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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ____________ to ____________
 
Commission File Number
000-50056
MARTIN MIDSTREAM PARTNERS L.P.
(Exact name of registrant as specified in its charter)
Delaware   05-0527861
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)
4200 Stone Road
Kilgore, Texas 75662
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (903) 983-6200

Securities registered pursuant to Section 12(b) of the Act
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Units representing limited partnership interests MMLP The NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer
Non-accelerated filer  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes No
 The number of the registrant’s Common Units outstanding at August 7, 2020, was 38,852,507.



Forward-Looking Statements

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements included in this quarterly report that are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto), including, without limitation, the information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements. These statements can be identified by the use of forward-looking terminology including "forecast," "may," "believe," "will," "expect," "anticipate," "estimate," "continue," or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other "forward-looking" information. We and our representatives may from time to time make other oral or written statements that are also forward-looking statements.

These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the "SEC") on February 14, 2020, as updated and supplemented in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020 and Part II, Item 1A of this Quarterly Report on Form 10-Q, and as may be updated and supplemented from time to time in our future Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(Dollars in thousands)
  June 30, 2020 December 31, 2019
(Unaudited) (Audited)
Assets    
Cash $ 52    $ 2,856   
Accounts and other receivables, less allowance for doubtful accounts of $516 and $532, respectively
48,517    87,254   
Inventories 65,668    62,540   
Due from affiliates 18,889    17,829   
Other current assets 9,605    5,833   
Assets held for sale —    5,052   
Total current assets 142,731    181,364   
Property, plant and equipment, at cost 899,225    884,728   
Accumulated depreciation (493,115)   (467,531)  
Property, plant and equipment, net 406,110    417,197   
Goodwill 17,705    17,705   
Right-of-use assets 24,554    23,901   
Deferred income taxes, net 22,404    23,422   
Other assets, net 3,475    3,567   
Total assets $ 616,979    $ 667,156   
Liabilities and Partners’ Capital (Deficit)    
Current installments of long-term debt and finance lease obligations $ 368,150    $ 6,758   
Trade and other accounts payable 45,785    64,802   
Product exchange payables 5,133    4,322   
Due to affiliates 444    1,470   
Income taxes payable 498    472   
Fair value of derivatives —    667   
Other accrued liabilities 26,496    28,789   
Total current liabilities 446,506    107,280   
Long-term debt, net 176,794    569,788   
Finance lease obligations 405    717   
Operating lease liabilities 17,081    16,656   
Other long-term obligations 10,000    8,911   
Total liabilities 650,786    703,352   
Commitments and contingencies
Partners’ capital (deficit) (33,807)   (36,196)  
Total partners’ capital (deficit) (33,807)   (36,196)  
Total liabilities and partners' capital (deficit) $ 616,979    $ 667,156   

See accompanying notes to consolidated and condensed financial statements.
4

MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and units in thousands, except per unit amounts)

Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenues:    
Terminalling and storage  * $ 19,908    $ 21,377    $ 40,382    $ 44,481   
Transportation  * 31,485    41,321    70,426    79,116   
Sulfur services 2,914    2,858    5,829    5,717   
Product sales: *
Natural gas liquids 30,299    57,398    112,510    173,872   
Sulfur services 30,506    32,998    55,914    61,732   
Terminalling and storage 25,526    31,371    54,460    62,438   
  86,331    121,767    222,884    298,042   
Total revenues 140,638    187,323    339,521    427,356   
Costs and expenses:        
Cost of products sold: (excluding depreciation and amortization)
       
Natural gas liquids * 24,293    53,546    94,128    159,736   
Sulfur services * 17,559    22,124    32,854    41,820   
Terminalling and storage * 21,438    26,118    45,118    52,989   
  63,290    101,788    172,100    254,545   
Expenses:        
Operating expenses  * 44,202    53,579    95,484    105,428   
Selling, general and administrative  * 9,858    10,226    20,320    20,426   
Depreciation and amortization 15,343    15,087    30,582    29,988   
Total costs and expenses 132,693    180,680    318,486    410,387   
Other operating income (loss), net 15    (1,633)   2,525    (2,353)  
Operating income 7,960    5,010    23,560    14,616   
Other income (expense):        
Interest expense, net (9,377)   (14,986)   (19,302)   (28,657)  
Gain on retirement of senior unsecured notes —    —    3,484    —   
Other, net        
Total other expense (9,373)   (14,985)   (15,811)   (28,653)  
Net income (loss) before taxes (1,413)   (9,975)   7,749    (14,037)  
Income tax expense (790)   (639)   (1,137)   (1,335)  
Income (loss) from continuing operations (2,203)   (10,614)   6,612    (15,372)  
Income from discontinued operations, net of income taxes
—    (180,568)   —    (179,466)  
Net income (loss) (2,203)   (191,182)   6,612    (194,838)  
Less general partner's interest in net (income) loss 44    3,824    (132)   3,897   
Less (income) loss allocable to unvested restricted units 10    65    (45)   67   
Limited partners' interest in net income (loss) $ (2,149)   $ (187,293)   $ 6,435    $ (190,874)  
See accompanying notes to consolidated and condensed financial statements.

*Related Party Transactions Shown Below
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MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and units in thousands, except per unit amounts)


*Related Party Transactions Included Above
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenues:*        
Terminalling and storage $ 15,942    $ 17,477    $ 31,816    $ 36,449   
Transportation 5,393    5,856    11,287    11,499   
Product Sales 38    286    130    707   
Costs and expenses:*
Cost of products sold: (excluding depreciation and amortization)
Sulfur services 2,554    2,884    5,321    5,458   
Terminalling and storage 4,249    7,203    10,026    13,112   
Expenses:
Operating expenses 19,440    24,407    41,211    46,943   
Selling, general and administrative 8,055    8,558    16,367    17,093   

See accompanying notes to consolidated and condensed financial statements.


