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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in the U.S. Gulf Coast region. Our four primary business lines include:
•Terminalling, processing, storage and packaging services for petroleum products and by-products including the refining of naphthenic crude oil;
•Land and marine transportation services for petroleum products and by-products, chemicals, and specialty products;
•Sulfur and sulfur-based products processing, manufacturing, marketing, and distribution; and
•NGL marketing, distribution, and transportation services.
The petroleum products and by-products we collect, transport, store and market are produced primarily by major and independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, and other wholesale purchasers of these products. We operate primarily in the U.S. Gulf Coast region. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry.
Significant Recent Developments
Sale of Mega Lubricants.
On December 22, 2020, we entered into an asset purchase and sale agreement to sell Mega Lubricants to Stone Oil for $22.4 million. Mega Lubricants is engaged in the business of blending, manufacturing and delivering various marine application lubricants, sub-sea specialty fluids, and proprietary developed commercial and industrial products. The transaction closed on December 22, 2020. The proceeds from the transaction were used to reduce outstanding borrowings under our revolving credit facility.
Exchange Offer and Cash Tender Offer
On August 12, 2020, we successfully completed our exchange offer and consent solicitation to certain eligible holders of our 2021 Notes and separate but related cash tender offer and consent solicitation to certain other holders of our 2021 Notes. Please see Note 15 in Part II of this Form 10-K for more information about the exchange offer and related transactions.
COVID-19
COVID-19 surfaced in late 2019 and has spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic. The Partnership continues to prioritize the health and safety of our employees, the businesses we serve, and the communities where we live and work. To support the safety of all of our employees and operations, precautionary measures were implemented to prevent the COVID-19 virus from spreading in our workplace or the locations we serve, including suspending non-essential travel, limiting the number of employees attending meetings, reducing the number of people at our locations at any one time, monitoring the health of all employees, and implementing work-from-home initiatives for all eligible employees. Further, we continue to provide awareness training for all of our drivers, vessel crews, blending operators and other affected personnel regarding preventative measures in or around our docks, vessels, and trucks and locations to which they are delivering. Our communication lines are open 24/7 for the environmental health and safety division, land and marine logistics, and sales and marketing teams.
Due to the economic impacts of the COVID-19 pandemic, the markets experienced a decline in oil prices in response to oil demand concerns. These concerns were further exacerbated by the price war among members of OPEC and other non-OPEC producer nations during the first quarter of 2020 and global storage considerations. Travel restrictions and stay-at-home orders implemented by governments in many regions and countries across the globe, including the United States, have greatly impacted the demand for refined products resulting in a significant reduction in refinery utilization, which has impacted our 2020 performance. This impact started in February of 2020 and continued through the end of the year, during which time we have seen unfavorable trends in certain key metrics across several of our business lines compared to historical periods. The
significant reduction in refinery utilization as a result of reduced refined products demand significantly impacted our Transportation and NGL segments. As the volume of products produced or purchased by refineries has been reduced, demand for our services has decreased.
Looking forward, we expect to continue to experience some adverse impacts of COVID-19 in our transportation segment during the first half of 2021 but we believe that refinery utilization will continue to increase in the second half of 2021 as a result of widespread vaccinations, government stimulus, and a rebounding economy. This should ultimately improve refined product demand as people get back to work and begin traveling again. We expect this will positively impact our transportation segment as demand for our services improves.
The extent to which the duration and severity of the pandemic impacts our business, results of operations, and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted at this time. Accordingly, the full impact of COVID-19 will not be reflected in our results of operations and overall financial performance until future periods. Management also assessed the extent to which the current macroeconomic events brought about by COVID-19 and significant declines in refined product demand impacted the valuation of expected credit losses on accounts receivable and certain inventory items or resulted in modifications to any significant contracts. Ultimately the results of these assessments did not have a material impact on our results as of December 31, 2020.
Subsequent Events
Retirement of 2021 Notes. On February 15, 2021, our 2021 Notes matured and we retired the outstanding balance of $28.8 million using our revolving credit facility.
Quarterly Distribution. On January 25, 2021, we declared a quarterly cash distribution of $0.005 per common unit for the fourth quarter of 2020, or $0.02 per common unit on an annualized basis, which was paid on February 12, 2021 to unitholders of record as of February 5, 2021.
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, 2020 and 2019:
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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.
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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, we recorded an impairment charge of $3.1 million and $1.3 million in our Terminalling and Storage and Transportation segments, respectively, during the year ended December 31, 2020. No impairment of long-lived assets was recorded during the years ended December 31, 2019 or 2018.
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Impairment of Goodwill
|
Goodwill is subject to a fair-value based
impairment test on an annual basis, or more frequently if events or changes in circumstances indicate that the fair value of any of our reporting units is less than its carrying amount. When assessing the recoverability of goodwill , we may first assess qualitative factors in determining
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing qualitative factors, if we determine that it is not more likely than not that the fair value of a reporting unit 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, a quantitative analysis will be performed. We may also elect to bypass the qualitative assessment and proceed directly to a quantitative analysis depending on the facts and circumstances.
|
|
As part of the quantitative evaluation, we determine fair value using accepted valuation techniques, including discounted cash flow, the guideline public company method and the guideline transaction method. These analyses require management to make assumptions and estimates regarding industry and economic factors, future operating results and discount rates. We conduct impairment testing using present economic conditions, as well as future expectations.
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Applying this impairment review methodology, we considered the impact that COVID-19 had on our cash flows and the value our unit price during 2020 and elected to bypass the qualitative assessment and perform a quantitative assessment. Based upon the most recent annual review as of August 31, 2020, no goodwill impairment exists within our reporting units for the year ended December 31, 2020. No goodwill impairment was recorded during the years ended December 31, 2019 or 2018.
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Our Relationship with Martin Resource Management Corporation
Martin Resource Management Corporation directs our business operations through its ownership and control of our general partner and under the Omnibus Agreement. In addition to the direct expenses payable to Martin Resource Management Corporation under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. For the years ended December 31, 2020, 2019 and 2018, the board of directors of our general partner approved reimbursement amounts of $16.4 million, $16.7 million and $16.4 million, respectively, reflecting our allocable share of such expenses. The board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
We are required to reimburse Martin Resource Management Corporation for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business. Martin Resource Management Corporation also licenses certain of its trademarks and trade names to us under the Omnibus Agreement.
We are both an important supplier to and customer of Martin Resource Management Corporation. All of these services and goods are purchased and sold pursuant to the terms of a number of agreements between us and Martin Resource Management Corporation. For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into with Martin Resource Management Corporation, please see "Item 13. Certain Relationships and Related Transactions, and Director Independence."
How We Evaluate Our Operations
Our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with U.S. GAAP to analyze our performance. These include: (1) net income before interest expense, income tax expense, and depreciation and amortization ("EBITDA"), (2) adjusted EBITDA and (3) distributable cash flow. Our management views these measures as important performance measures of core profitability for our operations and the ability to generate and distribute cash flow, and as key components of our internal financial reporting. We believe investors benefit from having access to the same financial measures that our management uses.
EBITDA and Adjusted EBITDA. Certain items excluded from EBITDA and adjusted EBITDA are significant components in understanding and assessing an entity's financial performance, such as cost of capital and historic costs of depreciable assets. We have included information concerning EBITDA and adjusted EBITDA because they provide investors and management with additional information to better understand the following: financial performance of our assets without regard to financing methods, capital structure or historical cost basis; our operating performance and return on capital as compared to those of other similarly situated entities; and the viability of acquisitions and capital expenditure projects. Our method of computing adjusted EBITDA may not be the same method used to compute similar measures reported by other entities. The economic substance behind our use of adjusted EBITDA is to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make distributions to our unit holders.
Distributable Cash Flow. Distributable cash flow is a significant performance measure used by our management and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders. Distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit's yield, which in turn is based on the amount of cash distributions the entity pays to a unitholder.
EBITDA, adjusted EBITDA and distributable cash flow should not be considered alternatives to, or more meaningful than, net income, cash flows from operating activities, or any other measure presented in accordance with U.S. GAAP. Our method of computing these measures may not be the same method used to compute similar measures reported by other entities.
Non-GAAP Financial Measures
The following table reconciles the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the years ended December 31, 2020, 2019, and 2018, which represents EBITDA, Adjusted EBITDA and Distributable Cash Flow from continuing operations.
Reconciliation of EBITDA, Adjusted EBITDA, and Distributable Cash Flow
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Year Ended December 31,
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2020
|
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2019
|
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2018
|
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(in thousands)
|
|
Net income (loss)
|
$
|
(6,771)
|
|
|
$
|
(174,946)
|
|
|
$
|
55,655
|
|
|
Less: (Income) loss from discontinued operations, net of income taxes
|
—
|
|
|
179,466
|
|
|
(63,486)
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|
|
Income (loss) from continuing operations
|
(6,771)
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|
|
4,520
|
|
|
(7,831)
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|
|
Adjustments:
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|
|
|
|
|
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Interest expense
|
46,210
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|
|
51,690
|
|
|
52,349
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|
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Income tax expense
|
1,736
|
|
|
1,900
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|
|
577
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|
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Depreciation and amortization
|
61,462
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|
|
60,060
|
|
|
61,484
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|
|
EBITDA from Continuing Operations
|
102,637
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|
|
118,170
|
|
|
106,579
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|
|
Adjustments:
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|
|
|
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|
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Gain on sale of property, plant and equipment
|
(9,788)
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|
|
(13,332)
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|
|
(1,041)
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|
|
|
|
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|
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Gain on involuntary conversion of property, plant and equipment
|
(4,907)
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|
|
—
|
|
|
—
|
|
|
Gain on retirement of senior unsecured notes
|
(3,484)
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|
|
—
|
|
|
—
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|
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Loss on exchange of senior unsecured notes
|
8,817
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|
|
—
|
|
|
—
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Unrealized mark-to-market on commodity derivatives
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(460)
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|
671
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|
|
(76)
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Non-cash insurance related accruals
|
250
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|
|
500
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|
|
—
|
|
|
Lower of cost or market adjustments
|
370
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|
|
633
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|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Unit-based compensation
|
1,422
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|
|
1,424
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|
|
1,224
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|
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Transaction costs associated with acquisitions
|
—
|
|
|
224
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|
|
465
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|
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Adjusted EBITDA from Continuing Operations
|
94,857
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|
|
108,290
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|
|
107,151
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|
|
Adjustments:
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|
|
|
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|
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Interest expense
|
(46,210)
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|
|
(51,690)
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|
|
(52,349)
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|
|
Income tax expense
|
(1,736)
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|
|
(1,900)
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|
|
(577)
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Amortization of deferred debt issuance costs
|
3,422
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|
|
4,041
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|
|
3,445
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|
|
|
|
|
|
|
|
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Amortization of debt premium
|
(191)
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|
|
(306)
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|
|
(306)
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|
|
Deferred income taxes
|
1,169
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|
|
1,360
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|
|
208
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|
|
Payments for plant turnaround costs
|
(1,478)
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|
|
(5,677)
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|
|
(1,893)
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|
|
Maintenance capital expenditures
|
(10,138)
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|
|
(12,368)
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|
|
(19,553)
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|
|
Distributable Cash Flow from Continuing Operations
|
$
|
39,695
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|
|
$
|
41,750
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|
|
$
|
36,126
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income taxes
|
$
|
—
|
|
|
$
|
(179,466)
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|
|
$
|
63,486
|
|
|
Adjustments:
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|
|
|
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|
|
Depreciation and amortization
|
$
|
—
|
|
|
$
|
8,161
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|
|
$
|
18,795
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|
|
EBITDA from Discontinued Operations
|
$
|
—
|
|
|
$
|
(171,305)
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|
|
$
|
82,281
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|
|
Equity in earnings of unconsolidated entities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3,382)
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|
|
Distributions from unconsolidated entities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,500
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|
|
Gain on disposition of Investment in WTLPG
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(48,564)
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|
|
Loss on sale of property, plant and equipment, net
|
$
|
—
|
|
|
$
|
178,781
|
|
|
$
|
824
|
|
|
Non-cash insurance related accruals
|
$
|
—
|
|
|
$
|
3,213
|
|
|
$
|
—
|
|
|
Adjusted EBITDA from Discontinued Operations
|
$
|
—
|
|
|
$
|
10,689
|
|
|
$
|
34,659
|
|
|
Maintenance capital expenditures
|
$
|
—
|
|
|
$
|
(912)
|
|
|
$
|
(1,952)
|
|
|
Distributable Cash Flow from Discontinued Operations
|
$
|
—
|
|
|
$
|
9,777
|
|
|
$
|
32,707
|
|
Results of Operations
The results of operations for the years ended December 31, 2020, 2019, and 2018 have been derived from our consolidated financial statements. Discussions of the year ended December 31, 2018 that are not included in this Annual Report on Form 10-K and year-to-year comparisons of the year ended December 31, 2019 and the year ended December 31, 2018 can be found in “Management’s Discussion and Analysis of Financial Condition and the Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.
We evaluate segment performance on the basis of operating income, which is derived by subtracting cost of products sold, operating expenses, selling, general and administrative expenses, and depreciation and amortization expense from revenues.
Our consolidated results of operations are presented on a comparative basis below. There are certain items of income and expense which we do not allocate on a segment basis. These items, including interest expense, and indirect selling, general and administrative expenses, are discussed after the comparative discussion of our results within each segment.
The Natural Gas Liquids segment information below excludes the discontinued operations of the Natural Gas Storage Assets and WTLPG partnership interests disposed of on June 28, 2019 and July 31, 2018, respectively, for the years ended December 31, 2019 and 2018. See Item 8, Note 5.
The following table sets forth our operating revenues and operating income by segment for the years ended December 31, 2020, 2019, and 2018.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
191,041
|
|
|
$
|
(6,877)
|
|
|
$
|
184,164
|
|
|
$
|
23,969
|
|
|
$
|
(1,816)
|
|
|
$
|
22,153
|
|
|
Natural gas liquids
|
247,484
|
|
|
(5)
|
|
|
247,479
|
|
|
9,660
|
|
|
12,444
|
|
|
22,104
|
|
|
Sulfur services
|
108,020
|
|
|
(13)
|
|
|
108,007
|
|
|
29,001
|
|
|
7,255
|
|
|
36,256
|
|
|
Transportation
|
150,285
|
|
|
(17,793)
|
|
|
132,492
|
|
|
1,781
|
|
|
(17,883)
|
|
|
(16,102)
|
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,909)
|
|
|
—
|
|
|
(17,909)
|
|
|
Total
|
$
|
696,830
|
|
|
$
|
(24,688)
|
|
|
$
|
672,142
|
|
|
$
|
46,502
|
|
|
$
|
—
|
|
|
$
|
46,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
216,313
|
|
|
$
|
(6,659)
|
|
|
$
|
209,654
|
|
|
$
|
17,670
|
|
|
$
|
(938)
|
|
|
$
|
16,732
|
|
|
Natural gas liquids
|
366,502
|
|
|
—
|
|
|
366,502
|
|
|
27,596
|
|
|
16,424
|
|
|
44,020
|
|
|
Sulfur services
|
111,340
|
|
|
—
|
|
|
111,340
|
|
|
13,989
|
|
|
8,732
|
|
|
22,721
|
|
|
Transportation
|
183,740
|
|
|
(24,118)
|
|
|
159,622
|
|
|
16,830
|
|
|
(24,218)
|
|
|
(7,388)
|
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,981)
|
|
|
—
|
|
|
(17,981)
|
|
|
Total
|
$
|
877,895
|
|
|
$
|
(30,777)
|
|
|
$
|
847,118
|
|
|
$
|
58,104
|
|
|
$
|
—
|
|
|
$
|
58,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
247,840
|
|
|
$
|
(6,400)
|
|
|
$
|
241,440
|
|
|
$
|
17,820
|
|
|
$
|
(280)
|
|
|
$
|
17,540
|
|
|
Natural gas liquids
|
496,026
|
|
|
(19)
|
|
|
496,007
|
|
|
13,152
|
|
|
18,429
|
|
|
31,581
|
|
|
Sulfur services
|
132,536
|
|
|
—
|
|
|
132,536
|
|
|
17,216
|
|
|
10,181
|
|
|
27,397
|
|
|
Transportation
|
178,163
|
|
|
(28,042)
|
|
|
150,121
|
|
|
14,770
|
|
|
(28,330)
|
|
|
(13,560)
|
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,901)
|
|
|
—
|
|
|
(17,901)
|
|
|
Total
|
$
|
1,054,565
|
|
|
$
|
(34,461)
|
|
|
$
|
1,020,104
|
|
|
$
|
45,057
|
|
|
$
|
—
|
|
|
$
|
45,057
|
|
Terminalling and Storage Segment
Comparative Results of Operations for the Years Ended December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Services
|
$
|
87,661
|
|
|
$
|
93,980
|
|
|
$
|
(6,319)
|
|
|
(7)%
|
|
Products
|
103,380
|
|
|
122,333
|
|
|
(18,953)
|
|
|
(15)%
|
|
Total revenues
|
191,041
|
|
|
216,313
|
|
|
(25,272)
|
|
|
(12)%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
87,495
|
|
|
107,081
|
|
|
(19,586)
|
|
|
(18)%
|
|
Operating expenses
|
50,421
|
|
|
53,279
|
|
|
(2,858)
|
|
|
(5)%
|
|
Selling, general and administrative expenses
|
6,159
|
|
|
5,997
|
|
|
162
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
29,489
|
|
|
30,952
|
|
|
(1,463)
|
|
|
(5)%
|
|
|
17,477
|
|
|
19,004
|
|
|
(1,527)
|
|
|
(8)%
|
|
Other operating income (loss), net
|
6,429
|
|
|
(1,334)
|
|
|
7,763
|
|
|
582%
|
|
Gain on involuntary conversion of property, plant and equipment
|
63
|
|
|
—
|
|
|
63
|
|
|
|
|
Operating income
|
$
|
23,969
|
|
|
$
|
17,670
|
|
|
$
|
6,299
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
Shore-based throughput volumes (guaranteed minimum) (gallons)
|
80,000
|
|
|
80,000
|
|
|
—
|
|
|
—%
|
|
Smackover refinery throughput volumes (guaranteed minimum BBL per day)
|
6,500
|
|
|
6,500
|
|
|
—
|
|
|
—%
|
Services revenues. Services revenue decreased $6.3 million, of which $3.8 million was primarily a result of expiring capital recovery fees at our Smackover refinery and decreased fees related to a crude pipeline gathering rate adjustment. In addition, revenue from shore-based terminals decreased $2.1 million primarily due to decreased throughput of $3.2 million and consigned lube revenue of $0.6 million, offset by $1.0 million related to contract termination fees, and $0.8 million in space rental income. Revenue from specialty terminals decreased $0.3 million due to $1.2 million in decreased throughput rates, offset by $0.8 million related to a new contract.
