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A N N U A L R E P O R T
S U M M A R Y
A B O U T U S
Martin Midstream Partners L.P. (“Martin Midstream”) is a publicly traded limited partnership with a diverse set of operations
focused primarily in the United States Gulf Coast region. Our four primary business lines include:
• Terminalling and storage services for petroleum products and by-products, including the refining of
naphthenic crude oil and the blending and packaging of finished lubricants
• Natural gas liquids transportation and distribution services and natural gas storage
• Sulfur and sulfur-based products gathering, processing, marketing, manufacturing and distribution
• Marine transportation services for petroleum products and by-products
Martin Midstream collects, transports, stores and markets products produced primarily by major and independent oil and
gas companies. In addition, primary customers include independent refiners, large chemical companies, fertilizer manufacturers
and other wholesale purchasers of these products.
O U R H I S T O R Y
Martin Midstream was formed in 2002 by Martin Resource Management Corporation (“Martin Resource Management”),
a privately-held company whose initial predecessor was incorporated in 1951 as a supplier of products and services to
drilling rig contractors. Martin Resource Management expanded its operations through acquisitions and internal expansion
initiatives as its management identified and capitalized on the needs of producers and purchasers of hydrocarbon products
and by-products and other bulk liquids.
The historical operation of the business segments operated orginally by Martin Resource Management provides Martin
Midstream with several decades of experience and a demonstrated track record of customer service across these operations.
Martin Midstream’s current lines of business have been developed and systematically integrated over a period of more
than 60 years, including natural gas services (1950s); sulfur (1960s); marine transportation (late 1980s); and terminalling
and storage (early 1990s). This development of a diversified and integrated set of assets and operations has produced a
complementary portfolio of midstream services that facilitates the maintenance of long-term customer relationships and
encourages the development of new customer relationships.
MART I N MI D ST RE AM PART N ER S 2015 A NN UAL R EPORT | 2
S E G M E N T O V E R V I E W
T E R M I N A L L I N G & S T O R A G E
33%
P E R C E N T A G E
$67MIL
2 0 1 5 A D J U S T E D E B I T D A *
Martin Midstream owns or operates 29 marine shore-based
terminal facilities and 16 specialty terminals facilities located
primarily in the U.S. Gulf Coast region that provide storage,
refining, blending, packaging, and handling services for
producers and suppliers of petroleum products and by-
products, including the refining of naphthenic crude oil
and the blending and packaging of various grades and
quantities of industrial, commercial, and automotive
lubricants and greases. These facilities and resources provide
Martin Midstream with the ability to handle various products
that require specialized treatment, such as molten sulfur
and asphalt. Martin Midstream also provides land rental
to oil and gas companies along with storage and handling
services for lubricants and fuels. Martin Midstream provides
those terminalling and storage services on a fee basis
primarily under long-term contracts.
N A T U R A L G A S S E R V I C E S
41%
P E R C E N T A G E
Martin Midstream distributes natural gas liquids (“NGLs”)
purchased primarily from refineries and natural gas
processors. Martin Midstream stores and transports NGLs
for wholesale deliveries to propane retailers, refineries and
industrial NGL users in Texas and the Southeastern U.S.
Martin Midstream owns a NGL pipeline, which spans
approximately 200 miles from Kilgore, Texas to Beaumont,
Texas, and approximately 2.4 million barrels of underground
storage capacity for NGLs. Additionally, Martin Midstream
owns 100% of the interests in Cardinal Gas Storage Partners
LLC (“Cardinal”), which is focused on the development,
construction, operation and management of natural gas
$84MIL
2 0 1 5 A D J U S T E D E B I T D A *
storage facilities across northern Louisiana and Mississippi.
Martin Midstream owns a combined 20% interest in West
Texas LPG Pipeline L.P. (“WTLPG”). WTLPG is operated by
ONEOK Partners, L.P. (“ONEOK”), which owns the remaining
80.0% interest. WTLPG owns an approximate 2,300 mile
common-carrier pipeline system that transports NGLs from
New Mexico and Texas to Mont Belvieu, Texas for
fractionation. This asset enables Martin Midstream to
participate in the transportation of NGL production of West
Texas and other basins along the WTLPG pipeline route.
3 | MARTIN MIDSTREAM PARTNERS 2015 A N N UAL RE PO RT
S E G M E N T O V E R V I E W
S U L F U R S E R V I C E S
17%
P E R C E N T A G E
$36MIL
2 0 1 5 A D J U S T E D E B I T D A *
Martin Midstream has developed an integrated system of
transportation assets and facilities relating to sulfur services
which processes and distributes sulfur produced by oil
refineries primarily located in the U.S. Gulf Coast region.
Martin Midstream buys and sells molten sulfur on contracts
that are tied to sulfur indices and tend to provide stable
margins, and processes molten sulfur into prilled or
pelletized sulfur at facilities in Port of Stockton, California
and Beaumont, Texas on contracts that often provide
guaranteed minimum fees. The sulfur processed and
handled is primarily used in the production of fertilizers and
industrial chemicals. Martin Midstream owns and operates
six sulfur-based fertilizer production plants and one
emulsified sulfur blending plant that manufactures primarily
sulfur-based fertilizer products for wholesale distributors
and industrial users. These plants are located in Texas,
Illinois and Utah. Demand for these sulfur products exists
in both the domestic and foreign markets, and Martin
Midstream believes its asset base provides it with additional
opportunities to handle increases in U.S. supply and access
to foreign demand.
