|
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in the United States ("U.S.") Gulf Coast region. Our four primary business lines include:
|
|
•
|
Terminalling and storage services for petroleum products and by-products, including the refining of naphthenic crude oil and the blending and packaging of finished lubricants;
|
|
|
•
|
Natural gas liquids transportation and distribution services and natural gas storage;
|
|
|
•
|
Sulfur and sulfur-based products gathering, processing, marketing, manufacturing and distribution; and
|
|
|
•
|
Marine transportation services for petroleum products and by-products.
|
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, fertilizer manufacturers 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, 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 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 is an important supplier and customer of ours. As of
December 31, 2018
, Martin Resource Management owned 15.7% of our total outstanding common limited partner units. Furthermore, Martin Resource Management controls Martin Midstream GP LLC ("MMGP"), our general partner, by virtue of its 51% voting interest in MMGP Holdings, LLC ("Holdings"), the sole member of MMGP. MMGP owns a 2% general partner interest in us and all of our incentive distribution rights. Martin Resource Management directs our business operations through its ownership interests in and control of our general partner.
We entered into an omnibus agreement dated November 1, 2002, with Martin Resource Management (the "Omnibus Agreement") that 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 and our use of certain of Martin Resource Management’s trade names and trademarks. Under the terms of the Omnibus Agreement, the employees of Martin Resource Management are responsible for conducting our business and operating our assets. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into finished products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management.
Martin Resource Management has operated our business since 2002. Martin Resource Management began operating our natural gas services business in the 1950s and our sulfur business in the 1960s. It began our marine transportation business in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s. In recent years, Martin Resource Management has increased the size of our asset base through expansions and strategic acquisitions.
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, 2018
and
2017
:
|
|
|
|
|
|
Description
|
|
Judgments and Uncertainties
|
|
Effect if Actual Results Differ from Estimates and Assumptions
|
Impairment of Long-Lived Assets
|
We periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of the assets may not be recoverable. These evaluations are based on undiscounted cash flow projections over the remaining useful life of 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.
|
|
Our impairment analyses require management to use judgment in estimating future cash flows and useful lives, as well as assessing the probability of different outcomes.
|
|
Applying this impairment review methodology, no impairment of long-lived assets was recorded during the year ended December 31, 2018. In 2017, we recorded an impairment charge of $1.6 million in our Marine Transportation segment and $0.6 million in our Terminalling and Storage segment.
|
Asset Retirement Obligations
|
Asset retirement obligations ("AROs") associated with a contractual or regulatory remediation requirement are recorded at fair value in the period in which the obligation can be reasonably estimated 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.
|
|
Determining the fair value of AROs requires management judgment to evaluate required remediation activities, estimate the cost of those activities and determine the appropriate interest rate.
|
|
If actual results differ from judgments and assumptions used in valuing an ARO, we may experience significant changes in ARO balances. The establishment of an ARO has no initial impact on earnings.
|
Our Relationship with Martin Resource Management
Martin Resource Management directs our business operations through its ownership and control of our general partner and under the Omnibus Agreement. In addition to the direct expenses, under the Omnibus Agreement, we are required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. For the
years ended December 31,
2018
,
2017
and
2016
, the conflicts committee of our general partner ("Conflicts Committee") approved reimbursement amounts of $16.4 million, $16.4 million and $13.0 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 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 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. Among other things, we provide marine transportation and terminalling and storage services to Martin Resource Management. We purchase land transportation services and marine fuel from Martin Resource Management (the Partnership acquired MTI effective January 1, 2019). 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.
For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into with Martin Resource Management, 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, 2018
,
2017
, and
2016
, which represents EBITDA, Adjusted EBITDA and Distributable Cash Flow from continuing operations.
Reconciliation of EBITDA, Adjusted EBITDA, and Distributable Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Net income
|
$
|
44,105
|
|
|
$
|
17,135
|
|
|
$
|
31,652
|
|
Less: Income from discontinued operations, net of income taxes
|
(51,700
|
)
|
|
(4,128
|
)
|
|
(4,649
|
)
|
Income (loss) from continuing operations
|
(7,595
|
)
|
|
13,007
|
|
|
27,003
|
|
Adjustments:
|
|
|
|
|
|
Interest expense
|
52,037
|
|
|
47,743
|
|
|
46,100
|
|
Income tax expense
|
369
|
|
|
352
|
|
|
726
|
|
Depreciation and amortization
|
76,866
|
|
|
85,195
|
|
|
92,132
|
|
EBITDA
|
121,677
|
|
|
146,297
|
|
|
165,961
|
|
Adjustments:
|
|
|
|
|
|
(Gain) loss on sale of property, plant and equipment
|
379
|
|
|
(523
|
)
|
|
(33,400
|
)
|
Impairment of long-lived assets
|
—
|
|
|
2,225
|
|
|
26,953
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
4,145
|
|
Unrealized mark-to-market on commodity derivatives
|
(76
|
)
|
|
(3,832
|
)
|
|
4,579
|
|
Hurricane damage repair accrual
|
—
|
|
|
657
|
|
|
—
|
|
Asset retirement obligation revision
|
—
|
|
|
5,547
|
|
|
—
|
|
Unit-based compensation
|
1,224
|
|
|
650
|
|
|
904
|
|
Transaction costs associated with acquisitions
|
465
|
|
|
—
|
|
|
—
|
|
Adjusted EBITDA
|
123,669
|
|
|
151,021
|
|
|
169,142
|
|
Adjustments:
|
|
|
|
|
|
Interest expense
|
(52,037
|
)
|
|
(47,743
|
)
|
|
(46,100
|
)
|
Income tax expense
|
(369
|
)
|
|
(352
|
)
|
|
(726
|
)
|
Amortization of deferred debt issuance costs
|
3,445
|
|
|
2,897
|
|
|
3,684
|
|
Amortization of debt premium
|
(306
|
)
|
|
(306
|
)
|
|
(306
|
)
|
Non-cash mark-to-market on interest rate derivatives
|
—
|
|
|
—
|
|
|
(206
|
)
|
Payments for plant turnaround costs
|
(1,893
|
)
|
|
(1,583
|
)
|
|
(2,061
|
)
|
Maintenance capital expenditures
|
(21,505
|
)
|
|
(18,080
|
)
|
|
(17,163
|
)
|
Distributable Cash Flow
1
|
$
|
51,004
|
|
|
$
|
85,854
|
|
|
$
|
106,264
|
|
1
Excludes distributable cash flow from discontinued operations were $3,253, $5,214 and $7,435 for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Results of Operations
The results of operations for the
years ended December 31,
2018
,
2017
, and
2016
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 equity in earnings (loss) of unconsolidated entities, interest expense, and indirect selling, general and administrative expenses, are discussed after the comparative discussion of our results within each segment.
The Natural Gas Services segment information below excludes the discontinued operations of the WTLPG partnership interests disposed of on July 31, 2018 for the years ended December 31, 2018, 2017 and 2016. See Item 8, Note 5.
The following table sets forth our operating revenues and operating income by segment for the
years ended December 31,
2018
,
2017
, and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
Revenues
Intersegment Eliminations
|
|
Operating Revenues
after Eliminations
|
|
Operating Income (loss)
|
|
Operating Income Intersegment Eliminations
|
|
Operating
Income (loss)
after
Eliminations
|
|
(In thousands)
|
Year Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
247,840
|
|
|
$
|
(6,226
|
)
|
|
$
|
241,614
|
|
|
$
|
17,820
|
|
|
$
|
(4,095
|
)
|
|
$
|
13,725
|
|
Natural gas services
|
548,135
|
|
|
—
|
|
|
548,135
|
|
|
24,938
|
|
|
3,632
|
|
|
28,570
|
|
Sulfur services
|
132,536
|
|
|
—
|
|
|
132,536
|
|
|
17,216
|
|
|
(2,940
|
)
|
|
14,276
|
|
Marine transportation
|
52,830
|
|
|
(2,460
|
)
|
|
50,370
|
|
|
2,713
|
|
|
3,403
|
|
|
6,116
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,901
|
)
|
|
—
|
|
|
(17,901
|
)
|
Total
|
$
|
981,341
|
|
|
$
|
(8,686
|
)
|
|
$
|
972,655
|
|
|
$
|
44,786
|
|
|
$
|
—
|
|
|
$
|
44,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
236,169
|
|
|
$
|
(5,998
|
)
|
|
$
|
230,171
|
|
|
$
|
3,305
|
|
|
$
|
(2,676
|
)
|
|
$
|
629
|
|
Natural gas services
|
532,908
|
|
|
(226
|
)
|
|
532,682
|
|
|
49,377
|
|
|
2,472
|
|
|
51,849
|
|
Sulfur services
|
134,684
|
|
|
—
|
|
|
134,684
|
|
|
25,862
|
|
|
(2,657
|
)
|
|
23,205
|
|
Marine transportation
|
51,915
|
|
|
(3,336
|
)
|
|
48,579
|
|
|
(1,211
|
)
|
|
2,861
|
|
|
1,650
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,332
|
)
|
|
—
|
|
|
(17,332
|
)
|
Total
|
$
|
955,676
|
|
|
$
|
(9,560
|
)
|
|
$
|
946,116
|
|
|
$
|
60,001
|
|
|
$
|
—
|
|
|
$
|
60,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
242,363
|
|
|
$
|
(5,653
|
)
|
|
$
|
236,710
|
|
|
$
|
44,143
|
|
|
$
|
(3,483
|
)
|
|
$
|
40,660
|
|
Natural gas services
|
391,333
|
|
|
—
|
|
|
391,333
|
|
|
38,447
|
|
|
3,056
|
|
|
41,503
|
|
Sulfur services
|
141,058
|
|
|
—
|
|
|
141,058
|
|
|
26,815
|
|
|
(3,422
|
)
|
|
23,393
|
|
Marine transportation
|
61,233
|
|
|
(2,943
|
)
|
|
58,290
|
|
|
(19,888
|
)
|
|
3,849
|
|
|
(16,039
|
)
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,794
|
)
|
|
—
|
|
|
(16,794
|
)
|
Total
|
$
|
835,987
|
|
|
$
|
(8,596
|
)
|
|
$
|
827,391
|
|
|
$
|
72,723
|
|
|
$
|
—
|
|
|
$
|
72,723
|
|
Terminalling and Storage Segment
Comparative Results of Operations for the
Twelve Months Ended December 31, 2018
and
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
(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%
|
|
|
|
|
|
|
|
|
Lubricant sales volumes (gallons)
|
24,016
|
|
|
21,897
|
|
|
2,119
|
|
|
10%
|
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.
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.
Comparative Results of Operations for the
Twelve Months Ended December 31, 2017
and
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
105,703
|
|
|
$
|
128,783
|
|
|
$
|
(23,080
|
)
|
|
(18)%
|
Products
|
130,466
|
|
|
113,580
|
|
|
16,886
|
|
|
15%
|
Total revenues
|
236,169
|
|
|
242,363
|
|
|
(6,194
|
)
|
|
(3)%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
118,832
|
|
|
102,883
|
|
|
15,949
|
|
|
16%
|
Operating expenses
|
63,191
|
|
|
65,292
|
|
|
(2,101
|
)
|
|
(3)%
|
Selling, general and administrative expenses
|
5,832
|
|
|
4,677
|
|
|
1,155
|
|
|
25%
|
Impairment of long-lived assets
|
600
|
|
|
15,252
|
|
|
(14,652
|
)
|
|
(96)%
|
Depreciation and amortization
|
45,160
|
|
|
45,484
|
|
|
(324
|
)
|
|
(1)%
|
|
2,554
|
|
|
8,775
|
|
|
(6,221
|
)
|
|
(71)%
|
Other operating income, net
|
751
|
|
|
35,368
|
|
|
(34,617
|
)
|
|
(98)%
|
Operating income
|
$
|
3,305
|
|
|
$
|
44,143
|
|
|
$
|
(40,838
|
)
|
|
(93)%
|
|
|
|
|
|
|
|
|
Lubricant sales volumes (gallons)
|
21,897
|
|
|
17,995
|
|
|
3,902
|
|
|
22%
|
Shore-based throughput volumes (guaranteed minimum) (gallons)
|
144,998
|
|
|
200,000
|
|
|
(55,002
|
)
|
|
(28)%
|
Smackover refinery throughput volumes (guaranteed minimum BBL per day)
|
6,500
|
|
|
6,500
|
|
|
—
|
|
|
—%
|
Corpus Christi crude terminal (barrels per day)
|
—
|
|
|
66,167
|
|
|
(66,167
|
)
|
|
(100)%
|
Services revenues.
S
ervices revenue decreased primarily as a result of decreased throughput volumes and pass-through revenues at our Corpus Christi crude terminal, which was sold on December 21, 2016.
Products revenues.
An 11% increase in sales volumes offset by a 1% decrease in average sales price at our blending and packaging facilities resulted in a $5.9 million increase to products revenues. Products revenues at our shore-based terminals increased $11.0 million resulting from an 18% increase in average sales price and a 1% increase in sales volume.
Cost of products sold.
An 11% increase in sales volumes at our blending and packaging facilities resulted in a $4.9 million increase in cost of products sold. Average cost per gallon increased 2%, resulting in a $0.8 million increase in cost of products sold. Cost of products sold at our shore-based terminals increased $10.1 million resulting from an 19% increase in average cost per gallon and a 1% increase in sales volumes.
Operating expenses.
Operating expenses at our specialty terminals decreased $4.8 million, primarily as a result of the disposition of the Corpus Christi crude terminalling assets in the fourth quarter 2016 of $7.6 million, offset by hurricane expenses of $2.5 million. Operating expenses at our shore-based terminals increased by $3.2 million, primarily due to a $5.5 million increase in the accrual related to asset retirement obligations at leased terminal facilities and hurricane expenses of $0.3 million, offset by $2.7 million decrease associated with closed facilities.
Selling, general and administrative expenses.
Selling, general and administrative expenses increased primarily due to increased legal fees of $0.6 million and compensation expense of $0.5 million.
Impairment of long-lived assets.
This represents the loss on impairment of non-core operating assets.
Depreciation and amortization.
The decrease in depreciation and amortization is due to the impact of the disposition of assets and assets being fully depreciated, offset by capital expenditures.
Other operating income, net.
Other operating income, net represents gains and losses from the disposition of property, plant and equipment. The 2016 period includes the gain on the disposition of the Corpus Christi crude terminalling assets of $37.3 million.
Natural Gas Services Segment
Comparative Results of Operations for the
Twelve Months Ended December 31, 2018
and
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
52,109
|
|
|
$
|
58,817
|
|
|
$
|
(6,708
|
)
|
|
(11)%
|
Products
|
496,026
|
|
|
474,091
|
|
|
21,935
|
|
|
5%
|
Total revenues
|
548,135
|
|
|
532,908
|
|
|
15,227
|
|
|
3%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
467,571
|
|
|
425,073
|
|
|
42,498
|
|
|
10%
|
Operating expenses
|
24,065
|
|
|
22,347
|
|
|
1,718
|
|
|
8%
|
Selling, general and administrative expenses
|
9,063
|
|
|
11,106
|
|
|
(2,043
|
)
|
|
(18)%
|
Depreciation and amortization
|
21,283
|
|
|
24,916
|
|
|
(3,633
|
)
|
|
(15)%
|
|
26,153
|
|
|
49,466
|
|
|
(23,313
|
)
|
|
(47)%
|
Other operating loss, net
|
(1,215
|
)
|
|
(89
|
)
|
|
(1,126
|
)
|
|
(1,265)%
|
Operating income
|
$
|
24,938
|
|
|
$
|
49,377
|
|
|
$
|
(24,439
|
)
|
|
(49)%
|
|
|
|
|
|
|
|
|
NGLs Volumes (barrels)
|
10,223
|
|
|
10,487
|
|
|
(264
|
)
|
|
(3)%
|
Services Revenues.
The decrease in services revenue is primarily a result of lower firm storage re-contracting rates at our natural gas storage facilities.
Products Revenues.
Our NGL average sales price per barrel increased $3.31, or 7%, resulting in an increase to products revenues of $34.7 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 $5.20, or 13%, increasing cost of products sold by $54.6 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 $1.89 per barrel, or 40% during the period.
Operating expenses
. Operating expenses increased $1.4 million at our natural gas storage facilities, primarily as a result of $0.6 million in increased utility expense, $0.5 million in insurance premiums, and $0.3 million in park and loan expense. Additionally, repairs and maintenance expense at our underground NGL storage facility increased $0.3 million.
Selling, general and administrative expenses
. Selling, general and administrative expenses decreased primarily as a result of decreased compensation expense.
Depreciation and amortization.
Depreciation and amortization decreased primarily due to a $3.9 million decrease in amortization related to contracts acquired during the purchase of Cardinal Gas Storage Partners, LLC (“Cardinal”), offset by a $0.3 million increase in depreciation expense related to recent capital expenditures.