Products revenues. A 22% decrease in lubricant sales volumes combined with a 13% decrease in average sales price at our shore-based terminals resulted in a $10.3 million decrease to products revenues. In addition, a 7% decrease in average sales price combined with a 2% decrease in sales volumes at our blending and packaging facilities resulted in an $8.8 million decrease in products revenues.
Cost of products sold. A 22% decrease in sales volumes combined with a 14% decrease in average cost per gallon at our shore-based terminals resulted in a $9.8 million decrease in cost of products sold. In addition, an 11% decrease in average cost per gallon combined with a 2% decrease in sales volume at our blending and packaging facilities resulted in a $9.7 million decrease in cost of products sold.
Operating expenses. Operating expenses decreased $2.9 million, primarily as a result of decreases in repairs and maintenance of $1.0 million, miscellaneous operating expenses of $0.8, compensation expense of $0.7 million, and professional fees of $0.3 million across our terminals.
Selling, general and administrative expenses. Selling, general and administrative expenses increased primarily as a result of an increase in legal expenses.
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 (loss), net. Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.
Gain on involuntary conversion of property, plant and equipment. The $0.1 million gain on involuntary conversion of property, plant and equipment is due to insurance proceeds received related to structural damage of terminalling assets during a weather incident at our Neches Terminal in May of 2019.
Transportation Segment
Comparative Results of Operations for the Years Ended December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Revenues
|
$
|
150,285
|
|
|
$
|
183,740
|
|
|
$
|
(33,455)
|
|
|
(18)%
|
|
Operating expenses
|
122,064
|
|
|
141,713
|
|
|
(19,649)
|
|
|
(14)%
|
|
Selling, general and administrative expenses
|
8,245
|
|
|
8,199
|
|
|
46
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
17,505
|
|
|
15,307
|
|
|
2,198
|
|
|
14%
|
|
|
2,471
|
|
|
18,521
|
|
|
(16,050)
|
|
|
(87)%
|
|
Other operating loss, net
|
(690)
|
|
|
(1,691)
|
|
|
1,001
|
|
|
59%
|
|
Operating income
|
$
|
1,781
|
|
|
$
|
16,830
|
|
|
$
|
(15,049)
|
|
|
(89)%
|
Marine Transportation Revenues. Inland revenues decreased $11.2 million, primarily related to a decrease in tows, transportation rates and utilization. In addition, offshore revenue decreased $2.4 million due to a decrease in transportation rates and utilization. Revenue was also impacted by a decrease in pass-through revenue (primarily fuel) of $3.3 million.
Land Transportation Revenues. An 11% decrease in miles of product transported resulted in a decrease to freight revenue of $11.5 million. Transportation rates increased 2% resulting in an offsetting increase of $1.5 million. Additionally, fuel surcharge revenue decreased $6.6 million.
Operating expenses. The decrease in operating expenses is primarily a result of decreased pass through expenses (primarily fuel) of $8.5 million, compensation expense of $8.1 million, repairs and maintenance of $2.1 million, and outside services of $0.7 million.
Selling, general and administrative expenses. Selling, general and administrative expenses remained relatively consistent.
Depreciation and amortization. Depreciation and amortization increased as a result of recent capital expenditures offset by asset disposals.
Other operating income (loss), net. Other operating loss represents losses from the disposition of property, plant and equipment.
Sulfur Services Segment
Comparative Results of Operations for the Years Ended December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Services
|
$
|
11,659
|
|
|
$
|
11,434
|
|
|
$
|
225
|
|
|
2%
|
|
Products
|
96,361
|
|
|
99,906
|
|
|
(3,545)
|
|
|
(4)%
|
|
Total revenues
|
108,020
|
|
|
111,340
|
|
|
(3,320)
|
|
|
(3)%
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
62,920
|
|
|
71,806
|
|
|
(8,886)
|
|
|
(12)%
|
|
Operating expenses
|
10,891
|
|
|
10,639
|
|
|
252
|
|
|
2%
|
|
Selling, general and administrative expenses
|
4,791
|
|
|
4,784
|
|
|
7
|
|
|
—%
|
|
Depreciation and amortization
|
12,012
|
|
|
11,332
|
|
|
680
|
|
|
6%
|
|
|
17,406
|
|
|
12,779
|
|
|
4,627
|
|
|
36%
|
|
Other operating income, net
|
6,751
|
|
|
1,210
|
|
|
5,541
|
|
|
458%
|
|
Gain on involuntary conversion of property, plant and equipment
|
4,844
|
|
|
—
|
|
|
4,844
|
|
|
|
|
Operating income
|
$
|
29,001
|
|
|
$
|
13,989
|
|
|
$
|
15,012
|
|
|
107%
|
|
|
|
|
|
|
|
|
|
|
Sulfur (long tons)
|
642.0
|
|
|
665.0
|
|
|
(23.0)
|
|
|
(3)%
|
|
Fertilizer (long tons)
|
275.0
|
|
|
260.0
|
|
|
15.0
|
|
|
6%
|
|
Sulfur services volumes (long tons)
|
917.0
|
|
|
925.0
|
|
|
(8.0)
|
|
|
(1)%
|
Services Revenues. Services revenues increased slightly as a result of a contractually prescribed, index-based fee adjustment.
Products Revenues. Products revenues decreased $2.7 million as a result of a 3% decline in average sulfur services sales prices. Products revenues decreased an additional $0.8 million due to a 1% decrease in sales volumes, primarily related to a 3% decrease in sulfur volumes.
Cost of products sold. A 12% decline in product cost impacted cost of products sold by $8.3 million, resulting from a decrease in commodity prices. A 1% decrease in sales volumes resulted in an additional decrease in cost of products sold of $0.5 million. Margin per ton increased $6.09, or 20%.
Operating expenses. Our operating expenses increased $0.4 million due to insurance claims and $0.4 million due to outside towing. Offsetting were decreases in marine fuel and lube of $0.3 million, assist tugs of $0.1 million and repairs and maintenance of $0.1 million.
Selling, general and administrative expenses. Selling, general and administrative expenses remained relatively consistent.
Depreciation and amortization. Depreciation and amortization expense increased $0.7 million as a result of recent capital expenditures.
Other operating income (loss), net. Other operating income, net increased $2.7 million as a result of business interruption recoveries related to downtime associated with the Neches ship-loader insurance claim received in the first quarter of 2020. An additional $4.1 million increase is related to a net gain from the disposition of property, plant and equipment.
Gain on involuntary conversion of property, plant and equipment. The $4.8 million gain is primarily due to insurance proceeds received related to structural damage of our ship-loader assets during a weather incident at our Neches Terminal in May of 2019.
Natural Gas Liquids Segment
Comparative Results of Operations for the Years Ended December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Products Revenues
|
$
|
247,484
|
|
|
$
|
366,502
|
|
|
(119,018)
|
|
|
(32)%
|
|
Cost of products sold
|
228,345
|
|
|
341,800
|
|
|
(113,455)
|
|
|
(33)%
|
|
Operating expenses
|
3,008
|
|
|
6,300
|
|
|
(3,292)
|
|
|
(52)%
|
|
Selling, general and administrative expenses
|
4,013
|
|
|
4,739
|
|
|
(726)
|
|
|
(15)%
|
|
Depreciation and amortization
|
2,456
|
|
|
2,469
|
|
|
(13)
|
|
|
(1)%
|
|
|
9,662
|
|
|
11,194
|
|
|
(1,532)
|
|
|
(14)%
|
|
Other operating income (loss), net
|
(2)
|
|
|
16,402
|
|
|
(16,404)
|
|
|
(100)%
|
|
Operating income
|
$
|
9,660
|
|
|
$
|
27,596
|
|
|
$
|
(17,936)
|
|
|
(65)%
|
|
|
|
|
|
|
|
|
|
|
NGLs Volumes (barrels)
|
9,231
|
|
|
9,820
|
|
|
(589)
|
|
|
(6)%
|
Products Revenues. Our NGL average sales price per barrel decreased $10.51, or 28%, resulting in a decrease to products revenues of $103.2 million. The decrease in average sales price per barrel was a result of a decrease in market prices. Product sales volumes decreased 6%, decreasing revenues $15.8 million.
Cost of products sold. Our average cost per barrel decreased $10.07, or 29%, decreasing cost of products sold by $98.9 million. The decrease in average cost per barrel was a result of a decrease in market prices. The decrease in sales volume of 6% resulted in a $14.6 million decrease to cost of products sold. Our margins decreased $0.44 per barrel, or 18% during the period.
Operating expenses. Operating expenses decreased $2.3 million related to the divestiture of assets and the elimination of the associated expenses. In addition, operating expenses decreased $1.0 million related to the settlement of an insurance claim for less than anticipated.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased $0.7 million as a result of decreased compensation expense.
Other operating income (loss), net. Other operating income (loss), net represents the gains associated with the disposition of the East Texas Pipeline in 2019.
Interest Expense
Comparative Components of Interest Expense, Net for the Years Ended December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Revolving credit facility
|
$
|
8,719
|
|
|
$
|
18,550
|
|
|
$
|
(9,831)
|
|
|
(53)%
|
|
7.250% senior unsecured notes
|
16,969
|
|
|
27,101
|
|
|
(10,132)
|
|
|
(37)%
|
|
11.5% senior secured notes
|
13,151
|
|
|
—
|
|
|
13,151
|
|
|
|
|
10.0% senior secured notes
|
2,105
|
|
|
—
|
|
|
2,105
|
|
|
|
|
Amortization of deferred debt issuance costs
|
3,422
|
|
|
4,041
|
|
|
(619)
|
|
|
(15)%
|
|
Amortization of debt premium
|
(191)
|
|
|
(306)
|
|
|
115
|
|
|
38%
|
|
Other
|
1,787
|
|
|
1,728
|
|
|
59
|
|
|
3%
|
|
Finance leases
|
291
|
|
|
672
|
|
|
(381)
|
|
|
(57)%
|
|
Capitalized interest
|
(43)
|
|
|
(5)
|
|
|
(38)
|
|
|
(760)%
|
|
Interest income
|
—
|
|
|
(91)
|
|
|
91
|
|
|
100%
|
|
Total interest expense, net
|
$
|
46,210
|
|
|
$
|
51,690
|
|
|
$
|
(5,480)
|
|
|
(11)%
|
Indirect Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Indirect selling, general and administrative expenses
|
$
|
17,909
|
|
|
$
|
17,981
|
|
|
$
|
(72)
|
|
|
—%
|
Indirect selling, general and administrative expenses remained consistent from 2019 to 2020.
Martin Resource Management Corporation allocates to us a portion of its indirect selling, general and administrative expenses for services such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions we share with Martin Resource Management Corporation's retained businesses. This allocation is based on the percentage of time spent by Martin Resource Management Corporation personnel that provide such centralized services. GAAP also permits other methods for allocation of these expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these expenses between Martin Resource Management Corporation and us is subject to a number of judgments and estimates, regardless of the method used. We can provide no assurances that our method of allocation, in the past or in the future, is or will be the most accurate or appropriate method of allocation for these expenses. Other methods could result in a higher allocation of selling, general and administrative expense to us, which would reduce our net income.
Under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. The board of directors of our general partner approved the following reimbursement amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Board approved reimbursement amount
|
$
|
16,410
|
|
|
$
|
16,657
|
|
|
$
|
(247)
|
|
|
(1)%
|
The amounts reflected above represent our allocable share of such expenses. The board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
Liquidity and Capital Resources
General
Our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations, borrowings under our revolving credit facility and access to debt and equity capital markets, both public and private. Set forth below is a description of our cash flows for the periods indicated.
Cash Flows - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
The following table details the cash flow changes between the years ended December 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Variance
|
|
Percent Change
|
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
$
|
64,785
|
|
|
$
|
75,815
|
|
|
$
|
(11,030)
|
|
|
(15)%
|
|
Investing activities
|
2,604
|
|
|
174,828
|
|
|
(172,224)
|
|
|
(99)%
|
|
Financing activities
|
(65,287)
|
|
|
(248,087)
|
|
|
182,800
|
|
|
74%
|
|
Net decrease in cash and cash equivalents
|
$
|
2,102
|
|
|
$
|
2,556
|
|
|
$
|
(454)
|
|
|
(18)%
|
Net cash provided by operating activities. The decrease in net cash provided by operating activities for the year ended December 31, 2020 includes a $7.8 million decrease in net cash received from discontinued operating activities, a decrease in operating results of $11.3 million, and an unfavorable variance in other non-current assets and liabilities of $0.9 million. An additional $6.0 million decrease in other non-cash charges was primarily due to a $4.9 million gain on involuntary conversion of property, plant and equipment. Offsetting this decrease was a favorable variance in working capital of $15.0 million.
Net cash provided by investing activities. Net cash provided by investing activities for the year ended December 31, 2020 decreased $172.2 million. Cash received from discontinued investing activities decreased $209.2 million. Offsetting such decrease, net proceeds from the sale of property, plant and equipment increased $4.5 million and proceeds received from the involuntary conversion of property, plant and equipment increased $2.5 million. A decrease in cash used of $6.2 million resulted from higher payments for capital expenditures and plant turnaround costs in 2019 as well as a decrease of $23.7 million in cash used resulting from assets acquired from MTI in January of 2019.
Net cash used in financing activities. Net cash used in financing activities for the year ended December 31, 2020 decreased primarily as a result of a $102.4 million decrease in cash used related to excess purchase price over the carrying value of acquired assets in common control transactions during 2019. Additionally, net payments of long-term borrowings decreased $35.3 million and cash distributions paid decreased $43.8 million. Offsetting such decrease, costs associated with our credit facility increased $0.6 million.
Total Contractual Obligations
A summary of our total contractual obligations as of December 31, 2020 is as follows (dollars in thousands):
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Payments due by period
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|
Type of Obligation
|
Total
Obligation
|
|
Less than
One Year
|
|
1-3
Years
|
|
3-5
Years
|
|
Due
Thereafter
|
|
Revolving credit facility
|
$
|
148,000
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|
|
$
|
—
|
|
|
$
|
148,000
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
7.25% senior unsecured notes, due 2021
|
28,790
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|
|
28,790
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.0% senior secured notes, due 2024
|
53,750
|
|
|
—
|
|
|
—
|
|
|
53,750
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|
|
—
|
|
|
11.5% senior secured notes, due 2025
|
291,970
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|
|
—
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|
|
—
|
|
|
291,970
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|
|
—
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|
|
Throughput commitment
|
9,711
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|
|
6,439
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|
|
3,272
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|
|
—
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|
|
—
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|
|
Operating leases
|
26,379
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|
|
8,445
|
|
|
9,266
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|
|
2,838
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|
|
5,830
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|
|
Finance lease obligations
|
2,996
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|
|
2,707
|
|
|
289
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|
|
—
|
|
|
—
|
|
|
Interest payable on finance lease obligations
|
35
|
|
|
26
|
|
|
9
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|
|
—
|
|
|
—
|
|
|
Interest payable on fixed long-term debt obligations
|
157,633
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|
|
39,213
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|
|
77,903
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|
|
40,517
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|
|
—
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|
|
Total contractual cash obligations
|
$
|
719,264
|
|
|
$
|
85,620
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|
|
$
|
238,739
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|
|
$
|
389,075
|
|
|
$
|
5,830
|
|
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, 2020, we had outstanding irrevocable letters of credit in the amount of $16.7 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 Indebtedness
Revolving Credit Facility
At December 31, 2020, we maintained a $300.0 million revolving credit facility which matures on August 31, 2023. On July 8, 2020, the Partnership amended its revolving credit facility to, among other things, permit the Exchange Offer. Please see Note 16 in Part II of this Form 10-K for more information about the July 8, 2020 amendment to our revolving credit facility ("the Credit Facility Amendment")..
