4,587 ) (3)% Selling, general and administrative expenses 8,199 6,305 1,894 30% Depreciation and amortization 15,307
11,003 4,304 39%
18,521 14,555 3,966 27%
Other operating income (loss), net (1,691 ) 215 (1,906 ) (887)%
Operating income $ 16,830 $ 14,770 $ 2,060 14%
Land Transportation Revenues. A 5% decrease in miles resulted in a decrease to
freight revenue of $5.0 million . Transportation rates increased 2% resulting in
an offsetting increase of $1.7 million . Additionally, fuel surcharge revenue
decreased $1.5 million .
Marine Transportation Revenues. An increase of $10.7 million in inland revenue
was primarily related to increased rates, utilization and new equipment being
placed in service. Revenue was also impacted by an increase in pass-through
revenue (primarily fuel) of $0.2 million . An offsetting decrease of $0.4 million
is attributable to revenue related to equipment sold or being classified as idle
or held for sale.
Operating expenses. The decrease in operating expenses is primarily a result of
decreased leases expense of $4.2 million , pass through expenses (primarily fuel)
of $1.7 million , compensation expense of $1.0 million , and property and
liability insurance premiums and claims of $0.7 million . These decreases were
offset by an increase in outside services of $2.8 million and repairs and
maintenance of $0.5 million .
Selling, general and administrative expenses. The increase in selling, general
and administrative expenses is primarily due to increased compensation expense
of $1.4 million , lease expense of $0.2 million , and claims expenses of $0.2
million .
Depreciation and amortization. Depreciation and amortization increased as a result of recent capital expenditures offset by asset disposals.
Other operating income (loss), net. Other operating loss represents losses from the disposition of property, plant and equipment.
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Comparative Results of Operations for the Years Ended December 31, 2018 and 2017
Year Ended December 31, Percent
2018 2017 Variance Change
(In thousands)
Revenues $ 178,163 $ 164,043 $ 14,120 9%
Operating expenses 146,300 148,331 (2,031 ) (1)%
Selling, general and administrative expenses 6,305 4,807 1,498 31%
Impairment of long lived assets - 1,625 (1,625 ) (100)%
Depreciation and amortization 11,003 9,285 1,718 19%
14,555 (5 ) 14,560 291,200%
Other operating income, net 215 1,378 (1,163 ) (84)%
Operating income $ 14,770 $ 1,373 $ 13,397 976%
Land Transportation Revenues. Freight revenue increased $7.0 million .
Transportation rates increased 8% resulting in an increase to freight revenue of
$7.7 million . Miles decreased 1% resulting in an offsetting decrease of $0.7
million . Additionally, fuel increased $6.2 million .
Marine Transportation Revenues. An increase of $1.8 million in inland revenue
was primarily related to new equipment being placed in service. Revenue was also
impacted by an increase in pass-through revenue (primarily fuel) of $2.1
million . An offsetting decrease of $3.1 million is attributable to revenue
related to equipment sold or being classified as idle or held for sale. A $0.2
million increase in offshore revenues is primarily the result of increased
utilization.
Operating expenses. The decrease in operating expenses is primarily a result of
decreased lease expense of $5.8 million , claims expense of $1.5 million , barge
rental expense of $1.0 million , property and liability insurance premiums of
$1.0 million , outside towing of $0.3 million , and a reclassification of labor
and burden from operating expense to selling general and administrative expense
for the 2018 period of $0.7 million . These decreases were offset by an increased
fuel expense of $5.1 million , labor and burden of $2.6 million , repairs and
maintenance of $0.5 million , and contract labor of $0.3 million .
Selling, general and administrative expenses. Selling, general and
administrative expenses increased primarily due to increased compensation
expense of
Impairment of long-lived assets. This represents the loss on impairment of non-core operating assets.
Depreciation and amortization. Depreciation and amortization increased as a result of recent capital expenditures offset by asset disposals.
Other operating income, net. Other operating income, net represents gains from the disposition of property, plant and equipment.