Other operating loss, net.
Other operating loss, net represents losses from the disposition of property, plant and equipment.
Comparative Results of Operations for the
Twelve Months Ended December 31, 2017
and
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
58,817
|
|
|
$
|
61,133
|
|
|
$
|
(2,316
|
)
|
|
(4)%
|
Products
|
474,091
|
|
|
330,200
|
|
|
143,891
|
|
|
44%
|
Total revenues
|
532,908
|
|
|
391,333
|
|
|
141,575
|
|
|
36%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
425,073
|
|
|
292,573
|
|
|
132,500
|
|
|
45%
|
Operating expenses
|
22,347
|
|
|
23,152
|
|
|
(805
|
)
|
|
(3)%
|
Selling, general and administrative expenses
|
11,106
|
|
|
8,970
|
|
|
2,136
|
|
|
24%
|
Depreciation and amortization
|
24,916
|
|
|
28,081
|
|
|
(3,165
|
)
|
|
(11)%
|
|
49,466
|
|
|
38,557
|
|
|
10,909
|
|
|
28%
|
Other operating loss, net
|
(89
|
)
|
|
(110
|
)
|
|
21
|
|
|
19%
|
Operating income
|
$
|
49,377
|
|
|
$
|
38,447
|
|
|
$
|
10,930
|
|
|
28%
|
|
|
|
|
|
|
|
|
NGLs Volumes (barrels)
|
10,487
|
|
|
9,532
|
|
|
955
|
|
|
10%
|
Services Revenues.
The decrease in services revenue is primarily a result of decreased storage rates at our Arcadia gas storage facility.
Products Revenues.
Our NGL average sales price per barrel increased $10.57, or 31%, resulting in an increase to products revenues of $100.7 million. The increase in average sales price per barrel was a result of an increase in market prices. Product sales volumes increased 10%, increasing revenues $43.2 million.
Cost of products sold
. Our average cost per barrel increased $9.84, or 32%, increasing cost of products sold by $93.8 million. The increase in average cost per barrel was a result of an increase in market prices. The increase in sales volume of 10% resulted in a $38.7 million increase to cost of products sold. Our margins increased $0.73 per barrel, or 18% during the period.
Operating expenses
. Operating expenses decreased $0.8 million due to $0.3 million of decreased maintenance expense at our NGL East Texas pipeline, decreased compensation expense of $0.3 million, and decreased repairs and maintenance at our underground NGL storage facility of $0.2 million.
Selling, general and administrative expenses
. Selling, general and administrative expenses increased primarily as a result of increased compensation expense.
Depreciation and amortization.
Depreciation and amortization decreased primarily due to a $3.7 million decrease in amortization related to contracts acquired during the purchase of Cardinal Gas Storage Partners, LLC (“Cardinal”), offset by a $0.6 million increase in depreciation expense related to recent capital expenditures.
Other operating loss, net.
Other operating loss, net represents losses from the disposition of property, plant and equipment.
Sulfur Services Segment
Comparative Results of Operations for the
Twelve Months Ended December 31, 2018
and
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
(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.
Comparative Results of Operations for the
Twelve Months Ended December 31, 2017
and
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
10,952
|
|
|
$
|
10,800
|
|
|
$
|
152
|
|
|
1%
|
Products
|
123,732
|
|
|
130,258
|
|
|
(6,526
|
)
|
|
(5)%
|
Total revenues
|
134,684
|
|
|
141,058
|
|
|
(6,374
|
)
|
|
(5)%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
82,760
|
|
|
88,325
|
|
|
(5,565
|
)
|
|
(6)%
|
Operating expenses
|
13,783
|
|
|
13,771
|
|
|
12
|
|
|
—%
|
Selling, general and administrative expenses
|
4,136
|
|
|
3,861
|
|
|
275
|
|
|
7%
|
Depreciation and amortization
|
8,117
|
|
|
7,995
|
|
|
122
|
|
|
2%
|
|
25,888
|
|
|
27,106
|
|
|
(1,218
|
)
|
|
(4)%
|
Other operating loss, net
|
(26
|
)
|
|
(291
|
)
|
|
265
|
|
|
91%
|
Operating income
|
$
|
25,862
|
|
|
$
|
26,815
|
|
|
$
|
(953
|
)
|
|
(4)%
|
|
|
|
|
|
|
|
|
Sulfur (long tons)
|
807.0
|
|
|
797.0
|
|
|
10.0
|
|
|
1%
|
Fertilizer (long tons)
|
276.0
|
|
|
262.0
|
|
|
14.0
|
|
|
5%
|
Sulfur services volumes (long tons)
|
1,083.0
|
|
|
1,059.0
|
|
|
24.0
|
|
|
2%
|
Services Revenues.
Services revenues increased as a result of a contractually prescribed index based fee adjustment.
Products Revenues.
Products revenues decreased $9.3 million as a result of a 7% decline in average sales price. Offsetting, products revenues increased $2.8 million due to a 2% increase in sales volumes, primarily related to a 5% increase in fertilizer volumes.
Cost of products sold.
An 8% decrease in prices reduced cost of products sold by $7.4 million, resulting from a decline in commodity prices. A 2% increase in sales volumes caused an offsetting increase in cost of products sold of $1.9 million. Margin per ton decreased $1.78, or 4%.
Selling, general and administrative expenses.
Our selling, general and administrative expenses increased $0.3 million due to increased compensation expense offset slightly by a decrease of $0.1 million in bad debt expense.
Depreciation and amortization.
Depreciation expense increased $0.1 million due to capital projects being completed and placed in service during the second half of 2016.
Other operating loss, net.
Other operating loss, net represents losses from the disposition of property, plant and equipment.
Marine Transportation Segment
Comparative Results of Operations for the
Twelve Months Ended December 31, 2018
and
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
|
Revenues
|
$
|
52,830
|
|
|
$
|
51,915
|
|
|
$
|
915
|
|
|
2%
|
Operating expenses
|
41,086
|
|
|
44,028
|
|
|
(2,942
|
)
|
|
(7)%
|
Selling, general and administrative expenses
|
1,060
|
|
|
358
|
|
|
702
|
|
|
196%
|
Impairment of long-lived assets
|
—
|
|
|
1,625
|
|
|
(1,625
|
)
|
|
(100)%
|
Depreciation and amortization
|
7,590
|
|
|
7,002
|
|
|
588
|
|
|
8%
|
|
3,094
|
|
|
(1,098
|
)
|
|
4,192
|
|
|
382%
|
Other operating loss, net
|
(381
|
)
|
|
(113
|
)
|
|
(268
|
)
|
|
(237)%
|
Operating income (loss)
|
$
|
2,713
|
|
|
$
|
(1,211
|
)
|
|
$
|
3,924
|
|
|
324%
|
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 labor and burden of $1.8 million, a reclassification of labor and burden from operating expense to selling general and administrative expense for the 2018 period of $0.7 million, repairs and maintenance of $0.8 million, barge rental expense of $1.0 million, property and liability insurance premiums of $1.0 million, and outside towing of $0.3 million. These decreases were offset by an increase in pass through expenses (primarily fuel) of $2.2 million, marine Jones Act claims of $0.4 million, and contract labor of $0.3 million.
Selling, general and administrative expenses
. Selling, general and administrative expenses increased primarily due to 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 loss, net.
Other operating loss represents losses from the disposition of property, plant and equipment.
Comparative Results of Operations for the
Twelve Months Ended December 31, 2017
and
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
Revenues
|
$
|
51,915
|
|
|
$
|
61,233
|
|
|
$
|
(9,318
|
)
|
|
(15)%
|
Operating expenses
|
44,028
|
|
|
53,118
|
|
|
(9,090
|
)
|
|
(17)%
|
Selling, general and administrative expenses
|
358
|
|
|
18
|
|
|
340
|
|
|
1,889%
|
Impairment of long lived assets
|
1,625
|
|
|
11,701
|
|
|
(10,076
|
)
|
|
(86)%
|
Impairment of goodwill
|
—
|
|
|
4,145
|
|
|
(4,145
|
)
|
|
(100)%
|
Depreciation and amortization
|
7,002
|
|
|
10,572
|
|
|
(3,570
|
)
|
|
(34)%
|
|
(1,098
|
)
|
|
(18,321
|
)
|
|
17,223
|
|
|
94%
|
Other operating loss, net
|
(113
|
)
|
|
(1,567
|
)
|
|
1,454
|
|
|
93%
|
Operating income (loss)
|
$
|
(1,211
|
)
|
|
$
|
(19,888
|
)
|
|
$
|
18,677
|
|
|
94%
|
Inland revenues
. A decrease of $7.2 million is primarily attributable to decreased transportation rates and decreased utilization of the inland fleet resulting from an abundance of supply of marine equipment in our predominantly Gulf Coast market.
Offshore revenues.
A $2.4 million decrease in offshore revenues is primarily the result of the 2016 period including the recognition of previously deferred revenues of $1.5 million and decreased utilization of the offshore fleet due to downtime associated with regulatory inspections of $0.7 million.
Operating expenses
. The decrease in operating expenses is primarily a result of decreased labor and burden of $3.9 million, repairs and maintenance of $1.3 million, Jones Act claims of $0.8 million, pass-through expenses (primarily barge tank cleaning) of $0.7 million, outside towing of $0.4 million, barge rental expense of $0.4 million, property taxes of $0.3 million, operating supplies of $0.3 million, and property insurance premiums of $0.2 million.
Selling, general and administrative expenses
. Selling, general and administrative expenses increased primarily due to the 2016 period including the collection of a previously deemed uncollectible receivable of $0.5 million, offset by decreased legal fees of $0.1 million.
Impairment of long-lived assets.
This represents the loss on impairment of non-core operating assets.
Loss on impairment of goodwill.
This represents the loss on impairment of goodwill in the Marine Transportation reporting unit during the second quarter of 2016.
Depreciation and amortization
. Depreciation and amortization decreased as a result of the disposal of property, plant and equipment combined with the impairment of long-lived assets recognized in the fourth quarter of 2016, offset by recent capital expenditures.
Other operating loss, net.
Other operating loss represents losses from the disposition of property, plant and equipment.
Interest Expense
Comparative Components of Interest Expense, Net for the
Twelve Months Ended December 31, 2018
and
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
(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
|
2,258
|
|
|
1,532
|
|
|
726
|
|
|
47%
|
Capitalized interest
|
(624
|
)
|
|
(730
|
)
|
|
106
|
|
|
15%
|
Interest income
|
(30
|
)
|
|
(943
|
)
|
|
913
|
|
|
97%
|
Total interest expense, net
|
$
|
52,037
|
|
|
$
|
47,743
|
|
|
$
|
4,294
|
|
|
9%
|
Comparative Components of Interest Expense, Net for the
Twelve Months Ended December 31, 2017
and
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
Revolving loan facility
|
$
|
18,192
|
|
|
$
|
19,482
|
|
|
$
|
(1,290
|
)
|
|
(7)%
|
7.250 % senior unsecured notes
|
27,101
|
|
|
27,326
|
|
|
(225
|
)
|
|
(1)%
|
Amortization of deferred debt issuance costs
|
2,897
|
|
|
3,684
|
|
|
(787
|
)
|
|
(21)%
|
Amortization of debt premium
|
(306
|
)
|
|
(306
|
)
|
|
—
|
|
|
—%
|
Impact of interest rate derivative activity, including cash settlements
|
—
|
|
|
(995
|
)
|
|
995
|
|
|
100%
|
Other
|
1,532
|
|
|
291
|
|
|
1,241
|
|
|
426%
|
Capitalized interest
|
(730
|
)
|
|
(1,126
|
)
|
|
396
|
|
|
35%
|
Interest income
|
(943
|
)
|
|
(2,256
|
)
|
|
$
|
1,313
|
|
|
58%
|
Total interest expense, net
|
$
|
47,743
|
|
|
$
|
46,100
|
|
|
$
|
1,643
|
|
|
4%
|
Indirect Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
Indirect selling, general and administrative expenses
|
$
|
17,901
|
|
|
$
|
17,332
|
|
|
$
|
569
|
|
|
3%
|
|
$
|
17,332
|
|
|
$
|
16,795
|
|
|
$
|
537
|
|
|
3%
|
The increase in indirect selling, general and administrative expenses from 2017 to 2018 is primarily a result of increased unit based compensation expense.
The increase in indirect selling, general and administrative expenses from 2016 to 2017 is primarily a result of a $0.6 million increase in audit, consulting and other professional fees.
Martin Resource Management 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 retained businesses. This allocation is based on the percentage of time spent by Martin Resource Management 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 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 for indirect general and administrative and corporate overhead expenses. The Conflicts Committee approved the following reimbursement amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
Conflicts Committee approved reimbursement amount
|
$
|
16,416
|
|
|
$
|
16,416
|
|
|
$
|
—
|
|
|
—%
|
|
$
|
16,416
|
|
|
$
|
13,033
|
|
|
$
|
3,383
|
|
|
26%
|
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, pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations and access to debt and equity markets, both public and private. Management believes that expenditures for our current capital projects will be funded with cash flows from operations, current cash balances and our current borrowing capacity under the expanded revolving credit facility. Given the current environment, we have altered and reduced our planned growth capital expenditures. We believe that controlling our spending in an effort to preserve liquidity is prudent and reduces our need for near-term access to the somewhat uncertain capital markets.
Our ability to satisfy our working capital requirements, to fund planned capital expenditures and to satisfy our debt service obligations will also 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.
Recent Debt Financing Activity
Credit Facility Amendment.
On February 21, 2018, we amended our revolving credit facility in order to achieve two primary objectives, the first of which was to accommodate growth capital expenditures necessary for the previously announced WTLPG expansion project. Starting in the first quarter of 2018, the amendment provided short-term (5 quarters) covenant relief by increasing the total leverage ratio to 5.75 to 1.00 (first and second quarters of 2018) with step downs to 5.50 to 1.00 (third and fourth quarters of 2018 and first quarter of 2019) and to 5.25 to 1.00 beginning in the second quarter of 2019. Additionally, the facility was amended to establish an inventory financing sublimit tranche for borrowings related to our NGL (butane) marketing business, which is a part of and not in addition to the already existing commitments under the revolving credit facility. This sublimit is not to exceed $75.0 million, with seasonal step downs to $10.0 million for the months of March through June of each fiscal year. The sublimit is subject to a monthly borrowing base not to exceed 90% of the value of forward sold/hedged inventory. In conjunction with the sale of WTLPG on July 31, 2018, we amended our revolving credit facility which included, among other things, further revising our leverage covenants from the February 21, 2018 amendment (discussed in detail above). Total Indebtedness to EBITDA and Senior Secured Indebtedness to EBITDA (each as defined in the credit agreement) was amended to 5.25 times and 3.50 times, respectively. No changes were made to the Consolidated Interest Coverage Ratio (as defined in the credit agreement) of 2.50 times.
Due to the foregoing, we believe that cash generated from operations and our borrowing capacity under our credit facility will be sufficient to meet our working capital requirements and anticipated maintenance capital expenditures in 2019.
Finally, our ability to satisfy our working capital requirements, to fund planned capital expenditures and to satisfy our debt service obligations will depend upon our future operating performance, which is subject to certain risks. Please read "Item 1A. Risk Factors - Risks Relating to Our Business" for a discussion of such risks.
Cash Flows -
Twelve Months Ended December 31, 2018
Compared to
Twelve Months Ended December 31, 2017
The following table details the cash flow changes between the
twelve months ended December 31, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
Operating activities
|
$
|
90,726
|
|
|
$
|
67,506
|
|
|
$
|
23,220
|
|
|
34%
|
Investing activities
|
147,654
|
|
|
(37,878
|
)
|
|
185,532
|
|
|
490%
|
Financing activities
|
(238,170
|
)
|
|
(29,616
|
)
|
|
(208,554
|
)
|
|
(704)%
|
Net increase (decrease) in cash and cash equivalents
|
$
|
210
|
|
|
$
|
12
|
|
|
$
|
198
|
|
|
34%
|
Net cash provided by operating activities.
The increase in net cash provided by operating activities for the twelve months ended December 31, 2018 includes a $52.6 million favorable variance in working capital and a $4.8 million decrease in other non-cash charges. Offsetting was a decrease in operating results of $20.6 million and an unfavorable variance in other non-current assets and liabilities of $2.1 million. Net cash provided by discontinued operating activities decreased $2.0 million.
Net cash provided by (used in) investing activities.
Net cash provided by investing activities for the twelve months ended December 31, 2018 increased primarily as a result of a $177.3 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 terminalling assets from Martin Resource Management in 2017, compared to no acquisitions in 2018, resulted in an increase of $19.5 million. Further, a decrease in cash used of $2.3 million is due to lower payments for capital expenditures and plant turnaround costs in 2018 as well as a $1.0 million increase in proceeds received as a result of higher sales of property, plant and equipment 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.
Net cash used in financing activities.