M A R I N E T R A N S P O R T A T I O N
9%
P E R C E N T A G E
$18MIL
2 0 1 5 A D J U S T E D E B I T D A *
Martin Midstream operates a fleet of 45 inland marine tank
barges, 25 inland push boats and three offshore tug and
barge units that transport petroleum products and by-
products largely in the U.S. Gulf Coast region. Martin
Midstream provides these transportation services on a fee
basis primarily under annual contracts and many of its
customers have long standing contractual relationships.
Martin Midstream’s modernized asset base is attractive
both to existing customers as well as potential new
customers. In addition, the fleet contains several vessels
that reflect its focus on specialty products.
M ART I N M ID ST REA M PA RTN E RS 2015 AN NUA L R E PO RT | 4
D e a r F e l l o w U n i t h o l d e r s :
In an increasingly challenging environment for the
energy industry, I am pleased with Martin Midstream Partners
L.P.’s performance for 2015. In my letter to you last year, I
discussed our “staying power” through commodity price
cycles due to our diverse lines of business. This diversity
continues to create a stable cash flow unique to us, which
was evident in 2015. Our focus on refinery services continues
to deliver solid performance regardless of the underlying
commodity price environment.
In 2015, we completed our natural gas liquids rail
terminal facility in Arcadia, Louisiana. We also saw the
incremental cash flow benefits from acquisitions completed
in 2014: the West Texas LPG Pipeline joint venture and the
purchase of the remaining interests in Cardinal Gas Storage
Partners LLC. These prior acquisitions drove the Natural
Gas Services segment to become our largest in terms of
cash flow generation last year. I expect this segment will
remain our largest cash flow contributor again in 2016, as
a result of a full year of operations at our new natural gas
liquids rail terminal.
Last year, I also discussed a reduced level of internal
growth projects and a cutback of our projected capital
“I appreciate the dedication
of our employees and your
commitment to us.“
spending. Generally speaking, the market has not changed
commodity flow and will be the underlying strength of our
and our capital spending for 2016 will once again remain
business until a recovery occurs.
modest. Accordingly, we currently do not anticipate
Finally, I would personally like to thank so many of
accessing the capital markets this year, and our management
you for your kind words and prayers in regard to my mother’s
team will be focused on continuing to reduce operating
recent passing. Along with my father, she co-founded our
and general expenses to ensure we weather this storm.
legacy company in 1951. The dedication and integrity with
Until the storm passes, we will be creative in our approach
which they ran their business was passed on to the
to growing our business. For example, Martin Resource
employees who followed them—many of whom have been
Management Corporation, our sponsor, through a subsidiary,
with us for over 30 years and are still here today.
recently commenced construction of an asphalt terminal
I appreciate the dedication of our employees and
in Hondo, Texas, which we will likely acquire through a drop
your commitment to us.
down transaction when our cost of capital normalizes.
We are a long-term publicly traded master limited
Ruben S. Martin III
partnership. At our inception 15 years ago, we strategically
acquired assets our sponsor already owned to facilitate our
access to capital and to fuel growth. These assets previously
allowed our sponsor to survive multiple commodity price
President & Chief Executive Officer
cycles through its 65 years in business. These assets provide
the infrastructure to facilitate the necessary levels of
5 | MARTIN MIDSTREAM PARTNERS 2015 A N N UAL RE PO RT
F I N A N C I A L H I G H L I G H T S
S U M M A R Y
IN THOUSANDS, EXCEPT PER UNIT AMOUNTS
2011
2012
2013
2014
2015
Total Assets
Revenue
Operating Income
Net Income
$1,069,108
$1,012,996
$1,097,919
$1,553,919
$1,380,473
$1,242,490
$1,490,361
$1,612,739
$1,642,141
$1,036,844
$47,352
$73,835
$81,464
$67,871
$70,153
$22,759
$101,987
($13,354)
($11,705)
$38,380
Net Distributable Cash Flow
$67,471
$88,897
$86,971
$90,611
$133,603
Distributions per Unit
$3.05
$3.08
$3.11
$3.18
$3.25
*INCLUDES CONTINUING AND DISCONTINUED OPERATIONS
A D J U S T E D E B I T D A B Y S E G M E N T A S O F 1 2 / 3 1 / 1 5
IN THOUSANDS
TERMINALLING &
NATURAL GAS
SULFUR
MARINE
STORAGE SERVICES
SERVICES
SERVICES
TRANSPORTATION
12/31/15
Operating Income
$18,750
$38,611
$27,113
$4,630
$89,104
Depreciation and Amortization
$38,731
$34,072
$8,455
$10,992
$92,250
(Gain) Loss on Disposition/Sale of Property, Plant, and
Equipment
$461
$303
$376
$1,009
$2,149
Impairment of Long Lived Asset
$9,305
-
Non-cash Mark to Market on Commodity Derivatives
Distributions from Unconsolidated Entities
-
-
$(675)
$11,200
-
-
-
$1,324
$10,629
-
-
$(675)
$11,200
Adjusted EBITDA (1)
$67,247
$83,511
$35,944
$17,955
$204,657
Percentage Contribution by Segment
33%
41%
17%
9%
100%
(1) EXCLUDES UNALLOCATED SG&A OF $16,398
M ART I N M ID ST REA M PA RTN E RS 2015 AN NUA L R E PO RT | 6