53
--------------------------------------------------------------------------------Sulfur Services Segment
Comparative Results of Operations for the Years EndedDecember 31, 2019 and 2018 Year Ended December 31, Percent 2019 2018 Variance Change (In thousands) Revenues: Services$ 11,434 $ 11,148 $ 286 3% Products 99,906 121,388 (21,482 ) (18)% Total revenues 111,340 132,536 (21,196 ) (16)% Cost of products sold 71,806 90,780 (18,974 ) (21)% Operating expenses 10,639 11,618 (979 ) (8)% Selling, general and administrative expenses 4,784 4,326 458 11% Depreciation and amortization 11,332 8,485
2,847 34%
12,779 17,327 (4,548 ) (26)%
Other operating income (loss), net 1,210 (111 ) 1,321 1,190%
Operating income $ 13,989 $ 17,216 $ (3,227 ) (19)%
Sulfur (long tons) 665.0 688.0 (23.0 ) (3)%
Fertilizer (long tons) 260.0 277.0 (17.0 ) (6)%
Sulfur services volumes (long tons) 925.0 965.0 (40.0 ) (4)%
Services Revenues. Services revenues increased slightly as a result of a contractually prescribed, index-based fee adjustment.
Products Revenues. Products revenues decreased$17.2 million as a result of a 14% decline in average sulfur services sales prices. Products revenues decreased an additional$4.3 million due to a 4% decrease in sales volumes, primarily related to a 6% decrease in fertilizer volumes. Cost of products sold. A 17% decline in prices impacted cost of products sold by$15.9 million , resulting from a decrease in commodity prices. A 4% decrease in sales volumes resulted in an additional decrease in cost of products sold of$3.1 million . Margin per ton decreased$1.34 , or 4%. Operating expenses. Our operating expenses decreased$0.6 million due to marine fuel and lube,$0.2 million due to repairs and maintenance,$0.2 million due to outside towing,$0.1 million due to lease expense and$0.1 million due to insurance claims. Offsetting, assist tugs increased$0.2 million . Selling, general and administrative expenses. Increased primarily as a result of increased compensation expense of$0.4 million and professional fees of$0.1 million .
Depreciation and amortization. Depreciation and amortization expense increased
Other operating income (loss), net. Other operating income (loss), net
increased as a result of
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Comparative Results of Operations for the Years Ended December 31, 2018 and 2017
Year Ended December 31, Percent
2018 2017 Variance Change
(In thousands)
Revenues:
Services $ 11,148 $ 10,952 $ 196 2%
Products 121,388 123,732 (2,344 ) (2)%
Total revenues 132,536 134,684 (2,148 ) (2)%
Cost of products sold 90,780 82,760 8,020 10%
Operating expenses 11,618 13,783 (2,165 ) (16)%
Selling, general and administrative expenses 4,326 4,136 190 5%
Depreciation and amortization 8,485 8,117 368 5%
17,327 25,888 (8,561 ) (33)%
Other operating loss, net (111 ) (26 ) (85 ) (327)%
Operating income $ 17,216 $
25,862
Sulfur (long tons) 688.0 807.0 (119.0 ) (15)% Fertilizer (long tons) 277.0 276.0 1.0 -% Sulfur services volumes (long tons) 965.0
1,083.0 (118.0 ) (11)%
Services Revenues. Services revenues increased as a result of a contractually prescribed index based fee adjustment.
Products Revenues. Products revenues decreased
Cost of products sold. A 23% increase in prices impacted cost of products sold by$19.1 million , resulting from an increase in commodity prices. An 11% decrease in sales volumes resulted in an offsetting decrease in cost of products sold of$11.1 million . Margin per ton decreased$6.11 , or 16%. Operating expenses. Our operating expenses decreased primarily as a result of a$1.5 million reduction in compensation expense and$0.4 million in lower property taxes. Additionally, outside towing decreased$0.3 million , railcar leases decreased$0.3 million , and repairs and maintenance on marine vessels decreased$0.2 million . An offsetting increase of$0.5 million resulted from an increase in marine fuel and lube.
Selling, general and administrative expenses. Increased primarily as a result of increased compensation expense.
Depreciation and amortization. Depreciation expense increased$0.4 million due to capital projects being completed and placed in service in the fourth quarter of 2017 and throughout 2018.
Other operating loss, net. Other operating loss, net represents losses from the disposition of property, plant and equipment.
