Martin Midstream Par

MMLP
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MARTIN MIDSTREAM PARTNERS L P : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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02/14/2020 | 10:33 pm

Overview




We are a publicly traded limited partnership with a diverse set of operations
focused primarily in the U.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 the U.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 by Martin 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 of December 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 with Martin 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 by Martin Resource Management Corporation
and our use of certain of Martin Resource Management Corporation's trade names
and trademarks. Under the terms of the Omnibus Agreement, the employees of
Martin 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.


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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 in West Texas LPG Pipeline Limited Partnership for $195.0 million
and the sale of a non-strategic terminal asset located in Nevada for $8.0
million
. On January 1, 2019, we completed the next initiative with the
acquisition of Martin Transport, Inc. from Martin Resource Management
Corporation
for $135.0 million, positioning us for cash flow growth. On July 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. On August 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, on January 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 with United 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 ended December 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.




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Our Relationship with Martin Resource Management Corporation




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 to Martin Resource
Management Corporation
under the Omnibus Agreement, we are required to reimburse
Martin Resource Management Corporation for indirect general and administrative
and corporate overhead expenses. For the years ended December 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 reimburse Martin 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 of Martin Resource Management
Corporation
. All of these services and goods are purchased and sold pursuant to
the terms of a number of agreements between us and Martin Resource Management
Corporation
. For a more comprehensive discussion concerning the Omnibus
Agreement and the other agreements that we have entered into with Martin
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 with U.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 with U.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 ended
December 31, 2019, 2018, and 2017, which represents EBITDA, Adjusted EBITDA and
Distributable Cash Flow from continuing operations.

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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


$ 51,160




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

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The results of operations for the years ended December 31, 2019, 2018, and 2017
have been derived from our consolidated financial statements.



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 June 28, 2019 and July 31, 2018, respectively, for the years
ended December 31, 2019, 2018 and 2017. See Item 8, Note 5.



The following table sets forth our operating revenues and operating income by
segment for the years ended December 31, 2019, 2018, and 2017.



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 Ended December 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 $ (150 ) (1)%




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 in Elko, Nevada. In
addition, $1.6 million was a result of decreased activity at our Tampa 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 in Elko,
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 our Tampa specialty terminal.


Selling, general and administrative expenses. Selling, general and
administrative expenses increased primarily as a result of increases in legal
expenses of $0.4 million and compensation expense of $0.3 million.



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.



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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 Ended December 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.



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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 Ended December 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 $0.8 million and the reclassification of expenses from operating
expense to selling, general, and administrative expense of $0.7 million for the
2018 period.



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.



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Sulfur Services Segment




Comparative Results of Operations for the Years Ended December 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
$2.8 million as a result of recent capital expenditures.



Other operating income (loss), net. Other operating income (loss), net
increased as a result of $1.3 million in business interruption recoveries
related to the Neches ship-loader insurance claim received in the fourth quarter
of 2019.



54
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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 $ (8,646 ) (33)%




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 $14.8 million due to an 11%
decrease in sales volumes, primarily related to a 15% decrease in sulfur
volumes. Offsetting, products revenues increased $12.5 million as a result of a
10% rise in average sulfur services sales prices.




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
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Natural Gas Liquids Segment




Comparative Results of Operations for the Years Ended December 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 August 12, 2019.




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 Ended December 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



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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 $0.2 million as a result of
increased repairs and maintenance expense at our underground NGL storage
facility.



Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $1.7 million as a result of $2.3 million in
decreased compensation expense offset by $0.4 million in increased property
taxes and $0.4 million in in increased property damage claims.



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 Ended December 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 $ (659 ) (1)%






Comparative Components of Interest Expense, Net for the Years Ended December 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 with Martin Resource
Management Corporation
retained businesses. This allocation is based on the
percentage of time spent by Martin 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 between
Martin 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 reimburse Martin 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. On July 18, 2019, the Partnership
amended its revolving credit facility to, among other things, extend the
maturity date from March 2020 to August 2023 (provided we have refinanced the
2021 Notes on or before August 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 of December 31, 2019.


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Cash Flows - Year Ended December 31, 2019 Compared to Year Ended December 31,
2018



The following table details the cash flow changes between the years ended
December 31, 2019 and 2018:



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 $ 2,345 1,111%






Net cash provided by operating activities. The decrease in net cash provided by
operating activities for the year ended December 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 ended December 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 December 31, 2019 decreased primarily as a result of $68.7
million
decrease in net payments and a $29.3 million decrease in cash
distributions paid. An additional decrease of $12.1 million is due to
distributions paid related to 2018, which included a pre-acquisition
distribution to Martin Resource Management Corporation related to MTI.
Offsetting was an increase in cash paid of $102.4 million related to excess
purchase price over the carrying value of acquired assets in common control
transactions. Further, costs associated with our credit facility amendment
increased $3.1 million.



Cash Flows - Year Ended December 31, 2018 Compared to Year Ended December 31,
2017



The following table details the cash flow changes between the years ended
December 31, 2018 and 2017:



Years Ended December 31, Percent
2018 2017 Variance Change
(In



thousands)



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 $ 14 $ 197 1,407%






Net cash provided by operating activities. The increase in net cash provided by
operating activities for the year ended December 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 December 31, 2018 increased primarily as
a result of a $180.6 million increase in net cash provided by discontinued
investing activities. Additionally, a decrease in cash used in investing
activities as a result of the acquisition of certain asphalt



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 December 31, 2019 is as
follows (dollars in thousands):




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 Notes

We and Martin Midstream Finance Corp., a subsidiary of us (collectively, the
"Issuers"), entered into (i) an Indenture, dated as of February 11, 2013 (the
"2021 Indenture") among the Issuers, certain subsidiary guarantors (the "2021
Guarantors") and Wells Fargo Bank, National Association, as trustee (the "2021
Trustee") and (ii) a Registration Rights Agreement, dated as of February 11,
2013
(the "2021 Registration Rights Agreement"), among the Issuers, the 2021
Guarantors and Wells Fargo Securities, LLC, RBC Capital Markets, LLC, RBS
Securities Inc.
, SunTrust Robinson Humphrey, Inc. and Merrill 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"). On April 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
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Rule 144A under the Securities Act and to persons outside the United States
pursuant to Regulation S under the Securities Act. The 2021 Notes will mature on
February 15, 2021. The interest payment dates are February 15 and August 15.




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
of Moody's Investors Service, Inc. and Standard & 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




At December 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 to
August 19, 2020.

As of December 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 of December 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 ended December 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,

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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 of December 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 %






At December 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 at December 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 to Martin
Resource Management Corporation
. If Martin 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 by Martin 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.

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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.

At December 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 on August 31, 2023 unless our 2021 Notes have
not been refinanced on or before August 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 on August 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 December 31, 2019
and expects to be in compliance for the next twelve months.



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 and
Storage 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
and Storage and Transportation business segments.


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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 the U.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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