As of December 31, 2020, we had $148.0 million outstanding under the revolving credit facility and $16.7 million of outstanding irrevocable letters of credit, leaving a maximum available to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of $135.3 million. After giving effect to our then current borrowings, outstanding letters of credit and the financial covenants contained in our revolving credit facility, we had the ability to borrow approximately $20.5 million in additional amounts thereunder as of December 31, 2020.
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, 2020, the outstanding balance of our revolving credit facility has ranged from a low of $148.0 million to a high of $223.0 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 excess cash that exceeds $25.0 million and the net proceeds of certain asset sales, equity issuances and debt incurrences. If we sell assets and receive net cash proceeds in excess of $25.0 million, the commitments of the lenders under the revolving credit facility will be reduced by $25.0 million.
Indebtedness under the credit facility bears interest at our option at the Eurodollar Rate (LIBOR), with a floor for LIBOR of 1%, 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 commitments 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 Total Leverage Ratio (as defined in the Credit Facility Amendment, 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, 2020:
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|
|
Leverage Ratio
|
Base Rate Loans
|
|
Eurodollar
Rate
Loans
|
|
Letters of Credit
|
|
Less than 3.00 to 1.00
|
1.75
|
%
|
|
2.75
|
%
|
|
2.75
|
%
|
|
Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00
|
2.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
|
Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00
|
2.25
|
%
|
|
3.25
|
%
|
|
3.25
|
%
|
|
Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00
|
2.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
|
Greater than or equal to 4.50 to 1.00 and less than 5.00 to 1.00
|
2.75
|
%
|
|
3.75
|
%
|
|
3.75
|
%
|
|
Greater than or equal to 5.00 to 1.00
|
3.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
The applicable margin for LIBOR borrowings at December 31, 2020 is 3.75%, with a 1% floor for LIBOR.
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 (including a limit on our ability to make quarterly distributions to unitholders in excess of $0.005 per unit unless our Total Leverage Ratio (as defined in the Credit Facility Amendment) is below 3.75:1:00) and certain other restricted payments; (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; and (xi) permit our joint ventures to incur indebtedness or grant certain liens.
The credit facility contains customary events of default, including, without limitation: (i) failure to pay any principal, interest, fees, expenses or other amounts when due; (ii) failure to meet the quarterly financial covenants; (iii) failure to observe any other agreement, obligation, or covenant in the credit facility or any related loan document, subject to cure periods for certain failures; (iv) the failure of any representation or warranty to be materially true and correct when made; (v) our, or any of our subsidiaries’ default under other indebtedness that exceeds a threshold amount; (vi) bankruptcy or other insolvency events involving us or any of our subsidiaries; (vii) judgments against us or any of our subsidiaries, in excess of a threshold amount; (viii) certain ERISA events involving us or any of our subsidiaries, in excess of a threshold amount; (ix) a change in control (as defined in the credit facility); and (x) the invalidity of any of the loan documents or the failure of any of the collateral documents to create a lien on the collateral.
The credit facility also contains certain default provisions relating to Martin Resource Management Corporation. If Martin Resource Management Corporation no longer controls our general partner, the lenders under the credit facility may declare all amounts outstanding thereunder immediately due and payable. In addition, an event of default by Martin Resource Management Corporation under its credit facility could independently result in an event of default under our credit facility if it is deemed to have a material adverse effect on us.
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.
2025 Senior Secured Notes and Indenture
General
Pursuant to the Exchange Offer, we and Martin Midstream Finance Corp., our wholly owned subsidiary (collectively the "Issuers") issued $292.0 million in aggregate principal amount of the Issuers’ 11.50% senior secured second lien notes due 2025 (the "2025 Notes"), the 2025 Notes were issued to eligible holders that participated in the Exchange Offer pursuant to an indenture, dated as of August 12, 2020 (the "2025 Notes Indenture"), among the Issuers, the guarantors party thereto, U.S. Bank National Association, as trustee, and U.S. Bank National Association as collateral trustee.
The 2025 Notes are guaranteed on a full, joint and several basis by each of the Partnership’s existing domestic restricted subsidiaries (other than Martin Midstream Finance Corp. and Talen’s Marine & Fuel, LLC) and will be guaranteed in the future by any domestic restricted subsidiaries, in each case, if and so long as such entity guarantees (or is an obligor with respect to) any other indebtedness for borrowed money of either the Issuers or any guarantor. The 2025 Notes and the guarantees thereof are secured on a third-priority basis by a lien on substantially all assets of the Issuers and the guarantors, subject to the terms of an intercreditor agreement (the "Intercreditor Agreement") and certain other exceptions.
The 2025 Notes and the guarantees thereof are, pursuant to the Intercreditor Agreement, secured by third-priority liens and thus are effectively junior to any obligations under our credit facility, which are secured on a "first-lien" basis, and effectively junior to any obligations under the 2024 Notes Indenture (as defined below), which are secured on a "second-lien" basis, in each case, to the extent of the value of the collateral securing such first-lien obligations, second-lien obligations and third-lien obligations. The 2025 Notes and the guarantees thereof rank effectively senior to all of our existing and future unsecured indebtedness to the extent of the value of the collateral securing the 2025 Notes and such guarantees.
Maturity and Interest
The 2025 Notes will mature on February 28, 2025. Interest on the 2025 Notes accrues at a rate of 11.50% per annum and is payable semi-annually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2021.
Redemption
At any time prior to August 12, 2022, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2025 Notes issued under the 2025 Notes Indenture at a redemption price of 111.5% of the principal amount of the 2025 Notes, plus accrued and unpaid interest to the redemption date, with an amount of cash equal to the net cash proceeds of certain equity offerings. On or after August 12, 2022, the Issuers may redeem all or part of the 2025 Notes at redemption prices equal to 100%, plus accrued and unpaid interest up to, but not including, the redemption date. In addition, at any time prior to August 12, 2022, the Issuers may redeem all or a part of the 2025 Notes at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed plus a make-whole premium, plus accrued and unpaid interest up to, but not including, the redemption date.
Also, if at the end of any fiscal year (commencing with the fiscal year ending December 31, 2021) the Total Leverage Ratio (as defined in the Credit Facility Amendment) is greater than 3.75:1:00, the Issuers will use 25% of any excess annual cash flow (as defined in the 2025 Notes Indenture) to make an offer to all holders of the 2025 Notes to purchase the 2025 Notes at 100% of the principal amount thereof; provided, however, the Issuers, in their sole discretion, can allocate up to 100% of excess cash flow to offer to repurchase the 2025 Notes at 100% of the principal amount thereof, subject to restrictions in the revolving credit facility on prepaying junior debt.
Certain Covenants and Events of Default
The 2025 Notes Indenture contains customary covenants restricting the Partnership’s ability and the ability of its restricted subsidiaries to: (i) pay distributions on, purchase or redeem its common units or purchase or redeem its subordinated debt; (ii) incur or guarantee additional indebtedness or issue certain kinds of preferred equity securities; (iii) create or incur certain liens securing indebtedness; (iv) sell assets, including dispositions of the collateral securing the 2025 Notes; (v) consolidate, merge or transfer all or substantially all of its assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from its restricted subsidiaries to the Partnership. The 2025 Notes Indenture also contains customary events of default and acceleration provisions relating to such events of default, which provide that upon an event of default under the 2025 Notes Indenture, U.S. Bank National Association, as trustee, or the holders of at least 25% in aggregate principal amount of the then outstanding 2025 Notes may declare all of the 2025 Notes to be due
and payable immediately and, subject to the terms of the Intercreditor Agreement, foreclose upon the collateral for the 2025 Notes.
2024 Senior Secured Notes and Indenture
General
Pursuant to the rights offering in connection with the Exchange Offer, the Issuers issued $53.8 million aggregate principal amount of the Issuers’ 10.00% senior secured 1.5 lien notes due 2024 (the "2024 Notes"). The 2024 Notes were issued to eligible holders that participated in the Exchange Offer pursuant to an indenture, dated as of August 12, 2020 (the "2024 Notes Indenture"), among the Issuers, the guarantors party thereto, U.S. Bank National Association, as trustee, and U.S. Bank National Association as collateral trustee.
The 2024 Notes are guaranteed on a full, joint and several basis by the guarantors of the 2025 Notes and will be guaranteed in the future by any domestic restricted subsidiaries, in each case, if and so long as such entity guarantees (or is an obligor with respect to) any other indebtedness for borrowed money of either the Issuers or any guarantor. The 2024 Notes and the guarantees thereof are secured on a second-priority basis by a lien on substantially all assets of the Issuers and the guarantors, subject to the terms of the Intercreditor Agreement and certain other exceptions.
The 2024 Notes and the guarantees thereof are, pursuant to the Intercreditor Agreement, secured by second-priority liens and thus are effectively junior to any obligations under the Credit Facility, which are secured on a "first-lien" basis, and are effectively senior to the obligations under the 2025 Notes Indenture, which are secured on a "third-lien" basis, in each case, to the extent of the value of the collateral securing such first-lien, second-lien obligations and third-lien obligations. The 2024 Notes and the guarantees thereof rank effectively senior to all of the Issuers’ existing and future unsecured indebtedness to the extent of the value of the collateral securing the 2024 Notes and such guarantees.
Maturity and Interest
The 2024 Notes will mature on February 29, 2024. Interest on the 2024 Notes accrues at a rate of 10.00% per annum and is payable semi-annually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2021.
Redemption
At any time prior to August 12, 2021, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2024 Notes issued under the 2024 Notes Indenture at a redemption price of 110% of the principal amount of the 2024 Notes, plus accrued and unpaid interest to the redemption date, with an amount of cash equal to the net cash proceeds of certain equity offerings. On or after August 12, 2021, the Issuers may redeem all or part of the 2024 Notes at redemption prices (expressed as percentages of the principal amount) equal to (i) 102% for the twelve-month period beginning on August 12, 2021; (ii) 101% for the twelve-month period beginning on August 12, 2022 and (iii) 100% at any time thereafter, plus accrued and unpaid interest up to, but not including, the redemption date. In addition, at any time prior to August 12, 2021, the Issuers may redeem all or a part of the 2024 Notes at a redemption price equal to 100% of the principal amount of the 2024 Notes to be redeemed plus a make-whole premium, plus accrued and unpaid interest up to, but not including, the redemption date.
Certain Covenants and Events of Default
The 2024 Notes Indenture contains covenants that are substantially the same as those contained in the 2025 Notes Indenture described above.
2021 Senior Notes and Indenture
The Issuers entered into an Indenture, dated as of February 11, 2013. among the Issuers, certain subsidiary guarantors and Wells Fargo Bank, National Association, as trustee, under which the Issuers issued $400.0 million in aggregate principal amount of their 7.25% senior unsecured notes due 2021 (the "2021 Notes"). In 2015, we repurchased on the open market and subsequently retired an aggregate $26.2 million of our outstanding 2021 Notes. In 2020, we repurchased on the open market and subsequently retired an aggregate $9.3 million of our outstanding 2021 Notes. On August 12, 2020, we completed the Exchange Offer and Cash Tender Offer. In connection with the completion of the Exchange Offer and consent solicitation to certain eligible holders of the 2021 Notes, on August 12, 2020, we entered into a supplemental indenture to eliminate
substantially all of the restrictive covenants in the indenture governing the 2021 Notes. On February 15, 2021, our 2021 Notes matured and we retired the outstanding balance of $28.8 million using proceeds from our revolving credit facility.
Capital Resources and Liquidity
Historically, we have generally satisfied our working capital requirements and funded our debt service obligations and capital expenditures with cash generated from operations and borrowings under our revolving credit facility.
At December 31, 2020, we had cash and cash equivalents of $5.0 million and available borrowing capacity of $20.5 million under our revolving credit facility with $148.0 million of borrowings outstanding. Our revolving credit facility matures on August 31, 2023.
We expect that our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures will be provided by cash flows generated by our operations, borrowings under our revolving credit facility and access to the debt and equity capital markets. Our ability to generate cash from operations will depend upon our future operating performance, which is subject to certain risks. For a discussion of such risks, please read "Item 1A. Risk Factors" of this Form 10-K. In addition, due to the covenants in our revolving credit facility, our financial and operating performance impacts the amount we are permitted to borrow under that facility.
The Partnership is in compliance with all debt covenants as of December 31, 2020 and expects to be in compliance for the next twelve months.
Interest Rate Risk
We are subject to interest rate risk on our credit facility due to the variable interest rate and may enter into interest rate swaps to reduce this variable rate risk.
Seasonality
A substantial portion of our revenues is dependent on sales prices of products, particularly NGLs and fertilizers, which fluctuate in part based on winter and spring weather conditions. The demand for NGLs is strongest during the winter heating season and the refinery blending season. The demand for fertilizers is strongest during the early spring planting season. However, our Terminalling and Storage and Transportation business segments and the molten sulfur business are typically not impacted by seasonal fluctuations and a significant portion of our net income is derived from our Terminalling and Storage, Sulfur Services and Transportation business segments. Further, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage, Sulfur Services, and Transportation business segments.
Impact of Inflation
Inflation did not have a material impact on our results of operations in 2020, 2019 or 2018. 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 2020, 2019 or 2018.
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Item 8.
|
Financial Statements and Supplementary Data
|
The following financial statements of Martin Midstream Partners L.P. (Partnership) are listed below:
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|
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|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
Consolidated Balance Sheets as of December 31, 2020 and 2019
|
|
|
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
|
|
|
|
|
|
Consolidated Statements of Changes in Capital (Deficit) for the years ended December 31, 2020, 2019 and 2018
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
|
|
|
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, 2020 and 2019, the related consolidated statements of operations, changes in capital (deficit), and cash flows for each of the years in the three-year period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in note 3 to the consolidated financial statements, the Partnership has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification 842, Leases.
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 Public Company Accounting Oversight Board (United States) (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. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of goodwill for the terminalling and storage reporting unit
As discussed in Notes 2 and 9 to the consolidated financial statements, the goodwill balance as of December 31, 2020 was $16,823 thousand, of which $10,985 thousand related to the terminalling and storage reporting unit. The Partnership performs goodwill impairment testing on an annual basis and more often if events or circumstances indicate there may be impairment. During the first quarter of 2020, the Partnership determined that triggering events, including declines in the market price of its units and the economic downturn, required an evaluation of goodwill at March 31, 2020. The fair value of the reporting unit was determined using a combination of income and market approach methods. The Partnership determined that goodwill was not impaired based on both its interim and annual evaluations.
We identified the evaluation of the goodwill impairment assessments for the terminalling and storage reporting unit as a critical audit matter. Significant auditor judgment was required to evaluate the discounted cash flow projections used in the determinations of fair value, specifically assumptions related to forecasted revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and the discount rates. These assumptions were challenging to test as the estimated fair values of the terminalling and storage reporting unit were sensitive to possible changes to such assumptions. The audit effort to evaluate the discount rates used in the income approaches and the market multiples used in the market approaches required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the Partnership’s forecasted revenues and EBITDA by comparing them to historical results and analyst reports, considering the portion of revenues and EBITDA projections supported by long-term, fixed fee contracts and the portion impacted by current market conditions. We compared historical forecasts of revenues and EBITDA to actual results to assess the Company’s ability to estimate such amounts. We performed sensitivity analyses over forecasted revenues and EBITDA and the discount rates to assess their impact on the Partnership’s determinations of the fair value of the reporting unit.
In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
–evaluating the discount rates used in the terminalling and storage reporting unit’s discounted cash flow models, by comparing them against discount rate ranges that were independently developed using publicly available market data for comparable entities
–evaluating the market multiples used within the guideline public company methods, by developing independent calculations of the guideline comparable companies’ multiples using publicly available market data
–evaluating the market multiples used within the guideline transaction methods, by comparing against independent transaction searches of publicly available market data from the previous two years
–evaluating the control premiums implied in reconciling the sum of the fair values of the individual reporting units with the Partnership’s market capitalizations, by comparing against implied control premiums based on publicly available market data.
/s/ KPMG LLP
We have served as the Partnership’s auditor since 2002.