Net cash used in financing activities increased for the twelve months ended December 31, 2018 as a result of an increase in net repayments of long-term borrowings of $160.0 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. Also contributing was an increase in cash distributions paid of $1.5 million and an additional $1.2 million in 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.
Cash Flows -
Twelve Months Ended December 31, 2017
Compared to
Twelve Months Ended December 31, 2016
The following table details the cash flow changes between the
twelve months ended December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
2017
|
|
2016
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
Operating activities
|
$
|
67,506
|
|
|
$
|
110,848
|
|
|
$
|
(43,342
|
)
|
|
(39)%
|
Investing activities
|
(37,878
|
)
|
|
63,839
|
|
|
(101,717
|
)
|
|
(159)%
|
Financing activities
|
(29,616
|
)
|
|
(174,703
|
)
|
|
145,087
|
|
|
83%
|
Net decrease in cash and cash equivalents
|
$
|
12
|
|
|
$
|
(16
|
)
|
|
$
|
28
|
|
|
175%
|
Net cash provided by operating activities.
The decline in net cash provided by operating activities includes a decrease in operating results from continuing operations of $14.5 million and a $29.6 million unfavorable variance in working capital. Further decreases were due to an $11.8 million decrease in other non-cash charges and a decrease in distributions received from WTLPG of $2.1 million. Offsetting was an increase of $14.6 million attributable to a favorable variance in other non-current assets and liabilities.
Net cash (used in) provided by investing activities.
Net cash from investing activities decreased as a result of a decrease of $100.1 million in net proceeds from the sale of property, plant and equipment. The 2017 period also included an
acquisition of $19.5 million compared to an acquisition of $2.2 million in 2016, resulting in a $17.4 million decrease in cash. Offsetting these decreases was an increase of $15.0 million for proceeds received from repayment of the Note receivable - affiliate and a decrease in payments for capital expenditures and plant turnaround costs of $1.2 million.
Net cash used in financing activities.
Net cash used in financing activities decreased for the year ended December 31, 2017 as a result of a decrease in net repayments of long-term borrowings of $57.0 million. Proceeds received from the issuance of common units (including the related general partner contribution) increased net cash by $52.2 million. Also contributing was a decrease in cash distributions paid of $41.2 million and $5.2 million less in costs associated with our credit facility amendment. Offsetting was an increase of $10.9 million related to excess purchase price over the carrying value of acquired assets in common control transactions.
Capital Resources
Historically, we have generally satisfied our working capital requirements and funded our capital expenditures with cash generated from operations and borrowings. We expect our primary sources of funds for short-term liquidity will be cash flows from operations and borrowings under our credit facility.
Total Contractual Obligations.
A summary of our total contractual obligations as of
December 31, 2018
, is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
Type of Obligation
|
Total
Obligation
|
|
Less than
One Year
|
|
1-3
Years
|
|
3-5
Years
|
|
More than 5 years
|
Revolving credit facility
|
$
|
287,000
|
|
|
$
|
—
|
|
|
$
|
287,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2021 senior unsecured notes
|
373,800
|
|
|
—
|
|
|
373,800
|
|
|
—
|
|
|
—
|
|
Throughput commitment
|
16,030
|
|
|
6,194
|
|
|
9,836
|
|
|
—
|
|
|
—
|
|
Operating leases
|
27,921
|
|
|
7,869
|
|
|
8,633
|
|
|
3,596
|
|
|
7,823
|
|
Interest payable on fixed long-term obligations
|
57,589
|
|
|
27,101
|
|
|
30,488
|
|
|
—
|
|
|
—
|
|
Total contractual cash obligations
|
$
|
762,340
|
|
|
$
|
41,164
|
|
|
$
|
709,757
|
|
|
$
|
3,596
|
|
|
$
|
7,823
|
|
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, 2018
, we had outstanding irrevocable letters of credit in the amount of $16.9 million, which were issued under our revolving credit facility.
Off Balance Sheet Arrangements.
We do not have any off-balance sheet financing arrangements.
Description of Our Long-Term Debt
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 of 1933, as amended (the "Securities Act"). The 2021 Notes were resold to qualified institutional buyers pursuant to 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.
Prior to February 15, 2017, the Issuers may on any one or more occasions redeem all or a part of the 2021 Notes at the redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. On or after February 15, 2017, the Issuers may on any one or more occasions redeem all or a part of the 2021 Notes at the redemption prices (expressed as percentages of principal amount) equal to 103.625% for the twelve-month period beginning on February 15, 2017, 101.813% for the twelve-month period beginning on February 15, 2018 and 100.00% for the twelve-month period beginning on February 15, 2019 and at any time thereafter, 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 Securities Exchange Act of 1934; (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, 2018
, we maintained a $664.4 million credit facility. This facility was most recently amended on July 24, 2018, which included, among other things, revising our existing leverage covenants. Total Indebtedness to EBITDA and Senior Secured Indebtedness to EBITDA (each as defined in the credit agreement) was amended to 5.25 times and 3.50 times, respectively. No changes were made to the Consolidated Interest Coverage Ratio (as defined in the credit agreement) of 2.50 times.
As of
December 31, 2018
, we had $287.0 million outstanding under the revolving credit facility and $16.9 million of letters of credit issued, leaving a maximum available to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of $360.5 million. Subject to the financial covenants contained in our credit facility and based on our existing EBITDA (as defined in our credit facility) calculations, as of
December 31, 2018
, we have the ability to borrow approximately $25.8 million of that amount. We were in compliance with all financial covenants at
December 31, 2018
.
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, 2018
, the level of outstanding draws on our credit facility has ranged from a low of $287.0 million to a high of $500.0 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, inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in our subsidiaries.
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, 2018
:
|
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
Base Rate Loans
|
|
Eurodollar
Rate
Loans
|
|
Letters of Credit
|
Less than 3.00 to 1.00
|
1.00
|
%
|
|
2.00
|
%
|
|
2.00
|
%
|
Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00
|
1.25
|
%
|
|
2.25
|
%
|
|
2.25
|
%
|
Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00
|
1.50
|
%
|
|
2.50
|
%
|
|
2.50
|
%
|
Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00
|
1.75
|
%
|
|
2.75
|
%
|
|
2.75
|
%
|
Greater than or equal to 4.50 to 1.00
|
2.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
At
December 31, 2018
, the applicable margin for revolving loans that are LIBOR loans ranges from 2.00% to 3.00% and the applicable margin for revolving loans that are base prime rate loans ranges from 1.00% to 2.00%. The applicable margin for LIBOR borrowings at
December 31, 2018
is 2.75%.
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 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. If Martin Resource Management 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 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.
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.
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.
The Partnership is in compliance with all debt covenants as of
December 31, 2018
and expects to be in compliance for the next twelve months.
Seasonality
A substantial portion of our revenues are 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, natural gas storage division of the Natural Gas Services segment provides stable cash flows and is not generally subject to seasonal demand factors. Additionally, our Terminalling and Storage and Marine Transportation 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 and marine transportation businesses. Therefore, we do not expect that our overall net income will be impacted by seasonality factors. However, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage and Marine Transportation segments.
Impact of Inflation
Inflation did not have a material impact on our results of operations in 2018, 2017 or 2016. 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 2018, 2017 or 2016.
|
|
|
Item 8.
|
Financial Statements and Supplementary Data
|
The following financial statements of Martin Midstream Partners L.P. (Partnership) are listed below:
|
|
|
|
Page
|
Reports of Independent Registered Public Accounting Firm
|
|
Consolidated Balance Sheets as of December 31, 2018 and 2017
|
|
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
|
|
Consolidated Statements of Changes in Capital for the years ended December 31, 2018, 2017 and 2016
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
|
|
Notes to Consolidated Financial Statements
|
|
Report of Independent Registered Public Accounting Firm
To the Unitholders and Board of Directors
Martin Midstream Partners L.P. and Martin Midstream GP LLC:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Martin Midstream Partners L.P. and subsidiaries (the “Partnership”) as of December 31, 2018 and 2017, the related consolidated statements of operations, changes in capital, and cash flows for each of the years in the three‑year period ended December 31, 2018, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Partnership’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control
-
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 19, 2019 expressed an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Partnership’s auditor since 1981
Dallas, Texas
February 19, 2019
Report of Independent Registered Public Accounting Firm
To the Unitholders and Board of Directors
Martin Midstream Partners L.P. and Martin Midstream GP LLC:
Opinion on Internal Control Over Financial Reporting
We have audited Martin Midstream Partners L.P. and subsidiaries' (the “Partnership”) internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Partnership as of December 31, 2018 and 2017, the related consolidated statements of operations, changes in capital, and cash flows for each of the years in the three‑year period ended December 31, 2018, and the related notes (collectively, the “consolidated financial statements”), and our report dated February 19, 2019, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting
. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Dallas, Texas
February 19, 2019
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Assets
|
|
|
|
Cash
|
$
|
237
|
|
|
$
|
27
|
|
Trade and accrued accounts receivable, less allowance for doubtful accounts of $291 and $314, respectively
|
79,031
|
|
|
107,242
|
|
Product exchange receivables
|
166
|
|
|
29
|
|
Inventories (Note 7)
|
85,068
|
|
|
97,252
|
|
Due from affiliates
|
18,609
|
|
|
23,668
|
|
Fair value of derivatives (Note 13)
|
4
|
|
|
—
|
|
Other current assets
|
5,275
|
|
|
4,866
|
|
Assets held for sale (Note 5)
|
5,652
|
|
|
9,579
|
|
Total current assets
|
194,042
|
|
|
242,663
|
|
|
|
|
|
Property, plant and equipment, at cost (Note 8)
|
1,264,730
|
|
|
1,253,065
|
|
Accumulated depreciation
|
(466,381
|
)
|
|
(421,137
|
)
|
Property, plant and equipment, net
|
798,349
|
|
|
831,928
|
|
|
|
|
|
Goodwill (Note 9)
|
17,296
|
|
|
17,296
|
|
Investment in WTLPG (Note 11)
|
—
|
|
|
128,810
|
|
Intangibles and other assets, net (Note 15)
|
23,711
|
|
|
32,801
|
|
|
$
|
1,033,398
|
|
|
$
|
1,253,498
|
|
Liabilities and Partners’ Capital
|
|
|
|
Trade and other accounts payable
|
$
|
63,157
|
|
|
$
|
92,567
|
|
Product exchange payables
|
13,237
|
|
|
11,751
|
|
Due to affiliates
|
2,459
|
|
|
3,168
|
|
Income taxes payable
|
445
|
|
|
510
|
|
Fair value of derivatives (Note 13)
|
—
|
|
|
72
|
|
Other accrued liabilities (Note 15)
|
22,215
|
|
|
26,340
|
|
Total current liabilities
|
101,513
|
|
|
134,408
|
|
|
|
|
|
Long-term debt, net (Note 16)
|
656,459
|
|
|
812,632
|
|
Other long-term obligations
|
10,714
|
|
|
8,217
|
|
Total liabilities
|
768,686
|
|
|
955,257
|
|
Commitments and contingencies (Note 22)
|
|
|
|
|
|
Partners’ capital (Note 17)
|
264,712
|
|
|
298,241
|
|
Total partners’ capital
|
264,712
|
|
|
298,241
|
|
|
$
|
1,033,398
|
|
|
$
|
1,253,498
|
|
See accompanying notes to consolidated financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
Terminalling and storage *
|
$
|
96,287
|
|
|
$
|
99,705
|
|
|
$
|
123,132
|
|
Marine transportation *
|
50,370
|
|
|
48,579
|
|
|
58,290
|
|
Natural gas storage services *
|
52,109
|
|
|
58,817
|
|
|
61,133
|
|
Sulfur services
|
11,148
|
|
|
10,952
|
|
|
10,800
|
|
Product sales: *
|
|
|
|
|
|
Natural gas services
|
496,026
|
|
|
473,865
|
|
|
330,200
|
|
Sulfur services
|
121,388
|
|
|
123,732
|
|
|
130,258
|
|
Terminalling and storage
|
145,327
|
|
|
130,466
|
|
|
113,578
|
|
|
762,741
|
|
|
728,063
|
|
|
574,036
|
|
Total revenues
|
972,655
|
|
|
946,116
|
|
|
827,391
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
Cost of products sold: (excluding depreciation and amortization)
|
|
|
|
|
|
Natural gas services *
|
463,939
|
|
|
421,444
|
|
|
289,516
|
|
Sulfur services *
|
90,418
|
|
|
82,338
|
|
|
87,963
|
|
Terminalling and storage *
|
130,253
|
|
|
116,495
|
|
|
100,714
|
|
|
684,610
|
|
|
620,277
|
|
|
478,193
|
|
Expenses:
|
|
|
|
|
|
Operating expenses *
|
128,337
|
|
|
140,177
|
|
|
152,325
|
|
Selling, general and administrative *
|
37,677
|
|
|
38,764
|
|
|
34,320
|
|
Impairment of long-lived assets
|
—
|
|
|
2,225
|
|
|
26,953
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
4,145
|
|
Depreciation and amortization
|
76,866
|
|
|
85,195
|
|
|
92,132
|
|
Total costs and expenses
|
927,490
|
|
|
886,638
|
|
|
788,068
|
|
Other operating income (loss), net
|
(379
|
)
|
|
523
|
|
|
33,400
|
|
Operating income
|
44,786
|
|
|
60,001
|
|
|
72,723
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
Interest expense, net
|
(52,037
|
)
|
|
(47,743
|
)
|
|
(46,100
|
)
|
Other, net
|
25
|
|
|
1,101
|
|
|
1,106
|
|
Total other income (expense)
|
(52,012
|
)
|
|
(46,642
|
)
|
|
(44,994
|
)
|
Net income (loss) before taxes
|
(7,226
|
)
|
|
13,359
|
|
|
27,729
|
|
Income tax expense
|
(369
|
)
|
|
(352
|
)
|
|
(726
|
)
|
Income (loss) from continuing operations
|
(7,595
|
)
|
|
13,007
|
|
|
27,003
|
|
Income from discontinued operations, net of income taxes
|
51,700
|
|
|
4,128
|
|
|
4,649
|
|
Net income
|
44,105
|
|
|
17,135
|
|
|
31,652
|
|
Less general partner's interest in net income
|
(882
|
)
|
|
(343
|
)
|
|
(8,419
|
)
|
Less income allocable to unvested restricted units
|
(28
|
)
|
|
(42
|
)
|
|
(90
|
)
|
Limited partner's interest in net income
|
$
|
43,195
|
|
|
$
|
16,750
|
|
|
$
|
23,143
|
|
*Related Party Transactions Shown Below
See accompanying notes to consolidated financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit amounts)
*Related Party Transactions Included Above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
Terminalling and storage
|
$
|
79,219
|
|
|
$
|
82,205
|
|
|
$
|
82,437
|
|
Marine transportation
|
15,442
|
|
|
16,801
|
|
|
21,767
|
|
Natural gas services
|
—
|
|
|
122
|
|
|
699
|
|
Product sales
|
1,407
|
|
|
3,578
|
|
|
3,034
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of products sold: (excluding depreciation and amortization)
|
|
|
|
|
|
|
|
|
Natural gas services
|
14,816
|
|
|
18,946
|
|
|
22,886
|
|
Sulfur services
|
17,418
|
|
|
15,564
|
|
|
15,339
|
|
Terminalling and storage
|
28,304
|
|
|
17,612
|
|
|
13,838
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating expenses
|
55,528
|
|
|
64,344
|
|
|
70,841
|
|
Selling, general and administrative
|
28,246
|
|
|
29,416
|
|
|
25,890
|
|
See accompanying notes to consolidated financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Allocation of net income attributable to:
|
|
|
|
|
|
Limited partner interest:
|
|
|
|
|
|
Continuing operations
|
$
|
(7,438
|
)
|
|
$
|
12,715
|
|
|
$
|
19,744
|
|
Discontinued operations
|
50,633
|
|
|
4,035
|
|
|
3,399
|
|
|
$
|
43,195
|
|
|
$
|
16,750
|
|
|
$
|
23,143
|
|
General partner interest:
|
|
|
|
|
|
Continuing operations
|
$
|
(152
|
)
|
|
$
|
260
|
|
|
$
|
7,182
|
|
Discontinued operations
|
1,034
|
|
|
83
|
|
|
1,237
|
|
|
$
|
882
|
|
|
$
|
343
|
|
|
$
|
8,419
|
|
|
|
|
|
|
|
Net income per unit attributable to limited partners:
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.19
|
)
|
|
$
|
0.33
|
|
|
$
|
0.55
|
|
Discontinued operations
|
1.30
|
|
|
0.11
|
|
|
0.10
|
|
|
$
|
1.11
|
|
|
$
|
0.44
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
Weighted average limited partner units - basic
|
38,907
|
|
|
38,102
|
|
|
35,347
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
Continuing operations
|
$
|
(0.19
|
)
|
|
$
|
0.33
|
|
|
$
|
0.55
|
|
Discontinued operations
|
1.30
|
|
|
0.11
|
|
|
0.10
|
|
|
$
|
1.11
|
|
|
$
|
0.44
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
Weighted average limited partner units - diluted
|
38,923
|
|
|
38,165
|
|
|
35,375
|
|
See accompanying notes to consolidated financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital
|
|
|
|
Common
|
|
General Partner
|
|
|
|
Units
|
|
Amount
|
|
Amount
|
|
Total
|
Balances – December 31, 2015
|
35,456,612
|
|
|
$
|
380,845
|
|
|
$
|
13,034
|
|
|
$
|
393,879
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
23,233
|
|
|
8,419
|
|
|
31,652
|
|
Issuance of common units, net
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
(29
|
)
|
Issuance of restricted units
|
13,800
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeiture of restricted units
|
(2,250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash distributions
|
—
|
|
|
(104,137
|
)
|
|
(14,041
|
)
|
|