55
--------------------------------------------------------------------------------Natural Gas Liquids Segment
Comparative Results of Operations for the Years EndedDecember 31, 2019 and 2018 Year Ended December 31, Percent 2019 2018 Variance Change (In thousands) Products Revenues$ 366,502 $ 496,026 (129,524 ) (26)% Cost of products sold 341,800 467,550 (125,750 ) (27)% Operating expenses 6,300 7,107 (807 ) (11)% Selling, general and administrative expenses 4,739 5,338 (599 ) (11)% Depreciation and amortization 2,469 2,488 (19 ) (1)% 11,194 13,543 (2,349 ) (17)% Other operating income (loss), net 16,402 (391 ) 16,793 4,295% Operating income$ 27,596 $ 13,152 $ 14,444 110% NGLs Volumes (barrels) 9,820 10,223 (403 ) (4)% Products Revenues. Our NGL average sales price per barrel decreased$11.20 , or 23%, resulting in a decrease to products revenues of$114.5 million . The decrease in average sales price per barrel was a result of a decrease in market prices. Product sales volumes decreased 4%, decreasing revenues$15.0 million . Cost of products sold. Our average cost per barrel decreased$10.93 , or 24%, decreasing cost of products sold by$111.7 million . The decrease in average cost per barrel was a result of a decrease in market prices. The decrease in sales volume of 4% resulted in a$14.0 million decrease to cost of products sold. Our margins decreased$0.27 per barrel, or 10% during the period.
Operating expenses. Operating expenses decreased primarily due to the sale of
our East Texas Pipeline on
Selling, general and administrative expenses. Selling, general and administrative expenses decreased$0.6 million primarily as a result of$0.3 million in decreased compensation expense and$0.2 million in decreased property taxes.
Other operating income (loss), net. Other operating income (loss), net represents the gains associated with the disposition of the East Texas Pipeline.
Comparative Results of Operations for the Years EndedDecember 31, 2018 and 2017 Year Ended December 31, Percent 2018 2017 Variance Change (In thousands) Products Revenues$ 496,026 $ 473,548 22,478 5% Cost of products sold 467,550 424,610 42,940 10% Operating expenses 7,107 6,905 202 3% Selling, general and administrative expenses 5,338 7,072 (1,734 ) (25)% Depreciation and amortization 2,488 2,546 (58 ) (2)% 13,543 32,415 (18,872 ) (58)% Other operating loss, net (391 ) (7 ) (384 ) (5,486)% Operating income$ 13,152 $ 32,408 $ (19,256 ) (59)% NGLs Volumes (barrels) 10,223 10,487 (264 ) (3)% 56
-------------------------------------------------------------------------------- Products Revenues. Our NGL average sales price per barrel increased$3.37 , or 7%, resulting in an increase to products revenues of$35.3 million . The increase in average sales price per barrel was a result of an increase in market prices. Product sales volumes decreased 3%, decreasing revenues$12.8 million . Cost of products sold. Our average cost per barrel increased$5.25 , or 13%, increasing cost of products sold by$55.0 million . The increase in average cost per barrel was a result of an increase in market prices. The decrease in sales volume of 3% resulted in a$12.1 million decrease to cost of products sold. Our margins decreased$1.88 per barrel, or 40% during the period.
Operating expenses. Operating expenses increased
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased
Other operating loss, net. Other operating loss, net represents losses from the disposition of property, plant and equipment.
Interest Expense
Comparative Components of Interest Expense, Net for the Years EndedDecember 31, 2019 and 2018 Year Ended December 31, Percent 2019 2018 Variance Change (In thousands) Revolving loan facility$ 18,550 $ 20,193 $ (1,643 ) (8)% 7.250 % senior unsecured notes 27,101 27,101 - -% Amortization of deferred debt issuance costs 4,041 3,445 596 17% Amortization of debt premium (306 ) (306 ) - -% Other 1,728 2,239 (511 ) (23)% Finance leases 672 331 341 103% Capitalized interest (5 ) (624 ) 619 99% Interest income (91 ) (30 ) (61 ) (203)% Total interest expense, net$ 51,690 $
52,349
Comparative Components of Interest Expense, Net for the Years EndedDecember 31, 2018 and 2017 Year Ended December 31, Percent 2018 2017 Variance Change (In thousands) Revolving loan facility$ 20,193 $ 18,192 $ 2,001 11% 7.250 % senior unsecured notes 27,101 27,101 - -% Amortization of deferred debt issuance costs 3,445 2,897 548 19% Amortization of debt premium (306 ) (306 ) - -% Other 2,239 1,534 705 46% Finance leases 331 25 306 1,224% Capitalized interest (624 ) (730 ) 106 15% Interest income (30 ) (943 )$ 913 97% Total interest expense, net$ 52,349 $ 47,770 $ 4,579 10% 57
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Indirect Selling, General and Administrative Expenses
Year Ended December 31, Percent Year Ended December 31, Percent
2019 2018 Variance Change 2018 2017 Variance Change
(In thousands) (In thousands)
Indirect selling,
general and
administrative
expenses $ 17,981 $ 17,901 $ 80 -% $ 17,901 $ 17,332 $ 569 3%
Indirect selling, general and administrative expenses remained consistent from 2018 to 2019. The increase in indirect selling, general and administrative expenses from 2017 to 2018 is primarily a result of increased unit based compensation expense.