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MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and units in thousands, except per unit amounts)


Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Allocation of net income (loss) attributable to:        
   Limited partner interest:        
 Continuing operations $ (2,149)   $ (10,398)   $ 6,435    $ (15,060)  
 Discontinued operations —    (176,895)   —    (175,814)  
  $ (2,149)   $ (187,293)   $ 6,435    $ (190,874)  
   General partner interest:        
  Continuing operations $ (44)   $ (212)   $ 132    $ (307)  
  Discontinued operations —    (3,612)   —    (3,590)  
  $ (44)   $ (3,824)   $ 132    $ (3,897)  
       
Net income (loss) per unit attributable to limited partners:
Basic:        
Continuing operations $ (0.06)   $ (0.27)   $ 0.17    $ (0.39)  
Discontinued operations —    (4.55)   —    (4.52)  
  $ (0.06)   $ (4.82)   $ 0.17    $ (4.91)  
Weighted average limited partner units - basic 38,662    38,871    38,651    38,912   
Diluted:        
Continuing operations $ (0.06)   $ (0.27)   $ 0.17    $ (0.39)  
Discontinued operations —    (4.55)   —    (4.52)  
  $ (0.06)   $ (4.82)   $ 0.17    $ (4.91)  
Weighted average limited partner units - diluted 38,662    38,871    38,652    38,912   

See accompanying notes to consolidated and condensed financial statements.


7

MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF CAPITAL (DEFICIT)
(Unaudited)
(Dollars in thousands)

  Partners’ Capital (Deficit)
  Parent Net Investment Common Limited General Partner Amount  
  Units Amount Total
Balances - January 1, 2019 $ 23,720    39,032,237    $ 258,085    $ 6,627    $ 288,432   
Net loss —    —    (190,941)   (3,897)   (194,838)  
Issuance of common units, net —    —    (259)   —    (259)  
Issuance of restricted units —    16,944    —    —    —   
Forfeiture of restricted units —    (154,288)   —    —    —   
Cash distributions —    —    (28,851)   (589)   (29,440)  
Unit-based compensation —    —    715    —    715   
Purchase of treasury units —    (31,504)   (392)   —    (392)  
Excess purchase price over carrying value of acquired assets
—    —    (102,393)   —    (102,393)  
Deferred taxes on acquired assets and liabilities —    —    24,781    —    24,781   
Contribution to parent (23,720)   —    —    —    (23,720)  
Balances - June 30, 2019 $ —    38,863,389    $ (39,255)   $ 2,141    $ (37,114)  
Balances - January 1, 2020 $ —    38,863,389    $ (38,342)   $ 2,146    $ (36,196)  
Net income —    —    6,480    132    6,612   
Issuance of restricted units —    81,000    —    —    —   
Forfeiture of restricted units —    (84,134)   —    —    —   
Cash distributions —    —    (4,825)   (98)   (4,923)  
Unit-based compensation —    —    709    —    709   
Purchase of treasury units —    (7,748)   (9)   —    (9)  
Balances - June 30, 2020 $ —    38,852,507    $ (35,987)   $ 2,180    $ (33,807)  
 
See accompanying notes to consolidated and condensed financial statements.


8

MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

  Six Months Ended
June 30,
  2020 2019
Cash flows from operating activities:    
Net income (loss) $ 6,612    $ (194,838)  
Less: Loss from discontinued operations, net of income taxes —    179,466   
Net income (loss) from continuing operations 6,612    (15,372)  
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 30,582    29,988   
Amortization and write-off of deferred debt issuance costs 991    2,478   
Amortization of premium on notes payable (153)   (153)  
Deferred income tax expense 1,018    856   
Loss on sale of property, plant and equipment, net 175    2,353   
Gain on retirement of senior unsecured notes (3,484)   —   
Derivative (income) loss (1,463)   2,322   
Net cash paid for commodity derivatives 796    (249)  
Unit-based compensation 709    715   
Change in current assets and liabilities, excluding effects of acquisitions and dispositions:    
Accounts and other receivables 37,180    28,073   
Product exchange receivables —    59   
Inventories (3,128)   3,044   
Due from affiliates (1,060)   (15,947)  
Other current assets (5,547)   (3,061)  
Trade and other accounts payable (16,502)   (2,800)  
Product exchange payables 811    (4,386)  
Due to affiliates (1,026)   428   
Income taxes payable 26    131   
Other accrued liabilities (2,452)   (3,043)  
Change in other non-current assets and liabilities 541    (693)  
Net cash provided by continuing operating activities 44,626    24,743   
Net cash provided by discontinued operating activities —    7,770   
Net cash provided by operating activities 44,626    32,513   
Cash flows from investing activities:    
Payments for property, plant and equipment (19,053)   (14,102)  
Acquisitions —    (23,720)  
Payments for plant turnaround costs (231)   (4,742)  
Proceeds from involuntary conversion of property, plant and equipment 1,768    —   
Proceeds from sale of property, plant and equipment 4,369    659   
Net cash used in continuing investing activities (13,147)   (41,905)  
Net cash provided by discontinued investing activities —    209,155   
Net cash provided by (used in) investing activities (13,147)   167,250   
Cash flows from financing activities:    
Payments of long-term debt and finance lease obligations (160,082)   (362,672)  
Proceeds from long-term debt 131,000    298,000   
Proceeds from issuance of common units, net of issuance related costs —    (259)  
Purchase of treasury units (9)   (392)  
Payment of debt issuance costs (269)   (386)  
Excess purchase price over carrying value of acquired assets —    (102,393)  
Cash distributions paid (4,923)   (29,440)  
Net cash used in financing activities (34,283)   (197,542)  
Net increase (decrease) in cash (2,804)   2,221   
Cash at beginning of period 2,856    300   
Cash at end of period $ 52    $ 2,521   
Non-cash additions to property, plant and equipment $ 1,276    $ 2,248   

See accompanying notes to consolidated and condensed financial statements.
9

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)



NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Martin Midstream Partners L.P. (the "Partnership") is a publicly traded limited partnership with a diverse set of operations focused primarily in the United States ("U.S.") Gulf Coast region. Its 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 natural gas liquids marketing, distribution, and transportation services.
 