(118,178
|
)
|
Reimbursement of excess purchase price over carrying value of acquired assets
|
—
|
|
|
4,125
|
|
|
—
|
|
|
4,125
|
|
Unit-based compensation
|
—
|
|
|
904
|
|
|
—
|
|
|
904
|
|
Purchase of treasury units
|
(16,100
|
)
|
|
(347
|
)
|
|
—
|
|
|
(347
|
)
|
Balances – December 31, 2016
|
35,452,062
|
|
|
304,594
|
|
|
7,412
|
|
|
312,006
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
16,792
|
|
|
343
|
|
|
17,135
|
|
Issuance of common units, net
|
2,990,000
|
|
|
51,056
|
|
|
—
|
|
|
51,056
|
|
Issuance of restricted units
|
12,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeiture of restricted units
|
(9,250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
General partner contribution
|
—
|
|
|
—
|
|
|
1,098
|
|
|
1,098
|
|
Cash distributions
|
—
|
|
|
(75,399
|
)
|
|
(1,539
|
)
|
|
(76,938
|
)
|
Reimbursement of excess purchase price over carrying value of acquired assets
|
—
|
|
|
1,125
|
|
|
—
|
|
|
1,125
|
|
Excess purchase price over carrying value of acquired assets
|
—
|
|
|
(7,887
|
)
|
|
—
|
|
|
(7,887
|
)
|
Unit-based compensation
|
—
|
|
|
650
|
|
|
—
|
|
|
650
|
|
Purchase of treasury units
|
(200
|
)
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Balances – December 31, 2017
|
38,444,612
|
|
|
290,927
|
|
|
7,314
|
|
|
298,241
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
43,223
|
|
|
882
|
|
|
44,105
|
|
Issuance of common units, net
|
—
|
|
|
(118
|
)
|
|
—
|
|
|
(118
|
)
|
Issuance of time-based restricted units
|
315,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of performance-based restricted units
|
317,925
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeiture of restricted units
|
(27,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash distributions
|
—
|
|
|
(76,872
|
)
|
|
(1,569
|
)
|
|
(78,441
|
)
|
Excess purchase price over carrying value of acquired assets
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
(26
|
)
|
Unit-based compensation
|
—
|
|
|
1,224
|
|
|
—
|
|
|
1,224
|
|
Purchase of treasury units
|
(18,800
|
)
|
|
(273
|
)
|
|
—
|
|
|
(273
|
)
|
Balances – December 31, 2018
|
39,032,237
|
|
|
$
|
258,085
|
|
|
$
|
6,627
|
|
|
$
|
264,712
|
|
See accompanying notes to consolidated financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
44,105
|
|
|
$
|
17,135
|
|
|
$
|
31,652
|
|
Less: Income from discontinued operations
|
(51,700
|
)
|
|
(4,128
|
)
|
|
(4,649
|
)
|
Net income (loss) from continuing operations
|
(7,595
|
)
|
|
13,007
|
|
|
27,003
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
76,866
|
|
|
85,195
|
|
|
92,132
|
|
Amortization and write-off of deferred debt issue costs
|
3,445
|
|
|
2,897
|
|
|
3,684
|
|
Amortization of premium on notes payable
|
(306
|
)
|
|
(306
|
)
|
|
(306
|
)
|
(Gain) loss on disposition or sale of property, plant, and equipment
|
379
|
|
|
(523
|
)
|
|
(33,400
|
)
|
Impairment of long lived assets
|
—
|
|
|
2,225
|
|
|
26,953
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
4,145
|
|
Derivative (income) loss
|
(14,024
|
)
|
|
1,304
|
|
|
4,133
|
|
Net cash (paid) received for commodity derivatives
|
13,948
|
|
|
(5,136
|
)
|
|
(550
|
)
|
Net cash received for interest rate derivatives
|
—
|
|
|
—
|
|
|
160
|
|
Net premiums received on derivatives that settled during the year on interest rate swaption contracts
|
—
|
|
|
—
|
|
|
630
|
|
Unit-based compensation
|
1,224
|
|
|
650
|
|
|
904
|
|
Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
|
|
|
|
|
|
Accounts and other receivables
|
28,440
|
|
|
(26,739
|
)
|
|
(6,153
|
)
|
Product exchange receivables
|
(137
|
)
|
|
178
|
|
|
843
|
|
Inventories
|
11,844
|
|
|
(14,656
|
)
|
|
(6,761
|
)
|
Due from affiliates
|
5,059
|
|
|
(12,096
|
)
|
|
(1,441
|
)
|
Other current assets
|
1,178
|
|
|
(1,699
|
)
|
|
2,478
|
|
Trade and other accounts payable
|
(27,478
|
)
|
|
20,037
|
|
|
3,254
|
|
Product exchange payables
|
1,486
|
|
|
4,391
|
|
|
(5,372
|
)
|
Due to affiliates
|
(709
|
)
|
|
(5,306
|
)
|
|
2,736
|
|
Income taxes payable
|
(65
|
)
|
|
(360
|
)
|
|
(115
|
)
|
Other accrued liabilities
|
(6,415
|
)
|
|
(3,187
|
)
|
|
686
|
|
Change in other non-current assets and liabilities
|
332
|
|
|
2,416
|
|
|
(12,230
|
)
|
Net cash provided by continuing operating activities
|
87,472
|
|
|
62,292
|
|
|
103,413
|
|
Net cash provided by discontinued operating activities
|
3,254
|
|
|
5,214
|
|
|
7,435
|
|
Net cash provided by operating activities
|
90,726
|
|
|
67,506
|
|
|
110,848
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Payments for property, plant, and equipment
|
(37,090
|
)
|
|
(39,749
|
)
|
|
(40,455
|
)
|
Acquisitions, net of cash acquired
|
—
|
|
|
(19,533
|
)
|
|
(2,150
|
)
|
Payments for plant turnaround costs
|
(1,893
|
)
|
|
(1,583
|
)
|
|
(2,061
|
)
|
Proceeds from sale of property, plant, and equipment
|
9,381
|
|
|
8,377
|
|
|
108,505
|
|
Proceeds from repayment of Note receivable - affiliate
|
—
|
|
|
15,000
|
|
|
—
|
|
Net cash provided by (used in) continuing investing activities
|
(29,602
|
)
|
|
(37,488
|
)
|
|
63,839
|
|
Net cash provided by (used in) discontinued investing activities
|
177,256
|
|
|
(390
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
147,654
|
|
|
(37,878
|
)
|
|
63,839
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Payments of long-term debt
|
(557,000
|
)
|
|
(339,000
|
)
|
|
(386,700
|
)
|
Proceeds from long-term debt
|
399,000
|
|
|
341,000
|
|
|
331,700
|
|
Net proceeds from issuance of common units
|
(118
|
)
|
|
51,056
|
|
|
(29
|
)
|
General partner contributions
|
—
|
|
|
1,098
|
|
|
—
|
|
Excess purchase price over carrying value of acquired assets
|
(26
|
)
|
|
(7,887
|
)
|
|
—
|
|
Reimbursement of excess purchase price over carrying value of acquired assets
|
—
|
|
|
1,125
|
|
|
4,125
|
|
Purchase of treasury units
|
(273
|
)
|
|
(4
|
)
|
|
(347
|
)
|
Payments of debt issuance costs
|
(1,312
|
)
|
|
(66
|
)
|
|
(5,274
|
)
|
Cash distributions paid
|
(78,441
|
)
|
|
(76,938
|
)
|
|
(118,178
|
)
|
Net cash used in financing activities
|
(238,170
|
)
|
|
(29,616
|
)
|
|
(174,703
|
)
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
210
|
|
|
12
|
|
|
(16
|
)
|
Cash at beginning of year
|
27
|
|
|
15
|
|
|
31
|
|
Cash at end of year
|
$
|
237
|
|
|
$
|
27
|
|
|
$
|
15
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
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 and storage services for petroleum products and by-products including the refining of naphthenic crude oil and the blending and packaging of finished lubricants; natural gas services, including liquids transportation and distribution services and natural gas storage; sulfur and sulfur-based products processing, manufacturing, marketing and distribution; and marine transportation services for petroleum products and by-products.
The petroleum products and by-products the Partnership collects, transports, stores and distributes are produced primarily by major and independent oil and gas companies who often turn to third parties, such as the Partnership, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, the Partnership's primary customers include independent refiners, large chemical companies, fertilizer manufacturers and other wholesale purchasers of these products. The Partnership operates primarily in the U.S. Gulf Coast region, which is a major hub for petroleum refining, natural gas gathering and processing and support services for the oil and gas exploration and production industry.
On August 30, 2013, Martin Resource Management completed the sale of a
49%
non-controlling voting interest (
50%
economic interest) in MMGP Holdings, LLC ("Holdings"), a newly-formed sole member of Martin Midstream GP LLC ("MMGP"), the general partner of the Partnership, to certain affiliated investment funds managed by Alinda Capital Partners ("Alinda"). Upon closing the transaction, Alinda appointed
two
representatives to serve on the board of directors of the general partner of the Partnership.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Principles of Presentation and Consolidation
The consolidated financial statements include the financial statements of the Partnership and its wholly-owned subsidiaries and equity method investees. 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 results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. In addition, the Partnership evaluates its relationships with other entities to identify whether they are variable interest entities under certain provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), 810-10 and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Partnership is the primary beneficiary, then that entity is included in the consolidated financial statements in accordance with ASC 810-10. No such variable interest entities exist as of
December 31, 2018
or
2017
.
Divestiture of WTLPG Partnership Interest.
On July 31, 2018, the Partnership completed the sale of its
20 percent
non-operating interest in West Texas LPG Pipeline L.P. ("WTLPG") to ONEOK, Inc. (“ONEOK”). WTLPG owns an approximate
2,300
mile common-carrier pipeline system that primarily transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. A wholly-owned subsidiary of ONEOK, Inc. is the operator of the assets. 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 its equity method investment in WTLPG as discontinued operations for the years ended December 31, 2018, 2017, and 2016. See Note 5 for more information.
Correction of Immaterial Error.
The year to date amounts for 2017 and 2016 have been revised to reflect a reclassification in the presentation of certain expenses associated with the manufacturing and shipping of product related to a location in the Partnership's Terminalling and Storage operating segment. The reclassification resulted in a decrease in operating expenses from
$146,874
to
$140,177
and an increase in cost of products sold from
$613,580
to
$620,277
for the year ended December 31, 2017, and a decrease in operating expenses from
$158,864
to
$152,325
and an increase in cost of products sold from
$471,654
to
$478,193
for the year ended December 31, 2016.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(b)
Product Exchanges
The Partnership enters into product exchange agreements with third parties, whereby the Partnership agrees to exchange natural gas liquids ("NGLs") and sulfur with third parties. The Partnership records the balance of exchange products due to other companies under these agreements at quoted market product prices and the balance of exchange products due from other companies at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method.
Product exchanges with the same counterparty are entered into in contemplation of one another and are combined. The net amount related to location differentials is reported in "Product sales" or "Cost of products sold" in the Consolidated Statements of Operations.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is generally determined by using the FIFO method for all inventories except lubricants and lubricants packaging inventories. Lubricants and lubricants packaging inventories cost is determined using standard cost, which approximates actual cost, computed on a FIFO basis.
(d) Revenue Recognition
Terminalling and Storage
– 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 upon delivering product to the customers as title to the product transfers when the customer physically receives the product. Delivery of product is invoiced as the transaction occurs and are generally paid within a month.
Natural Gas Services
– 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 are generally paid within a month. Natural gas storage revenue is recognized when the service is provided to the customer. The performance of the service is invoiced as the transaction occurs and are generally paid within a month.
Sulfur Services –
Revenue from sulfur product sales is recognized when the customer takes title to the product. Delivery of product is invoiced as the transaction occurs and are generally paid within a month. Revenue from sulfur services is recognized as deliveries are made during each monthly period. The performance of the service is invoiced as the transaction occurs and are generally paid within a month.
Marine Transportation
– Revenue 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 are generally paid within a month.
(e) Equity Method Investments
The Partnership uses the equity method of accounting for investments in unconsolidated entities where the ability to exercise significant influence over such entities exists. Investments in unconsolidated entities consist of capital contributions and advances plus the Partnership’s share of accumulated earnings as of the entities’ latest fiscal year-ends, less capital withdrawals and distributions. Equity method investments are subject to impairment under the provisions of ASC 323-10, which relates to the equity method of accounting for investments in common stock. No portion of the net income from these entities is included in the Partnership’s operating income.
(f) Property, Plant, and Equipment
Owned property, plant, and equipment is stated at cost, less accumulated depreciation. Owned buildings and equipment are depreciated using straight-line method over the estimated lives of the respective assets.
Equipment under capital leases is stated at the present value of minimum lease payments less accumulated amortization. Equipment under capital leases is amortized on a straight line basis over the estimated useful life of the asset.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Routine maintenance and repairs are charged to expense while costs of betterments and renewals are capitalized. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts, and the difference between net book value of the asset and proceeds from disposition is recognized as gain or loss.
(g) Goodwill and Other Intangible Assets
Goodwill is subject to a fair-value based impairment test on an annual basis, or more often if events or circumstances indicate there may be impairment. The Partnership is required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets. The Partnership is required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the Partnership will record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
When assessing the recoverability of goodwill and other intangible assets, the Partnership may first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit or other intangible asset is less than its carrying amount. After assessing qualitative factors, if the Partnership determines that it is not more likely than not that the fair value of a reporting unit or other intangible asset is less than its carrying amount, then performing a quantitative assessment is not required. If an initial qualitative assessment indicates that it is more likely than not the carrying amount exceeds the fair value of a reporting unit or other intangible asset, a quantitative analysis will be performed. The Partnership may also elect to bypass the qualitative assessment and proceed directly to a quantitative analysis depending on the facts and circumstances.
Of the Partnership's
four
reporting units, the terminalling and storage, natural gas services, and sulfur services reporting units contain goodwill.
No
goodwill impairment was recorded for the year ended December 31, 2018 or 2017. During the second quarter of 2016, the Partnership experienced an impairment of all the goodwill in the Partnership's marine transportation reporting unit.
In performing a quantitative analysis, recoverability of goodwill for each reporting unit is measured using a weighting of the discounted cash flow method and two market approaches (the guideline public company method and the guideline transaction method). The discounted cash flow model incorporates discount rates commensurate with the risks involved. Use of a discounted cash flow model is common practice in assessing impairment in the absence of available transactional market evidence to determine the fair value. The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital ("WACC"). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and company specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. If the calculated fair value is less than the current carrying amount, the Partnership will record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
Significant changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could give rise to future impairment. Changes to these estimates and assumptions can include, but may not be limited to, varying commodity prices, volume changes and operating costs due to market conditions and/or alternative providers of services.
Other intangible assets that have finite lives are tested for impairment when events or circumstances indicate that the carrying value may not be recoverable. An impairment is indicated if the carrying amount of a long-lived intangible asset exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If impairment is indicated, the Partnership would record an impairment loss equal to the difference between the carrying value and the fair value of the asset. There were
no
intangible asset impairments in 2018, 2017 or 2016.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(h) Debt Issuance Costs
Debt issuance costs relating to the Partnership’s revolving credit facility and senior unsecured notes are deferred and amortized over the terms of the debt arrangements and are shown, net of accumulated amortization, as a reduction of the related long-term debt.
In connection with the issuance, amendment, expansion and restatement of debt arrangements, the Partnership incurred debt issuance costs of
$1,312
,
$66
and
$5,274
in the years ended
December 31, 2018
,
2017
and
2016
, respectively.
During 2016, the Partnership made certain strategic amendments to its credit facility which, among other things, decreased its borrowing capacity from
$700,000
to
$664,444
and extended the maturity date of the facility from March 28, 2018 to March 28, 2020. In connection with the amendment, the Partnership expensed
$820
of unamortized debt issuance costs determined not to have continuing benefit.