Dallas, Texas
March 3, 2021
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Assets
|
|
|
|
|
Cash
|
$
|
4,958
|
|
|
$
|
2,856
|
|
|
Trade and accrued accounts receivable, less allowance for doubtful accounts of $261 and $532, respectively
|
52,748
|
|
|
87,254
|
|
|
|
|
|
|
|
Inventories
|
54,122
|
|
|
62,540
|
|
|
Due from affiliates
|
14,807
|
|
|
17,829
|
|
|
|
|
|
|
|
Other current assets
|
8,991
|
|
|
5,833
|
|
|
Assets held for sale
|
—
|
|
|
5,052
|
|
|
Total current assets
|
135,626
|
|
|
181,364
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost
|
889,108
|
|
|
884,728
|
|
|
Accumulated depreciation
|
(509,237)
|
|
|
(467,531)
|
|
|
Property, plant and equipment, net
|
379,871
|
|
|
417,197
|
|
|
|
|
|
|
|
Goodwill
|
16,823
|
|
|
17,705
|
|
|
Right-of-use assets
|
22,260
|
|
|
23,901
|
|
|
Deferred income taxes, net
|
22,253
|
|
|
23,422
|
|
|
Intangibles and other assets, net
|
2,805
|
|
|
3,567
|
|
|
|
|
|
|
|
|
$
|
579,638
|
|
|
$
|
667,156
|
|
|
Liabilities and Partners’ Capital (Deficit)
|
|
|
|
|
Current portion of long term debt and finance lease obligations
|
$
|
31,497
|
|
|
$
|
6,758
|
|
|
Trade and other accounts payable
|
51,900
|
|
|
64,802
|
|
|
Product exchange payables
|
373
|
|
|
4,322
|
|
|
Due to affiliates
|
435
|
|
|
1,470
|
|
|
Income taxes payable
|
556
|
|
|
472
|
|
|
Fair value of derivatives
|
207
|
|
|
667
|
|
|
Other accrued liabilities
|
34,407
|
|
|
28,789
|
|
|
|
|
|
|
|
Total current liabilities
|
119,375
|
|
|
107,280
|
|
|
|
|
|
|
|
Long-term debt, net
|
484,597
|
|
|
569,788
|
|
|
Finance lease obligations
|
289
|
|
|
717
|
|
|
Operating lease liabilities
|
15,181
|
|
|
16,656
|
|
|
|
|
|
|
|
Other long-term obligations
|
7,067
|
|
|
8,911
|
|
|
Total liabilities
|
626,509
|
|
|
703,352
|
|
|
Commitments and contingencies
|
|
|
|
|
Partners’ capital (deficit)
|
(46,871)
|
|
|
(36,196)
|
|
|
Total partners’ capital (deficit)
|
(46,871)
|
|
|
(36,196)
|
|
|
|
$
|
579,638
|
|
|
$
|
667,156
|
|
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,
|
|
|
2020
|
|
2019
|
|
20181
|
|
Revenues:
|
|
|
|
|
|
|
Terminalling and storage *
|
$
|
80,864
|
|
|
$
|
87,397
|
|
|
$
|
96,204
|
|
|
Transportation *
|
132,492
|
|
|
159,622
|
|
|
150,121
|
|
|
|
|
|
|
|
|
|
Sulfur services
|
11,659
|
|
|
11,434
|
|
|
11,148
|
|
|
Product sales: *
|
|
|
|
|
|
|
Natural gas liquids
|
247,479
|
|
|
366,502
|
|
|
496,007
|
|
|
Sulfur services
|
96,348
|
|
|
99,906
|
|
|
121,388
|
|
|
Terminalling and storage
|
103,300
|
|
|
122,257
|
|
|
145,236
|
|
|
|
447,127
|
|
|
588,665
|
|
|
762,631
|
|
|
Total revenues
|
672,142
|
|
|
847,118
|
|
|
1,020,104
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
Cost of products sold: (excluding depreciation and amortization)
|
|
|
|
|
|
|
Natural gas liquids *
|
215,895
|
|
|
325,376
|
|
|
449,103
|
|
|
Sulfur services *
|
58,515
|
|
|
65,893
|
|
|
83,641
|
|
|
Terminalling and storage *
|
82,516
|
|
|
101,526
|
|
|
126,562
|
|
|
|
356,926
|
|
|
492,795
|
|
|
659,306
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating expenses *
|
183,747
|
|
|
209,313
|
|
|
216,182
|
|
|
Selling, general and administrative *
|
40,900
|
|
|
41,433
|
|
|
39,116
|
|
|
Impairment of long-lived assets
|
—
|
|
|
—
|
|
|
—
|
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
Depreciation and amortization
|
61,462
|
|
|
60,060
|
|
|
61,484
|
|
|
Total costs and expenses
|
643,035
|
|
|
803,601
|
|
|
976,088
|
|
|
Other operating income, net
|
12,488
|
|
|
14,587
|
|
|
1,041
|
|
|
Gain on involuntary conversion of property, plant and equipment
|
4,907
|
|
|
—
|
|
|
—
|
|
|
Operating income
|
46,502
|
|
|
58,104
|
|
|
45,057
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(46,210)
|
|
|
(51,690)
|
|
|
(52,349)
|
|
|
Gain on retirement of senior unsecured notes
|
3,484
|
|
|
—
|
|
|
—
|
|
|
Loss on exchange of senior unsecured notes
|
(8,817)
|
|
|
—
|
|
|
—
|
|
|
Other, net
|
6
|
|
|
6
|
|
|
38
|
|
|
Total other income (expense)
|
(51,537)
|
|
|
(51,684)
|
|
|
(52,311)
|
|
|
Net income (loss) before taxes
|
(5,035)
|
|
|
6,420
|
|
|
(7,254)
|
|
|
Income tax expense
|
(1,736)
|
|
|
(1,900)
|
|
|
(577)
|
|
|
Income (loss) from continuing operations
|
(6,771)
|
|
|
4,520
|
|
|
(7,831)
|
|
|
Income (loss) from discontinued operations, net of income taxes
|
—
|
|
|
(179,466)
|
|
|
63,486
|
|
|
Net income (loss)
|
(6,771)
|
|
|
(174,946)
|
|
|
55,655
|
|
|
Less general partner's interest in net (income) loss
|
135
|
|
|
3,499
|
|
|
(882)
|
|
|
Less pre-acquisition income allocated to the general partner
|
—
|
|
|
—
|
|
|
(11,550)
|
|
|
Less (income) loss allocable to unvested restricted units
|
21
|
|
|
(41)
|
|
|
(28)
|
|
|
Limited partners' interest in net income (loss)
|
$
|
(6,615)
|
|
|
$
|
(171,488)
|
|
|
$
|
43,195
|
|
*Related Party Transactions Shown Below
See accompanying notes to consolidated financial statements.
1 Financial information has been revised to include results attributable to MTI acquired from Martin Resource Management Corporation. See Note 2 – Significant Accounting Policies and Practices.
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,
|
|
|
2020
|
|
2019
|
|
20181
|
|
Revenues:
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
63,823
|
|
|
$
|
71,733
|
|
|
$
|
79,137
|
|
|
Transportation
|
21,997
|
|
|
24,243
|
|
|
27,588
|
|
|
|
|
|
|
|
|
|
Product sales
|
317
|
|
|
931
|
|
|
1,297
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
Cost of products sold: (excluding depreciation and amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur services
|
10,519
|
|
|
10,765
|
|
|
10,641
|
|
|
Terminalling and storage
|
18,429
|
|
|
23,859
|
|
|
24,613
|
|
|
Expenses:
|
|
|
|
|
|
|
Operating expenses
|
80,075
|
|
|
88,194
|
|
|
90,878
|
|
|
Selling, general and administrative
|
32,886
|
|
|
32,622
|
|
|
26,441
|
|
See accompanying notes to consolidated financial statements.
1 Financial information has been revised to include results attributable to MTI acquired from Martin Resource Management Corporation. See Note 2 – Significant Accounting Policies and Practices.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
20181
|
|
Allocation of net income (loss) attributable to:
|
|
|
|
|
|
|
Limited partner interest:
|
|
|
|
|
|
|
Continuing operations
|
$
|
(6,615)
|
|
|
$
|
4,430
|
|
|
$
|
(18,982)
|
|
|
Discontinued operations
|
—
|
|
|
(175,918)
|
|
|
62,177
|
|
|
|
$
|
(6,615)
|
|
|
$
|
(171,488)
|
|
|
$
|
43,195
|
|
|
General partner interest:
|
|
|
|
|
|
|
Continuing operations
|
$
|
(135)
|
|
|
$
|
91
|
|
|
$
|
(387)
|
|
|
Discontinued operations
|
—
|
|
|
(3,590)
|
|
|
1,269
|
|
|
|
$
|
(135)
|
|
|
$
|
(3,499)
|
|
|
$
|
882
|
|
|
|
|
|
|
|
|
|
Net income (loss) per unit attributable to limited partners:
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.17)
|
|
|
$
|
0.11
|
|
|
$
|
(0.49)
|
|
|
Discontinued operations
|
—
|
|
|
(4.55)
|
|
|
1.60
|
|
|
|
$
|
(0.17)
|
|
|
$
|
(4.44)
|
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
Weighted average limited partner units - basic
|
38,657
|
|
|
38,659
|
|
|
38,907
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.17)
|
|
|
$
|
0.11
|
|
|
$
|
(0.49)
|
|
|
Discontinued operations
|
—
|
|
|
(4.55)
|
|
|
1.60
|
|
|
|
$
|
(0.17)
|
|
|
$
|
(4.44)
|
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
Weighted average limited partner units - diluted
|
38,657
|
|
|
38,659
|
|
|
38,923
|
|
See accompanying notes to consolidated financial statements.
1 Financial information has been revised to include results attributable to MTI acquired from Martin Resource Management Corporation. See Note 2 – Significant Accounting Policies and Practices.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (DEFICIT)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital (Deficit)
|
|
|
|
|
|
|
Parent Net Investment
|
|
Common
|
|
|
|
General Partner
|
|
|
|
|
|
|
|
Units
|
|
Amount
|
|
|
|
|
|
Amount
|
|
|
|
Total
|
|
Balances – December 31, 20171
|
$
|
24,240
|
|
|
38,444,612
|
|
|
$
|
290,927
|
|
|
|
|
|
|
$
|
7,314
|
|
|
|
|
$
|
322,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
11,550
|
|
|
—
|
|
|
43,223
|
|
|
|
|
|
|
882
|
|
|
|
|
55,655
|
|
|
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)
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
General partner contribution
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Cash distributions
|
—
|
|
|
—
|
|
|
(76,872)
|
|
|
|
|
|
|
(1,569)
|
|
|
|
|
(78,441)
|
|
|
Deemed distribution from Martin Resource Management Corporation
|
(12,070)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
(12,070)
|
|
|
Reimbursement of excess purchase price over carrying value of acquired assets
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
Excess carrying value of the assets over the purchase price paid by Martin Resource Management
|
—
|
|
|
—
|
|
|
(26)
|
|
|
|
|
|
|
—
|
|
|
|
|
(26)
|
|
|
Unit-based compensation
|
—
|
|
|
—
|
|
|
1,224
|
|
|
|
|
|
|
—
|
|
|
|
|
1,224
|
|
|
Purchase of treasury units
|
—
|
|
|
(18,800)
|
|
|
(273)
|
|
|
|
|
|
|
—
|
|
|
|
|
(273)
|
|
|
Balances – December 31, 20181
|
23,720
|
|
|
39,032,237
|
|
|
258,085
|
|
|
|
|
|
|
6,627
|
|
|
|
|
288,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
(171,447)
|
|
|
|
|
|
|
(3,499)
|
|
|
|
|
(174,946)
|
|
|
Issuance of common units, net
|
—
|
|
|
—
|
|
|
(289)
|
|
|
|
|
|
|
—
|
|
|
|
|
(289)
|
|
|
Issuance of time-based restricted units
|
—
|
|
|
16,944
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted units
|
—
|
|
|
(154,288)
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
—
|
|
|
—
|
|
|
(48,111)
|
|
|
|
|
|
|
(982)
|
|
|
|
|
(49,093)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess purchase price over carrying value of acquired assets
|
—
|
|
|
—
|
|
|
(102,393)
|
|
|
|
|
|
|
—
|
|
|
|
|
(102,393)
|
|
|
Deferred taxes on acquired assets and liabilities
|
—
|
|
|
—
|
|
|
24,781
|
|
|
|
|
|
|
—
|
|
|
|
|
24,781
|
|
|
Unit-based compensation
|
—
|
|
|
—
|
|
|
1,424
|
|
|
|
|
|
|
—
|
|
|
|
|
1,424
|
|
|
Purchase of treasury units
|
—
|
|
|
(31,504)
|
|
|
(392)
|
|
|
|
|
|
|
—
|
|
|
|
|
(392)
|
|
|
Contribution to parent
|
(23,720)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
(23,720)
|
|
|
Balances – December 31, 2019
|
—
|
|
|
38,863.389
|
|
|
(38,342)
|
|
|
|
|
|
|
2,146
|
|
|
|
|
(36,196)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
(6,636)
|
|
|
|
|
|
|
(135)
|
|
|
|
|
(6,771)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of time-based restricted units
|
—
|
|
|
81,000
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted units
|
—
|
|
|
(85,467)
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
—
|
|
|
—
|
|
|
(5,211)
|
|
|
|
|
|
|
(106)
|
|
|
|
|
(5,317)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
—
|
|
|
—
|
|
|
1,422
|
|
|
|
|
|
|
—
|
|
|
|
|
1,422
|
|
|
Purchase of treasury units
|
—
|
|
|
(7,748)
|
|
|
(9)
|
|
|
|
|
|
|
—
|
|
|
|
|
(9)
|
|
|
Balances – December 31, 2020
|
$
|
—
|
|
|
38,851,174
|
|
|
$
|
(48,776)
|
|
|
|
|
|
|
$
|
1,905
|
|
|
|
|
$
|
(46,871)
|
|
See accompanying notes to consolidated financial statements.
1 Financial information has been revised to include results attributable to MTI acquired from Martin Resource Management Corporation. See Note 2 – Significant Accounting Policies and Practices.
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
20181
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(6,771)
|
|
|
$
|
(174,946)
|
|
|
$
|
55,655
|
|
|
Less: (Income) loss from discontinued operations
|
—
|
|
|
179,466
|
|
|
(63,486)
|
|
|
Net income (loss) from continuing operations
|
(6,771)
|
|
|
4,520
|
|
|
(7,831)
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
61,462
|
|
|
60,060
|
|
|
61,484
|
|
|
Amortization and write-off of deferred debt issue costs
|
3,422
|
|
|
4,041
|
|
|
3,445
|
|
|
|
|
|
|
|
|
|
Amortization of premium on notes payable
|
(191)
|
|
|
(306)
|
|
|
(306)
|
|
|
Deferred income tax expense
|
1,169
|
|
|
1,360
|
|
|
208
|
|
|
Gain on disposition or sale of property, plant, and equipment
|
(9,788)
|
|
|
(13,332)
|
|
|
(1,041)
|
|
|
Gain on involuntary conversion of property, plant and equipment
|
(4,907)
|
|
|
—
|
|
|
—
|
|
|
Gain on retirement of senior unsecured notes
|
(3,484)
|
|
|
—
|
|
|
—
|
|
|
Non-cash impact related to exchange of senior unsecured notes
|
(749)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative (income) loss
|
8,209
|
|
|
5,137
|
|
|
(14,024)
|
|
|
Net cash (paid) received for commodity derivatives
|
(8,669)
|
|
|
(4,466)
|
|
|
13,948
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
1,422
|
|
|
1,424
|
|
|
1,224
|
|
|
Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
|
|
|
|
|
|
|
Accounts and other receivables
|
30,741
|
|
|
62
|
|
|
29,085
|
|
|
Product exchange receivables
|
—
|
|
|
166
|
|
|
(137)
|
|
|
Inventories
|
5,264
|
|
|
21,493
|
|
|
13,370
|
|
|
Due from affiliates
|
2,932
|
|
|
1,822
|
|
|
5,961
|
|
|
Other current assets
|
(5,733)
|
|
|
(254)
|
|
|
1,485
|
|
|
Trade and other accounts payable
|
(7,318)
|
|
|
(898)
|
|
|
(27,321)
|
|
|
Product exchange payables
|
(3,949)
|
|
|
(7,781)
|
|
|
555
|
|
|
Due to affiliates
|
(1,035)
|
|
|
(1,469)
|
|
|
99
|
|
|
Income taxes payable
|
84
|
|
|
27
|
|
|
(65)
|
|
|
Other accrued liabilities
|
4,144
|
|
|
(3,017)
|
|
|
(6,636)
|
|
|
Change in other non-current assets and liabilities
|
(1,470)
|
|
|
(543)
|
|
|
1,206
|
|
|
Net cash provided by continuing operating activities
|
64,785
|
|
|
68,046
|
|
|
74,709
|
|
|
Net cash provided by discontinued operating activities
|
—
|
|
|
7,769
|
|
|
30,321
|
|
|
Net cash provided by operating activities
|
64,785
|
|
|
75,815
|
|
|
105,030
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Payments for property, plant, and equipment
|
(28,622)
|
|
|
(30,621)
|
|
|
(35,255)
|
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
(23,720)
|
|
|
—
|
|
|
Payments for plant turnaround costs
|
(1,478)
|
|
|
(5,677)
|
|
|
(1,893)
|
|
|
Proceeds from sale of property, plant, and equipment
|
25,154
|
|
|
20,660
|
|
|
11,483
|
|
|
Proceeds from involuntary conversion of property, plant and equipment
|
7,550
|
|
|
5,031
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used) in continuing investing activities
|
2,604
|
|
|
(34,327)
|
|
|
(25,665)
|
|
|
Net cash provided by (used in) discontinued investing activities
|
—
|
|
|
209,155
|
|
|
173,287
|
|
|
Net cash provided by (used in) investing activities
|
2,604
|
|
|
174,828
|
|
|
147,622
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Payments of long-term debt and finance lease obligations
|
(338,199)
|
|
|
(729,514)
|
|
|
(559,201)
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
282,019
|
|
|
638,000
|
|
|
399,000
|
|
|
Proceeds from issuance of common units, net of issuance related costs
|
—
|
|
|
(289)
|
|
|
(118)
|
|
|
|
|
|
|
|
|
|
Deemed contribution from (distribution to) Martin Resource Management
|
—
|
|
|
—
|
|
|
(12,070)
|
|
|
Excess purchase price over carrying value of acquired assets
|
—
|
|
|
(102,393)
|
|
|
(26)
|
|
|
|
|
|
|
|
|
|
Purchase of treasury units
|
(9)
|
|
|
(392)
|
|
|
(273)
|
|
|
Payments of debt issuance costs
|
(3,781)
|
|
|
(4,406)
|
|
|
(1,312)
|
|
|
Cash distributions paid
|
(5,317)
|
|
|
(49,093)
|
|
|
(78,441)
|
|
|
Net cash used in financing activities
|
(65,287)
|
|
|
(248,087)
|
|
|
(252,441)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
2,102
|
|
|
2,556
|
|
|
211
|
|
|
Cash at beginning of year
|
2,856
|
|
|
300
|
|
|
89
|
|
|
Cash at end of year
|
$
|
4,958
|
|
|
$
|
2,856
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
1 Financial information has been revised to include results attributable to MTI acquired from Martin Resource Management Corporation. See Note 2 – Significant Accounting Policies and Practices.