The Partnership’s unaudited consolidated and condensed financial statements have been prepared in accordance with the requirements of Form 10-Q and U.S. Generally Accepted Accounting Principles ("U.S. GAAP") for interim financial reporting. Accordingly, these financial statements have been condensed and do not include all of the information and footnotes required by U.S. GAAP for annual audited financial statements of the type contained in the Partnership’s annual reports on Form 10-K. In the opinion of the management of the Partnership’s general partner, all adjustments and elimination of significant intercompany balances necessary for a fair presentation of the Partnership’s financial position, results of operations, and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. Results for such interim periods are not necessarily indicative of the results of operations for the full year. These financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the "SEC") on February 14, 2020.

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated and condensed financial statements in conformity with U.S. GAAP.  Actual results could differ from those estimates.

Restructuring Support Agreement. On June 25, 2020, the Partnership entered into a restructuring support agreement (as amended on July 7, 2020, the "Restructuring Support Agreement") with certain holders (the "Supporting Holders") that beneficially own, as of July 24, 2020, over 74% in principal amount of the Partnership’s 7.25% senior unsecured notes due 2021 (the "2021 Notes"), pursuant to which such holders and the Partnership agreed to enter into and implement a proposed debt restructuring transaction through an exchange offer with respect to the 2021 Notes (the "Exchange Offer") and a cash tender offer (the "Cash Tender Offer").

The Restructuring Support Agreement contemplates the following transactions:

The Partnership agreed to commence the Exchange Offer to exchange the 2021 Notes, held by eligible holders of record, for either of:

(1)$650 in cash for each $1,000 in principal amount of 2021 Notes tendered (together with the Cash Tender Offer, the "Cash Offers"),

(2)$1,000 in principal amount of 11.50% senior secured second lien notes due 2025 (the "Exchange Notes") for each $1,000 in principal amount of 2021 Notes tendered, and

(3)

(a)The right to acquire such holder’s pro rata share of $50 million of 10.00% senior secured 1.5 lien notes due 2024 (the "New Notes", and the offer of the right to acquire such New Notes, the "Rights Offering"), the proceeds of which will be used to fund the Cash Offers;

(b)Holders that participate in the Rights Offering will receive Unused Proceeds (as described below) on a pro rata basis based on the principal amount of 2021 Notes participating in the Rights Offering, and $1,000 in principal amount of Exchange Notes for each $1,000 in principal amount of such holder’s 2021 Notes remaining after application of an amount (the "Unused Proceeds") equal to (i) the difference between $50 million and the amount of cash actually used in the Cash Offers multiplied by (ii) 0.85.
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MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)



In connection with the Exchange Offer, the Partnership agreed to (x) commence a consent solicitation to make certain proposed amendments to the terms of the indenture governing the 2021 Notes to (i) eliminate substantially all of the restrictive covenants in the indenture governing the 2021 Notes, (ii) delete certain events of default and (iii) reduce the required time period for the Partnership to deliver a notice of redemption from at least 30 days before a redemption date to at least three business days before a redemption date and (y) solicit votes to accept the Plan, as further described below.

The Partnership also agreed to commence a Cash Tender Offer to purchase 2021 Notes for $650 in cash for each $1,000 in principal amount of 2021 Notes tendered, to the extent held by holders of record not eligible to participate in the Exchange Offer. In connection with the Cash Tender Offer, the Partnership also agreed to commence a consent solicitation to make certain proposed amendments to the terms of the indenture governing the 2021 Notes, as described above.

Each Supporting Holder agreed to tender its 2021 Notes pursuant to the terms of the Exchange Offer and to deliver corresponding consents.

The Restructuring Support Agreement contemplates various closing conditions, including, among other things, the negotiation of definitive documentation and a minimum tender condition (the "Minimum Participation Condition"), as described below. If the Exchange Offer and Cash Tender Offer are unsuccessful, the Restructuring Support Agreement provides agreed-upon terms for a pre-packaged financial restructuring plan (the "Plan") to be filed in cases commenced under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code" and such cases, the "Chapter 11 Cases"), subject to the terms and conditions of the Restructuring Support Agreement, including in the term sheet and the Plan attached thereto.

As of 5:00 p.m., New York City time, on July 23, 2020 (the “Early Participation Date”), the Partnership received tenders of approximately $335.5 million aggregate principal amount of the 2021 Notes in the Exchange Offer and Cash Tender Offer, which represented approximately 92.045% in principal amount of the 2021 Notes. On July 31, 2020, the required amount of Supporting Holders and the Partnership entered into an amendment to the Restructuring Support Agreement that, among other things, reduced the Minimum Participation Condition from 95% to 92% in principal amount of 2021 Notes tendered. As a result, the Minimum Participation Condition has been satisfied and, subject to satisfaction of other customary closing conditions, the Exchange offer and Cash Tender Offer will be consummated on or about August 12, 2020 and the Plan will not be filed.

The Supporting Holders may terminate the Restructuring Support Agreement if, among other customary termination events, the Partnership files for bankruptcy other than as contemplated by the Restructuring Support Agreement.