Remaining unamortized deferred issuance costs are amortized over the term of each respective revised debt arrangement.
Amortization and write-off of debt issuance costs, which is included in interest expense, totaled
$3,445
,
$2,897
and
$3,684
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Accumulated amortization amounted to
$20,607
and
$17,162
at
December 31, 2018
and
2017
, respectively.
(i) Impairment of Long-Lived Assets
In accordance with ASC 360-10, long-lived assets, such as property, plant and equipment, and intangible assets with definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.
In the fourth quarter of 2017, the Partnership identified a triggering event related to the planned disposition of certain assets that were no longer deemed core assets in the Partnership's Marine Transportation business. The triggering event was the assets' inability to generate cash flows in recent quarters and going forward. As a result, an impairment charge of
$1,625
was recorded in the Marine Transportation segment results of operations in the fourth quarter of 2017. Additionally, the Partnership recorded an adjustment to the fair value less cost to sell of a certain asset classified as held for sale in the Martin Lubricants division of the Terminalling and Storage segment. As a result, an impairment charge of
$600
was recorded in the Terminalling and Storage segment results of operations in the fourth quarter of 2017.
On August 25, 2017, Hurricane Harvey made landfall as a Category 4 hurricane. The storm lingered over Texas and Louisiana for days producing over
50
inches of rain in some areas, resulting in widespread flooding and damage. The Partnership experienced an impact from Hurricane Harvey in our Terminalling and Storage and Sulfur Services segments, where damages were suffered to the Partnership's property, plant, and equipment at its Neches, Stanolind, Galveston, and Harbor Island terminals located along the Texas gulf coast. The damage incurred did not exceed the insurance deductible at these locations and therefore the Partnership does not expect to receive any insurance proceeds resulting from the damage from Hurricane Harvey. In the third quarter of 2017, the Partnership recorded a write-off in the amount of
$186
related to assets damaged.
In the fourth quarter of 2016, the Partnership identified a triggering event related to certain organic growth projects in the Smackover Refinery and Specialty Terminals divisions of the Partnership's Terminalling and Storage segment. These triggering events were the decision to not move forward with certain expansion projects due to the evaporation of the economic viability of the projects. Additionally, a triggering event was identified related to the planned disposition of certain assets that were no longer deemed core assets to the Partnership's Martin Lubricants division. As a result, an impairment charge of
$15,252
was recorded
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
in the Terminalling and Storage segment results of operations for the year ended December 31, 2016. Also, in the fourth quarter of 2016, the Partnership identified a triggering event related to the planned disposition of certain assets that were no longer deemed core assets in the Partnership's Marine Transportation business. The triggering event was the assets' inability to generate cash flows in recent quarters and going forward. As a result, an impairment charge of
$11,701
was recorded in the Marine Transportation segment results of operations in the fourth quarter of 2016.
(j) Asset Retirement Obligations
Under ASC 410-20, which relates to accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets, the Partnership records an asset retirement obligation ("ARO") at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, the liability is accreted over time towards the ultimate obligation amount and the capitalized costs are depreciated over the useful life of the related asset.
(k) Derivative Instruments and Hedging Activities
In accordance with certain provisions of ASC 815-10 related to accounting for derivative instruments and hedging activities, all derivatives and hedging instruments are included in the Consolidated Balance Sheets as an asset or liability measured at fair value and changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met. If a derivative qualifies for hedge accounting, changes in the fair value can be offset against the change in the fair value of the hedged item through earnings or recognized in other comprehensive income until such time as the hedged item is recognized in earnings.
Derivative instruments not designated as hedges are marked to market with all market value adjustments being recorded in the Consolidated Statements of Operations.
(l) Use of Estimates
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 financial statements in conformity with accounting principles generally accepted in the U.S. Actual results could differ from those estimates.
(m) Indirect Selling, General and Administrative Expenses
Indirect selling, general and administrative expenses are incurred by Martin Resource Management and allocated to the Partnership to cover costs of centralized corporate functions such as accounting, treasury, engineering, information technology, risk management and other corporate services. Such expenses are based on the percentage of time spent by Martin Resource Management’s personnel that provide such centralized services. Under an omnibus agreement with Martin Resource Management, the Partnership is required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. For the years ended
December 31, 2018
,
2017
and
2016
, the conflicts committee of the Partnership's general partner ("Conflicts Committee") approved reimbursement amounts of
$16,416
,
$16,416
and
$13,033
, respectively, reflecting the Partnership's allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
(n)
Environmental Liabilities and Litigation
The Partnership’s policy is to accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(o) Trade and Accrued Accounts Receivable and Allowance for Doubtful Accounts.
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Partnership’s best estimate of the amount of probable credit losses in the Partnership’s existing accounts receivable.
(p) Deferred Catalyst Costs
The cost of the periodic replacement of catalysts is deferred and amortized over the catalyst’s estimated useful life, which ranges from
12
to
36
months.
(q) Deferred Turnaround Costs
The Partnership capitalizes the cost of major turnarounds and amortizes these costs over the estimated period to the next turnaround, which ranges from
12
to
36
months.
(r) Income Taxes
The Partnership is subject to the Texas margin tax, which is considered a state income tax, and is included in income tax expense on the Consolidated Statements of Operations. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed as an income tax and, therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a result of this provision is immaterial.
(s) Comprehensive Income
Comprehensive income includes net income and other comprehensive income. There are no items of other comprehensive income or loss in any of the years presented.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in U.S. GAAP. The new standard is effective for the Partnership on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Partnership adopted the new standard utilizing the cumulative effect method which resulted in no cumulative effect of the adoption being recorded as of January 1, 2018. The Partnership adopted ASU 2014-09 on January 1, 2018 and did not identify any significant changes in the timing of revenue recognition when considering the amended accounting guidance. Additional disclosures related to revenue recognition appear in "Note 6. Revenue."
In February 2016, the FASB issued ASU 2016-02,
Leases
, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. Lessor accounting under the new standard is substantially unchanged and the Partnership believes substantially all of our leases will continue to be classified as operating leases under the new standard. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11,
Targeted Improvements to ASC 842
, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. Based on the effective date, this guidance will apply and the Partnership will adopt this ASU beginning on January 1, 2019 and plans to elect the transition option provided under ASU 2018-11. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Partnership expects to elect the "package of practical expedients", which permits the Partnership not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Partnership expects to elect the short-term lease recognition exemption for
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
all leases that qualify. This means, for those assets that qualify, the Partnership will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.
Based on its current lease portfolio, the Partnership estimates that the adoption of this ASU will result in approximately
$19,879
of additional assets and liabilities being reflected on its Consolidated Balance Sheet as of January 1, 2019.
NOTE 4. ACQUISITIONS
Acquisition of Terminalling Assets.
On February 22, 2017, the Partnership acquired
100%
of the membership interests of MEH South Texas Terminals LLC (“MEH”), a subsidiary of Martin Resource Management, for a purchase price of
$27,420
(the “Hondo Acquisition”), which was was funded with borrowings under the Partnership's revolving credit facility. At the date of acquisition, MEH was in the process of constructing an asphalt terminal facility in Hondo, Texas (the "Hondo Terminal”), which will serve the asphalt market in San Antonio, Texas and surrounding areas. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of these assets was recorded at the historical carrying value of the assets at the acquisition date. The excess of the purchase price over the carrying value of the assets of
$7,887
was recorded as an adjustment to "Partners' capital."
|
|
|
|
|
Purchase price
|
$
|
27,420
|
|
Historical carrying value of assets allocated to "Property, plant and equipment"
|
19,533
|
|
Excess purchase price over carrying value of acquired assets
|
$
|
7,887
|
|
As no individual line item of the historical financial statements of the acquired assets was in excess of
3%
of the Partnership's relative consolidated financial statement captions, the Partnership elected not to retrospectively recast the historical financial information to include these assets.
NOTE 5. DISCONTINUED OPERATIONS, DIVESTITURES, AND ASSETS HELD FOR SALE
Divestitures
Divestiture of WTLPG Partnership Interest.
On July 31, 2018, the Partnership completed the sale of its
20 percent
non-operating interest in WTLPG to ONEOK. WTLPG owns an approximate
2,300
mile common-carrier pipeline system that primarily transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. A wholly-owned subsidiary of ONEOK is the operator of the assets. In consideration for the sale of these assets, the Partnership received cash proceeds of
$193,705
, after transaction fees and expenses. The proceeds from the sale 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 its equity method investment in WTLPG as discontinued operations for the years ended December 31, 2018, 2017, and 2016.
The operating results, which are included in income from discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Total costs and expenses and other, net, excluding depreciation and amortization
1
|
$
|
(247
|
)
|
|
$
|
(186
|
)
|
|
$
|
(65
|
)
|
Other operating income
2
|
48,564
|
|
|
—
|
|
|
—
|
|
Equity in earnings
|
3,383
|
|
|
4,314
|
|
|
4,714
|
|
Income from discontinued operations before income taxes
|
51,700
|
|
|
4,128
|
|
|
4,649
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
Income from discontinued operations, net of income taxes
|
$
|
51,700
|
|
|
$
|
4,128
|
|
|
$
|
4,649
|
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
1
These expenses represent direct operating expenses as a result of the Partnership's ownership interest in WTLPG.
2
Other operating income represents the gain on the disposition of the investment in WTLPG.
Divestiture of Terminalling Assets.
On December 21, 2016, the Partnership sold its
900,000
barrel crude oil storage terminal, refined product barge terminal, certain pipelines and related easements as well as dockage and trans-loading assets located in Corpus Christi, Texas (collectively the "CCCT Assets") to NuStar Logistics, L.P. (“NuStar”) for gross consideration of
$107,000
plus the reimbursement of certain capital expenditures and prepaid items of
$2,057
. The Partnership received net proceeds of approximately
$93,347
after transaction fees and expenses as well as the application of certain net cash payments previously received by us in conjunction with its mandated relocation of certain dockage assets to the purchase price in the amount of
$13,400
. Proceeds from the sale were used to reduce outstanding borrowings under the Partnership's revolving credit facility. The Partnership recorded a gain from the divestiture of
$37,345
, which was included in "Other operating income, net" on the Partnership's Consolidated Statements of Operations for the year ended December 31, 2016. Net income attributable to the CCCT Assets included in the Partnership's Consolidated Statements of Operations was
$0
,
$0
, and
$43,804
for the years ended
December 31, 2018
,
2017
, and
2016
, respectively.
The divestiture of the CCCT Assets did not qualify for discontinued operations presentation under the guidance of ASC 205-20.
Long-Lived Assets Held for Sale
In the fourth quarter of 2017, the Partnership identified certain assets that were no longer deemed core to the operations of the Partnership in the inland division of the Marine Transportation segment. Additionally, the Partnership recorded an adjustment to the fair value less cost to sell of a certain asset classified as held for sale in the Martin Lubricants division of the Terminalling and Storage segment. As a result, an impairment charge of
$600
and
$1,625
was recorded in the Terminalling and Storage and Marine Transportation segments, respectively, in the fourth quarter of 2017 and was presented as "Impairment of long-lived assets" in the Partnership's Consolidated Statements of Operations.
In the fourth quarter of 2016, the Partnership identified certain assets that were no longer deemed core to the operations of the Partnership in the Smackover refinery and Martin Lubricants divisions of the Terminalling and Storage segment as well as the inland and offshore divisions of the Marine Transportation segment. These assets were deemed non-core due to the each asset's inability to generate cash flows in recent quarters as well as the expected cash flows in future quarters. As a result, an impairment charge of
$15,252
and
$11,701
was recorded in the Terminalling and Storage and Marine Transportation segments, respectively, in the fourth quarter of 2016 and was presented as "Impairment of long-lived assets" in the Partnership's Consolidated Statements of Operations.
At
December 31, 2018
and
2017
, the assets met the criteria to be classified as held for sale in accordance with ASC 360-10 and are presented at the assets' fair value less cost to sell by segment in current assets as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
|
|
|
Terminalling and storage
|
$
|
3,552
|
|
|
$
|
4,152
|
|
Marine transportation
|
2,100
|
|
|
5,427
|
|
Assets held for sale
|
$
|
5,652
|
|
|
$
|
9,579
|
|
During 2018, the Partnership received
$1,002
in proceeds from the sale of assets classified as held for sale resulting in a loss of
$1,022
, which was presented as a component of "Other operating income (loss), net" in the Partnership's Consolidated Statements of Operations.
During 2017, the Partnership received
$8,341
in proceeds from the sale of assets classified as held for sale resulting in a gain of
$822
, which was presented as a component of "Other operating income (loss), net" in the Partnership's Consolidated Statements of Operations.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The non-core assets discussed above did not qualify for discontinued operations presentation under the guidance of ASC 205-20.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NOTE 6. REVENUE
The following table disaggregates our revenue by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Terminalling and storage segment
|
|
|
|
|
|
Lubricant product sales
|
$
|
145,327
|
|
|
$
|
130,466
|
|
|
$
|
113,578
|
|
Throughput and storage
|
96,287
|
|
|
99,705
|
|
|
123,132
|
|
|
$
|
241,614
|
|
|
$
|
230,171
|
|
|
$
|
236,710
|
|
Natural gas services segment
|
|
|
|
|
|
Natural gas liquids product sales
|
$
|
496,026
|
|
|
$
|
473,865
|
|
|
$
|
330,200
|
|
Natural gas storage
|
52,109
|
|
|
58,817
|
|
|
61,133
|
|
|
$
|
548,135
|
|
|
$
|
532,682
|
|
|
$
|
391,333
|
|
Sulfur service segment
|
|
|
|
|
|
Sulfur product sales
|
$
|
46,347
|
|
|
$
|
49,204
|
|
|
$
|
53,327
|
|
Fertilizer product sales
|
75,041
|
|
|
74,528
|
|
|
76,931
|
|
Sulfur services
|
11,148
|
|
|
10,952
|
|
|
10,800
|
|
|
$
|
132,536
|
|
|
$
|
134,684
|
|
|
$
|
141,058
|
|
Marine transportation segment
|
|
|
|
|
|
Inland transportation
|
$
|
44,580
|
|
|
$
|
42,874
|
|
|
$
|
50,556
|
|
Offshore transportation
|
5,790
|
|
|
5,705
|
|
|
7,734
|
|
|
$
|
50,370
|
|
|
$
|
48,579
|
|
|
$
|
58,290
|
|
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.
Natural Gas Services 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 are generally paid within a month. Natural gas storage revenue is recognized when the service is provided to the customer. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Sulfur Services Segment
Revenue from sulfur product sales is recognized when the customer takes title to the product. Delivery of product is invoiced as the transaction occurs and are 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.
Marine Transportation Segment
Revenue 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
Terminalling and storage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput and storage
|
$
|
50,079
|
|
|
$
|
49,354
|
|
|
$
|
46,642
|
|
|
$
|
42,735
|
|
|
$
|
42,854
|
|
|
$
|
392,624
|
|
|
$
|
624,288
|
|
Natural gas services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas storage
|
37,979
|
|
|
32,119
|
|
|
26,276
|
|
|
24,615
|
|
|
10,107
|
|
|
—
|
|
|
131,096
|
|
Sulfur services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur product sales
|
17,082
|
|
|
4,898
|
|
|
1,181
|
|
|
295
|
|
|
—
|
|
|
—
|
|
|
23,456
|
|
Marine transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore transportation
|
6,205
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,205
|
|
Total
|
$
|
111,345
|
|
|
$
|
86,371
|
|
|
$
|
74,099
|
|
|
$
|
67,645
|
|
|
$
|
52,961
|
|
|
$
|
392,624
|
|
|
$
|
785,045
|
|
NOTE 7. INVENTORIES
Components of inventories at
December 31, 2018
and
2017
were as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Natural gas liquids
|
$
|
32,388
|
|
|
$
|
47,462
|
|
Sulfur
|
12,818
|
|
|
8,436
|
|
Fertilizer
|
14,208
|
|
|
18,674
|
|
Lubricants
|
22,887
|
|
|
20,086
|
|
Other
|
2,767
|
|
|
2,594
|
|
|
$
|
85,068
|
|
|
$
|
97,252
|
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NOTE 8. PROPERTY, PLANT, AND EQUIPMENT
At
December 31, 2018
and
2017
, property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable Lives
|
|
2018
|
|
2017
|
Land
|
—
|
|
$
|
22,293
|
|
|
$
|
21,719
|
|
Improvements to land and buildings
|
10-25 years
|
|
129,985
|
|
|
135,896
|
|
Storage equipment
|
5-50 years
|
|
174,851
|
|
|
178,815
|
|
Marine vessels
|
4-25 years
|
|
191,070
|
|
|
176,782
|
|
Operating plant and equipment
|
3-50 years
|
|
673,909
|
|
|
659,854
|
|
Base Gas
|
—
|
|
43,755
|
|
|
43,799
|
|
Furniture, fixtures and other equipment
|
3-20 years
|
|
11,832
|
|
|
11,134
|
|
Transportation equipment
|
3-7 years
|
|
1,821
|
|
|
1,535
|
|
Construction in progress
|
|
|
15,214
|
|
|
23,531
|
|
|
|
|
$
|
1,264,730
|
|
|
$
|
1,253,065
|
|
Depreciation expense for the years ended
December 31, 2018
,
2017
and
2016
was
$67,122
,
$70,904
and
$72,405
.