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, processing, storage and packaging services for petroleum products and by-products including the refining of naphthenic crude oil; land and marine transportation services for petroleum products and by-products, chemicals, and specialty products; sulfur and sulfur-based products processing, manufacturing, marketing and distribution; and NGL marketing, distribution, and transportation services.
The Partnership provides specialty services to major and independent oil and gas companies, independent refiners, large chemical companies, and other wholesale purchasers of certain petroleum products and by-products, with significant business concentrated around the U.S. Gulf Coast refinery complex, which is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry. The petroleum products and by-products the Partnership gathers, transports, stores and markets are produced primarily by major and independent oil and gas companies who often rely on third parties, such as the Partnership, for the transportation and disposition of these products.
On August 30, 2013, Martin Resource Management Corporation 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, 2020 or 2019.
Impact of COVID-19 Pandemic. Due to the economic impacts of the COVID-19 pandemic, the markets experienced a decline in oil prices in response to oil demand concerns. These concerns were further exacerbated by the price war among members OPEC and other non-OPEC producer nations during the first quarter of 2020 and global storage considerations. Travel restrictions and stay-at-home orders implemented by governments in many regions and countries across the globe, including the United States, have greatly impacted the demand for refined products resulting in a significant reduction in refinery utilization, which has impacted the Partnership's 2020 performance. This impact started in February of 2020 and continued through the end of the year, during which time the Partnership has seen unfavorable trends in certain key metrics across several of its business lines compared to historical periods. The significant reduction in refinery utilization as a result of reduced refined products demand significantly impacted the Partnership's Transportation and NGL segments. As the volume of products produced or purchased by refineries has been reduced, demand for the Partnership's services has decreased.
Looking forward, we expect to continue to experience some adverse impacts of COVID-19 in our transportation segment during the first half of 2021 but we believe that refinery utilization will continue to increase in the second half of 2021 as a result of widespread vaccinations, government stimulus, and a rebounding economy. This should ultimately improve refined product demand as people get back to work and begin traveling again. We expect this will positively impact our transportation segment as demand for our services improves.
Overall, the extent to which the duration and severity of the pandemic impacts our business, results of operations, and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted at this time.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Accordingly, it is possible that the impact of the pandemic could have a material adverse effect on the Partnership's results of operations, financial position and cash flows for the year ended December 31, 2021 including the recoverability of long-lived assets and goodwill, the valuation of inventory, and the amount of expected credit losses.
Management considered the impact of the pandemic on the assumptions and estimates used in the preparation of the financial statements. Management identified triggering events requiring the performance of impairment testing of long-lived assets and goodwill related to both the performance of the Partnership's unit price during the first quarter of 2020 and certain of the Partnership's businesses that are sensitive to reductions in refined product demand and refinery utilization. As a result, the Partnership recorded impairment charges totaling $4,352 related to long-lived assets during the first quarter of 2020. See Note 5 for more information. No impairments were identified related to goodwill. A sustained reduction in refinery demand and utilization could lead to future asset impairments as well as adversely affect access to capital and financing to be able to meet future obligations. Management also assessed the extent to which the current macroeconomic events brought about by the pandemic and significant declines in refined product demand impacted the valuation of expected credit losses on accounts receivable and certain inventory items or resulted in modifications to any significant contracts. Ultimately the results of these assessments did not have a material impact on the Partnership's results as of December 31, 2020.
Divestiture of Natural Gas Storage Assets. On June 28, 2019, the Partnership completed the sale of its membership interests in Arcadia Gas Storage, LLC, Cadeville Gas Storage LLC, Monroe Gas Storage Company, LLC and Perryville Gas Storage LLC (the "Natural Gas Storage Assets") to Hartree Cardinal Gas, LLC ("Hartree"), a subsidiary of Hartree Bulk Storage, LLC. The Natural Gas Storage Assets consist of approximately 50 billion cubic feet of working capacity located in northern Louisiana and Mississippi. In consideration of the sale of the Natural Gas Storage Assets, the Partnership received cash proceeds of $210,067 after transaction fees and expenses. The net proceeds were used to reduce outstanding borrowings under the Partnership's revolving credit facility. The Partnership concluded the disposition represents a strategic shift and will have a major effect on its financial results going forward. As a result, the Partnership has presented the results of operations and cash flows relating to the Natural Gas Storage Assets as discontinued operations for the years ended December 31, 2019 and 2018. See Note 5 for more information.
Acquisition of Martin Transport, Inc. On January 2, 2019, the Partnership acquired all of the issued and outstanding equity interests of MTI from Martin Resource Management Corporation. MTI operates a fleet of trucks providing transportation of petroleum products, liquid petroleum gas, chemicals, sulfur and other products, as well as owns 23 terminals located throughout the U.S. Gulf Coast and Southeastern United States.
The acquisition of MTI was considered a transfer of net assets between entities under common control. As a result, the acquisition of MTI was recorded at amounts based on the historical carrying value of these assets at January 1, 2019, and the Partnership is required to update its historical financial statements to include the activities of MTI as of the date of common control. See Note 4 for more information. The Partnership’s accompanying historical financial statements have been retrospectively updated to reflect the effects on financial position, cash flows and results of operations attributable to the activities of MTI as if the Partnership owned these assets for the periods presented. See Note 4 for separate results of MTI for the year ended December 31, 2018. Net income attributable to MTI for periods prior to the Partnership’s acquisition of the assets is not allocated to the limited partners for purposes of calculating net income per limited partner unit. See Note 17.
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 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 year ended December 31, 2018. See Note 5 for more information.
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 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 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.
Transportation – Revenue related to land transportation is recognized for line hauls based on a mileage rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month. Revenue related to marine transportation is recognized for time charters based on a per day rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.
Sulfur Services – Revenue from sulfur and fertilizer product sales is recognized when the customer takes title to the product. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Revenue from sulfur services is recognized as services are performed during each monthly period. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.
Natural Gas Liquids – NGL distribution revenue is recognized when product is delivered by truck, rail, or pipeline to the Partnership's NGL customers. Revenue is recognized on title transfer of the product to the customer. Delivery of product is invoiced as the transaction occurs and is generally paid within a month.
(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 finance leases is stated at the present value of minimum lease payments less accumulated amortization. Equipment under finance 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, transportation, and sulfur services reporting units contain goodwill. No goodwill impairment was recorded for the years ended December 31, 2020, 2019, or 2018.
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.
Applying this impairment review methodology, the Partnership considered the impact that COVID-19 had on our cash flows and the value our unit price during 2020 and elected to bypass the qualitative assessment and perform a quantitative assessment. Based upon the most recent annual review as of August 31, 2020, no goodwill impairment exists within the Partnership's reporting units for the year ended December 31, 2020. No goodwill impairment was recorded during the years ended December 31, 2019 or 2018.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
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 for the years ended December 31, 2020, 2019 or 2018.
(h) Debt Issuance Costs
Debt issuance costs relating to the Partnership’s revolving credit facility and senior 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 $3,781, $4,406 and $1,312 in the years ended December 31, 2020, 2019 and 2018, respectively.
Amortization and write-off of debt issuance costs, which is included in interest expense, totaled $3,422, $4,041 and $3,445 for the years ended December 31, 2020, 2019 and 2018, respectively. Accumulated amortization amounted to $22,655 and $24,644 at December 31, 2020 and 2019, 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.
(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.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(m) 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.
(n) 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.
(o) 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.
(p) 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.
(q) 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.
MTI is a wholly owned subsidiary of the Partnership. Prior to the acquisition of MTI on January 2, 2019, MTI was a Qualified Subchapter S subsidiary (“QSub”) of Martin Resource Management Corporation, a qualifying S Corporation. A QSub is not treated as a separate corporation for federal income tax purposes as it is deemed liquidated into its S Corporation parent. S Corporations are generally not subject to income taxes because income and losses flow through to shareholders and are reported on their individual returns. Three states in which MTI was subject to taxation prior to the acquisition - Louisiana, New Jersey and Tennessee - do not recognize the federal S Corporation status and, therefore, taxed MTI on a C Corporation basis. Subsequent to the acquisition, the QSub election terminated resulting in MTI being taxed as a stand-alone C Corporation.
The Partnership's financial statements recognize the current and deferred income tax consequences that result from MTI’s activities during the current period pursuant to the provisions of ASC 740 related to income taxes. As a result of the common control transaction with the Partnership, the deferred tax consequences of the changes in the tax bases of MTI’s assets and liabilities were included in equity under the provisions of ASC 740-20-45-11.
With respect to the Partnership’s taxable subsidiary (MTI), income taxes are accounted for under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
In the ordinary course of business, there may be many transactions and calculations where the ultimate tax outcome is uncertain. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws. In accordance with the provisions of ASC 740, we use a two-step approach for recognizing and measuring tax benefits taken or
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
expected to be taken in a tax return. In the first step, “recognition”, the Partnership determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Partnership presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. In the second step, “measurement”, a tax position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement based upon management’s intent regarding negotiation and litigation. In evaluating all income tax positions for all open years, management has determined all positions are more likely than not to be sustained at full benefit based upon their technical merit under applicable tax laws.
(r) 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 December 2019, FASB issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to general principles in ASC 740 and clarifies and amends existing guidance within US generally accepted accounting principles (US GAAP). The standard is effective for the Partnership’s financial statements issued for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Partnership will adopt this ASU beginning January 1, 2021 and plans to use the modified retrospective approach, with a cumulative-effect adjustment recorded through retained earnings, for hybrid tax regimes. All other applicable amendments will be applied on a prospective basis. The result of this adoption will have no material impact on the Partnership’s consolidated financial statements.
On January 1, 2020, the Partnership adopted ASU 2016-13, "Financial Instruments - Credit Losses," which required the Partnership to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaced the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables. Adoption of the new standard did not have a material impact on the Partnership’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Non-employee Share-Based Payment Accounting, which will expand the scope of FASB ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. The standard is effective for the Partnership's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Partnership adopted this standard effective January 1, 2019. The result of this adoption did not have a material impact on the Partnership's consolidated financial statements.
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 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 are 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 FASB 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. The Partnership adopted this ASU on January 1, 2019, electing the transition option provided under ASU 2018-11. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Partnership elected 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 elected the short-term lease recognition exemption for all leases that qualify.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
This means, for those assets that qualify, the Partnership did not recognize Right-of-Use ("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. See Note 10 for more information.
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 was 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 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."
NOTE 4. ACQUISITIONS
Martin Transport, Inc. Stock Purchase Agreement. On January 2, 2019, the Partnership acquired all of the issued and outstanding equity interests of MTI, a wholly-owned subsidiary of Martin Resource Management Corporation which operates a fleet of trucks providing transportation of petroleum products, liquid petroleum gas, chemicals, sulfur and other products, as well as owns 23 terminals located throughout the U.S. Gulf Coast and Southeastern United States for total consideration as follows:
|
|
|
|
|
|
|
|
Purchase price1
|
$
|
135,000
|
|
|
Plus: Working Capital Adjustment
|
2,795
|
|
|
Less: Finance lease obligations assumed
|
(11,682)
|
|
|
Cash consideration paid
|
$
|
126,113
|
|
1The stock purchase agreement also includes a $10,000 earn-out based on certain performance thresholds. The performance threshold related to financial results for the years ended December 31, 2020 and 2019 was not achieved, which resulted in a reduction in the potential earn-out by $6,666.
The transaction closed on January 2, 2019 and was effective as of January 1, 2019 and was funded with borrowings under the Partnership's revolving credit facility.
This acquisition is considered a transfer of net assets between entities under common control. The acquisition of MTI was recorded at the historical carrying value of the assets at the acquisition date, which were as follows:
|
|
|
|
|
|
|
|
Accounts receivable, net
|
$
|
11,724
|
|
|
Inventories
|
1,138
|
|
|
Due from affiliates
|
1,042
|
|
|
Other current assets
|
897
|
|
|
Property, plant and equipment, net
|
25,383
|
|
|
Goodwill
|
489
|
|
|
Other noncurrent assets
|
362
|
|
|
Current installments of finance lease obligations
|
(5,409)
|
|
|
Accounts payable
|
(2,564)
|
|
|
Due to affiliates
|
(482)
|
|
|
Other accrued liabilities
|
(2,588)
|
|
|
Finance lease obligations, net of current installments
|
(6,272)
|
|
|
Historical carrying value of assets acquired
|
$
|
23,720
|
|
The excess purchase price over the historical carrying value of the assets at the acquisition date was $102,393 and was recorded as an adjustment to "Partners' capital (deficit)".
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The separate results of operations related to MTI for the year ended December 31, 2018, which was recast as part of the Partnership's Consolidated Statements of Operations, were as follows:
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2018
|
|
|
|
|
Transportation revenue
|
$
|
125,333
|
|
|
|
|
|
Operating expenses
|
105,212
|
|
|
Selling, general and administrative
|
5,246
|
|
|
Depreciation and amortization
|
3,413
|
|
|
Total costs and expenses
|
113,871
|
|
|
|
|
|
Other operating income, net
|
596
|
|
|
Operating income
|
12,058
|
|
|
|
|
|
Other income (expense):
|
|
|
Interest expense
|
(312)
|
|
|
Other, net
|
12
|
|
|
|
|
|
Income before income taxes
|
11,758
|
|
|
Income tax expense
|
208
|
|
|
Net income
|
$
|
11,550
|
|
NOTE 5. DISCONTINUED OPERATIONS, DIVESTITURES, AND ASSETS HELD FOR SALE
Divestitures
Divestiture of Mega Lubricants. On December 22, 2020, the Partnership completed the sale of Mega Lubricants for $22,400. Mega Lubricants is engaged in the business of blending, manufacturing and delivering various marine application lubricants, sub-sea specialty fluids, and proprietary developed commercial and industrial products. The Partnership recorded a gain on the disposition of $10,101, which was included in "Other operating income, net" on the Partnership's Consolidated Statements of Operations. The proceeds from the transaction were used to reduce outstanding borrowings under the Partnership’s revolving credit facility. The divestiture of Mega Lubricants did not qualify for discontinued operations presentation under the guidance of ASC 205-20.
Divestiture of East Texas Pipeline. On August 12, 2019, the Partnership completed the sale of its East Texas Pipeline for $17,500. The Partnership recorded a gain on the disposition of $16,154, which was included in "Other operating income, net" on the Partnership's Consolidated Statements of Operations. The net proceeds were used to reduce outstanding borrowings under the Partnership's revolving credit facility. The divestiture of the East Texas Pipeline assets 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)
Divestiture of Natural Gas Storage Assets. On June 28, 2019, the Partnership completed the sale of the Natural Gas Storage Assets to Hartree, a subsidiary of Hartree Bulk Storage, LLC. The Natural Gas Storage Assets consist of approximately 50 billion cubic feet of working capacity located in northern Louisiana and Mississippi. In consideration of the sale of these assets, the Partnership received cash proceeds of $210,067 after transaction fees and expenses. The net proceeds were used to reduce outstanding borrowings under the Partnership's revolving credit facility. The Partnership concluded the disposition represents a strategic shift and will have a major effect on its financial results going forward. As a result, the Partnership has presented the results of operations and cash flows relating to the Natural Gas Storage Assets as discontinued operations for the years ended December 31, 2019 and 2018.