The Partnership expects to continue the operation of its business in the ordinary course and does not anticipate interruption in its operations during the restructuring regardless of whether the Partnership conducts its restructuring in or out of the chapter 11 process. The transactions contemplated by the Restructuring Support Agreement are not intended to impact trade vendors, employees, customers, or any related contractual agreements or obligations. The Partnership’s common units will remain outstanding and are not a part of the transactions contemplated by the Restructuring Support Agreement.

See Note 18, "Subsequent Events" for further discussion of the Exchange Offer and the related transactions that are being conducted pursuant to the Restructuring Support Agreement.

        Divestiture of Natural Gas Storage Assets. On June 28, 2019, the Partnership completed the sale of its membership interests in Arcadia Gas Storage, LLC, Cadeville Gas Storage LLC, Monroe Gas Storage Company, LLC and Perryville Gas Storage LLC (the "Natural Gas Storage Assets") to Hartree Cardinal Gas, LLC ("Hartree"), a subsidiary of Hartree Bulk Storage, LLC. The Natural Gas Storage Assets consist of approximately 50 billion cubic feet of working capacity located in northern Louisiana and Mississippi. In consideration of the sale of the Natural Gas Storage Assets, the Partnership received cash proceeds of $210,067 after transaction fees and expenses. The net proceeds were used to reduce outstanding borrowings under the Partnership's revolving credit facility. The Partnership concluded the disposition represented a strategic shift which had a major effect on its financial results going forward. As a result, the Partnership has presented the results of operations and
11

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


cash flows relating to the Natural Gas Storage Assets as discontinued operations for the three and six months ended June 30, 2019. See Note 3 for more information.

Impact of COVID-19 Pandemic. A novel strain of coronavirus ("COVID-19") surfaced in late 2019 and has spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic. Due to the economic impacts of the COVID-19 pandemic, the markets have experienced a decline in oil prices in response to oil demand concerns. These concerns were further exacerbated by the price war among members of the Organization of Petroleum Exporting Countries ("OPEC") and other non-OPEC producer nations during the first quarter of 2020 and global storage considerations. Travel restrictions and stay-at-home orders implemented by governments in many regions and countries across the globe, including the United States, have greatly impacted the demand for refined products resulting in a significant reduction in refinery utilization.

The COVID-19 pandemic has impacted the Partnership's 2020 performance to date, and the Partnership expects to continue to experience the impacts of COVID-19 throughout the remainder of 2020 as a result of continued reduction in refined product demand across the industries the Partnership serves. The extent to which the duration and severity of the pandemic impacts our business, results of operations, and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted at this time. Accordingly, it is possible that the impact of the COVID-19 pandemic could have a material adverse effect on the Partnership's results of operations, financial position and cash flows for the year ended December 31, 2020, including the recoverability of long-lived assets and goodwill, the valuation of inventory, and the amount of expected credit losses.

        Management considered the impact of the COVID-19 pandemic on the assumptions and estimates used in the preparation of the financial statements. Management identified triggering events requiring the performance of impairment testing of long-lived assets and goodwill related to both the performance of the Partnership's unit price during the first quarter of 2020 and certain of the Partnership's businesses that are sensitive to reductions in refined product demand and refinery utilization. As a result, the Partnership recorded impairment charges totaling $4,352 related to long-lived assets during the first quarter of 2020. See Note 3 for more information. No impairments were identified related to goodwill. A sustained reduction in refinery demand and utilization could lead to future asset impairments as well as adversely affect access to capital and financing to be able to meet future obligations. Management also assessed the extent to which the current macroeconomic events brought about by COVID-19 and significant declines in refined product demand impacted the valuation of expected credit losses on accounts receivable and certain inventory items or resulted in modifications to any significant contracts. Ultimately the results of these assessments did not have a material impact on the Partnership's results as of June 30, 2020.

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

        During the first quarter of 2020, the Partnership adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses," which required the Partnership to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaced the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables. Adoption of the new standard did not have a material impact on the Partnership’s consolidated financial statements.

NOTE 3. DIVESTITURES AND DISCONTINUED OPERATIONS
        
Divestiture of Natural Gas Storage Assets. On June 28, 2019, the Partnership completed the sale of the Natural Gas Storage Assets to Hartree, a subsidiary of Hartree Bulk Storage, LLC. The Natural Gas Storage Assets consist of approximately 50 billion cubic feet of working capacity located in northern Louisiana and Mississippi. In consideration of the sale of these assets, the Partnership received cash proceeds of $210,067 after transaction fees and expenses. The net proceeds were used to reduce outstanding borrowings under the Partnership's revolving credit facility. The Partnership has concluded the disposition represents a strategic shift and will have a major effect on its financial results going forward. As a result, the Partnership has presented the results of operations and cash flows relating to the Natural Gas Storage Assets as discontinued operations for the three and six months ended June 30, 2019.

        The operating results, which are included in income from discontinued operations, were as follows:
12

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


  Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
 
Total revenues
$ 11,902    $ 22,836   
Total costs and expenses and other, net, excluding depreciation and amortization
(9,609)   (15,360)  
Depreciation and amortization
(4,080)   (8,161)  
Other operating loss1
(178,781)   (178,781)  
Loss from discontinued operations before income taxes
(180,568)   (179,466)  
Income tax expense
—    —   
Loss from discontinued operations, net of income taxes
$ (180,568)   $ (179,466)  

1 The three and six months ended June 30, 2019 includes a loss on the disposition of the Natural Gas Storage Assets of $178,781.