Martin Resource Management Corporation allocates to us a portion of its indirect selling, general and administrative expenses for services such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions we share withMartin Resource Management Corporation retained businesses. This allocation is based on the percentage of time spent byMartin Resource Management Corporation personnel that provide such centralized services. GAAP also permits other methods for allocation of these expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these expenses betweenMartin Resource Management Corporation and us is subject to a number of judgments and estimates, regardless of the method used. We can provide no assurances that our method of allocation, in the past or in the future, is or will be the most accurate or appropriate method of allocation for these expenses. Other methods could result in a higher allocation of selling, general and administrative expense to us, which would reduce our net income. Under the Omnibus Agreement, we are required to reimburseMartin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. The Conflicts Committee approved the following reimbursement amounts: Year Ended December 31, Percent Year Ended December 31, Percent 2019 2018 Variance Change 2018 2017 Variance Change (In thousands) (In thousands) Conflicts Committee approved reimbursement amount$ 16,657 $ 16,416 $ 241 1%$ 16,416 $ 16,416 $ - -%
The amounts reflected above represent our allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
Liquidity and Capital Resources
General
Our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations, borrowings under our revolving credit facility and access to debt and equity capital markets, both public and private. Set forth below is a description of our cash flows for the periods indicated.
Recent Debt Financing Activity
Credit Facility Amendment and Extension. OnJuly 18, 2019 , the Partnership amended its revolving credit facility to, among other things, extend the maturity date fromMarch 2020 toAugust 2023 (provided we have refinanced the 2021 Notes on or beforeAugust 19, 2020 ) and reduce commitments from$500.0 million to$400.0 million . After giving effect to our then current borrowings, outstanding letters of credit and the financial covenants contained in our revolving credit facility, we had the ability to borrow approximately$51.5 million in additional amounts thereunder as ofDecember 31, 2019 . 58 --------------------------------------------------------------------------------
Cash Flows - Year Ended
The following table details the cash flow changes between the years ended
Years Ended December 31, Percent
2019 2018 Variance Change
(In thousands)
Net cash provided by (used in):
Operating activities $ 75,815 $ 105,030 $ (29,215 ) (28)%
Investing activities 174,828 147,622 27,206 18%
Financing activities (248,087 ) (252,441 ) 4,354 2%
Net increase (decrease) in cash and cash equivalents $ 2,556 $
211
Net cash provided by operating activities. The decrease in net cash provided by operating activities for the year endedDecember 31, 2019 includes a$22.6 million decrease in net cash received from discontinued operating activities, a$6.2 million unfavorable variance in working capital, and a$1.7 million unfavorable variance in other non-current assets and liabilities. An additional$11.0 million decrease in other non-cash charges was primarily due to a$12.3 million gain on the sale of property, plant and equipment. Offsetting was an increase in operating results of$12.4 million . Net cash provided by investing activities. Net cash provided by investing activities for the year endedDecember 31, 2019 increased primarily as a result of$35.9 million related to discontinued investing activities. Also contributing was a$9.2 million increase in proceeds received as a result of higher sales of property, plant and equipment in 2019 as well as an increase of$5.0 million due to proceeds received from involuntary conversion of property, plant and equipment. An additional increase of$0.9 million related to lower payments for capital expenditures and plant turnaround costs in 2019. Offsetting was an increase in cash used of$23.7 million as a result of net assets acquired from MTI.