F I N A N C I A L H I G H L I G H T S
D I S T R I B U T A B L E C A S H F L O W R E C O N C I L I A T I O N
IN THOUSANDS
Net Income
20111
20121
2013
2014
2015
$22,759 $101,987 ($13,354)
($11,705) $38,380
Less: (Income) Loss from Discontinued Operations
($9,392)
($64,865)
($1,208)
$5,338
($1,215)
Net Income from Continuing Operations
$13,367
$37,122 ($14,562)
($6,367)
$37,165
Adjustments to Reconcile Net Income to Distributable Cash Flow:
Continuing Operations:
Depreciation and Amortization
$40,276
$42,063
$50,962
$68,830
$92,250
Loss (Gain) on Sale of Property, Plant and Equipment
$899
$795
($1,126)
$1,353
$2,149
Amortization of Deferred Debt Issuance Costs, Debt Discount, and Debt Premium
$4,106
$3,871
$4,006
$7,323
$4,535
Gain on retirement of senior unsecured notes
-
-
-
Payments of Installment Notes Payable and Capital Lease Obligations
($1,132)
($279)
($307)
Impairment of Long Lived Asset
Fair Value Adjustment to Cardinal Investment
Debt Prepayment Premium
-
-
-
-
-
-
-
$30,102
$2,470
$272
$7,767
-
-
-
-
($1,242)
-
$3,445
$10,629
Equity in (Earnings) Loss of Unconsolidated Entities
$4,752
$1,113
$53,048
($5,466)
($8,986)
Maintenance Capital Expenditures and Plant Turnaround Costs
($11,910)
($10,765)
($11,445)
($18,530)
($14,810)
Unit-based Compensation
$190
$385
$911
$817
$1,429
Distribution from Unconsolidated Entities
$1,432
$3,961
$3,476
$4,323
$11,200
Other
Distributable Cash Flow
$691
($459)
($750)
$818
($469)
$52,671
$80,277
$84,485
$94,415 $133,850
Distributable Cash Flow from Discontinued Operations
$14,800
$8,620
$2,486
($3,804)
($247)
Net Distributable Cash Flow
$67,471
$88,897
$86,971
$90,611 $133,603
50k
1 FINANCIAL INFORMATION FOR 2012 AND 2011 HAS BEEN REVISED TO INCLUDE RESULTS ATTRIBUTABLE TO THE REDBIRD CLASS A
INTERESTS AND THE BLENDING AND PACKAGING ASSETS ACQUIRED FROM CROSS PRIOR TO OCTOBER 2, 2012.
7 | MARTIN MIDSTREAM PARTNERS 2015 A N N UAL RE PO RT
D I S T R I B U T I O N P E R L . P. U N I T
2 0 1 1 | $ 3 . 0 5
2 0 1 2 | $ 3 . 0 8
2 0 1 3 | $ 3 . 1 1
2 0 1 4 | $ 3 . 1 8
2 0 1 5 | $ 3 . 2 5
$ 3
$ 3
$ 3
$ 3
$ 3
$ 3 . 5 0
$ 3 . 5 0
$ 3 . 5 0
$ 3 . 5 0
$ 3 . 5 0
N E T D I S T R I B U T A B L E C A S H F L O W
($ IN THOUSANDS)
150k
100k
50k
$133,603
$88,897
$86,971
$90,611
$67,471
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
MART I N MI D ST RE AM PART N ER S 2015 A NN UAL R EPORT | 8
M A R T I N M I D S T R E A M P A R T N E R S L . P
C O M P A N Y I N F O R M A T I O N
PRINCIPAL OFFICERS
MARTIN MIDSTREAM GP LLC
Ruben S. Martin III
President
Chief Executive Officer
Robert D. Bondurant
Executive Vice President
Chief Financial Officer
Randall L. Tauscher
Executive Vice President
Chief Operating Officer
Chris Booth
Executive Vice President
General Counsel & Secretary
S. Wesley Martin
Vice President
Corporate Development
Damon King
Senior Vice President
Shore Bases
Michael Lawrence
Vice President
Sulfur Services
Tom E. Redd
Vice President
Natural Gas/LPG Services
Scot A. Shoup
Senior Vice President
Operations
Matt Yost
Senior Vice President
Terminalling and Engineering
Scott Boydston
Vice President
Director of Audit Services
Richard Freed
Vice President
Marine
Ronald G. Garner
Vice President
Fertilizer
Justin Jewkes
Vice President
Grease
Melanie Mathews
Vice President
Human Resources
Joe McCreery
Vice President
Finance/Head of Investor Relations
Michael Murley
Vice President
Risk Management
Scott Southard
Vice President
Commercial Development
Steve Stroud
Vice President
NGL Supply
Alana Sumpter
Vice President
Information Technology
Doug Towns
Vice President
Lubricants
Karen Yost
Vice President
Taxation
BOARD OF DIRECTORS
MARTIN MIDSTREAM GP LLC
Ruben S. Martin III
President
Chief Executive Officer
Martin Midstream GP LLC
Robert D. Bondurant
Executive Vice President
Chief Financial Officer
Martin Midstream GP LLC
J.M. “Jim” Collingsworth
Retired – Senior Vice President
Enterprise Products Company
Sean Dolan
Managing Director
Alinda Capital Partners
Byron R. Kelley
Retired - President
Chief Executive Officer
CVR Partners, LP
C. Scott Massey
Certified Public Accountant
C. Scott Massey, CPA LLCA
Manager Sandstone Ventures LLC
Zachary S. Stanton
Managing Director
Alinda Capital Partners
CORPORATE OFFICES
MARTIN MIDSTREAM GP LLC
4200 B Stone Road
Kilgore, Texas 75662
(903) 983-6200
Transfer Agent
Computershare
P.O. Box 30170
College Station, TX 77842-3170
Overnight Delivery Address:
211 Quality Circle, Suite 210
College Station, Texas 77845
(800) 301-0911
www-us.computershare.com/Investor
Auditors
KPMG LLP
2323 Ross Avenue Suite 1400
Dallas, Texas 75201
Units Traded
NASDAQ Global Select Market
Symbol: MMLP
Investor Information
Updated investor information on the
Company is available on our website
www.martinmidstream.com
Inquiries can also be sent to
ir@martinmlp.com
9 | MARTIN MIDSTREAM PARTNERS 2015 A N N UAL RE PO RT
2015 I N M E M O R Y O F
M A R G A R E T G E R I G M A R T I N
S E P T E M B E R 2 3 , 1 9 2 4 - F E B R U A R Y 2 9 , 2 0 1 6
MART IN MI DSTREAM PARTN ER S 2 015 AN N UAL R EPO RT | 1 0
2015 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015
OR
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number 000-50056
MARTIN MIDSTREAM PARTNERS L.P.