Long-Lived Assets Held for Sale

        At December 31, 2019, certain terminalling and storage and transportation assets met the criteria to be classified as held for sale in accordance with ASC 360-10 and are presented at the lower of the assets' carrying amount or fair value less cost to sell by segment in current assets in the table below. These assets are considered non-core assets to the Partnership's operations and did not qualify for discontinued operations presentation under the guidance of ASC 205-20.
  June 30,
2020
December 31, 2019
 
Terminalling and storage $ —    $ 3,552   
Transportation —    1,500   
    Assets held for sale $ —    $ 5,052   
        
        In the first quarter of 2020, the Partnership identified a triggering event related to a decline in the fair value related to the assets classified as held for sale at December 31, 2019. As a result, an impairment charge of $3,052 and $1,300 was recorded in the Terminalling and Storage and Transportation segments, respectively, during the three months ended March 31, of 2020 and was recorded in "Other operating income (loss)" in the Partnership's Consolidated and Condensed Statements of Operations. At June 30, 2020, the remaining assets previously classified as held for sale in the amount of $700 no longer met the criteria to be classified as held for sale in accordance with ASC 360-10.

13

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


NOTE 4. REVENUE

        The following table disaggregates our revenue by major source:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Terminalling and storage segment
Lubricant product sales $ 25,526    $ 31,371    $ 54,460    $ 62,438   
Throughput and storage 19,908    21,377    40,382    44,481   
$ 45,434    $ 52,748    $ 94,842    $ 106,919   
Natural gas liquids segment
Natural gas liquids product sales $ 30,299    $ 57,398    $ 112,510    $ 173,872   
$ 30,299    $ 57,398    $ 112,510    $ 173,872   
Sulfur services segment
Sulfur product sales $ 6,367    $ 8,204    $ 12,849    $ 18,156   
Fertilizer product sales 24,139    24,794    43,065    43,576   
Sulfur services 2,914    2,858    5,829    5,717   
$ 33,420    $ 35,856    $ 61,743    $ 67,449   
Transportation segment
Land transportation $ 19,873    $ 25,497    $ 44,107    $ 49,616   
Inland transportation 10,611    14,188    24,317    26,665   
Offshore transportation 1,001    1,636    2,002    2,835   
$ 31,485    $ 41,321    $ 70,426    $ 79,116   

        Revenue is measured based on a consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties where the Partnership is acting as an agent. The Partnership recognizes revenue when the Partnership satisfies a performance obligation, which typically occurs when the Partnership transfers control over a product to a customer or as the Partnership delivers a service.

        The following is a description of the principal activities - separated by reportable segments - from which the Partnership generates revenue.

Terminalling and Storage Segment

        Revenue is recognized for storage contracts based on the contracted monthly tank fixed fee.  For throughput contracts, revenue is recognized based on the volume moved through the Partnership’s terminals at the contracted rate.  For the Partnership’s tolling agreement, revenue is recognized based on the contracted monthly reservation fee and throughput volumes moved through the facility.  When lubricants and drilling fluids are sold by truck or rail, revenue is recognized when title is transferred, which is either upon delivering product to the customer or when the product leaves the Partnership's facility, depending on the specific terms of the contract. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Throughput and storage revenue in the table above includes non-cancelable revenue arrangements that are under the scope of ASC 842, whereby the Partnership has committed certain Terminalling and Storage assets in exchange for a minimum fee.

Natural Gas Liquids Segment

        Natural Gas Liquids ("NGL") distribution revenue is recognized when product is delivered by truck, rail, or pipeline to the Partnership's NGL customers. Revenue is recognized on title transfer of the product to the customer. Delivery of product is invoiced as the transaction occurs and is generally paid within a month.
14

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)



Sulfur Services Segment

        Revenue from sulfur and fertilizer product sales is recognized when the customer takes title to the product.  Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Revenue from sulfur services is recognized as services are performed during each monthly period. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.

Transportation Segment

        Revenue related to land transportation is recognized for line hauls based on a mileage rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.

        Revenue related to marine transportation is recognized for time charters based on a per day rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.

        The table includes estimated minimum revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period. The Partnership applies the practical expedient in ASC 606-10-50-14(a) and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
2020 2021 2022 2023 2024 Thereafter Total
Terminalling and storage
Throughput and storage $ 23,123    $ 43,273    $ 40,394    $ 41,605    $ 42,854    $ 338,339    $ 529,588   
Sulfur services
Sulfur product sales 12,980    17,025    14,879    13,834    975    975    60,668   
Total $ 36,103    $ 60,298    $ 55,273    $ 55,439    $ 43,829    $ 339,314    $ 590,256   

NOTE 5. INVENTORIES

Components of inventories at June 30, 2020 and December 31, 2019 were as follows: 
  June 30,
2020
December 31,
2019
Natural gas liquids $ 26,783    $ 19,097   
Sulfur 5,257    4,586   
Fertilizer 11,478    15,852   
Lubricants 18,209    18,925   
Other 3,941    4,080   
  $ 65,668    $ 62,540   

15

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


NOTE 6. DEBT

At June 30, 2020 and December 31, 2019, long-term debt consisted of the following:
  June 30,
2020
December 31,
2019
$400,000 Revolving credit facility at variable interest rate (3.44%1 weighted average at June 30, 2020), due August 20234 secured by substantially all of the Partnership’s assets, including, without limitation, inventory, accounts receivable, vessels, equipment, fixed assets and the interests in the Partnership’s operating subsidiaries, net of unamortized debt issuance costs of $4,206 and $4,586, respectively2
$ 176,794    $ 196,414   
$400,000 Senior notes, 7.25% interest, net of unamortized debt issuance costs of $428 and $770, respectively, including unamortized premium of $191 and $344, respectively, issued $250,000 February 2013 and $150,000 April 2014, $26,200 repurchased during 2015, $9,344 repurchased during 2020, due February 2021, unsecured 2,3,4,5
364,219    373,374   
Total 541,013    569,788   
Less: current portion (364,219)   —   
Total long-term debt, net of current portion $ 176,794    $ 569,788   
Current installments of finance lease obligations $ 3,931    $ 6,758   
Finance lease obligations 405    717   
Total finance lease obligations $ 4,336    $ 7,475   
  