The operating results, which are included in income (loss) from discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Total revenues
|
$
|
22,836
|
|
|
$
|
52,108
|
|
|
Total costs and expenses and other, net, excluding depreciation and amortization
|
(15,360)
|
|
|
(20,703)
|
|
|
Depreciation and amortization
|
(8,161)
|
|
|
(18,795)
|
|
|
Other operating loss, net1
|
(178,781)
|
|
|
(824)
|
|
|
Other, net
|
—
|
|
|
—
|
|
|
Income (loss) from discontinued operations before income taxes
|
(179,466)
|
|
|
11,786
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
Income (loss) from discontinued operations, net of income taxes
|
$
|
(179,466)
|
|
|
$
|
11,786
|
|
1 The year ended December 31, 2019 includes a loss on the disposition of the Natural Gas Storage Assets of $178,781.
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 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 and 2017.
The operating results, which are included in income from discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2018
|
|
|
|
|
Total costs and expenses and other, net, excluding depreciation and amortization1
|
$
|
(247)
|
|
|
Other operating income2
|
48,564
|
|
|
Equity in earnings
|
3,383
|
|
|
Income from discontinued operations before income taxes
|
51,700
|
|
|
Income tax expense
|
—
|
|
|
Income from discontinued operations, net of income taxes
|
$
|
51,700
|
|
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.
Long-Lived Assets Held for Sale
At December 31, 2019, certain terminalling and storage and transportation assets met the criteria to be classified as held for sale in accordance with ASC 360-10 and are presented at the lower of the assets' carrying amount or fair value less cost to sell by segment in current assets in the table below. These assets are considered non-core assets to the Partnership's operations and did not qualify for discontinued operations presentation under the guidance of ASC 205-20.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
—
|
|
|
$
|
3,552
|
|
|
Transportation
|
—
|
|
|
1,500
|
|
|
Assets held for sale
|
$
|
—
|
|
|
$
|
5,052
|
|
In the first quarter of 2020, the Partnership identified a triggering event related to a decline in the fair value related to the assets classified as held for sale at December 31, 2019. As a result, an impairment charge of $3,052 and $1,300 was recorded in the Terminalling and Storage and Transportation segments, respectively, during the year ended December 31, 2020 and was recorded in "Other operating income (loss)" in the Partnership's Consolidated Statements of Operations. At December 31, 2020, the remaining assets previously classified as held for sale in the amount of $700 no longer met the criteria to be classified as held for sale in accordance with ASC 360-10.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Terminalling and storage segment
|
|
|
|
|
|
|
Lubricant product sales
|
$
|
103,300
|
|
|
$
|
122,257
|
|
|
$
|
145,236
|
|
|
Throughput and storage
|
80,864
|
|
|
87,397
|
|
|
96,204
|
|
|
|
$
|
184,164
|
|
|
$
|
209,654
|
|
|
$
|
241,440
|
|
|
Transportation segment
|
|
|
|
|
|
|
Land transportation
|
$
|
88,652
|
|
|
$
|
98,895
|
|
|
$
|
99,751
|
|
|
Inland transportation
|
40,507
|
|
|
54,834
|
|
|
44,580
|
|
|
Offshore transportation
|
3,333
|
|
|
5,893
|
|
|
5,790
|
|
|
|
$
|
132,492
|
|
|
$
|
159,622
|
|
|
$
|
150,121
|
|
|
Sulfur service segment
|
|
|
|
|
|
|
Sulfur product sales
|
$
|
24,176
|
|
|
$
|
30,135
|
|
|
$
|
46,347
|
|
|
Fertilizer product sales
|
72,172
|
|
|
69,771
|
|
|
75,041
|
|
|
Sulfur services
|
11,659
|
|
|
11,434
|
|
|
11,148
|
|
|
|
$
|
108,007
|
|
|
$
|
111,340
|
|
|
$
|
132,536
|
|
|
Natural gas liquids segment
|
|
|
|
|
|
|
Natural gas liquids product sales
|
$
|
247,479
|
|
|
$
|
366,502
|
|
|
$
|
496,007
|
|
|
|
$
|
247,479
|
|
|
$
|
366,502
|
|
|
$
|
496,007
|
|
Revenue is measured based on a consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties where the Partnership is acting as an agent. The Partnership recognizes revenue when the Partnership satisfies a performance obligation, which typically occurs when the Partnership transfers control over a product to a customer or as the Partnership delivers a service.
The following is a description of the principal activities - separated by reportable segments - from which the Partnership generates revenue.
Terminalling and Storage Segment
Revenue is recognized for storage contracts based on the contracted monthly tank fixed fee. For throughput contracts, revenue is recognized based on the volume moved through the Partnership’s terminals at the contracted rate. For the Partnership’s tolling agreement, revenue is recognized based on the contracted monthly reservation fee and throughput volumes moved through the facility. When lubricants and drilling fluids are sold by truck or rail, revenue is recognized when title is transferred, which is either upon delivering product to the customer or when the product leaves the Partnership's facility, depending on the specific terms of the contract. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Throughput and storage revenue in the table above includes non-cancelable revenue arrangements that are under the scope of ASC 842, whereby the Partnership has committed certain Terminalling and Storage assets in exchange for a minimum fee.
Natural Gas Liquids Segment
Natural Gas Liquids ("NGL") distribution revenue is recognized when product is delivered by truck, rail, or pipeline to the Partnership's NGL customers. Revenue is recognized on title transfer of the product to the customer. Delivery of product is invoiced as the transaction occurs and is generally paid within a month.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Sulfur Services Segment
Revenue from sulfur and fertilizer product sales is recognized when the customer takes title to the product. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Revenue from sulfur services is recognized as services are performed during each monthly period. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.
Transportation Segment
Revenue related to land transportation is recognized for line hauls based on a mileage rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.
Revenue related to marine transportation is recognized for time charters based on a per day rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month.
The table below 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
|
Terminalling and storage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput and storage
|
$
|
43,253
|
|
|
$
|
40,394
|
|
|
$
|
41,605
|
|
|
$
|
42,854
|
|
|
$
|
44,197
|
|
|
$
|
294,141
|
|
|
$
|
506,444
|
|
|
Sulfur services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur product sales
|
17,165
|
|
|
16,279
|
|
|
15,234
|
|
|
975
|
|
|
975
|
|
|
—
|
|
|
50,628
|
|
|
Total
|
$
|
60,418
|
|
|
$
|
56,673
|
|
|
$
|
56,839
|
|
|
$
|
43,829
|
|
|
$
|
45,172
|
|
|
$
|
294,141
|
|
|
$
|
557,072
|
|
NOTE 7. INVENTORIES
Components of inventories at December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Natural gas liquids
|
$
|
27,878
|
|
|
$
|
19,097
|
|
|
Sulfur
|
24
|
|
|
4,586
|
|
|
Fertilizer
|
10,854
|
|
|
15,852
|
|
|
Lubricants
|
11,002
|
|
|
18,925
|
|
|
Other
|
4,364
|
|
|
4,080
|
|
|
|
$
|
54,122
|
|
|
$
|
62,540
|
|
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, 2020 and 2019, property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable Lives
|
|
2020
|
|
2019
|
|
Land
|
—
|
|
$
|
21,459
|
|
|
$
|
22,083
|
|
|
Improvements to land and buildings
|
10-25 years
|
|
135,227
|
|
|
135,666
|
|
|
Storage equipment
|
5-50 years
|
|
121,437
|
|
|
120,788
|
|
|
Marine vessels
|
4-25 years
|
|
179,666
|
|
|
182,115
|
|
|
Operating plant and equipment
|
3-50 years
|
|
356,293
|
|
|
343,236
|
|
|
Furniture, fixtures and other equipment
|
3-20 years
|
|
14,209
|
|
|
12,896
|
|
|
Transportation equipment
|
3-7 years
|
|
49,836
|
|
|
47,525
|
|
|
Construction in progress
|
|
|
10,981
|
|
|
20,419
|
|
|
|
|
|
$
|
889,108
|
|
|
$
|
884,728
|
|
Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $55,817, $53,856 and $58,615, respectively, which includes amortization of fixed assets acquired under capital lease obligations of $1,755, $2,686, and $1,174. Gross assets under capital leases were $10,352 and $15,367 at December 31, 2020 and 2019, respectively. Accumulated amortization associated with capital leases was $3,703 and $3,941 at December 31, 2020 and 2019, respectively.
Additions to property, plant and equipment included in accounts payable at December 31, 2020, 2019 and 2018 were $468, $3,791, and $2,166, respectively. Equipment purchased under capital lease obligations was $83, $1,308, and $10,472 for the years ended December 31, 2020, 2019, and 2018, respectively.
NOTE 9. GOODWILL
The following table represents the goodwill balance by reporting unit at December 31, 2020 and 2019 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Carrying amount of goodwill:
|
|
|
|
|
Terminalling and storage1
|
$
|
10,985
|
|
|
$
|
11,867
|
|
|
|
|
|
|
|
Sulfur services
|
5,349
|
|
|
5,349
|
|
|
Transportation
|
489
|
|
|
489
|
|
|
Total goodwill
|
$
|
16,823
|
|
|
$
|
17,705
|
|
1 This change represents goodwill disposed of as part of the Partnership's divestiture of Mega Lubricants. See Note 5 for more information.
NOTE 10. LEASES
The Partnership has numerous operating leases primarily for terminal facilities and transportation and other equipment. The leases generally provide that all expenses related to the equipment are to be paid by the lessee.
Operating lease Right-of-Use ("ROU") assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Partnership's leases do not provide an implicit rate of return, the Partnership uses its imputed collateralized rate based on the information available at commencement date in determining the present value of lease payments. The estimated rate is based on a risk-free rate plus a risk-adjusted margin.
Our leases have remaining lease terms of 1 year to 16 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year. The Partnership includes extension periods and excludes termination periods from its lease term if, at commencement, it is reasonably likely that the Partnership will exercise the option.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The components of lease expense for the years ended December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Operating lease cost
|
$
|
10,672
|
|
|
$
|
10,805
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
1,755
|
|
|
2,686
|
|
|
Interest on lease liabilities
|
294
|
|
|
671
|
|
|
Short-term lease cost
|
13,187
|
|
|
13,756
|
|
|
Variable lease cost
|
109
|
|
|
92
|
|
|
Total lease cost
|
$
|
26,017
|
|
|
$
|
28,010
|
|
Supplemental cash flow information for the years ended December 31, 2020 and 2019 related to leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
23,996
|
|
|
$
|
24,526
|
|
|
Operating cash flows from finance leases
|
294
|
|
|
671
|
|
|
Financing cash flows from finance leases
|
3,701
|
|
|
5,517
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
$
|
7,779
|
|
|
$
|
9,122
|
|
|
Finance leases
|
83
|
|
|
1,309
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Operating Leases
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
22,260
|
|
|
$
|
23,901
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities included in "Other accrued liabilities"
|
$
|
7,529
|
|
|
$
|
7,722
|
|
|
Operating lease liabilities
|
15,181
|
|
|
16,656
|
|
|
Total operating lease liabilities
|
$
|
22,710
|
|
|
$
|
24,378
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
Property, plant and equipment, at cost
|
$
|
10,352
|
|
|
$
|
15,367
|
|
|
Accumulated depreciation
|
(3,703)
|
|
|
(3,941)
|
|
|
Property, plant and equipment, net
|
$
|
6,649
|
|
|
$
|
11,426
|
|
|
|
|
|
|
|
Current installments of finance lease obligations
|
$
|
2,707
|
|
|
$
|
6,758
|
|
|
Finance lease obligations
|
289
|
|
|
717
|
|
|
Total finance lease obligations
|
$
|
2,996
|
|
|
$
|
7,475
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term (years)
|
|
|
|
|
Operating leases
|
5.87
|
|
6.26
|
|
Finance leases
|
1.39
|
|
0.97
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating leases
|
5.04
|
%
|
|
5.27
|
%
|
|
Finance leases
|
6.04
|
%
|
|
6.83
|
%
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The Partnership’s future minimum lease obligations as of December 31, 2020 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Year 1
|
$
|
8,445
|
|
|
$
|
2,733
|
|
|
Year 2
|
6,016
|
|
|
289
|
|
|
Year 3
|
3,250
|
|
|
9
|
|
|
Year 4
|
1,727
|
|
|
—
|
|
|
Year 5
|
1,111
|
|
|
—
|
|
|
Thereafter
|
5,830
|
|
|
—
|
|
|
Total
|
26,379
|
|
|
3,031
|
|
|
Less amounts representing interest costs
|
(3,669)
|
|
|
(35)
|
|
|
Total lease liability
|
$
|
22,710
|
|
|
$
|
2,996
|
|
The Partnership has non-cancelable revenue arrangements that are under the scope of ASC 842 whereby we have committed certain terminalling and storage assets in exchange for a minimum fee. Future minimum revenues the Partnership expects to receive under these non-cancelable arrangements as of December 31, 2020 are as follows: 2021 - $20,333; 2022 - $13,692; 2023 - $13,297; 2024 - $13,297; 2025 - $12,908; subsequent years - $38,539.
NOTE 11. INVESTMENT IN WTLPG
As discussed in Note 5, on July 31, 2018, the Partnership completed the sale of its 20% 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 accounted for its ownership interest in WTLPG under the equity method of accounting.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2020
|
|
2019
|
|
Commodity derivative contracts, net
|
$
|
(207)
|
|
|
$
|
(667)
|
|
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.
•Current and non-current portion of 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 estimated fair value of the 2021 Notes, 2024 Notes, and 2025 Notes (collectively, the "senior notes") is considered Level 2, as the fair value is based upon quoted prices for identical liabilities in markets that are not active.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
2021 Notes
|
$
|
28,790
|
|
|
$
|
28,581
|
|
|
$
|
373,374
|
|
|
$
|
343,470
|
|
|
2024 Notes
|
$
|
50,173
|
|
|
$
|
55,214
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2025 Notes
|
$
|
290,250
|
|
|
$
|
288,692
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total
|
$
|
369,213
|
|
|
$
|
372,487
|
|
|
$
|
373,374
|
|
|
$
|
343,470
|
|
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, 2020 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 137,000 barrels settling during the period from January 31, 2021 through February 28, 2021. At December 31, 2019, the Partnership had instruments totaling a gross notional quantity of 452,000 barrels settling during the period from January 31, 2020 through February 29, 2020. These instruments settle against the applicable pricing source for each grade and location.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(b) 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, 2020
|
|
December 31, 2019
|
Balance Sheet Location
|
December 31, 2020
|
|
December 31, 2019
|
|
Derivatives not designated as hedging instruments:
|
Current:
|
|
|
|
|
|
|
|
|
Commodity contracts
|
Fair value of derivatives
|
$
|
—
|
|
|
$
|
—
|
|
Fair value of derivatives
|
$
|
207
|
|
|
$
|
667
|
|
|
Total derivatives not designated as hedging instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
207
|
|
|
$
|
667
|
|
Effect of Derivative Instruments on the Consolidated Statement of Operations For the Years Ended December 31, 2020, 2019, and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss) Recognized in Income on Derivatives
|
Amount of (Gain) or Loss Recognized in Income on Derivatives
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Commodity contracts
|
Cost of products sold
|
8,209
|
|
|
5,137
|
|
|
(14,024)
|
|
|
Total derivatives not designated as hedging instruments
|
$
|
8,209
|
|
|
$
|
5,137
|
|
|
$
|
(14,024)
|
|
NOTE 14. RELATED PARTY TRANSACTIONS
As of December 31, 2020, Martin Resource Management Corporation 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 Corporation 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 Corporation’s ownership as of December 31, 2020 of approximately 15.7% of the Partnership’s outstanding limited partnership units, effectively gives Martin Resource Management Corporation 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 Corporation 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 Corporation and the Partnership’s use of certain Martin Resource Management Corporation 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 Corporation.
Non-Competition Provisions. Martin Resource Management Corporation has agreed for so long as it controls the general partner of the Partnership, not to engage in the business of:
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
•providing terminalling and storage services for petroleum products and by-products including the refining, blending and packaging of finished lubricants;
•providing land and marine transportation of petroleum products, by-products, and chemicals;
•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 Corporation, including the following:
◦distributing asphalt, marine fuel and other liquids;
◦providing shore-based marine services in Texas, Louisiana, Mississippi, and Alabama;
◦operating a crude oil gathering business in Stephens, Arkansas;
◦providing crude oil gathering 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;
◦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, and South Houston, Texas.
•any business that Martin Resource Management Corporation acquires or constructs that has a fair market value of less than $5,000;
•any business that Martin Resource Management Corporation 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 Corporation 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 Corporation 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 Corporation 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 Corporation for direct expenses. In addition to the direct expenses, under the Omnibus Agreement, the Partnership is required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Effective January 1, 2020, through December 31, 2020, the board of directors of our general partner approved an annual reimbursement amount for indirect expenses of $16,410. The Partnership reimbursed Martin Resource Management Corporation for $16,410, $16,657 and $16,416 of indirect expenses for the years ended December 31, 2020, 2019 and 2018, respectively. The board of directors of our general partner 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 Corporation provides to 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 Corporation retained businesses. The provisions of the Omnibus Agreement regarding Martin Resource Management Corporation’s services will terminate if Martin Resource Management Corporation 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 Corporation 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 Corporation that requires aggregate annual payments in excess of the 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 Corporation 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 Corporation. 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 Corporation. 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 Corporation for general and administrative services performed on its behalf, will terminate if the Partnership is no longer an affiliate of Martin Resource Management Corporation.