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization
Delaware
05-0527861
(I.R.S. Employer Identification No.)
4200 Stone Road Kilgore, Texas 75662
(Address of principal executive offices) (Zip Code)
903-983-6200
(Registrant’s telephone number, including area code)
_______________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Units representing limited partnership interests
Name of each exchange on which registered
NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements the past 90 days.
Yes
No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the Registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
As of June 30, 2015, 35,456,862 common units were outstanding. The aggregate market value of the common units
held by non-affiliates of the registrant as of such date approximated $903,794,537 based on the closing sale price on that
date. There were 35,454,662 of the registrant’s common units outstanding as of February 29, 2016.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Our Common Equity, Related Unitholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
i
Item 1.
Business
PART I
References in this annual report to "we," "ours," "us" or like terms when used in a historical context refer to the assets
and operations of Martin Resource Management's business contributed to us in connection with our initial public offering on
November 6, 2002. References in this annual report to "Martin Resource Management" refer to Martin Resource Management
Corporation and its subsidiaries, unless the context otherwise requires. References in this annual report to the "Partnership"
refer to Martin Midstream Partners L.P. and its subsidiaries, unless the content otherwise requires. You should read the
following discussion of our financial condition and results of operations in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this annual report. For more detailed information regarding the basis for
presentation for the following information, you should read the notes to the consolidated financial statements included
elsewhere in this annual report.
Forward-Looking Statements
This annual report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements included
in this annual report that are not historical facts (including any statements concerning plans and objectives of management for
future operations or economic performance, or assumptions or forecasts related thereto), are forward-looking statements. These
statements can be identified by the use of forward-looking terminology including "forecast," "may," "believe," "will," "expect,"
"anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of
results of operations or of financial condition or state other "forward-looking" information. We and our representatives may
from time to time make other oral or written statements that are also forward-looking statements.
These forward-looking statements are made based upon management's current plans, expectations, estimates,
assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We
caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed
or implied in the forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed
below in "Item 1A. Risk Factors - Risks Related to our Business."
Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in the United States
("U.S.") Gulf Coast region. Our four primary business lines include:
• Terminalling and storage services for petroleum products and by-products, including the refining of naphthenic
crude oil and the blending and packaging of finished lubricants;
• Natural gas liquids transportation and distribution services and natural gas storage;
•
Sulfur and sulfur-based products gathering, processing, marketing, manufacturing and distribution; and
• Marine transportation services for petroleum products and by-products.
The petroleum products and by-products we collect, transport, store and market are produced primarily by major and
independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these
products. In addition to these major and independent oil and gas companies, our primary customers include independent
refiners, large chemical companies, fertilizer manufacturers and other wholesale purchasers of these products. We operate
primarily in the U.S. Gulf Coast region. This region is a major hub for petroleum refining, natural gas gathering and
processing, and support services for the exploration and production industry.
We were formed in 2002 by Martin Resource Management, a privately-held company whose initial predecessor was
incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then, Martin Resource
Management has expanded its operations through acquisitions and internal expansion initiatives as its management identified
1
and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids.
Martin Resource Management is an important supplier and customer of ours. As of December 31, 2015, Martin Resource
Management owned 17.7% of our total outstanding common limited partner units. Furthermore, Martin Resource Management
controls Martin Midstream GP LLC ("MMGP"), our general partner, by virtue of its 51% voting interest in MMGP Holdings,
LLC ("Holdings"), the sole member of MMGP. MMGP owns a 2.0% general partner interest in us and all of our incentive
distribution rights. Martin Resource Management directs our business operations through its ownership interests in and control
of our general partner.
We entered into an omnibus agreement dated November 1, 2002, with Martin Resource Management (the "Omnibus
Agreement") that governs, among other things, potential competition and indemnification obligations among the parties to the
agreement, related party transactions, the provision of general administration and support services by Martin Resource
Management and our use of certain of Martin Resource Management’s trade names and trademarks. Under the terms of the
Omnibus Agreement, the employees of Martin Resource Management are responsible for conducting our business and
operating our assets. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into
finished products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was
amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to
Martin Resource Management.