        1 Interest rate fluctuates based on the LIBOR rate plus an applicable margin set on the date of each advance. The margin above LIBOR is set every three months. Indebtedness under the credit facility bears interest at LIBOR plus an applicable margin or the base prime rate plus an applicable margin. All amounts outstanding at June 30, 2020 and December 31, 2019 were at LIBOR plus an applicable margin. The applicable margin for revolving loans that are LIBOR loans currently ranges from 2.25% to 3.50% and the applicable margin for revolving loans that are base prime rate loans currently ranges from 1.25% to 2.50%.  The applicable margin for existing LIBOR borrowings at June 30, 2020 is 3.25%. The credit facility contains various covenants which limit the Partnership’s ability to make distributions; make certain investments and acquisitions; enter into certain agreements; incur indebtedness; sell assets; and make certain amendments to the Partnership's omnibus agreement with Martin Resource Management Corporation (the "Omnibus Agreement"). Upon the earlier of (i) the closing of the Exchange Offer and related transactions and (ii) August 15, 2020, the applicable margin for revolving loans that are LIBOR loans will range from 2.75% to 4.00% and the applicable margin for revolving loans that are base prime rate loans will range from 1.75% to 3.00%. Starting on such date, LIBOR will have a floor of 1.0% per annum.

        2 The Partnership is in compliance with all debt covenants as of June 30, 2020 and December 31, 2019, respectively.

        3 The 2021 indenture restricts the Partnership’s ability to sell assets; pay distributions or repurchase units or redeem or repurchase subordinated debt; make investments; incur or guarantee additional indebtedness or issue preferred units; and consolidate, merge or transfer all or substantially all of its assets.

        4 As of June 30, 2020, the 2021 Notes were due within twelve months and have therefore been presented as a current liability on the Consolidated and Condensed Balance Sheets at June 30, 2020. The Partnership's amended revolving credit facility includes a provision that accelerates the August 31, 2023 maturity date of the revolving credit facility to (i) August 19, 2020 if either (x) more than $36.5 million of the 2021 Notes remain outstanding after completion of the Exchange Offer or (y) the Exchange Offer has not been completed by August 15, 2020 and the Partnership has not commenced the chapter 11 proceedings contemplated by the Plan prior to August 19, 2020 or (ii) October 16, 2020 if the Partnership commences such chapter 11 proceedings and the Plan is not effective by October 16, 2020.

On July 8, 2020, the Partnership amended its revolving credit facility to, among other things, permit the Exchange Offer. Certain of the amendments to the revolving credit facility became effective immediately, such as a modification to its maturity date to facilitate either the Exchange Offer or the Plan. Other amendments to the revolving credit facility will become effective upon the completion of the Exchange Offer and related transactions, or on August 15, 2020 if the Exchange Offer and
16

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


such related transactions have not closed by such date. The subsequent amendments to the Partnership’s revolving credit facility include, among other things, a reduction of the aggregate revolving commitments thereunder from $400 million to $300 million and an increase in the pricing under the revolving credit facility.

On July 9, 2020, the Partnership commenced the Exchange Offer and related transactions and offers contemplated by the Restructuring Support Agreement. As of the Early Participation Date, the Partnership received sufficient 2021 Notes tendered such that the Minimum Participation Condition has been satisfied and, subject to satisfaction of other customary closing conditions, the Exchange offer and Cash Tender Offer will be consummated on or about August 12, 2020 and the Plan will not be filed. In addition, the Partnership received the requisite majority consent necessary for the adoption of the proposed amendments to the indenture governing the 2021 Notes (the “2021 Notes Indenture”), which will, among other things, eliminate substantially all of the restrictive covenants in the 2021 Notes Indenture, delete certain events of default, and shorten the period of advance notice required to be given to holders of 2021 Notes from 30 days to three business days in the case of a redemption of the 2021 Notes. See Note 18, "Subsequent Events" for further discussion of the Exchange Offer and related transactions.

If we are unable to refinance the 2021 Notes either via the Exchange Offer or the Plan, in each case as contemplated by the Restructuring Support Agreement, 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.

Pending the successful implementation of the refinancing of the 2021 Notes, the conditions described above have raised substantial doubt about the Partnership’s ability to continue as a going concern. The Partnership’s management is engaged in ongoing communication with credit providers and presently believes the measures being taken will enable the Partnership to successfully refinance the 2021 Notes and comply with covenants under its revolving credit facility, although no assurance can be given.

        5 In March 2020, the Partnership repurchased on the open market an aggregate $9,344 of the 2021 Notes, resulting in a gain on retirement of $3,484.

        The Partnership paid cash interest, net of capitalized interest, in the amount of $2,376 and $7,330 for the three months ended June 30, 2020 and 2019, respectively. The Partnership paid cash interest, net of capitalized interest, in the amount of $19,113 and $26,693 for the six months ended June 30, 2020 and 2019, respectively.  Capitalized interest was $6 and $0 for the three months ended June 30, 2020 and 2019, respectively. Capitalized interest was $9 and $2 for the six months ended June 30, 2020 and 2019, respectively.

NOTE 7. LEASES
        
        The Partnership has numerous operating leases primarily for terminal facilities and transportation and other equipment. The leases generally provide that all expenses related to the equipment are to be paid by the lessee.

        Operating lease Right-of-Use ("ROU") assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Partnership's leases do not provide an implicit rate of return, the Partnership uses its imputed collateralized rate based on the information available at commencement date in determining the present value of lease payments. The estimated rate is based on a risk-free rate plus a risk-adjusted margin.