Master Transportation Services Agreement
Master Transportation Services Agreement. MTI, a wholly owned subsidiary of the Partnership, is a party to a master transportation services agreement effective January 1, 2019, with certain wholly owned subsidiaries of Martin Resource Management Corporation. Under the agreement, MTI agreed to transport Martin Resource Management Corporation's petroleum products and by-products.
Term and Pricing. The agreement will continue unless either party terminates the agreement by giving at least 30 days' written notice to the other party. These rates are subject to any adjustments which are mutually agreed upon or in accordance with a price index. Additionally, 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. MTI has agreed to indemnify Martin Resource Management Corporation against all claims arising out of the negligence or willful misconduct of MTI and its officers, employees, agents, representatives and subcontractors. Martin Resource Management Corporation has agreed to indemnify MTI against all claims arising out of the negligence or willful misconduct of Martin Resource Management Corporation and its officers, employees, agents, representatives and subcontractors. In the event a claim is the result of the joint negligence or misconduct of MTI and Martin Resource Management Corporation, indemnification obligations will be shared in proportion to each party’s allocable share of such joint negligence or misconduct.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
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 Corporation 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, October 1, 2017, April 1, 2019, and January 1, 2020 to modify its minimum throughput requirements and throughput fees. The term of this agreement is currently evergreen and it will continue 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.
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 Corporation 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 Corporation are based on applicable market rates.
Marine Fuel. The Partnership is a party to an agreement with Martin Resource Management Corporation dated November 1, 2002 under which Martin Resource Management Corporation 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 Corporation.
Other Agreements
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. Further, certain capital improvements, to the extent requested by Cross, are reimbursed through a capital recovery fee. As of December 31, 2019, the annual capital recovery fee reimbursement of $2,088 expired. An additional $2,586 of capital recovery fee reimbursement expired on December 31, 2020. All of these fees (other than the fuel surcharge and capital recovery fee) are subject to escalation annually based upon the greater of 3% or the increase in the Consumer Price Index for a specified annual period. Also, the Partnership renegotiated a crude transportation contract set to expire in the first half of 2022 resulting in a reduction in revenue of $2,145 annually beginning January 1, 2020.
East Texas Mack Leases. MTI leases equipment, including tractors and trailers, from East Texas Mack Sales ("East Texas Mack"). Certain of our directors or officers are owners of East Texas Mack, including entities affiliated with Ruben Martin, who owns approximately 46% of the issued and outstanding stock of East Texas Mack. Amounts paid to East Texas Mack for tractor and trailer lease payments and lease residuals for the fiscal years ended December 31, 2020, 2019 and 2018 were approximately $650, $875, and $2,466, respectively.
Other Miscellaneous Agreements. From time to time the Partnership enters into other miscellaneous agreements with Martin Resource Management Corporation 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
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
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:
|
2020
|
|
2019
|
|
2018
|
|
Terminalling and storage
|
$
|
63,823
|
|
|
$
|
71,733
|
|
|
$
|
79,137
|
|
|
Transportation
|
21,997
|
|
|
24,243
|
|
|
27,588
|
|
|
|
|
|
|
|
|
|
Product sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur services
|
60
|
|
|
54
|
|
|
630
|
|
|
Terminalling and storage
|
257
|
|
|
877
|
|
|
667
|
|
|
|
317
|
|
|
931
|
|
|
1,297
|
|
|
|
$
|
86,137
|
|
|
$
|
96,907
|
|
|
$
|
108,022
|
|
The impact of related party cost of products sold is reflected in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sulfur services
|
$
|
10,519
|
|
|
$
|
10,765
|
|
|
$
|
10,641
|
|
|
Terminalling and storage
|
18,429
|
|
|
23,859
|
|
|
24,613
|
|
|
|
$
|
28,948
|
|
|
$
|
34,624
|
|
|
$
|
35,254
|
|
The impact of related party operating expenses is reflected in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Transportation
|
$
|
55,786
|
|
|
$
|
61,376
|
|
|
$
|
62,965
|
|
|
Natural gas liquids
|
2,003
|
|
|
3,446
|
|
|
3,779
|
|
|
Sulfur services
|
4,489
|
|
|
4,810
|
|
|
5,381
|
|
|
Terminalling and storage
|
17,797
|
|
|
18,562
|
|
|
18,753
|
|
|
|
$
|
80,075
|
|
|
$
|
88,194
|
|
|
$
|
90,878
|
|
The impact of related party selling, general and administrative expenses is reflected in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative:
|
|
|
|
|
|
|
Transportation
|
$
|
7,358
|
|
|
$
|
7,107
|
|
|
$
|
1,606
|
|
|
Natural gas liquids
|
2,397
|
|
|
2,804
|
|
|
2,942
|
|
|
Sulfur services
|
3,080
|
|
|
2,850
|
|
|
2,684
|
|
|
Terminalling and storage
|
3,403
|
|
|
3,083
|
|
|
2,766
|
|
|
Indirect overhead allocation, net of reimbursement
|
16,648
|
|
|
16,778
|
|
|
16,443
|
|
|
|
$
|
32,886
|
|
|
$
|
32,622
|
|
|
$
|
26,441
|
|
NOTE 15. SUPPLEMENTAL BALANCE SHEET INFORMATION
Components of "Intangibles and other assets, net" at December 31, 2020 and 2019 were as follows:
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Catalyst and turnaround costs
|
$
|
803
|
|
|
$
|
1,655
|
|
|
Other intangible assets
|
586
|
|
|
936
|
|
|
Other
|
1,416
|
|
|
976
|
|
|
|
$
|
2,805
|
|
|
$
|
3,567
|
|
Other intangible assets consist of covenants not-to-compete and technology-based assets.
Amortization expense, included in "Depreciation and amortization" on the Partnership's Consolidated Statements of Operations includes amortization of intangible assets, turnaround expenses, and deferred charges. Aggregate amortization expense included in continuing operations was $5,235, $5,797, and $2,353, for the years ended December 31, 2020, 2019 and 2018, respectively.
Estimated amortization expense for the years subsequent to December 31, 2020 are as follows: 2021 - $3,222; 2022 - $926; 2023 - $245; 2024 - $62; 2025 - $33; subsequent years - $1.
Components of "Other accrued liabilities" at December 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Accrued interest
|
$
|
16,104
|
|
|
$
|
10,761
|
|
|
Asset retirement obligations
|
1,692
|
|
|
25
|
|
|
Property and other taxes payable
|
4,869
|
|
|
5,411
|
|
|
Accrued payroll
|
3,244
|
|
|
3,011
|
|
|
Operating lease liabilities
|
7,529
|
|
|
7,722
|
|
|
Other
|
969
|
|
|
1,859
|
|
|
|
$
|
34,407
|
|
|
$
|
28,789
|
|
The schedule below summarizes the changes in our asset retirement obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
|
|
|
|
|
Beginning asset retirement obligations
|
$
|
8,936
|
|
|
$
|
12,429
|
|
|
Revisions to existing liabilities1
|
918
|
|
|
—
|
|
|
Accretion expense
|
410
|
|
|
407
|
|
|
Liabilities settled
|
(1,505)
|
|
|
(3,900)
|
|
|
Ending asset retirement obligations
|
8,759
|
|
|
8,936
|
|
|
Current portion of asset retirement obligations2
|
(1,692)
|
|
|
(25)
|
|
|
Long-term portion of asset retirement obligations3
|
$
|
7,067
|
|
|
$
|
8,911
|
|
1Several 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.
2The current portion of asset retirement obligations is included in "Other current liabilities" on the Partnership's Consolidated Balance Sheets.
3The non-current portion of asset retirement obligations is included in "Other long-term obligations" on the Partnership's Consolidated Balance Sheets.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NOTE 16. LONG-TERM DEBT
At December 31, 2020 and 2019, long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
$300,000 Revolving credit facility at variable interest rate (4.75%1 weighted average at December 31, 2020), due August 20234 secured by substantially all of the Partnership’s assets, including, without limitation, inventory, accounts receivable, vessels, equipment, fixed assets and the interests in the Partnership’s operating subsidiaries, net of unamortized debt issuance costs of $3,826 and $4,586, respectively2,6
|
$
|
144,174
|
|
|
$
|
196,414
|
|
|
$400,000 Senior notes, 7.25% interest, net of unamortized debt issuance costs of $0 and $770 respectively, including unamortized premium of $0 and $344, respectively, issued $250,000 February 2013 and $150,000 April 2014, $26,200 repurchased during 2015,$9,344 repurchased during 2020, and $335,666 refinanced as part of the August 2020 Exchange offer, due February 2021, unsecured2,3,4,5
|
28,790
|
|
|
373,374
|
|
|
$53,750 Senior notes, 10.0% interest, net of unamortized debt issuance costs of $3,577 and $0, respectively, due February 2024 2,3,4
|
$
|
50,173
|
|
|
$
|
—
|
|
|
$291,970 Senior notes, 11.5% interest, net of unamortized debt issuance costs of $1,720 and $0, respectively, due February 2025 2,3,4
|
$
|
290,250
|
|
|
$
|
—
|
|
|
Total
|
513,387
|
|
|
569,788
|
|
|
Less: current portion
|
(28,790)
|
|
|
—
|
|
|
Total long-term debt, net of current portion
|
$
|
484,597
|
|
|
$
|
569,788
|
|
|
|
|
|
|
|
Current installments of finance lease obligations
|
$
|
2,707
|
|
|
$
|
6,758
|
|
|
Finance lease obligations
|
289
|
|
|
717
|
|
|
Total finance lease obligations
|
$
|
2,996
|
|
|
$
|
7,475
|
|
1 Interest rate fluctuates based on LIBOR plus an applicable margin set on the date of each advance. The margin above LIBOR is set every three months. Indebtedness under the credit facility bears interest at LIBOR plus an applicable margin or the base prime rate plus an applicable margin. All amounts outstanding at December 31, 2020 were at LIBOR plus an applicable margin of 3.75%, with LIBOR having a floor of 1.0% per annum in accordance with the July 8, 2020 amendment to the Partnership's revolving credit facility described in further detail below. At December 31, 2020 the applicable margin for revolving loans are LIBOR loans ranges from 2.75% to 4.00% and the applicable margin for revolving loans that are base prime rate loans ranges from 1.75% to 3.00%. The credit facility contains various covenants which limit the Partnership’s ability to make distributions; make certain investments and acquisitions; enter into certain agreements; incur indebtedness; sell assets; and make certain amendments to the Partnership's omnibus agreement with Martin Resource Management Corporation (the "Omnibus Agreement").
2 The Partnership is in compliance with all debt covenants as of December 31, 2020.
3 The indentures for each of the outstanding senior notes 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.
4 On August 12, 2020 (the "Settlement Date"), the Partnership and Martin Midstream Finance Corp. (collectively, the "Issuers") completed an exchange offer (the "Exchange Offer") and consent solicitation to certain eligible holders of the 2021 Notes and separate but related cash tender offer (the "Cash Tender Offer" and, together with the Exchange Offer, the "Offers") and consent solicitation to certain other holders of the 2021 Notes.
Pursuant to the Exchange Offer, in exchange for $334,441 in aggregate principal amount of 2021 Notes, representing approximately 91.76% of the outstanding aggregate principal amount of the 2021 Notes, the Issuers (i) paid $41,967 in cash, plus $11,854 of accrued and unpaid interest from and including February 15, 2020 until the Settlement Date, (ii) issued $291,970 in aggregate principal amount of the Issuers’ 11.50% senior secured second lien notes due 2025 (the "2025 Notes"),
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
and (iii) pursuant to the rights offering in connection with the Exchange Offer, issued $53,750 aggregate principal amount of the Issuers’ 10.00% senior secured 1.5 lien notes due 2024 (the "2024 Notes"), which amount includes the previously disclosed $3,750 backstop commitment fee which was paid in 2024 Notes.
Pursuant to the Cash Tender Offer, in exchange for $1,225 in aggregate principal amount of 2021 Notes, representing approximately 0.34% of the outstanding aggregate principal amount of 2021 Notes, the Issuers paid $791 in cash, plus $43 of accrued and unpaid interest on such existing 2021 Notes from February 15, 2020 up to, but not including, the Settlement Date.
Whether a debt exchange should be accounted for pursuant to ASC 470-60, Troubled Debt Restructurings by Debtors, or pursuant to ASC 470-50, Modifications and Extinguishments, requires judgments to be made with respect to whether or not an entity is experiencing financial difficulty and if a concession was granted by the creditor. As it was determined that the Partnership did not experience a decrease in the effective borrowing rate of the Partnership’s restructured debt when compared to the Partnership’s existing debt, a concession was not provided and the accounting for troubled debt restructuring was not applied. Further, the Partnership applied the provisions of ASC 470-50 in determining whether to account for the debt exchange as a modification or extinguishment and concluded the debt instruments were not substantially different. Accordingly, the Partnership accounted for the debt exchange as a modification. In conjunction with the transactions above, the Partnership recorded a loss on the Exchange Offer in the amount of $8,817, which includes $9,566 in transaction costs related to the Exchange Offer, plus $189 in net unamortized issuance costs and premiums related to the 2021 Notes, offset by a gain on retirement of the 2021 Notes of $938. In accordance with ASC 470-50 related to debt modifications, the Partnership capitalized certain lender related costs of $5,883 (including the backstop commitment fee described above), which was allocated between the respective senior note issuances and will be amortized over the contractual terms of the 2025 Notes and 2024 Notes.
As of December 31, 2020, the remaining portion of the 2021 Notes were due within twelve months and have therefore been presented as a current liability on the Consolidated Balance Sheets at December 31, 2020. On February 15, 2021, the 2021 Notes matured and the Partnership retired the outstanding balance of $28,790 using its revolving credit facility.
5 In March 2020, the Partnership repurchased on the open market an aggregate $9,344 of the 2021 Notes, resulting in a gain on retirement of $3,484.
6 Amendment to Credit Facility. On July 8, 2020, the Partnership amended its revolving credit facility (the "Credit Facility Amendment") to, among other things, permit the Exchange Offer. On August 12, 2020, upon the closing of the Exchange Offer and Cash Tender Offer and satisfaction of certain other conditions set forth in the Credit Facility Amendment, the Credit Facility Amendment, among other things:
•reduced the aggregate amount of commitments under the revolving credit facility from $400 million to $300 million;
•requires an additional $25 million reduction in the commitments under the revolving credit facility if the Partnership receives $25 million or more in net cash proceeds from any asset sale;
•limits the Partnership’s ability to make quarterly distributions to its unitholders in excess of $0.005 per unit unless the Partnership’s Total Leverage Ratio (as defined in the Credit Facility Amendment) is below 3.75:1:00;
•increases the pricing under the revolving credit facility and adds a 1.0% LIBOR floor;
•requires the Partnership to maintain a minimum Interest Coverage Ratio (as defined in the revolving credit facility) of 2.0:1.0 with respect to the fiscal quarters ending in September and December of 2020, 1.75:1.0 with respect to each fiscal quarter ending in 2021, and 2.0:1.0 with respect to each fiscal quarter thereafter;
•requires the Partnership to maintain a maximum Total Leverage Ratio of not more than 5.75:1.0 with respect to the fiscal quarters ending in September and December of 2020 and March and June of 2021, 5.50 with respect to the fiscal quarter ending in September of 2021, 5.00 with respect to the fiscal quarter ending in December of 2021 and the fiscal quarters ending in March, June and September of 2022, and 4.50:1.0 with respect to each fiscal quarter thereafter, which financial covenant replaces the existing maximum Leverage Ratio (as defined in the revolving credit facility in effect prior to the Credit Facility Amendment);
•requires the Partnership to maintain a maximum First Lien Leverage Ratio (as defined in the Credit Facility Amendment) of not more than 2.25:1.0 with respect to the fiscal quarters ending in September and December of 2020
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
and each fiscal quarter ending in 2021, and 2.0:1.0 with respect to each fiscal quarter thereafter, which financial covenant replaces the existing maximum Senior Leverage Ratio (as defined in the revolving credit facility in effect prior to the Credit Facility Amendment).
In conjunction with the Credit Facility Amendment, the Partnership expensed $1,063 in unamortized debt issuance costs related to the revolving credit facility for the year ended December 31, 2020, the amount of which is included in "Interest expense" in the Partnership's Consolidated Statements of Operations.
The Partnership paid cash interest, net of capitalized interest, in the amount of $37,678, $48,025, and $50,543 for the years ended December 31, 2020, 2019 and 2018, respectively. Capitalized interest was $43, $5, and $624 for the years ended December 31, 2020, 2019 and 2018, respectively.
NOTE 17. PARTNERS' CAPITAL (DEFICIT)
As of December 31, 2020, partners’ capital consisted of 38,851,174 common limited partner units, representing a 98% partnership interest, and a 2% general partner interest. Martin Resource Management Corporation, 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 contains specific provisions for the allocation of net income and losses to each of the partners for purposes of maintaining their respective partner capital accounts.