Martin Resource Management has operated our business since 2002. Martin Resource Management began operating
our natural gas services business in the 1950s and our sulfur business in the 1960s. It began our marine transportation business
in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s. In recent years,
Martin Resource Management has increased the size of our asset base through expansions and strategic acquisitions.
Primary Business Segments
Our primary business segments can be generally described as follows:
•
Terminalling and Storage. We own or operate 29 marine shore-based terminal facilities and 16 specialty terminal
facilities located primarily in the U.S. Gulf Coast region that provide storage, refining, blending, packaging, and
handling services for producers and suppliers of petroleum products and by-products, including the refining of
naphthenic crude oil and the blending and packaging of various grades and quantities of industrial, commercial,
and automotive lubricants and greases. Our facilities and resources provide us with the ability to handle various
products that require specialized treatment, such as molten sulfur and asphalt. We also provide land rental to oil
and gas companies along with storage and handling services for lubricants and fuels. We provide these
terminalling and storage services on a fee basis primarily under long-term contracts. A significant portion of the
contracts in this segment provide for minimum fee arrangements that are not based on the volumes handled.
• Natural Gas Services. We distribute natural gas liquids ("NGLs"). We purchase NGLs primarily from refineries
and natural gas processors. We store and transport NGLs for wholesale deliveries to refineries, industrial NGL
users in Texas and the Southeastern U.S, and propane retailers. We own a NGL pipeline, which spans
approximately 200 miles from Kilgore, Texas to Beaumont, Texas. We own approximately 2.4 million barrels of
underground storage capacity for NGLs. Additionally, we own 100% of the interests in Cardinal Gas Storage
Partners LLC ("Cardinal"), which is focused on the development, construction, operation and management of
natural gas storage facilities across northern Louisiana and Mississippi. We own a combined 20% interest in West
Texas LPG Pipeline L.P. ("WTLPG"). WTLPG is operated by ONEOK Partners, L.P. ("ONEOK"), which owns
the remaining 80.0% interest. WTLPG owns an approximate 2,300 mile common-carrier pipeline system that
transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. This asset enables us to
participate in the transportation of NGL production in West Texas and other basins along the WTLPG pipeline
route. We owned six liquefied petroleum gas ("LPG") pressure barges, (collectively referred to as the "Floating
Storage Assets"). These assets were primarily operated under the floating storage component of our NGL
distribution business. On February 12, 2015, we sold the Floating Storage Assets for $41.3 million.
•
Sulfur Services. We have developed an integrated system of transportation assets and facilities relating to sulfur
services. We process and distribute sulfur produced by oil refineries primarily located in the U.S. Gulf Coast
region. We buy and sell molten sulfur on contracts that are tied to sulfur indices and tend to provide stable
margins. We process molten sulfur into prilled or pelletized sulfur at our facilities in Port of Stockton, California
and Beaumont, Texas on contracts that often provide guaranteed minimum fees. The sulfur we process and
handle is primarily used in the production of fertilizers and industrial chemicals. We own and operate six sulfur-
based fertilizer production plants and one emulsified sulfur blending plant that manufactures primarily sulfur-
2
based fertilizer products for wholesale distributors and industrial users. These plants are located in Texas, Illinois,
and Utah. Demand for our sulfur products exists in both the domestic and foreign markets, and we believe our
asset base provides us with additional opportunities to handle increases in U.S. supply and access to foreign
demand.
• Marine Transportation. We operate a fleet of 45 inland marine tank barges, 25 inland push boats and three
offshore tug and barge units that transport petroleum products and by-products largely in the U.S. Gulf Coast
region. We provide these transportation services on a fee basis primarily under annual contracts, and many of our
customers have long standing contractual relationships with us. Our modernized asset base is attractive both to
our existing customers as well as potential new customers. In addition, our fleet contains several vessels that
reflect our focus on specialty products.
Recent Developments
Commodity prices have declined substantially and experienced significant volatility. If commodity prices remain
weak for a sustained period, our pipeline, terminalling throughput and NGL volumes may be negatively impacted, particularly
as producers are curtailing or redirecting drilling. A sustained decline in commodity prices could result in a decrease in activity
in the areas served by certain of our terminalling and storage and marine transportation assets resulting in reduced utilization of
these assets. Drilling activity levels vary by geographic area, but in general, we have observed widespread decreases in drilling
activity, particularly in the Gulf of Mexico, with lower commodity prices. We continually adjust our business strategy to focus
on maximizing liquidity; maintaining a stable asset base, which generates fee based revenues not sensitive to commodity
prices; and improving profitability by increasing asset utilization and controlling costs, which includes force reductions and
asset rationalization strategies. Given the current environment, we have altered and reduced our planned growth capital
expenditures. We believe that controlling our spending in an effort to preserve liquidity is prudent and reduces our need for
near-term access to the somewhat uncertain capital markets.
The following information highlights selected developments since January 1, 2015.
Reduction of Commitments Under Revolving Credit Facility. On August 14, 2015, we notified the Royal Bank of
Canada, the administrative agent of our revolving credit facility, that we were reducing the aggregate committed sum (as
defined in the underlying credit agreement) from $900.0 million to $700.0 million. We have the ability to exercise the
accordion feature of our revolving credit facility at any time and expand the facility up to an aggregate committed sum of $1.0
billion. As a result of the decreased capacity, we expect to reduce the amount of commitment fees under our revolving credit
facility by approximately $1.0 million on an annual basis.