Net cash used in financing activities. Net cash used in financing activities for
the year ended
Cash Flows - Year Ended
The following table details the cash flow changes between the years ended
Years Ended December 31, Percent
2018 2017 Variance Change
(Inthousands)
Net cash provided by (used in): Operating activities$ 105,030 $ 69,084 $ 35,946 52% Investing activities 147,622 (41,635 ) 189,257 455% Financing activities (252,441 )
(27,435 ) (225,006 ) (820)%
Net decrease in cash and cash equivalents $ 211
Net cash provided by operating activities. The increase in net cash provided by operating activities for the year endedDecember 31, 2018 is primarily due to a$56.4 million favorable variance in working capital and$0.4 million in other non-cash charges. Offsetting was a decrease in operating results of$6.6 million and an unfavorable variance in other non-current assets and liabilities of$1.6 million . Net cash provided by discontinued operating activities decreased$12.7 million .
Net cash provided by (used in) investing activities. Net cash provided by
investing activities for the year ended
59
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terminalling assets from Martin Resource Management Corporation in 2017,
compared to no acquisitions in 2018, resulted in an increase of $19.5 million .
Further, a decrease in cash used of $6.4 million is due to lower payments for
capital expenditures and plant turnaround costs in 2018. Offsetting was a $15.0
million decline in proceeds received resulting from repayment of the Note
receivable - affiliate in 2017 as compared to none in 2018 as well as a $2.2
million decrease in proceeds received as a result of higher sales of property,
plant and equipment in 2017.
Net cash used in financing activities. Net cash used in financing activities
increased for the year ended December 31, 2018 as a result of an increase in net
repayments of long-term borrowings of $162.0 million as well as a decrease in
proceeds received from the issuance of common units (including the related
general partner contribution) of $52.3 million . An additional increase of $1.5
million related to cash distributions paid and $14.8 million related to a
preacquisition distribution to Martin Resource Management Corporation . An
increase of $1.2 million related to costs associated with our credit facility
amendment. Offsetting was a decrease in cash used of $6.7 million related to
excess purchase price over the carrying value of acquired assets in common
control transactions.
Total Contractual Obligations
A summary of our total contractual obligations as of
Payments due by period
Total Less than 1-3 3-5 More than 5
Type of Obligation Obligation One Year Years Years years
Revolving credit facility (1) $ 201,000 $ - $ - $ 201,000 $ -
2021 senior unsecured notes 373,800 - 373,800 - -
Throughput commitment 9,299 6,280 3,019 - -
Operating leases 28,735 8,755 9,585 3,586 6,809
Finance lease obligations 7,475 6,758 717
Interest payable on finance
lease obligations 323 291 32
Interest payable on fixed
long-term obligations 30,489 27,101 3,388 - -
Total contractual cash
obligations $ 651,121 $ 49,185 $ 390,541 $ 204,586 $ 6,809
(1) The revolving credit facility matures on (a) August 31, 2023 , or (b) August
19, 2020 if the 2021 Notes have not been voluntarily refinanced on or prior to
August 19, 2020 .
The interest payable under our revolving credit facility is not reflected in the
above table because such amounts depend on the outstanding balances and interest
rates, which vary from time to time.
Letter of Credit. At December 31, 2019 , we had outstanding irrevocable letters
of credit in the amount of $12.6 million , which were issued under our revolving
credit facility.
Off Balance Sheet Arrangements. We do not have any off-balance sheet financing arrangements.