Incentive Distribution Rights
MMGP holds a 2% general partner interest and certain incentive distribution rights ("IDRs") in the Partnership. IDRs are a separate class of non-voting limited partner interest that may be transferred or sold by the general partner under the terms of the Partnership Agreement, and represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution and any cumulative arrearages on common units once certain target distribution levels have been achieved. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the Partnership Agreement.
The 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, 2020, 2019 and 2018, the general partner was allocated no incentive distributions.
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
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
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,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Continuing operations:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
(6,771)
|
|
|
$
|
4,520
|
|
|
$
|
(7,831)
|
|
|
Less pre-acquisition income allocated to Parent
|
—
|
|
|
—
|
|
|
(11,550)
|
|
|
Less general partner’s interest in net income:
|
|
|
|
|
|
|
Distributions payable on behalf of IDRs
|
—
|
|
|
—
|
|
|
—
|
|
|
Distributions payable on behalf of general partner interest
|
61
|
|
|
(20)
|
|
|
(689)
|
|
|
General partner interest in undistributed income (loss)
|
(196)
|
|
|
111
|
|
|
302
|
|
|
Less income allocable to unvested restricted units
|
(21)
|
|
|
(1)
|
|
|
(12)
|
|
|
Limited partners’ interest in net income
|
$
|
(6,615)
|
|
|
$
|
4,430
|
|
|
$
|
(18,982)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Discontinued operations:
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
$
|
—
|
|
|
$
|
(179,466)
|
|
|
$
|
63,486
|
|
|
Less general partner’s interest in net income:
|
|
|
|
|
|
|
Distributions payable on behalf of IDRs
|
—
|
|
|
—
|
|
|
—
|
|
|
Distributions payable on behalf of general partner interest
|
—
|
|
|
806
|
|
|
2,258
|
|
|
General partner interest in undistributed loss
|
—
|
|
|
(4,396)
|
|
|
(989)
|
|
|
Less income allocable to unvested restricted units
|
—
|
|
|
42
|
|
|
40
|
|
|
Limited partners’ interest in net income
|
$
|
—
|
|
|
$
|
(175,918)
|
|
|
$
|
62,177
|
|
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,
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Basic weighted average limited partner units outstanding
|
|
38,656,559
|
|
|
38,658,881
|
|
|
38,907,000
|
|
|
Dilutive effect of restricted units issued
|
|
—
|
|
|
—
|
|
|
15,678
|
|
|
Total weighted average limited partner diluted units outstanding
|
|
38,656,559
|
|
|
38,658,881
|
|
|
38,922,678
|
|
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
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. All common unit equivalents were antidilutive for the years ended December 31, 2020 and 2019 because the limited partners were allocated a net loss in this period.
NOTE 18. UNIT BASED AWARDS
The Partnership recognizes compensation cost related to unit-based awards to both employees and non-employees in its consolidated financial statements in accordance with certain provisions of ASC 718. 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,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Employees
|
$
|
1,204
|
|
|
$
|
1,226
|
|
|
$
|
1,098
|
|
|
Non-employee directors
|
218
|
|
|
198
|
|
|
126
|
|
|
Total unit-based compensation expense
|
$
|
1,422
|
|
|
$
|
1,424
|
|
|
$
|
1,224
|
|
All of the Partnership's outstanding awards at December 31, 2020 met the criteria to be treated under equity classification.
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 12, 2020, the Partnership issued 27,000 TBRU's to each of the Partnership's three independent directors under the 2017 LTIP. These restricted common units vest in equal installments of 6,750 units on January 24, 2021, 2022, 2023, and 2024.
On March 1, 2018, the Partnership issued 301,550 TBRU's and 317,925 PBRU's to certain employees of Martin Resource Management Corporation. 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
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Corporation on March 31, 2021. As of December 31, 2020, the Partnership is unable to ascertain if certain 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, 2020 is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted Average Grant-Date Fair Value Per Unit
|
|
Non-vested, beginning of year
|
379,019
|
|
|
$
|
13.91
|
|
|
Granted (TBRU)
|
81,000
|
|
|
$
|
2.53
|
|
|
|
|
|
|
|
Vested
|
(101,128)
|
|
|
$
|
13.95
|
|
|
Forfeited
|
(85,467)
|
|
|
$
|
13.90
|
|
|
Non-Vested, end of year
|
273,424
|
|
|
$
|
10.52
|
|
|
|
|
|
|
|
Aggregate intrinsic value, end of year
|
$
|
391
|
|
|
|
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, 2020, 2019 and 2018 is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Aggregate intrinsic value of units vested
|
$
|
151
|
|
|
$
|
1,351
|
|
|
$
|
1,195
|
|
|
Fair value of units vested
|
$
|
1,427
|
|
|
$
|
1,551
|
|
|
$
|
2,250
|
|
As of December 31, 2020, there was $527 of unrecognized compensation cost related to non-vested time-based restricted units. That cost is expected to be recognized over a weighted-average period of 1.53 years.
NOTE 19. INCOME TAXES
The components of income tax expense (benefit) from operations for the years ended December 31, 2020, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
(174)
|
|
|
$
|
174
|
|
|
$
|
—
|
|
|
State
|
741
|
|
|
366
|
|
|
369
|
|
|
|
567
|
|
|
540
|
|
|
369
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
1,027
|
|
|
882
|
|
|
—
|
|
|
State
|
142
|
|
|
478
|
|
|
208
|
|
|
|
1,169
|
|
|
1,360
|
|
|
208
|
|
|
Total income tax expense
|
$
|
1,736
|
|
|
$
|
1,900
|
|
|
$
|
577
|
|
The operations of a partnership are generally not subject to income taxes, except for Texas margin tax, because its income is taxed directly to its partners. The Texas margin tax 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 income tax, and therefore, the recognition of deferred taxes applies to the margin
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
tax. The impact on deferred taxes as a result of this provision is immaterial. State income taxes attributable to the Texas margin tax relating to the operation of the Partnership of $468, $458 and $369 were recorded in income tax expense for the years ended December 31, 2020, 2019 and 2018, respectively.
MTI, a wholly owned subsidiary of the Partnership, is subject to income taxes due to its corporate structure (“Taxable Subsidiary”). Prior to the acquisition of MTI on January 2, 2019, MTI was a QSub of Martin Resource Management Corporation, a qualifying S Corporation. A QSub is not treated as a separate corporation for federal income tax purposes as it is deemed liquidated into its S Corporation parent. S Corporations are generally not subject to income taxes because income and losses flow through to shareholders and are reported on their individual returns. State income taxes attributable to the preacquisition QSub of $0 were recorded in income tax expense for the year ended December 31, 2018. The principal component of the difference between the expected state tax expense and actual state tax expense relates to taxes incurred in states that do not recognize S corporation status.
Subsequent to the acquisition, the QSub election terminated resulting in MTI being taxed as a stand-alone C Corporation. Total income tax expense relating to the operation of the Taxable Subsidiary of $1,268 and $1,442 was recorded in income tax expense for the years ended December 31, 2020 and 2019, respectively.
The income tax expense from the Taxable Subsidiary operations for the years ended December 31, 2020 and 2019 differs from the "expected" tax expense (computed by applying the federal corporate rate of 21% to income before income taxes of the Taxable Subsidiary) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
"Expected" tax expense
|
$
|
361
|
|
|
$
|
1,116
|
|
|
Increase in income taxes resulting from:
|
|
|
|
|
State income taxes, net of federal income tax expense
|
327
|
|
|
235
|
|
|
Other non-deductible items
|
472
|
|
|
19
|
|
|
Other, net
|
108
|
|
|
72
|
|
|
Actual tax expense
|
$
|
1,268
|
|
|
$
|
1,442
|
|
Cash paid for income taxes was $416, $515 and $431 for the years ended December 31, 2020, 2019 and 2018, respectively.
Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Significant components of deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows:
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
Bad debt reserves
|
$
|
59
|
|
|
$
|
64
|
|
|
Goodwill and intangibles
|
13,893
|
|
|
15,245
|
|
|
Employee benefits
|
244
|
|
|
500
|
|
|
Interest expense
|
—
|
|
|
658
|
|
|
Tax loss carryforwards
|
12,671
|
|
|
12,879
|
|
|
Other
|
251
|
|
|
147
|
|
|
Subtotal
|
27,118
|
|
|
29,493
|
|
|
Less: Valuation allowance
|
—
|
|
|
—
|
|
|
Total net deferred tax assets
|
27,118
|
|
|
29,493
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property and equipment
|
(4,861)
|
|
|
(6,069)
|
|
|
Operating leases
|
(4)
|
|
|
(2)
|
|
|
Other
|
—
|
|
|
—
|
|
|
Total deferred tax liabilities
|
(4,865)
|
|
|
(6,071)
|
|
|
Net deferred tax assets
|
$
|
22,253
|
|
|
$
|
23,422
|
|
Deferred tax assets are regularly reviewed for recoverability and a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible. In assessing the need for a valuation allowance, management considers all available positive and negative evidence, including the ability to carryback operating losses to prior periods and the expected future utilization of net operating loss carryforwards, the reversal of deferred tax liabilities, projected taxable income, and tax-planning strategies. On the basis of these considerations, as of December 31, 2020, management believes it is more likely than not that the Taxable Subsidiary will realize the benefit of the existing deferred tax assets.
"Income taxes payable" includes a state income tax liability related to the operation of the Partnership of $455 and $298 for the years ended December 31, 2020 and 2019, respectively. Also included in "Income taxes payable" is a federal income tax liability related to the operation of the Taxable Subsidiary of $0 and $174 for the years ended December 31, 2020 and 2019, respectively, and state income tax liabilities related to the operation of the Taxable Subsidiary of $101 for the year ended December 31, 2020. State income taxes refundable related to the operation of the Taxable Subsidiary of $117 for the year ended December 31, 2019 are included in "Other current assets".
At December 31, 2020, MTI had net operating loss carryforwards for income tax purposes of approximately $80,093 related to federal and state taxes. Of these net operating loss carryforwards, approximately $22,469 will expire between 2027 and 2040 and approximately $57,624 may be carried forward indefinitely.
The operations of the Partnership are generally not subject to income taxes, except as discussed above, because its income is taxed directly to its partners. The net tax basis in the Partnership's assets and liabilities is greater (less) than the reported amounts on the financial statements by approximately $88,526 and $78,649 as of December 31, 2020 and 2019, respectively.
As of December 31, 2020, the tax years that remain open to assessment are 2017-2019.
NOTE 20. BUSINESS SEGMENTS
The Partnership has four reportable segments: terminalling and storage, natural gas liquids, 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.
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
191,041
|
|
|
$
|
(6,877)
|
|
|
$
|
184,164
|
|
|
$
|
29,489
|
|
|
$
|
22,153
|
|
|
$
|
11,619
|
|
|
Natural gas liquids
|
247,484
|
|
|
(5)
|
|
|
247,479
|
|
|
2,456
|
|
|
22,104
|
|
|
395
|
|
|
Sulfur services
|
108,020
|
|
|
(13)
|
|
|
108,007
|
|
|
12,012
|
|
|
36,256
|
|
|
7,415
|
|
|
Transportation
|
150,285
|
|
|
(17,793)
|
|
|
132,492
|
|
|
17,505
|
|
|
(16,102)
|
|
|
7,348
|
|
|
Indirect selling, general, and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,909)
|
|
|
—
|
|
|
Total
|
$
|
696,830
|
|
|
$
|
(24,688)
|
|
|
$
|
672,142
|
|
|
$
|
61,462
|
|
|
$
|
46,502
|
|
|
$
|
26,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
216,313
|
|
|
$
|
(6,659)
|
|
|
$
|
209,654
|
|
|
$
|
30,952
|
|
|
$
|
16,732
|
|
|
$
|
12,987
|
|
|
Natural gas liquids
|
366,502
|
|
|
—
|
|
|
366,502
|
|
|
2,469
|
|
|
44,020
|
|
|
1,870
|
|
|
Sulfur services
|
111,340
|
|
|
—
|
|
|
111,340
|
|
|
11,332
|
|
|
22,721
|
|
|
14,853
|
|
|
Transportation
|
183,740
|
|
|
(24,118)
|
|
|
159,622
|
|
|
15,307
|
|
|
(7,388)
|
|
|
8,213
|
|
|
Indirect selling, general, and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,981)
|
|
|
—
|
|
|
Total
|
$
|
877,895
|
|
|
$
|
(30,777)
|
|
|
$
|
847,118
|
|
|
$
|
60,060
|
|
|
$
|
58,104
|
|
|
$
|
37,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
247,840
|
|
|
$
|
(6,400)
|
|
|
$
|
241,440
|
|
|
$
|
39,508
|
|
|
$
|
17,540
|
|
|
$
|
13,704
|
|
|
Natural gas liquids
|
496,026
|
|
|
(19)
|
|
|
496,007
|
|
|
2,488
|
|
|
31,581
|
|
|
746
|
|
|
Sulfur services
|
132,536
|
|
|
—
|
|
|
132,536
|
|
|
8,485
|
|
|
27,397
|
|
|
4,429
|
|
|
Transportation
|
178,163
|
|
|
(28,042)
|
|
|
150,121
|
|
|
11,003
|
|
|
(13,560)
|
|
|
16,335
|
|
|
Indirect selling, general, and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,901)
|
|
|
—
|
|
|
Total
|
$
|
1,054,565
|
|
|
$
|
(34,461)
|
|
|
$
|
1,020,104
|
|
|
$
|
61,484
|
|
|
$
|
45,057
|
|
|
$
|
35,214
|
|
Revenues from one customer in the Natural Gas Liquids segment was $74,722, $112,280 and $148,103 for the years ended December 31, 2020, 2019 and 2018, respectively.
The Partnership's assets by reportable segment as of December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Total assets:
|
|
|
|
|
Terminalling and storage
|
$
|
252,794
|
|
|
$
|
292,136
|
|
|
Natural gas liquids
|
80,737
|
|
|
94,195
|
|
|
Sulfur services
|
94,154
|
|
|
110,780
|
|
|
Transportation
|
151,953
|
|
|
170,045
|
|
|
Total assets
|
$
|
579,638
|
|
|
$
|
667,156
|
|
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)
|
|
2020
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
198,883
|
|
|
$
|
140,638
|
|
|
$
|
152,533
|
|
|
$
|
180,088
|
|
|
Operating income
|
15,600
|
|
|
7,960
|
|
|
11,013
|
|
|
11,928
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
8,815
|
|
|
(2,203)
|
|
|
(10,819)
|
|
|
(2,564)
|
|
|
Income (loss) from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income (loss)
|
8,815
|
|
|
(2,203)
|
|
|
(10,819)
|
|
|
(2,564)
|
|
|
Income (loss) from continuing operations per unit
|
0.23
|
|
|
(0.06)
|
|
|
(0.28)
|
|
|
(0.07)
|
|
|
Limited partners' interest in net income (loss) per limited partner unit
|
0.22
|
|
|
(0.06)
|
|
|
(0.27)
|
|
|
(0.06)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth
Quarter
|
|
|
|
(Dollar in thousands, except per unit amounts)
|
|
2019
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
240,033
|
|
|
$
|
187,323
|
|
|
$
|
177,900
|
|
|
$
|
241,862
|
|
|
Operating income
|
9,606
|
|
|
5,010
|
|
|
25,461
|
|
|
18,027
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
(4,758)
|
|
|
(10,614)
|
|
|
13,250
|
|
|
6,642
|
|
|
Income from discontinued operations
|
1,102
|
|
|
(180,568)
|
|
|
—
|
|
|
—
|
|
|
Net income (loss)
|
(3,656)
|
|
|
(191,182)
|
|
|
13,250
|
|
|
6,642
|
|
|
Income (loss) from continuing operations per unit
|
(0.12)
|
|
|
(0.27)
|
|
|
0.34
|
|
|
0.17
|
|
|
Limited partners' interest in net income (loss) per limited partner unit
|
0.09
|
|
|
(4.82)
|
|
|
0.33
|
|
|
0.14
|
|
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.
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. Further, the same customer has made a claim under the Partnership’s insurance policy. The insurer has denied the claim. However, in the event that the customer is successful in pursuing the claim, such action would negatively impact the Partnership because the Partnership may have certain reimbursement obligations it would owe the insurance company. If the
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
case is reopened or the insurance claim by the customer is successful, we are currently unable to determine the exposure we may have in this matter, if any.
NOTE 23. CONDENSED CONSOLIDATING 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 notes and any subsidiaries other than the subsidiary guarantors are minor.
NOTE 24. SUBSEQUENT EVENTS
Retirement of 2021 Notes. On February 15, 2021, the 2021 Notes matured and the Partnership retired the outstanding balance of $28,790 using its revolving credit facility.
Quarterly Distribution. On January 25, 2021, the Partnership declared a quarterly cash distribution of $0.005 per common unit for the fourth quarter of 2020, or $0.02 per common unit on an annualized basis, which was paid on February 12, 2021 to unitholders of record as of February 5, 2021.
|
|
|
|
|
|
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
None.