Disposition of Floating Storage Assets. On February 12, 2015, we sold the Floating Storage Assets for $41.3 million.
These assets were primarily operated under the floating storage component of our NGL distribution business. The proceeds
from the disposition were used to reduce outstanding indebtedness under our revolving credit facility.
Subsequent Events
Quarterly Distribution. On January 21, 2016, we declared a quarterly cash distribution of $0.8125 per common unit
for the fourth quarter of 2015, or $3.25 per common unit on an annualized basis, which was paid on February 12, 2016 to
unitholders of record as of February 5, 2016. Additionally, we paid a distribution to our general partner in the amount of $4.6
million. Of this amount, $0.7 million is related to the base general partner distribution and $3.9 million represents incentive
distribution rights paid to our general partner.
Our Growth Strategy
The key components of our growth strategy are:
• Pursue Organic Growth Projects. We continually evaluate economically attractive organic expansion
opportunities in new or existing areas of operation that will allow us to leverage our existing market position and
increase the distributable cash flow from our existing assets through improved utilization and efficiency.
• Pursue Internal Organic Growth by Attracting New Customers and Expanding Services Provided to Existing
Customers. Significant opportunities exist to expand our customer base across all four of our business segments
and provide additional services and products to existing customers. We generally begin a relationship with a
customer by transporting, storing or marketing a limited range of products and services. Expanding our customer
3
base and our service and product offerings to existing customers is an efficient and cost effective method of
achieving organic growth in revenues and cash flow.
• Pursue Strategic Acquisitions. We continually monitor the marketplace to identify and pursue accretive
acquisitions that expand the services and products we offer or that expand our geographic presence. After
acquiring other businesses, we attempt to utilize our industry knowledge, network of customers and suppliers and
strategic asset base to operate the acquired businesses more efficiently and competitively, thereby increasing
revenues and cash flow. Our diversified base of operations provides multiple platforms for strategic growth
through acquisitions.
• Pursue Strategic Commercial Alliances. Many of our larger customers, which include major integrated energy
companies, have established strategic alliances with midstream service providers such as us to address logistical
and transportation problems or achieve operational synergies. We intend to pursue strategic commercial alliances
with such customers in the future.
Competitive Strengths
As discussed previously, commodity prices have declined substantially and experienced significant volatility. We plan
for these cyclical downturns in commodity prices and we believe we are positioned to withstand the effect on our assets with
respect to current and future commodity price volatility as a result of the following information.
Fee Based Contracts. We generate a majority of our cash flow from fee-based contracts with our customers. A
significant portion of the fee-based contracts consist of reservation charges or minimum fee arrangements, which reduce the
volatility of our cash flows due to volume fluctuations.
Asset Base and Integrated Distribution Network. We operate a diversified asset base that enables us to offer our
customers an integrated distribution network consisting of transportation, terminalling and storage and midstream logistical
services while minimizing our dependence on the availability and pricing of services provided by third parties. Our integrated
distribution network enables us to provide customers with a complementary portfolio of transportation, terminalling,
distribution and other midstream services for petroleum products and by-products.
Strategically Located Assets. A significant portion of our cash flow comes from providing various services to the oil
refining industry. Accordingly, a significant portion of our assets are located in proximity to refining operations along the U.S.
Gulf Coast. For example,we are one of the largest operators of marine service shore-based terminals in the U.S. Gulf Coast
region providing broad geographic coverage and distribution capability of our products and services to our customers. Our
natural gas storage and NGL distribution and storage assets are located in areas highly desirable for our customers. Finally,
many of our sulfur services assets are strategically located to source sulfur from the largest refinery sources in the U.S.
Specialized Transportation Equipment and Storage Facilities. We have the assets and expertise to handle and
transport certain petroleum products and by-products with unique requirements for transportation and storage. For example,
we own facilities and resources to transport a variety of specialty products, including ammonia, molten sulfur and asphalt.
Some of these specialty products require treatment across a wide range of temperatures ranging between approximately -30 to
+400 degrees Fahrenheit to remain in liquid form, which our facilities are designed to accommodate. These capabilities help us
enhance relationships with our customers by offering them services to handle their unique product requirements.
Strong Industry Reputation and Established Relationships with Suppliers and Customers. We have established a
reputation in our industry as a reliable and cost-effective supplier of services to our customers and have a track record of safe,
efficient operation of our facilities. Our management has also established long-term relationships with many of our suppliers
and customers. We benefit from our management's reputation and track record and from these long-term relationships.
Experienced Management Team and Operational Expertise. Members of our executive management team and the
heads of our principal business lines have a significant amount of experience in the industries in which we operate. Our
management team has a successful track record of creating internal growth and completing acquisitions. Our management
team's experience and familiarity with our industry and businesses are important assets that assist us in implementing our
business strategies.
Terminalling and Storage Segment
4
Industry Overview. The U.S. petroleum distribution system moves petroleum products and by-products from oil
refineries and natural gas processing facilities to end users. This distribution system is comprised of a network of terminals,
storage facilities, pipelines, tankers, barges, railcars and trucks. Terminals play a key role in moving these products throughout
the distribution system by providing storage, blending and other ancillary services.