2021 Senior NotesWe and Martin Midstream Finance Corp. , a subsidiary of us (collectively, the "Issuers"), entered into (i) an Indenture, dated as ofFebruary 11, 2013 (the "2021 Indenture") among the Issuers, certain subsidiary guarantors (the "2021 Guarantors") andWells Fargo Bank, National Association , as trustee (the "2021 Trustee") and (ii) a Registration Rights Agreement, dated as ofFebruary 11, 2013 (the "2021 Registration Rights Agreement"), among the Issuers, the 2021Guarantors andWells Fargo Securities, LLC ,RBC Capital Markets, LLC ,RBS Securities Inc. ,SunTrust Robinson Humphrey, Inc. andMerrill Lynch, Pierce, Fenner & Smith Incorporated , as representatives of a group of initial purchasers, in connection with a private placement to eligible purchasers of$250.0 million in aggregate principal amount of the Issuers' 7.25% senior unsecured notes due 2021 (the "2021 Notes"). OnApril 1, 2014 , we completed a private placement add-on of$150.0 million of the 2021 Notes. In 2015, we repurchased on the open market and subsequently retired an aggregate$26.2 million of our outstanding 2021 Notes. Interest and Maturity. The Issuers issued the 2021 Notes pursuant to the 2021 Indenture in transactions exempt from registration requirements under the Securities Act. The 2021 Notes were resold to qualified institutional buyers pursuant to 60 --------------------------------------------------------------------------------
Rule 144A under the Securities Act and to persons outside
Optional Redemption. The Issuers may on any one or more occasions redeem all or a part of the 2021 Notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date on the 2021 Notes. Certain Covenants. The 2021 Indenture restricts our ability and the ability of certain of our subsidiaries to: (i) sell assets including equity interests in our subsidiaries; (ii) pay distributions on, redeem or repurchase our units or redeem or repurchase our subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from our restricted subsidiaries to us; (vii) consolidate, merge or transfer all or substantially all of our assets; (viii) engage in transactions with affiliates; (ix) create unrestricted subsidiaries; (x) enter into sale and leaseback transactions; or (xi) engage in certain business activities. These covenants are subject to a number of important exceptions and qualifications. If the 2021 Notes achieve an investment grade rating from each ofMoody's Investors Service, Inc. andStandard & Poor's Ratings Services and no Default (as defined in the 2021 Indenture) has occurred and is continuing, many of these covenants will terminate. Events of Default. The 2021 Indenture provides that each of the following is an Event of Default: (i) default for 30 days in the payment when due of interest on the 2021 Notes; (ii) default in payment when due of the principal of, or premium, if any, on the 2021 Notes; (iii) failure by us to comply with certain covenants relating to asset sales, repurchases of the 2021 Notes upon a change of control and mergers or consolidations; (iv) failure by us for 180 days after notice to comply with our reporting obligations under the Exchange Act; (v) failure by us for 60 days after notice to comply with any of the other agreements in the 2021 Indenture; (vi) default under any mortgage, indenture or instrument governing any indebtedness for money borrowed or guaranteed by us or any of our restricted subsidiaries, whether such indebtedness or guarantee now exists or is created after the date of the 2021 Indenture, if such default: (a) is caused by a payment default; or (b) results in the acceleration of such indebtedness prior to its stated maturity, and, in each case, the principal amount of the indebtedness, together with the principal amount of any other such indebtedness under which there has been a payment default or acceleration of maturity, aggregates$20.0 million or more, subject to a cure provision; (vii) failure by us or any of our restricted subsidiaries to pay final judgments aggregating in excess of$20.0 million , which judgments are not paid, discharged or stayed for a period of 60 days; (viii) except as permitted by the 2021 Indenture, any subsidiary guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force or effect, or any 2021 Guarantor, or any person acting on behalf of any Guarantor, denies or disaffirms its obligations under its subsidiary guarantee; and (ix) certain events of bankruptcy, insolvency or reorganization described in the 2021 Indenture with respect to the Issuers or any of our restricted subsidiaries that is a significant subsidiary or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary of us. Upon a continuing Event of Default, the 2021 Trustee, by notice to the Issuers, or the holders of at least 25% in principal amount of the then outstanding 2021 Notes, by notice to the Issuers and the 2021 Trustee, may declare the 2021 Notes immediately due and payable, except that an Event of Default resulting from entry into a bankruptcy, insolvency or reorganization with respect to the Issuers, any restricted subsidiary of us that is a significant subsidiary or any group of its restricted subsidiaries that, taken together, would constitute a significant subsidiary of us, will automatically cause the 2021 Notes to become due and payable.