Our leases have remaining lease terms of 1 year to 17 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year. The Partnership includes extension periods and excludes termination periods from its lease term if, at commencement, it is reasonably likely that the Partnership will exercise the option.
        
17

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


        The components of lease expense for the six months ended June 30, 2020 and 2019 were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Operating lease cost $ 2,767    $ 2,784    $ 5,611    $ 5,381   
Finance lease cost:
     Amortization of right-of-use assets $ 526    688    $ 1,115    1,310   
     Interest on lease liabilities $ 86    185    $ 196    368   
Short-term lease cost $ 3,492    2,671    $ 6,915    5,222   
Variable lease cost $ 22    $ 22    $ 50    $ 50   
Total lease cost $ 6,893    $ 6,350    $ 13,887    $ 12,331   
        
Supplemental balance sheet information related to leases at June 30, 2020 and December 31, 2019 was as follows:
June 30,
2020
December 31, 2019
Operating Leases
Operating lease right-of-use assets $ 24,554    $ 23,901   
Current portion of operating lease liabilities included in "Other accrued liabilities" $ 7,906    $ 7,722   
Operating lease liabilities $ 17,081    16,656   
     Total operating lease liabilities $ 24,987    $ 24,378   
Finance Leases
Property, plant and equipment, at cost $ 11,107    $ 15,367   
Accumulated depreciation $ (3,360)   (3,941)  
     Property, plant and equipment, net $ 7,747    $ 11,426   
Current installments of finance lease obligations $ 3,931    $ 6,758   
Finance lease obligations $ 405    717   
     Total finance lease obligations $ 4,336    $ 7,475   

18

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


        The Partnership’s future minimum lease obligations as of June 30, 2020 consist of the following:
Operating Leases Finance Leases
Year 1 $ 8,964    $ 4,044   
Year 2 6,731    252   
Year 3 4,055    172   
Year 4 1,887    —   
Year 5 1,210    —   
Thereafter 6,319    —   
     Total $ 29,166    $ 4,468   
     Less amounts representing interest costs (4,179)   (132)  
Total lease liability $ 24,987    $ 4,336   

        The Partnership has non-cancelable revenue arrangements that are under the scope of ASC 842 whereby we have committed certain terminalling and storage assets in exchange for a minimum fee. Future minimum revenues the Partnership expects to receive under these non-cancelable arrangements as of June 30, 2020 are as follows: 2020 - $9,960; 2021 - $14,019; 2022 - $13,004; 2023 - $12,609; 2024 - $12,609; subsequent years - $49,414.
19

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


NOTE 8. SUPPLEMENTAL BALANCE SHEET INFORMATION
        
        Components of "Other accrued liabilities" were as follows:
  June 30,
2020
December 31, 2019
Accrued interest $ 10,121    $ 10,761   
Asset retirement obligations —    25   
Property and other taxes payable 4,305    5,411   
Accrued payroll 2,749    3,011   
Operating lease liabilities 7,906    7,722   
Other 1,415    1,859   
  $ 26,496    $ 28,789   

The schedule below summarizes the changes in our asset retirement obligations:
  June 30, 2020
 
Beginning asset retirement obligations $ 8,936   
Additions to asset retirement obligations 379   
Accretion expense 206   
Liabilities settled (510)  
Ending asset retirement obligations 9,011   
Current portion of asset retirement obligations1
—   
Long-term portion of asset retirement obligations2
$ 9,011   

1The current portion of asset retirement obligations is included in "Other accrued liabilities" on the Partnership's Consolidated and Condensed Balance Sheets.

2The non-current portion of asset retirement obligations is included in "Other long-term obligations" on the Partnership's Consolidated and Condensed Balance Sheets.

20

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


NOTE 9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Partnership’s revenues and cost of products sold are materially impacted by changes in commodity prices. Additionally, the Partnership's results of operations are materially impacted by changes in interest rates. In an effort to manage its exposure to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate hedges. All derivatives and hedging instruments are non-hedge derivatives and are included on the balance sheet as an asset or a liability measured at fair value and changes in fair value are recognized as gains and losses in earnings of the periods in which they occur.

(a) Commodity Derivative Instruments

        The Partnership from time to time has used derivatives to manage the risk of commodity price fluctuation. Commodity risk is the adverse effect on the value of a liability or future purchase that results from a change in commodity price.  The Partnership monitors and manages the commodity market risk associated with potential commodity risk exposure.  In addition, the Partnership has focused on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction. These hedging arrangements are in the form of swaps for NGLs. At June 30, 2020, the Partnership has instruments totaling a gross notional quantity of 0 barrels. At December 31, 2019, the Partnership had instruments totaling a gross notional quantity of 452,000 barrels settling during the period from January 31, 2020 through February 29, 2020. These instruments settle against the applicable pricing source for each grade and location.

(b) Interest Rate Derivative Instruments

        The Partnership is exposed to market risks associated with interest rates. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We minimize this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. From time to time, the Partnership enters into interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate credit facility and its 2021 Notes. At June 30, 2020 and December 31, 2019, the Partnership did not have any outstanding interest rate derivative instruments.

        For information regarding gains and losses on interest rate derivative instruments, see "Tabular Presentation of Gains and Losses on Derivative Instruments" below.