Although many large energy and chemical companies own terminalling and storage facilities, these companies also
use third-party terminalling and storage services. Major energy and chemical companies typically have a strong demand for
terminals owned by independent operators when such terminals are strategically located at or near key transportation links,
such as deep-water ports. Major energy and chemical companies also need independent terminal storage when their owned
storage facilities are inadequate, either because of lack of capacity, the nature of the stored material or specialized handling
requirements.
The Gulf Coast region is a major hub for petroleum refining. Approximately 50% of U.S. refining capacity exists in
this region. Growth in the refining and natural gas processing industries has increased the volume of petroleum products and
by-products that are transported within the Gulf Coast region, which consequently has increased the need for terminalling and
storage services.
The marine and offshore oil and gas exploration and production industries use terminal facilities in the Gulf Coast
region as shore bases that provide them logistical support services as well as provide a broad range of products, including fuel
oil, lubricants, chemicals and supplies. The demand for these types of terminals, services and products is driven primarily by
offshore exploration, development and production in the Gulf of Mexico. Offshore activity is greatly influenced by current and
projected prices of oil and natural gas.
Specialty Petroleum Terminals. We own or operate 16 terminalling facilities providing storage, handling and
transportation of various petroleum products and by-products. The locations and capabilities of our terminals are structured to
complement our other businesses and reflect our strategy to provide a broad range of integrated services in the storage,
handling and transportation of products. We developed our terminalling and storage assets by acquisition and upgrades of
existing facilities as well as developing our own properties strategically located near rail, waterways and pipelines. We
anticipate further expansion of our terminalling facilities through both acquisition and organic growth.
The Tampa terminal is located on approximately 10 acres of land owned by the Tampa Port Authority that was leased
to us under a 10-year lease that commenced on December 16, 2006. This lease may be extended at the option of the tenant for
two consecutive extension option periods of five years. The Stanolind terminal is located on approximately 11 acres of land
owned by us located on the Neches River in Beaumont, Texas. The Neches terminal is a deep water marine terminal located
near Beaumont, Texas, on approximately 50 acres of land owned by us, and an additional 96 acres leased to us under terms of a
20-year lease commencing May 1, 2014 with three five-year options. The Corpus Christi, Texas barge terminal is located on
approximately 15 acres of land owned by us and has access to the waterfront via marine docks owned by the Port of Corpus
Christi. The Corpus Christi, Texas crude terminal is located on 10 acres leased from the Port of Corpus Christi under terms of a
five-year lease commencing on May 19, 2011 with five five-year extension options.
At the Tampa, Neches, Stanolind and Corpus Christi terminals, our customers are primarily large oil refining
companies. We charge either a fixed monthly fee or a throughput fee for the use of our facilities based on the capacity of the
applicable tank. We conduct a substantial portion of our terminalling and storage operations under long-term contracts, which
enhances the stability and predictability of our operations and cash flow. We attempt to balance our short-term and long-term
terminalling contracts in order to allow us to maintain a consistent level of cash flow while maintaining flexibility to earn
higher storage revenues when demand for storage space increases. In addition, a significant portion of the contracts for our
specialty terminals provide for minimum fee arrangements that are not based on the volume handled.
In Houston, Texas, we operate a terminal used for lubricant blending, storage, packaging and distribution. This
terminal is used as our central hub for bulk lubricant distribution where we receive, package and ship lubricants to our
terminals or directly to customers.
In Smackover, Arkansas, we own a refinery and terminal where we process crude oil into finished products that
include naphthenic lubricants, distillates, asphalt and other intermediates. This process is dedicated to an affiliate of Martin
Resource Management through a long-term tolling agreement based on throughput rates and a monthly reservation fee.
In Smackover, Arkansas, we own and operate a terminal used for lubricant blending, processing, packaging, marketing
and distribution. This terminal is used as our central hub for branded and private label packaged lubricants where we receive,
package and ship heavy-duty, passenger car, and industrial lubricants to a network of retailers and distributors.
5
In Kansas City, Missouri, we lease and operate a plant that specializes in the processing and packaging of automotive,
commercial and industrial greases.
In South Houston, Texas, we own an asphalt terminal whose use is dedicated to an affiliate of Martin Resource
Management through a terminalling service agreement based on throughput rates.
In Port Neches, Texas, we own an asphalt terminal whose use is dedicated to an affiliate of Martin Resource
Management through a terminalling service agreement based upon throughput rates.
In Omaha, Nebraska, we own an asphalt terminal whose use is dedicated to an affiliate of Martin Resource
Management through a terminalling service agreement based on throughput rates.
In Elko, Nevada, we lease and operate a sulfuric acid terminal whose use is dedicated to an affiliate of Martin
Resource Management through a terminalling service agreement based on throughput rates.
In Beaumont, Texas we own a terminal where we receive natural gasoline via pipeline and then ship the product to our
customers via other pipelines to which the facility is connected, referred to as the "Spindletop Terminal." Our fees for the use
of this facility are based on the volume of barrels shipped from the terminal.
In Jennings, Louisiana, we own a lubricant terminal whose use is dedicated to an affiliate of Martin Resource
Management through a terminalling service agreement based on throughput rates.
In Lake Charles, Louisiana, we lease and operate a lubricant terminal whose use is dedicated to an affiliate of Martin
Resource Management through a terminalling service agreement based on throughput rates.