Revolving Credit Facility
AtDecember 31, 2019 , we maintained a$400.0 million revolving credit facility. The revolving credit facility matures on (a)August 31, 2023 , or (b)August 19, 2020 if the 2021 Notes have not been voluntarily refinanced on or prior toAugust 19, 2020 . As ofDecember 31, 2019 , we had$201.0 million outstanding under the revolving credit facility and$12.6 million of outstanding irrevocable letters of credit, leaving a maximum available to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of$186.4 million . After giving effect to our then current borrowings, outstanding letters of credit and the financial covenants contained in our revolving credit facility, we had the ability to borrow approximately$51.5 million in additional amounts thereunder as ofDecember 31, 2019 . The revolving credit facility is used for ongoing working capital needs and general partnership purposes, and to finance permitted investments, acquisitions and capital expenditures. During the year endedDecember 31, 2019 , the outstanding balance of our revolving credit facility has ranged from a low of$201.0 million to a high of$455.0 million . The credit facility is guaranteed by substantially all of our subsidiaries. Obligations under the credit facility are secured by first priority liens on substantially all of our assets and those of the guarantors, including, without limitation, 61 -------------------------------------------------------------------------------- inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in our subsidiaries and certain of our equity method investees. We may prepay all amounts outstanding under the credit facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. The credit facility requires mandatory prepayments of amounts outstanding thereunder with the net proceeds of certain asset sales, equity issuances and debt incurrences. Indebtedness under the credit facility bears interest at our option at the Eurodollar Rate (the British Bankers Association LIBOR Rate) plus an applicable margin or the Base Rate (the highest of the Federal Funds Rate plus 0.50%, the 30-day Eurodollar Rate plus 1.0%, or the administrative agent's prime rate) plus an applicable margin. We pay a per annum fee on all letters of credit issued under the credit facility, and we pay a commitment fee per annum on the unused revolving credit availability under the credit facility. The letter of credit fee, the commitment fee and the applicable margins for our interest rate vary quarterly based on our leverage ratio (as defined in the credit facility, being generally computed as the ratio of total funded debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) and are as follows as ofDecember 31, 2019 : Eurodollar Rate Letters of Leverage Ratio Base Rate Loans Loans Credit Less than 3.00 to 1.00 1.25 %
2.25 % 2.25 % Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00
1.50 % 2.50 % 2.50 % Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00
1.75 % 2.75 % 2.75 % Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00
2.00 % 3.00 % 3.00 % Greater than or equal to 4.50 to 1.00 and less than 5.00 to 1.00
2.25 % 3.25 % 3.25 %
Greater than or equal to 5.00 to 1.00 2.50 % 3.50 % 3.50 %
AtDecember 31, 2019 , the applicable margin for revolving loans that are LIBOR loans ranges from 2.25% to 3.50% and the applicable margin for revolving loans that are base prime rate loans ranges from 1.25% to 2.50%. The applicable margin for LIBOR borrowings atDecember 31, 2019 is 3.50%. The credit facility includes financial covenants that are tested on a quarterly basis, based on the rolling four quarter period that ends on the last day of each fiscal quarter. In addition, the credit facility contains various covenants, which, among other things, limit our and our subsidiaries' ability to: (i) grant or assume liens; (ii) make investments (including investments in our joint ventures) and acquisitions; (iii) enter into certain types of hedging agreements; (iv) incur or assume indebtedness; (v) sell, transfer, assign or convey assets; (vi) repurchase our equity, make distributions and certain other restricted payments, but the credit facility permits us to make quarterly distributions to unitholders so long as no default or event of default exists under the credit facility; (vii) change the nature of our business; (viii) engage in transactions with affiliates; (ix) enter into certain burdensome agreements; (x) make certain amendments to our organizational documents and other material agreements, including the Omnibus Agreement and our material agreements; (xi) make capital expenditures; and (xii) permit our joint ventures to incur indebtedness or grant certain liens. The credit facility contains customary events of default, including, without limitation: (i) failure to pay any principal, interest, fees, expenses or other amounts when due; (ii) failure to meet the quarterly financial covenants; (iii) failure to observe any other agreement, obligation, or covenant in the credit facility or any related loan document, subject to cure periods for certain failures; (iv) the failure of any representation or warranty to be materially true and correct when made; (v) our, or any of our subsidiaries' default under other indebtedness that exceeds a threshold amount; (vi) bankruptcy or other insolvency events involving us or any of our subsidiaries; (vii) judgments against us or any of our subsidiaries, in excess of a threshold amount; (viii) certain ERISA events involving us or any of our subsidiaries, in excess of a threshold amount; (ix) a change in control (as defined in the credit facility); and (x) the invalidity of any of the loan documents or the failure of any of the collateral documents to create a lien on the collateral. The credit facility also contains certain default provisions relating toMartin Resource Management Corporation . IfMartin Resource Management Corporation no longer controls our general partner, the lenders under the credit facility may declare all amounts outstanding thereunder immediately due and payable. In addition, an event of default byMartin Resource Management Corporation under its credit facility could independently result in an event of default under our credit facility if it is deemed to have a material adverse effect on us. 62 -------------------------------------------------------------------------------- If an event of default relating to bankruptcy or other insolvency events occurs with respect to us or any of our subsidiaries, all indebtedness under our credit facility will immediately become due and payable. If any other event of default exists under our credit facility, the lenders may terminate their commitments to lend us money, accelerate the maturity of the indebtedness outstanding under the credit facility and exercise other rights and remedies. In addition, if any event of default exists under our credit facility, the lenders may commence foreclosure or other actions against the collateral.