Additions to property, plant and equipment included in accounts payable at
December 31, 2018
and
2017
were
$2,166
and
$4,100
, respectively.
NOTE 9. GOODWILL
The following table represents the goodwill balance by reporting unit at
December 31, 2018
and 2017 as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Carrying amount of goodwill:
|
|
|
|
Terminalling and storage
|
$
|
11,868
|
|
|
$
|
11,868
|
|
Natural gas services
|
79
|
|
|
79
|
|
Sulfur services
|
5,349
|
|
|
5,349
|
|
Total goodwill
|
$
|
17,296
|
|
|
$
|
17,296
|
|
During the impairment evaluation performed at August 31, 2018 and 2017, the Partnership first assessed qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit or other intangible asset is less than its carrying amount. After assessing qualitative factors, the Partnership determined that it is not more likely than not that the fair value of its reporting units are less than its carrying amount. Therefore,
no
impairment was recorded for the year ended December 31, 2018 or 2017.
During the second quarter of 2016, the Partnership determined that the state of market conditions in the Marine Transportation reporting unit, including the demand for utilization, day rates and the current oversupply of inland tank barges, indicated that an impairment of goodwill may exist. As a result, the Partnership assessed qualitative factors and determined that the Partnership could not conclude it was more likely than not that the fair value of goodwill exceeded its carrying value. In turn, the Partnership prepared a quantitative analysis of the fair value of the goodwill as of June 30, 2016, based on the weighted average valuation of the aforementioned income and market based valuation approaches. The underlying results of the valuation were driven by actual results during the six months ended June 30, 2016 and the pricing and market conditions existing as of June 30, 2016, which were below forecasts at the time of the previous goodwill assessments. Other key estimates, assumptions and inputs used in the valuation included long-term growth rates, discounts rates, terminal values, valuation multiples and relative valuations when comparing the reporting unit to similar businesses or asset bases. Upon completion of the analysis, a
$4,145
impairment of all goodwill in the Marine Transportation reporting unit was incurred during the second quarter of 2016. The Partnership did not recognize any other goodwill impairment losses for the year ended December 31, 2016.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NOTE 10. LEASES
The Partnership has numerous non-cancelable 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. The Partnership also has cancelable operating lease land rentals and outside marine vessel charters.
The Partnership’s future minimum lease obligations as of
December 31, 2018
consist of the following:
|
|
|
|
|
Fiscal year
|
Operating Leases
|
|
|
2019
|
$
|
7,869
|
|
2020
|
5,417
|
|
2021
|
3,216
|
|
2022
|
2,129
|
|
2023
|
1,467
|
|
Thereafter
|
7,823
|
|
Total
|
$
|
27,921
|
|
Rent expense for continuing operating leases for the
years ended December 31,
2018
,
2017
and
2016
was
$14,076
,
$15,908
and
$19,005
, respectively.
NOTE 11. INVESTMENT IN WTLPG
As discussed in Note 5, on July 31, 2018, the Partnership completed the sale of its
20 percent
non-operating interest in WTLPG. Prior to the sale, the Partnership owned a
19.8%
limited partnership and
0.2%
general partnership interest in WTLPG. A wholly-owned subsidiary of ONEOK is the operator of the assets. WTLPG owns an approximate
2,300
mile common-carrier pipeline system that primarily transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. The Partnership recognized its
20%
interest in WTLPG as "Investment in WTLPG" on its Consolidated Balance Sheets. The Partnership accounted for its ownership interest in WTLPG under the equity method of accounting. As discussed in Note 5, the Partnership sold its
20%
non-operating partnership interest to ONEOK on July 31, 2018.
Selected financial information for WTLPG during the period of ownership is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31,
|
|
Seven Months Ended July 31,
|
|
Total Assets
|
|
Long-Term Debt
|
|
Members’ Equity/Partners' Capital
|
|
Revenues
|
|
Net Income
|
2018
|
|
|
|
|
|
|
|
|
|
WTLPG
|
$
|
928,349
|
|
|
$
|
—
|
|
|
$
|
868,894
|
|
|
$
|
55,534
|
|
|
$
|
16,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Years ended December 31,
|
|
Total Assets
|
|
Long-Term Debt
|
|
Members’ Equity/Partners' Capital
|
|
Revenues
|
|
Net Income
|
2017
|
|
|
|
|
|
|
|
|
|
WTLPG
|
$
|
837,163
|
|
|
$
|
—
|
|
|
$
|
787,426
|
|
|
$
|
87,048
|
|
|
$
|
21,571
|
|
2016
|
|
|
|
|
|
|
|
|
|
WTLPG
|
$
|
812,464
|
|
|
$
|
—
|
|
|
$
|
790,406
|
|
|
$
|
88,468
|
|
|
$
|
23,883
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12. FAIR VALUE MEASUREMENTS
The Partnership uses a valuation framework based upon inputs that market participants use in pricing certain assets and liabilities. These inputs are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources. Unobservable inputs represent the Partnership's own market assumptions. Unobservable inputs are used only if observable inputs are unavailable or not reasonably available without undue cost and effort. The two types of inputs are further prioritized into the following hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that reflect the entity's own assumptions and are not corroborated by market data.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
December 31,
|
|
2018
|
|
2017
|
Commodity derivative contracts, net
|
$
|
4
|
|
|
$
|
(72
|
)
|
The Partnership is required to disclose estimated fair values for its financial instruments. Fair value estimates are set forth below for these financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
|
|
•
|
Accounts and other receivables, trade and other accounts payable, accrued interest payable, other accrued liabilities, income taxes payable and due from/to affiliates: The carrying amounts approximate fair value due to the short maturity and highly liquid nature of these instruments, and as such these have been excluded from the table below. There is negligible credit risk associated with these instruments.
|
|
|
•
|
Long-term debt: The carrying amount of the revolving credit facility approximates fair value due to the debt having a variable interest rate and is in Level 2. The Partnership has not had any indicators which represent a change in the market spread associated with its variable interest rate debt. The estimated fair value of the senior unsecured notes is considered Level 1, as the fair value is based on quoted market prices in active markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
2021 Senior unsecured notes
|
$
|
372,996
|
|
|
$
|
360,138
|
|
|
$
|
372,618
|
|
|
$
|
381,657
|
|
NOTE 13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Partnership’s results of operations could be materially impacted by changes in NGL prices and 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 included on the balance sheet as an asset or a liability measured at fair value and changes in fair value are recognized currently in earnings. All of the Partnership's derivatives are non-hedge derivatives and therefore all changes in fair values are recognized as gains and losses in the 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 has established a hedging policy and 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. The Partnership has entered into hedging transactions as of
December 31, 2018
to protect a portion of its commodity price risk exposure. These hedging arrangements are in the form of swaps for NGLs. The Partnership has instruments totaling a gross notional quantity of
55
barrels settling during the period from January 31, 2019 through February 28, 2019. At
December 31, 2017
, the Partnership had instruments totaling a gross notional quantity of
145
barrels settling during the period from January 31, 2018 through February 28, 2018. 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. The Partnership enters into
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate credit facility and its senior unsecured notes.
During the twelve months ended December 31, 2016, the Partnership entered into contracts which provided the counterparty the option to enter into swap contracts to hedge the Partnership's exposure to changes in the fair value of its senior unsecured notes ("interest rate swaptions"). In connection with the interest rate swaption contracts, the Partnership received premiums of
$630
, which represented the fair value on the date the transactions were initiated and were initially recorded as a derivative liability on the Partnership's Consolidated Balance Sheet, during the twelve months ended December 31, 2016. Each of the interest rate swaptions was fully amortized as of December 31, 2016. Interest rate swaption contract premiums received are amortized over the period from initiation of the contract through their termination date. For the twelve months ended December 31, 2016, the Partnership recognized
$630
of premium in "Interest expense, net" on the Partnership's Consolidated Statement of Operations related to the interest rate swaption contracts.
For information regarding fair value amounts and gains and losses on interest rate derivative instruments and related hedged items, see "Tabular Presentation of Gains and Losses on Derivative Instruments and Related Hedged Items" below.
(c) Tabular Presentation of Gains and Losses on Derivative Instruments
The following table summarizes the fair values and classification of the Partnership’s derivative instruments in its Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments in the Consolidated Balance Sheet
|
|
Derivative Assets
|
Derivative Liabilities
|
|
|
Fair Values
|
|
Fair Values
|
|
Balance Sheet Location
|
December 31, 2018
|
|
December 31, 2017
|
Balance Sheet Location
|
December 31, 2018
|
|
December 31, 2017
|
Derivatives not designated as hedging instruments:
|
Current:
|
|
|
|
|
|
|
|
Commodity contracts
|
Fair value of derivatives
|
$
|
4
|
|
|
$
|
—
|
|
Fair value of derivatives
|
$
|
—
|
|
|
$
|
72
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
72
|
|
Effect of Derivative Instruments on the Consolidated Statement of Operations For the Twelve Months Ended
December 31, 2018
,
2017
, and
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss) Recognized in Income on Derivatives
|
Amount of (Gain) or Loss Recognized in Income on Derivatives
|
|
|
2018
|
|
2017
|
|
2016
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Interest rate swaption contracts
|
Interest expense
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(630
|
)
|
Interest rate contracts
|
Interest expense
|
—
|
|
|
—
|
|
|
(366
|
)
|
Commodity contracts
|
Cost of products sold
|
(14,024
|
)
|
|
1,304
|
|
|
5,129
|
|
Total derivatives not designated as hedging instruments
|
$
|
(14,024
|
)
|
|
$
|
1,304
|
|
|
$
|
4,133
|
|
NOTE 14. RELATED PARTY TRANSACTIONS
As of
December 31, 2018
, Martin Resource Management owned
6,114,532
of the Partnership’s common units representing approximately
15.7%
of the Partnership’s outstanding limited partnership units. Martin Resource Management controls the Partnership's general partner by virtue of its
51%
voting interest in Holdings, the sole member of the Partnership's general partner. The Partnership’s general partner, MMGP, owns a
2%
general partner interest in the Partnership and the Partnership’s incentive distribution rights. The Partnership’s general partner’s ability, as general partner, to manage and operate the Partnership, and Martin Resource Management’s ownership as of
December 31, 2018
, of approximately
15.7%
of the
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Partnership’s outstanding limited partnership units, effectively gives Martin Resource Management the ability to veto some of the Partnership’s actions and to control the Partnership’s management.
The following is a description of the Partnership’s material related party agreements:
Omnibus Agreement
Omnibus Agreement
. The Partnership and its general partner are parties to the Omnibus Agreement dated November 1, 2002, with Martin Resource Management that 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 and the Partnership’s use of certain Martin Resource Management trade names and trademarks. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into finished products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management.
Non-Competition Provisions
. Martin Resource Management has agreed for so long as it controls the general partner of the Partnership, not to engage in the business of:
|
|
•
|
providing terminalling and storage services for petroleum products and by-products including the refining, blending and packaging of finished lubricants;
|
•
providing marine transportation of petroleum products and by-products;
•
distributing NGLs; and
•
manufacturing and selling sulfur-based fertilizer products and other sulfur-related products.
This restriction does not apply to:
|
|
•
|
the ownership and/or operation on the Partnership’s behalf of any asset or group of assets owned by it or its affiliates;
|
|
|
•
|
any business operated by Martin Resource Management, including the following:
|
|
|
◦
|
providing land transportation of various liquids;
|
|
|
◦
|
distributing fuel oil, asphalt, marine fuel and other liquids;
|
|
|
◦
|
providing marine bunkering and other shore-based marine services in Texas, Louisiana, Mississippi, Alabama, and Florida;
|
|
|
◦
|
operating a crude oil gathering business in Stephens, Arkansas;
|
|
|
◦
|
providing crude oil gathering, refining, and marketing services of base oils, asphalt, and distillate products in Smackover, Arkansas;
|
|
|
◦
|
providing crude oil marketing and transportation from the well head to the end market;
|
|
|
◦
|
operating an environmental consulting company;
|
|
|
◦
|
operating an engineering services company;
|
|
|
◦
|
supplying employees and services for the operation of the Partnership's business; and
|
|
|
◦
|
operating, solely for the Partnership's account, the asphalt facilities in Omaha, Nebraska, Port Neches, Texas, Hondo, Texas, and South Houston, Texas.
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
|
|
•
|
any business that Martin Resource Management acquires or constructs that has a fair market value of less than
$5,000
;
|
|
|
•
|
any business that Martin Resource Management acquires or constructs that has a fair market value of
$5,000
or more if the Partnership has been offered the opportunity to purchase the business for fair market value and the Partnership declines to do so with the concurrence of the Conflicts Committee; and
|
|
|
•
|
any business that Martin Resource Management acquires or constructs where a portion of such business includes a restricted business and the fair market value of the restricted business is
$5,000
or more and represents less than
20%
of the aggregate value of the entire business to be acquired or constructed; provided that, following completion of the acquisition or construction, the Partnership will be provided the opportunity to purchase the restricted business.
|
Services.
Under the Omnibus Agreement, Martin Resource Management provides the Partnership with corporate staff, support services, and administrative services necessary to operate the Partnership’s business. The Omnibus Agreement requires the Partnership to reimburse Martin Resource Management for all direct expenses it incurs or payments it makes on the Partnership’s behalf or in connection with the operation of the Partnership’s business. There is no monetary limitation on the amount the Partnership is required to reimburse Martin Resource Management for direct expenses. In addition to the direct expenses, under the Omnibus Agreement, the Partnership is required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses.
Effective January 1, 2018, through
December 31, 2018
, the Conflicts Committee approved an annual reimbursement amount for indirect expenses of
$16,416
. The Partnership reimbursed Martin Resource Management for
$16,416
,
$16,416
and
$13,033
of indirect expenses for the years ended
December 31, 2018
,
2017
and
2016
, respectively. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
These indirect expenses are intended to cover the centralized corporate functions Martin Resource Management provides for the Partnership, 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 the Partnership shares with Martin Resource Management retained businesses. The provisions of the Omnibus Agreement regarding Martin Resource Management’s services will terminate if Martin Resource Management ceases to control the general partner of the Partnership.
Related Party Transactions
. The Omnibus Agreement prohibits the Partnership from entering into any material agreement with Martin Resource Management without the prior approval of the Conflicts Committee. For purposes of the Omnibus Agreement, the term material agreements means any agreement between the Partnership and Martin Resource Management that requires aggregate annual payments in excess of then-applicable agreed upon reimbursable amount of indirect general and administrative expenses. Please read "Services" above.
License Provisions.
Under the Omnibus Agreement, Martin Resource Management has granted the Partnership a nontransferable, nonexclusive, royalty-free right and license to use certain of its trade names and marks, as well as the trade names and marks used by some of its affiliates.
Amendment and Termination.
The Omnibus Agreement may be amended by written agreement of the parties; provided, however, that it may not be amended without the approval of the Conflicts Committee if such amendment would adversely affect the unitholders. The Omnibus Agreement was first amended on November 25, 2009, to permit the Partnership to provide refining services to Martin Resource Management. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management. Such amendments were approved by the Conflicts Committee. The Omnibus Agreement, other than the indemnification provisions and the provisions limiting the amount for which the Partnership will reimburse Martin Resource Management for general and administrative services performed on its behalf, will terminate if the Partnership is no longer an affiliate of Martin Resource Management.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Motor Carrier Agreement
Motor Carrier Agreement.
The Partnership is a party to a motor carrier agreement effective January 1, 2006 as amended, with Martin Transport, Inc., a wholly owned subsidiary of Martin Resource Management through which Martin Transport, Inc. operates its land transportation operations. Under the agreement, Martin Transport, Inc. agreed to transport the Partnership's NGLs as well as other liquid products.
Term and Pricing.
The agreement has an initial term that expired in December 2007 but automatically renews for consecutive
one
year periods unless either party terminates the agreement by giving written notice to the other party at least
30
days prior to the expiration of the then-applicable term. The Partnership has the right to terminate this agreement at any time by providing
90
days prior notice. These rates are subject to any adjustments which are mutually agreed or in accordance with a price index. Additionally, during the term of the agreement, shipping charges are also subject to fuel surcharges determined on a weekly basis in accordance with the U.S. Department of Energy’s national diesel price list.
Indemnification.
Martin Transport has indemnified us against all claims arising out of the negligence or willful misconduct of Martin Transport and its officers, employees, agents, representatives and subcontractors. We indemnified Martin Transport against all claims arising out of the negligence or willful misconduct of us and our officers, employees, agents, representatives and subcontractors. In the event a claim is the result of the joint negligence or misconduct of Martin Transport and us, our indemnification obligations will be shared in proportion to each party’s allocable share of such joint negligence or misconduct.