(c) Tabular Presentation of Gains and Losses on Derivative Instruments

        The following table summarizes the fair value and classification of the Partnership’s derivative instruments in its Consolidated and Condensed Balance Sheets:
  Fair Values of Derivative Instruments in the Consolidated and Condensed Balance Sheets
Derivative Assets Derivative Liabilities
    Fair Values   Fair Values
 
 Balance Sheet Location
June 30, 2020 December 31, 2019
 Balance Sheet Location
June 30, 2020 December 31, 2019
Derivatives not designated as hedging instruments:
Current:
Commodity contracts Fair value of derivatives $ —    $ —    Fair value of derivatives $ —    $ 667   
Total derivatives not designated as hedging instruments
  $ —    $ —      $ —    $ 667   



21

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


Effect of Derivative Instruments on the Consolidated and Condensed Statements of Operations
For the Three Months Ended June 30, 2020 and 2019
  Location of Gain (Loss)
Recognized in Income on
 Derivatives
Amount of Gain (Loss) Recognized in
Income on Derivatives
    2020 2019
Derivatives not designated as hedging instruments:
   
Commodity contracts Cost of products sold $ (162)   $ (2,083)  
Total effect of derivatives not designated as hedging instruments $ (162)   $ (2,083)  

Effect of Derivative Instruments on the Consolidated and Condensed Statements of Operations
For the Six Months Ended June 30, 2020 and 2019
  Location of Gain (Loss)
Recognized in Income on
 Derivatives
Amount of Gain (Loss) Recognized in
Income on Derivatives
    2020 2019
Derivatives not designated as hedging instruments:
   
Commodity contracts Cost of products sold $ (129)   $ (2,322)  
Total effect of derivatives not designated as hedging instruments $ (129)   $ (2,322)  

NOTE 10. PARTNERS' CAPITAL

As of June 30, 2020, Partners’ capital consisted of 38,852,507 common limited partner units, representing a 98% partnership interest, and a 2% general partner interest. Martin Resource Management Corporation, through subsidiaries, owns 6,114,532 of the Partnership's common limited partner units representing approximately 15.7% of the Partnership's outstanding common limited partner units. Martin Midstream GP LLC ("MMGP"), the Partnership's general partner, owns the 2% general partnership interest. Martin Resource Management Corporation controls the Partnership's general partner, by virtue of its 51% voting interest in MMGP Holdings, LLC ("Holdings"), the sole member of the Partnership's general partner.

The partnership agreement of the Partnership (the "Partnership Agreement") contains specific provisions for the allocation of net income and losses to each of the partners for purposes of maintaining their respective partner capital accounts.

Incentive Distribution Rights

MMGP holds a 2% general partner interest and certain incentive distribution rights ("IDRs") in the Partnership. IDRs are a separate class of non-voting limited partner interest that may be transferred or sold by the general partner under the terms of the Partnership Agreement, and represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution and any cumulative arrearages on common units once certain target distribution levels have been achieved. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the Partnership Agreement. The general partner was allocated no incentive distributions during the six months ended June 30, 2020 and 2019.
 
The target distribution levels entitle the general partner to receive 2% of quarterly cash distributions from the minimum of $0.50 per unit up to $0.55 per unit, 15% of quarterly cash distributions in excess of $0.55 per unit until all unitholders have received $0.625 per unit, 25% of quarterly cash distributions in excess of $0.625 per unit until all unitholders have received $0.75 per unit and 50% of quarterly cash distributions in excess of $0.75 per unit.
 
22

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


Distributions of Available Cash

The Partnership distributes all of its available cash (as defined in the Partnership Agreement) within 45 days after the end of each quarter to unitholders of record and to the general partner. Available cash is generally defined as all cash and cash equivalents of the Partnership on hand at the end of each quarter less the amount of cash reserves its general partner determines in its reasonable discretion is necessary or appropriate to: (i) provide for the proper conduct of the Partnership’s business; (ii) comply with applicable law, any debt instruments or other agreements; or (iii) provide funds for distributions to unitholders and the general partner for any one or more of the next four quarters, plus all cash on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter.

Net Income per Unit

The Partnership follows the provisions of the FASB ASC 260-10 related to earnings per share, which addresses the application of the two-class method in determining income per unit for master limited partnerships having multiple classes of securities that may participate in partnership distributions accounted for as equity distributions. Undistributed earnings are allocated to the general partner and limited partners utilizing the contractual terms of the Partnership Agreement. Distributions to the general partner pursuant to the IDRs are limited to available cash that will be distributed as defined in the Partnership Agreement. Accordingly, the Partnership does not allocate undistributed earnings to the general partner for the IDRs because the general partner's share of available cash is the maximum amount that the general partner would be contractually entitled to receive if all earnings for the period were distributed. When current period distributions are in excess of earnings, the excess distributions for the period are to be allocated to the general partner and limited partners based on their respective sharing of income and losses specified in the Partnership Agreement. Additionally, as required under FASB ASC 260-10-45-61A, unvested share-based payments that entitle employees to receive non-forfeitable distributions are considered participating securities, as defined in FASB ASC 260-10-20, for earnings per unit calculations.

For purposes of computing diluted net income per unit, the Partnership uses the more dilutive of the two-class and if-converted methods. Under the if-converted method, the weighted-average number of subordinated units outstanding for the period is added to the weighted-average number of common units outstanding for purposes of computing basic net income per unit and the resulting amount is compared to the diluted net income per unit computed using the two-class method. The following is a reconciliation of net income from continuing operations and net income from discontinued operations allocated to the general partner and limited partners for purposes of calculating net income attributable to limited partners per unit:
  Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Continuing operations:
Income (loss) from continuing operations $ (2,203)   $ (10,614)   $ 6,612    $ (15,372)  
Less general partner’s interest in net income (loss):
Distributions payable on behalf of general partner interest   11    53    31   
General partner interest in undistributed income (loss)
(48)   (223)   79    (338)  
Less income (loss) allocable to unvested restricted units (10)   (4)   45    (5)  
Limited partners’ interest in net income (loss) $ (2,149)   $ (10,398)   $ 6,435    $ (15,060)  

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MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2020
(Unaudited)


  Three Months Ended June 30, Six Months Ended June 30,
2020 2019