Capital Resources and Liquidity
Historically, we have generally satisfied our working capital requirements and funded our debt service obligations and capital expenditures with cash generated from operations and borrowings under our revolving credit facility. AtDecember 31, 2019 , we had cash and cash equivalents of$2.8 million and available borrowing capacity of$51.5 million in additional amounts under our revolving credit facility with$201.0 million of borrowings outstanding. Our revolving credit facility matures onAugust 31, 2023 unless our 2021 Notes have not been refinanced on or beforeAugust 19, 2020 . We are currently seeking to refinance the 2021 Notes, although no assurance can be given that we will be able to refinance the 2021 Notes. Upon the successful refinancing of the 2021 Notes, we expect that our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures will be provided by cash flows generated by our operations, borrowings under our revolving credit facility and access to the debt and equity capital markets. Our ability to generate cash from operations will depend upon our future operating performance, which is subject to certain risks. Please read "Item 1A. Risk Factors - Risks related to Our Business" for a discussion of such risks. In addition, due to the covenants in our revolving credit facility, our financial and operating performance impacts the amount we are permitted to borrow under that facility. To address these challenges, over the last 18 months, we have taken a number of strategic actions to strengthen our balance sheet and reduce leverage, such as asset dispositions and acquisitions, reductions in the distributions payable to our unitholders and efforts to focus our growth on business segments with a stronger economic outlook. For example, in an effort to preserve liquidity, we recently reduced the quarterly cash distribution per common unit to$0.0625 beginning with the distribution payable for the fourth quarter of 2019. We expect this distribution reduction, along with the reduction announced in 2019, to result in approximately$68.2 million in cash we can retain annually for debt reduction and investment in higher return opportunities. If we are unable to refinance the 2021 Notes and are unable to repay the outstanding borrowings under our revolving credit facility onAugust 19, 2020 , we would be in default under our revolving credit facility. An event of default under our revolving credit facility would allow the lenders to declare the balance outstanding thereunder due and payable in full, which could trigger cross-defaults under other agreements, which could also result in the acceleration of those obligations by the counterparties to those agreements.
The Partnership is in compliance with all debt covenants as of
Interest Rate Risk
We are subject to interest rate risk on our credit facility due to the variable interest rate and may enter into interest rate swaps to reduce this variable rate risk. Seasonality A substantial portion of our revenues is dependent on sales prices of products, particularly NGLs and fertilizers, which fluctuate in part based on winter and spring weather conditions. The demand for NGLs is strongest during the winter heating season and the refinery blending season. The demand for fertilizers is strongest during the early spring planting season. However, our Terminalling andStorage and Transportation business segments and the molten sulfur business are typically not impacted by seasonal fluctuations and a significant portion of our net income is derived from our Terminalling and Storage, Sulfur Services and Transportation business segments. Further, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling andStorage and Transportation business segments. 63 --------------------------------------------------------------------------------
Impact of Inflation
Inflation did not have a material impact on our results of operations in 2019, 2018 or 2017. Although the impact of inflation has been insignificant in recent years, it is still a factor in theU.S. economy and may increase the cost to acquire or replace property, plant and equipment. It may also increase the costs of labor and supplies. In the future, increasing energy prices could adversely affect our results of operations. Diesel fuel, natural gas, chemicals and other supplies are recorded in operating expenses. An increase in price of these products would increase our operating expenses which could adversely affect net income. We cannot provide assurance that we will be able to pass along increased operating expenses to our customers.
Environmental Matters
Our operations are subject to environmental laws and regulations adopted by
various governmental authorities in the jurisdictions in which these operations
are conducted. We incurred no material environmental costs, liabilities or
expenditures to mitigate or eliminate environmental contamination during 2019,
2018 or 2017.
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