As discussed in
Item 1. Business
, the Partnership purchased Martin Transport, Inc. effective January 1, 2019.
Marine Agreements
Marine Transportation Agreement
. The Partnership is a party to a marine transportation agreement effective January 1, 2006, as amended, under which the Partnership provides marine transportation services to Martin Resource Management on a spot-contract basis at applicable market rates. Effective each January 1, this agreement automatically renews for consecutive
one
year periods unless either party terminates the agreement by giving written notice to the other party at least
60
days prior to the expiration of the then applicable term. The fees the Partnership charges Martin Resource Management are based on applicable market rates.
Marine Fuel.
The Partnership is a party to an agreement with Martin Resource Management dated November 1, 2002 under which Martin Resource Management provides the Partnership with marine fuel from its locations in the Gulf of Mexico at a fixed rate in excess of a price index. Under this agreement, the Partnership agreed to purchase all of its marine fuel requirements that occur in the areas serviced by Martin Resource Management.
Terminal Services Agreements
Diesel Fuel Terminal Services Agreement.
Effective January 1, 2016, the Partnership entered into a second amended and restated terminalling services agreement under which the Partnership provides terminal services to Martin Resource Management for marine fuel distribution. At such time, the per gallon throughput fee the Partnership charged under this agreement was increased when compared to the previous agreement and may be adjusted annually based on a price index. This agreement was further amended on January 1, 2017 and October 1, 2017 to modify its minimum throughput requirements and throughput fees. This agreement, as amended, expired September 30, 2018 and continued thereafter on a month to month basis until terminated by either party by giving
60
days’ written notice.
Miscellaneous Terminal Services Agreements.
The Partnership is currently party to several terminal services agreements and from time to time the Partnership may enter into other terminal service agreements for the purpose of providing terminal services to related parties. Individually, each of these agreements is immaterial but when considered in the aggregate they could be deemed material. These agreements are throughput based with a minimum volume commitment. Generally, the fees due under these agreements are adjusted annually based on a price index.
Other Agreements
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Cross Tolling Agreement.
The Partnership is a party to an amended and restated tolling agreement with Cross Oil Refining and Marketing, Inc. ("Cross") dated October 28, 2014, under which the Partnership processes crude oil into finished products, including naphthenic lubricants, distillates, asphalt and other intermediate cuts for Cross. The tolling agreement expires November 25, 2031. Under this tolling agreement, Cross agreed to process a minimum of
6,500
barrels per day of crude oil at the facility at a fixed price per barrel. Any additional barrels are processed at a modified price per barrel. In addition, Cross agreed to pay a monthly reservation fee and a periodic fuel surcharge fee based on certain parameters specified in the tolling agreement. All of these fees (other than the fuel surcharge) are subject to escalation annually based upon the greater of
3%
or the increase in the Consumer Price Index for a specified annual period. In addition, on the third, sixth and ninth anniversaries of the agreement, the parties can negotiate an upward or downward adjustment in the fees subject to their mutual agreement.
Sulfuric Acid Sales Agency Agreement
. The Partnership was previously a party to a third amended and restated sulfuric acid sales agency agreement dated August 2, 2017 but effective October 1, 2017, under which a successor in interest to the agreement from Martin Resource Management, Saconix LLC ("Saconix"), a limited liability company in which Martin Resource Management held a minority equity interest, purchased and marketed the sulfuric acid produced by the Partnership’s sulfuric acid production plant at Plainview, Texas, that was not consumed by the Partnership’s internal operations. This agreement, as amended, was to remain in place until September 30, 2020 and automatically renew year to year thereafter until either party provided
90
days’ written notice of termination prior to the expiration of the then existing term. Under this agreement, the Partnership sold all of its excess sulfuric acid to Saconix, who then marketed and sold such acid to third-parties. The Partnership shared in the profit of such sales. Effective May 31, 2018, Martin Resource Management no longer holds an equity interest in Saconix. These transactions are reported below as related party transactions during the period the equity interest was held. Transactions subsequent to Martin Resource Management's disposition of the equity interest will be reported as third party transactions.
Other Miscellaneous Agreements.
From time to time the Partnership enters into other miscellaneous agreements with Martin Resource Management for the provision of other services or the purchase of other goods.
The tables below summarize the related party transactions that are included in the related financial statement captions on the face of the Partnership’s Consolidated Statements of Operations. The revenues, costs and expenses reflected in these tables are tabulations of the related party transactions that are recorded in the corresponding caption of the Consolidated Statements of Operations and do not reflect a statement of profits and losses for related party transactions.
The impact of related party revenues from sales of products and services is reflected in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
2018
|
|
2017
|
|
2016
|
Terminalling and storage
|
$
|
79,219
|
|
|
$
|
82,205
|
|
|
$
|
82,437
|
|
Marine transportation
|
15,442
|
|
|
16,801
|
|
|
21,767
|
|
Natural gas services
|
—
|
|
|
122
|
|
|
699
|
|
Product sales:
|
|
|
|
|
|
Natural gas services
|
19
|
|
|
1,043
|
|
|
8
|
|
Sulfur services
|
630
|
|
|
1,963
|
|
|
2,006
|
|
Terminalling and storage
|
758
|
|
|
572
|
|
|
1,020
|
|
|
1,407
|
|
|
3,578
|
|
|
3,034
|
|
|
$
|
96,068
|
|
|
$
|
102,706
|
|
|
$
|
107,937
|
|
The impact of related party cost of products sold is reflected in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold:
|
|
|
|
|
|
Natural gas services
|
$
|
14,816
|
|
|
$
|
18,946
|
|
|
$
|
22,886
|
|
Sulfur services
|
17,418
|
|
|
15,564
|
|
|
15,339
|
|
Terminalling and storage
|
28,304
|
|
|
17,612
|
|
|
13,838
|
|
|
$
|
60,538
|
|
|
$
|
52,122
|
|
|
$
|
52,063
|
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The impact of related party operating expenses is reflected in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Marine transportation
|
$
|
22,326
|
|
|
$
|
23,815
|
|
|
$
|
28,107
|
|
Natural gas services
|
8,851
|
|
|
9,007
|
|
|
9,258
|
|
Sulfur services
|
5,497
|
|
|
5,821
|
|
|
5,995
|
|
Terminalling and storage
|
18,854
|
|
|
25,701
|
|
|
27,481
|
|
|
$
|
55,528
|
|
|
$
|
64,344
|
|
|
$
|
70,841
|
|
The impact of related party selling, general and administrative expenses is reflected in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative:
|
|
|
|
|
|
Marine transportation
|
$
|
704
|
|
|
$
|
34
|
|
|
$
|
30
|
|
Natural gas services
|
5,568
|
|
|
8,162
|
|
|
7,566
|
|
Sulfur services
|
2,684
|
|
|
2,526
|
|
|
2,732
|
|
Terminalling and storage
|
2,847
|
|
|
2,278
|
|
|
2,526
|
|
Indirect overhead allocation, net of reimbursement
|
16,443
|
|
|
16,416
|
|
|
13,036
|
|
|
$
|
28,246
|
|
|
$
|
29,416
|
|
|
$
|
25,890
|
|
Other Related Party Transactions
The Partnership had a
$15,000
note receivable from an affiliate of Martin Resource Management which previously bore an annual interest rate of
15%
and had a maturity date of August 31, 2026, the balance of which could be prepaid on or after September 1, 2016. On February 14, 2017, the Partnership notified Martin Resource Management that it would be requesting voluntary repayment of the long-term Note Receivable plus accrued interest. During second quarter of 2017, the Note Receivable was fully repaid. The note has historically been recorded in "Note receivable - affiliates" on the Partnership's Consolidated Balance Sheets. Interest income for the years ended
December 31, 2018
,
2017
, and
2016
was
$0
,
$943
and
$2,256
, respectively, and is included in "Interest expense, net" in the Consolidated Statements of Operations.
NOTE 15. SUPPLEMENTAL BALANCE SHEET INFORMATION
Components of "Intangibles and other assets, net" at
December 31, 2018
and
2017
were as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Customer contracts and relationships, net
|
$
|
18,222
|
|
|
$
|
25,252
|
|
Other intangible assets
|
1,310
|
|
|
1,752
|
|
Other
|
4,179
|
|
|
5,797
|
|
|
$
|
23,711
|
|
|
$
|
32,801
|
|
Other intangible assets consist of covenants not-to-compete and technology-based assets.
Aggregate amortization expense for customer contracts and other intangible assets included in continuing operations was
$9,228
,
$13,887
, and
$19,548
, for the years ended
December 31, 2018
,
2017
and
2016
, respectively, and accumulated amortization amounted to
$44,510
and
$39,462
at
December 31, 2018
and
2017
, respectively.
Estimated amortization expense for intangibles and other assets for the years subsequent to
December 31, 2018
are as follows:
2019
-
$6,063
;
2020
-
$5,272
;
2021
-
$4,319
;
2022
-
$4,295
;
2023
-
$1,952
; subsequent years -
$55
.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Components of "Other accrued liabilities" at
December 31, 2018
and
2017
were as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Accrued interest
|
$
|
10,735
|
|
|
$
|
11,726
|
|
Asset retirement obligations
|
2,721
|
|
|
5,429
|
|
Property and other taxes payable
|
5,621
|
|
|
5,638
|
|
Accrued payroll
|
3,109
|
|
|
3,385
|
|
Other
|
29
|
|
|
162
|
|
|
$
|
22,215
|
|
|
$
|
26,340
|
|
The schedule below summarizes the changes in our asset retirement obligations:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
(In thousands)
|
|
|
|
|
Beginning asset retirement obligations
|
$
|
13,512
|
|
|
$
|
16,418
|
|
Revisions to existing liabilities
1
|
4,041
|
|
|
5,547
|
|
Accretion expense
|
516
|
|
|
404
|
|
Liabilities settled
|
(5,640
|
)
|
|
(8,857
|
)
|
Ending asset retirement obligations
|
12,429
|
|
|
13,512
|
|
Current portion of asset retirement obligations
2
|
(2,721
|
)
|
|
(5,429
|
)
|
Long-term portion of asset retirement obligations
3
|
$
|
9,708
|
|
|
$
|
8,083
|
|
1
Several factors are considered in the annual review process, including inflation rates, current estimates for removal cost, discount rates, and the estimated remaining useful life of the assets.
2
The current portion of asset retirement obligations is included in "Other current liabilities" on the Partnership's Consolidated Balance Sheets.
3
The non-current portion of asset retirement obligations is included in "Other long-term obligations" on the Partnership's Consolidated Balance Sheets.
NOTE 16. LONG-TERM DEBT
At
December 31, 2018
and
2017
, long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
$664,444 Revolving credit facility at variable interest rate (5.24%
1
weighted average at December 31, 2018), due March 2020 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 $3,537 and $4,986, respectively
3
|
$
|
283,463
|
|
|
$
|
440,014
|
|
$400,000 Senior notes, 7.25% interest, including unamortized premium of $650 and $956, respectively, also net of unamortized debt issuance costs of $1,454 and $2,138 respectively, issued $250,000 February 2013 and $150,000 April 2014, $26,200 repurchased during 2015, due February 2021, unsecured
3,4
|
372,996
|
|
|
372,618
|
|
Total long-term debt
|
$
|
656,459
|
|
|
$
|
812,632
|
|
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
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
applicable margin or the base prime rate plus an applicable margin. All amounts outstanding at
December 31, 2018
and
2017
were at LIBOR plus an applicable margin. The applicable margin for revolving loans that are LIBOR loans ranges from
2.00%
to
3.00%
and the applicable margin for revolving loans that are base prime rate loans ranges from
1.00%
to
2.00%
. The applicable margin for LIBOR borrowings at
December 31, 2018
is
2.75%
. The credit facility contains various covenants which limit the Partnership’s ability to make certain investments and acquisitions; enter into certain agreements; incur indebtedness; sell assets; and make certain amendments to the Omnibus Agreement. The Partnership is permitted to make quarterly distributions so long as no event of default exists.
3
The Partnership is in compliance with all debt covenants as of
December 31, 2018
.
4
The 2021 indentures restrict 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.
The Partnership paid cash interest, net of proceeds received from interest rate swaptions, in the amount of
$50,543
,
$45,728
, and
$46,046
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Capitalized interest was
$624
,
$730
, and
$1,126
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
NOTE 17. PARTNERS' CAPITAL
As of
December 31, 2018
, partners’ capital consisted of
39,032,237
common limited partner units, representing a
98%
partnership interest, and a
2%
general partner interest. Martin Resource Management, through subsidiaries, owned
6,114,532
of the Partnership's common limited partnership units representing approximately
15.7%
of the Partnership's outstanding common limited partnership units. MMGP, the Partnership's general partner, owns the
2%
general partnership interest.
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.
Issuance of Common Units
On February 22, 2017, the Partnership completed a public offering of
2,990,000
common units at a price of
$18.00
per common unit, before the payment of underwriters' discounts, commissions and offering expenses (per unit value is in dollars, not thousands). Total proceeds from the sale of the
2,990,000
common units, net of underwriters' discounts, commissions and offering expenses, were
$51,056
. Additionally, the Partnership's general partner contributed
$1,098
in cash to the Partnership in conjunction with the issuance in order to maintain its
2%
general partner interest in the Partnership. All of the net proceeds were used to pay down outstanding amounts under the Partnership's revolving credit facility.
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 target distribution levels entitle the general partner to receive
2%
of quarterly cash distributions 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.
For the years ended
December 31, 2018
,
2017
and
2016
, the general partner was allocated
$0
,
$0
, and
$7,786
in incentive distributions.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Continuing operations:
|
|
|
|
|
|
Income from continuing operations
|
$
|
(7,595
|
)
|
|
$
|
13,007
|
|
|
$
|
27,003
|
|
Less general partner’s interest in net income:
|
|
|
|
|
|
Distributions payable on behalf of IDRs
|
—
|
|
|
—
|
|
|
6,642
|
|
Distributions payable on behalf of general partner interest
|
(270
|
)
|
|
1,191
|
|
|
1,756
|
|
General partner interest in undistributed loss
|
118
|
|
|
(931
|
)
|
|
(1,216
|
)
|
Less income allocable to unvested restricted units
|
(5
|
)
|
|
32
|
|
|
77
|
|
Limited partners’ interest in net income
|
$
|
(7,438
|
)
|
|
$
|
12,715
|
|
|
$
|
19,744
|
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Discontinued operations:
|
|
|
|
|
|
Income from discontinued operations
|
$
|
51,700
|
|
|
$
|
4,128
|
|
|
$
|
4,649
|
|
Less general partner’s interest in net income:
|
|
|
|
|
|
Distributions payable on behalf of IDRs
|
—
|
|
|
—
|
|
|
1,144
|
|
Distributions payable on behalf of general partner interest
|
1,839
|
|
|
378
|
|
|
302
|
|
General partner interest in undistributed loss
|
(805
|
)
|
|
(295
|
)
|
|
(209
|
)
|
Less income allocable to unvested restricted units
|
33
|
|
|
10
|
|
|
13
|
|
Limited partners’ interest in net income
|
$
|
50,633
|
|
|
$
|
4,035
|
|
|
$
|
3,399
|
|
The Partnership allocates the general partner's share of earnings between continuing and discontinued operations as a proportion of net income from continuing and discontinued operations to total net income.
The following are the unit amounts used to compute the basic and diluted earnings per limited partner unit for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Basic weighted average limited partner units outstanding
|
|
38,907,000
|
|
|
38,101,583
|
|
|
35,347,032
|
|
Dilutive effect of restricted units issued
|
|
15,678
|
|
|
63,318
|
|
|
28,231
|
|
Total weighted average limited partner diluted units outstanding
|
|
38,922,678
|
|
|
38,164,901
|
|
|
35,375,263
|
|
All outstanding units were included in the computation of diluted earnings per unit and weighted based on the number of days such units were outstanding during the period presented.
NOTE 18. UNIT BASED AWARDS
The Partnership recognizes compensation cost related to stock-based awards to employees in its consolidated financial statements in accordance with certain provisions of ASC 718. The Partnership recognizes compensation costs related to stock-based awards to directors under certain provisions of ASC 505-50-55 related to equity-based payments to non-employees. Amounts recognized in selling, general, and administrative expense in the consolidated financial statements with respect to these plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Employees
|
$
|
1,098
|
|
|
$
|
534
|
|
|
$
|
783
|
|
Non-employee directors
|
126
|
|
|
116
|
|
|
121
|
|
Total unit-based compensation expense
|
$
|
1,224
|
|
|
$
|
650
|
|
|
$
|
904
|
|
Long-Term Incentive Plans
The Partnership's general partner has a long term incentive plan for employees and directors of the general partner and its affiliates who perform services for the Partnership.
On May 26, 2017, the unitholders of the Partnership approved the Martin Midstream Partners L.P. 2017 Restricted Unit Plan. The plan currently permits the grant of awards covering an aggregate of
3,000,000
common units, all of which can be awarded in the form of restricted units. The plan is administered by the compensation committee of the general partner’s board of directors (the "Compensation Committee").
A restricted unit is a unit that is granted to grantees with certain vesting restrictions, which may be time-based and/or performance-based. Once these restrictions lapse, the grantee is entitled to full ownership of the unit without restrictions. The Compensation Committee may determine to make grants under the plan containing such terms as the Compensation Committee shall determine under the plan. With respect to time-based restricted units ("TBRU's"), the Compensation Committee will determine the time period over which restricted units granted to employees and directors will vest. The Compensation Committee may also award a percentage of restricted units with vesting requirements based upon the achievement of specified pre-established performance targets ("Performance Based Restricted Units" or "PBRU's"). The performance targets may include, but are not limited to, the following: revenue and income measures, cash flow measures, net income before interest expense and income tax expense ("EBIT"), net income before interest expense, income tax expense, and depreciation and amortization ("EBITDA"), distribution coverage metrics, expense measures, liquidity measures, market measures, corporate sustainability metrics, and other measures related to acquisitions, dispositions, operational objectives and succession planning objectives. PBRU's are earned only upon our achievement of an objective performance measure for the performance period. PBRU's which vest are payable in common units. Unvested units granted under the 2017 LTIP may or may not participate in cash distributions depending on the terms of each individual award agreement.
The restricted units issued to directors generally vest in equal annual installments over a
four
-year period.
On February 20, 2018, the Partnership issued
4,650
TBRU's to each of the Partnership's
three
independent directors under the 2017 LTIP. These restricted common units vest in equal installments of
1,162.5
units on January 24, 2019, 2020, 2021, and 2022.
On March 1, 2018, the Partnership issued
301,550
TBRU's and
317,925
PBRU's to certain employees of Martin Resource Management. The TBRU's vest in equal installments over a three-year service period. The PBRU's will vest at the conclusion of a
three
-year performance period based on certain performance targets. In addition, the PBRU's awarded on March 1, 2018 that are achieved will only vest if the grantee is employed by Martin Resource Management on March 31, 2021. As of December 31, 2018, the Partnership is unable to ascertain if the performance conditions will be achieved and, as such, has not recognized compensation expense for the vesting of the units. The Partnership will record compensation expense for the vested portion of the units once the achievement of the performance condition is deemed probable.
The restricted units are valued at their fair value at the date of grant which is equal to the market value of common units on such date. A summary of the restricted unit activity for the year ended
December 31, 2018
is provided below:
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted Average Grant-Date Fair Value Per Unit
|
Non-vested, beginning of year
|
98,750
|
|
|
$
|
24.80
|
|
Granted (TBRU)
|
315,500
|
|
|
$
|
13.89
|
|
Granted (PRBU)
|
317,925
|
|
|
$
|
13.89
|
|
Vested
|
(81,050
|
)
|
|
$
|
27.77
|
|
Forfeited
|
(27,000
|
)
|
|
$
|
13.90
|
|
Non-Vested, end of year
|
624,125
|
|
|
$
|
13.78
|
|
|
|
|
|
Aggregate intrinsic value, end of year
|
$
|
6,416
|
|
|
|
A summary of the restricted units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) during the years ended
December 31, 2018
,
2017
and
2016
is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
|
|
2018
|
|
2017
|
|
2016
|
Aggregate intrinsic value of units vested
|
$
|
1,195
|
|
|
$
|
143
|
|
|
$
|
1,233
|
|
Fair value of units vested
|
$
|
2,250
|
|
|
$
|
208
|
|
|
$
|
1,773
|
|
As of
December 31, 2018
, there was
$3,083
of unrecognized compensation cost related to non-vested restricted units. That cost is expected to be recognized over a weighted-average period of
2.3
years.
NOTE 19. INCOME TAXES
The operations of a partnership are generally not subject to income taxes because its income is taxed directly to its partners.
The Partnership is subject to the Texas margin tax, which is considered a state income tax, and is included in income tax expense on the Consolidated Statements of Operations. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed as an income tax and, therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a result of this provision is immaterial. State income taxes attributable to the Texas margin tax of
$369
,
$352
and
$726
were recorded in income tax expense for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
A current income tax liability of
$445
and
$510
existed at
December 31, 2018
and
2017
, respectively.
Cash paid for income taxes was
$434
,
$712
, and
$841
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
On December 22, 2017, the President signed into law Public Law No. 115-97, a comprehensive tax reform bill commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) that makes significant changes to the U.S. Internal Revenue Code. Among other changes, the Tax Act includes a new deduction on certain pass-through income, a repeal of the partnership technical termination rule, and new limitations on certain deductions and credits, including interest expense deductions. Since the operations of a partnership are not subject to federal income tax, the legislation has no material impact on our financial statements in 2018.
As of December 31, 2018, the tax years that remain open to assessment by federal and state jurisdictions are 2015-2017.
NOTE 20. BUSINESS SEGMENTS
The Partnership has
four
reportable segments: terminalling and storage, natural gas services, marine transportation, and sulfur services. The Partnership’s reportable segments are strategic business units that offer different products and services. The operating income of these segments is reviewed by the chief operating decision maker to assess performance and make business decisions.
The accounting policies of the operating segments are the same as those described in Note 2. The Partnership evaluates the performance of its reportable segments based on operating income. There is no allocation of administrative expenses or interest expense.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
Intersegment Eliminations
|
|
Operating Revenues After Eliminations
|
|
Depreciation and Amortization
|
|
Operating Income (Loss) after Eliminations
|
|
Capital Expenditures and Plant Turnaround Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
247,840
|
|
|
$
|
(6,226
|
)
|
|
$
|
241,614
|
|
|
$
|
39,508
|
|
|
$
|
13,725
|
|
|
$
|
13,704
|
|
Natural gas services
|
548,135
|
|
|
—
|
|
|
548,135
|
|
|
21,283
|
|
|
28,570
|
|
|
4,728
|
|
Sulfur services
|
132,536
|
|
|
—
|
|
|
132,536
|
|
|
8,485
|
|
|
14,276
|
|
|
4,429
|
|
Marine transportation
|
52,830
|
|
|
(2,460
|
)
|
|
50,370
|
|
|
7,590
|
|
|
6,116
|
|
|
14,188
|
|
Indirect selling, general, and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,901
|
)
|
|
—
|
|
Total
|
$
|
981,341
|
|
|
$
|
(8,686
|
)
|
|
$
|
972,655
|
|
|
$
|
76,866
|
|
|
$
|
44,786
|
|
|
$
|
37,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
236,169
|
|
|
$
|
(5,998
|
)
|
|
$
|
230,171
|
|
|
$
|
45,160
|
|
|
$
|
629
|
|
|
$
|
29,644
|
|
Natural gas services
|
532,908
|
|
|
(226
|
)
|
|
532,682
|
|
|
24,916
|
|
|
51,849
|
|
|
7,430
|
|
Sulfur services
|
134,684
|
|
|
—
|
|
|
134,684
|
|
|
8,117
|
|
|
23,205
|
|
|
2,611
|
|
Marine transportation
|
51,915
|
|
|
(3,336
|
)
|
|
48,579
|
|
|
7,002
|
|
|
1,650
|
|
|
3,929
|
|
Indirect selling, general, and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,332
|
)
|
|
—
|
|
Total
|
$
|
955,676
|
|
|
$
|
(9,560
|
)
|
|
$
|
946,116
|
|
|
$
|
85,195
|
|
|
$
|
60,001
|
|
|
$
|
43,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
242,363
|
|
|
$
|
(5,653
|
)
|
|
$
|
236,710
|
|
|
$
|
45,484
|
|
|
$
|
40,660
|
|
|
$
|
26,097
|
|
Natural gas services
|
391,333
|
|
|
—
|
|
|
391,333
|
|
|
28,081
|
|
|
41,503
|
|
|
4,807
|
|
Sulfur services
|
141,058
|
|
|
—
|
|
|
141,058
|
|
|
7,995
|
|
|
23,393
|
|
|
5,093
|
|
Marine transportation
|
61,233
|
|
|
(2,943
|
)
|
|
58,290
|
|
|
10,572
|
|
|
(16,039
|
)
|
|
2,334
|
|
Indirect selling, general, and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,794
|
)
|
|
—
|
|
Total
|
$
|
835,987
|
|
|
$
|
(8,596
|
)
|
|
$
|
827,391
|
|
|
$
|
92,132
|
|
|
$
|
72,723
|
|
|
$
|
38,331
|
|
Revenues from
two
customers in the Natural Gas Services segment were
$179,729
,
$169,504
and
$122,381
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
The Partnership's assets by reportable segment as of
December 31, 2018
and
2017
, are as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Total assets:
|
|
|
|
Terminalling and storage
|
$
|
298,784
|
|
|
$
|
326,920
|
|
Natural gas services
|
512,817
|
|
|
704,524
|
|
Sulfur services
|
115,498
|
|
|
120,790
|
|
Marine transportation
|
106,299
|
|
|
101,264
|
|
Total assets
|
$
|
1,033,398
|
|
|
$
|
1,253,498
|
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NOTE 21. QUARTERLY FINANCIAL INFORMATION
Consolidated Quarterly Income Statement Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth
Quarter
|
|
|
(Dollar in thousands, except per unit amounts)
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
284,204
|
|
|
$
|
216,571
|
|
|
$
|
219,047
|
|
|
$
|
252,833
|
|
Operating income (loss)
|
24,120
|
|
|
5,616
|
|
|
3,527
|
|
|
11,523
|
|
Income (loss) from continuing operations
|
11,286
|
|
|
(8,282
|
)
|
|
(9,686
|
)
|
|
(913
|
)
|
Income from discontinued operations
|
1,532
|
|
|
1,036
|
|
|
49,132
|
|
|
—
|
|
Net income (loss)
|
12,818
|
|
|
(7,246
|
)
|
|
39,446
|
|
|
(913
|
)
|
Income (loss) from continuing operations per unit
|
0.29
|
|
|
(0.21
|
)
|
|
(0.25
|
)
|
|
(0.02
|
)
|
Limited partners' interest in net income (loss) per limited partner unit
|
0.33
|
|
|
(0.18
|
)
|
|
1.00
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth
Quarter
|
|
|
(Dollar in thousands, except per unit amounts)
|
2017
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
253,325
|
|
|
$
|
193,922
|
|
|
$
|
193,128
|
|
|
$
|
305,741
|
|
Operating income
|
23,804
|
|
|
10,891
|
|
|
(4,440
|
)
|
|
29,746
|
|
Income (loss) from continuing operations
|
12,734
|
|
|
179
|
|
|
(17,031
|
)
|
|
17,125
|
|
Income from discontinued operations
|
849
|
|
|
810
|
|
|
745
|
|
|
1,724
|
|
Net income (loss)
|
13,583
|
|
|
989
|
|
|
(16,286
|
)
|
|
18,849
|
|
Income (loss) from continuing operations per unit
|
0.34
|
|
|
—
|
|
|
(0.44
|
)
|
|
0.45
|
|
Limited partners' interest in net income (loss) per limited partner unit
|
0.36
|
|
|
0.03
|
|
|
(0.42
|
)
|
|
0.47
|
|
NOTE 22. COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Partnership is subject to various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Partnership.
Pursuant to a Purchase Price Reimbursement Agreement between the Partnership and Martin Resource Management related to the Partnership’s acquisition of the Redbird Gas Storage LLC ("Redbird") Class A interests on October 2, 2012,
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
beginning in the second quarter of 2015, Martin Resource Management will reimburse the Partnership
$750
each quarter for
four
consecutive quarters as a reduction in the purchase price of the Redbird Class A interests. These payments are a result of Cardinal Gas Storage Partners LLC ("Cardinal") not achieving certain financial targets set forth in the Purchase Price Reimbursement Agreement. These payments are considered a reduction of the excess of the purchase price over the carrying value of the assets transferred to the Partnership from Martin Resource Management and will be recorded as an adjustment to "Partners' capital" in each quarter the payments are made. The agreement further provided for purchase price reimbursements of up to
$4,500
in 2016 in the event certain financial conditions were not met. For the year ended December 31, 2017, the Partnership received
$1,125
, respectively, related to the Purchase Price Reimbursement Agreement. The amount received in the first quarter of 2017 represented the final payment under the Purchase Price Reimbursement Agreement.
In 2015, the Partnership was named as a defendant in the cause J. A. Davis Properties, LLC v. Martin Operating Partnership L.P., in the 38th Judicial District Court, Cameron Parish, Louisiana. The plaintiff alleged that the Partnership breached a lease agreement by failing to perform work to the plaintiff's property as required under the lease agreement. The plaintiff originally sought to evict the Partnership from the leased property and to recover damages. Prior to trial, this matter was settled for a confidential amount in September of 2017. The Partnership's financial statements reflect the terms of the settlement and all amounts have been accrued as asset retirement obligations.
On December 31, 2015, the Partnership received a demand from a customer in its lubricants packaging business for defense and indemnity in connection with lawsuits filed against it in various United States District Courts, which generally allege that the customer engaged in unlawful and deceptive business practices in connection with its marketing and advertising of its private label motor oil. The Partnership disputes that it has any obligation to defend or indemnify the customer for its conduct. Accordingly, on January 7, 2016, the Partnership filed a Complaint for Declaratory Judgment in the Chancery Court of Davidson County, Tennessee requesting a judicial determination that the Partnership does not owe the customer the demanded defense and indemnity obligations. The lawsuits against the customer have been transferred to the United States District Court for the Western District of Missouri for consolidated pretrial proceedings. On March 1, 2017, at the request of the parties, the Chancery Court of Davidson County, Tennessee administratively closed the Partnership's lawsuit pending rulings in the United States District Court for the Western District of Missouri. In the event that either party moves the Chancery Court of Davidson County, Tennessee to reopen the case, we expect the Court would grant such motion and reopen the case. If the case is reopened, we are currently unable to determine the exposure we may have in this matter, if any.
Commitments
The Partnership has non-cancelable revenue arrangements whereby we have committed certain terminalling and storage assets in exchange for a minimum fee. Future minimum revenues we expect to receive under these non-cancelable arrangements as of December 31, 2018,
are as follows: 2019 -
$17,343
; 2020 -
$13,345
; 2021 -
$10,576
; 2022 -
$10,576
; 2023 -
$10,576
; subsequent years -
$58,128
.
NOTE 23. CONDENSED CONSOLIDATIING FINANCIAL INFORMATION
The Partnership's operations are conducted by its operating subsidiaries as it has no independent assets or operations. Martin Operating Partnership L.P. (the "Operating Partnership"), the Partnership’s wholly-owned subsidiary, and the Partnership's other operating subsidiaries have issued in the past, and may issue in the future, unconditional guarantees of senior or subordinated debt securities of the Partnership. The guarantees that have been issued are full, irrevocable and unconditional and joint and several. In addition, the Operating Partnership may also issue senior or subordinated debt securities which, if issued, will be fully, irrevocably and unconditionally guaranteed by the Partnership. Substantially all of the Partnership's operating subsidiaries are subsidiary guarantors of its outstanding senior unsecured notes and any subsidiaries other than the subsidiary guarantors are minor.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NOTE 24. SUBSEQUENT EVENTS
Martin Transport Inc. Stock Purchase Agreement.
On October 22, 2018, the Operating Partnership entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Martin Resource Management Corporation (“MRMC”) to acquire all of the issued and outstanding equity of Martin Transport, Inc. (“MTI”), a wholly-owned subsidiary of MRMC which operates a fleet of tank trucks providing transportation of petroleum products, liquid petroleum gas, chemicals, sulfur and other products, as well as owns twenty-three terminals located throughout the Gulf Coast and Midwest for total consideration as follows:
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
|
|
|
|
|
Purchase price
1
|
$
|
135,000
|
|
Plus: Working Capital Adjustment
|
2,796
|
|
Less: Capital leases assumed
|
(11,682
|
)
|
Cash consideration paid
|
$
|
126,114
|
|
1
The Stock Purchase Agreement also includes a
$10,000
earn-out based on certain performance thresholds. The transaction closed on January 2, 2019 and was effective as of January 1, 2019. The Stock Purchase Agreement contained customary representations and warranties.
The Partnership also acquired certain operating leases that will result in additional assets and liabilities being recorded at the transaction date in accordance with ASU 2016-02 in the amount of
$7,082
.
Quarterly Distribution.
On January 17, 2019, the Partnership declared a quarterly cash distribution of
$0.50
per common unit for the fourth quarter of 2018, or
$2.00
per common unit on an annualized basis, which was paid on February 14, 2019 to unitholders of record as of February 7, 2019.
|
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
None.