The following is a summary description of our shore-based specialty terminals:
Terminal
Tampa (1)
Location
Tampa, Florida
Aggregate Capacity
718,000 barrels
Products
Description
Asphalt, sulfur and fuel oil Marine terminal, loading/
Stanolind
Neches
Beaumont,
Texas
Beaumont,
Texas
617,500 barrels
Asphalt, crude oil, sulfur,
sulfuric acid and fuel oil
555,800 barrels
Molten sulfur, ammonia,
asphalt, fuel oil, crude oil
and sulfur-based fertilizer
Corpus Christi
Barge Terminal
Corpus Christi,
Texas
250,000 barrels
Fuel oil and diesel
Corpus Christi
Crude Terminal (2)
Corpus Christi,
Texas
900,000 barrels
Crude oil
unloading for vessels, barges,
railcars and trucks
Marine terminal, marine dock
for loading/unloading of
vessels, barges, railcars and
trucks
Marine terminal, loading/
unloading for vessels, barges,
railcars and trucks
Marine terminal, loading/
unloading barges and vessels
and unloading trucks
Marine terminal, loading/
unloading barges and vessels,
trucks, and pipeline access
(1)
This terminal is located on land owned by the Tampa Port Authority that was leased to us under a 10-year lease that
expires in December 2016. This lease may be extended at the option of the tenant for two consecutive option periods of
five years.
(2) Our Corpus Christi, Texas crude terminal is located on 10 acres leased from the Port of Corpus Christi under terms of a
five-year lease commencing on May 19, 2011 with five five-year options.
6
The following is a summary description of our non shore-based specialty terminals:
Terminal
Channelview
Location
Houston, Texas
Smackover
Refinery
Smackover
Refinery
Smackover,
Arkansas
Smackover,
Arkansas
Martin Lubricants Smackover,
Arkansas
Martin Lubricants
(4)
Kansas City,
Missouri
Aggregate Capacity
44,000 sq.
ft. Warehouse; 39,800
barrels
7,700 barrels per day
275,000 barrels of
crude bulk storage;
639,868 barrels of
lubricant storage
235,000 sq. ft.
Warehouse; 3.9
million gallons bulk
storage
75,000 sq. ft.
Warehouse; 0.2
million gallons bulk
storage
Products
Description
Lubricants
Lubricants blending, storage,
packaging and distribution
Naphthenic lubricants,
distillates, asphalt
Crude refining facility
Crude oil, lubricants
Crude refining facility
Gard, SynGard, Unimark
and Xtreme brands, and
grease
Lubricants packaging facility
Automotive, commercial
and industrial greases
Grease manufacturing and
packaging facility
South Houston
Asphalt
Port Neches
Asphalt
Omaha Asphalt
Dunphy (5)
Spindletop
Jennings Bulk
Plant
Houston, Texas
94,600 barrels
Asphalt
Asphalt processing and storage
Port Neches,
Texas
Omaha,
Nebraska
31,300 barrels
Asphalt
Asphalt processing and storage
115,700 barrels
Asphalt
Asphalt processing and storage
Elko, Nevada
63,200 barrels
Sulfuric acid
Sulfuric acid storage
Beaumont,
Texas
Jennings,
Louisiana
90,000 barrels
Natural gasoline
Pipeline receipts and shipments
36,000 sq. ft. building;
6,000 barrels
18,000 sq.
ft.Warehouse; 6,800
barrels
Lubricants, fuel
Lubricants and fuel storage
Lubricants
Lubricants storage
Lake Charles (3)
Lake Charles,
Louisiana
(3)
(4)
(5)
This terminal is located on land owned by third parties and leased under a lease that expires in January 2021.
This terminal contains a warehouse owned by third parties and leased under a lease that expires in December 2020 and
can be extended by us for two successive five-year periods.
This terminal is located on land owned by third parties and leased under a lease that expires in May 2024 and can be
extended by us for two successive five-year periods.
Marine Shore-Based Terminals. We own or operate 29 marine shore-based terminals along the Gulf Coast from
Theodore, Alabama to Corpus Christi, Texas. Our terminalling assets are located at strategic distribution points for the
products we handle and are in close proximity to our customers. We are one of the largest operators of marine shore-based
terminals in the Gulf Coast region. These terminals are used to distribute and market fuel and lubricants. Additionally, full
service terminals also provide shore bases for companies that are operating in the offshore exploration and production industry.
Customers are primarily oil and gas exploration and production companies and oilfield service companies, such as drilling fluid
companies, marine transportation companies and offshore construction companies. Shore bases typically provide logistical
support, including the storing and handling of tubular goods, loading and unloading bulk materials, providing facilities from
which major and independent oil companies can communicate with and control offshore operations and leasing dockside
facilities to companies which provide complementary products and services such as drilling fluids and cementing services. We
generate revenues from our terminals that have shore bases by fees that we charge our customers under land rental contracts for
the use of our terminal facility for these shore bases. These contracts generally provide us a fixed land rental fee and additional
rental fees that are determined based on a percentage of the sales value of the products and services delivered from the shore
base. In addition, Martin Resource Management, through terminalling service agreements, pays us for terminalling and storage
of fuels and lubricants at these terminal facilities and includes a provision for minimum volume throughput requirements.
7
Our marine shore-based terminals are divided into two classes of terminals: (i) full service terminals and (ii) fuel and
lubricant terminals.
Full Service Terminals. We own or operate 10 full service terminals. These facilities provide logistical support
services and storage and handling services for fuel and lubricants. The significant difference between our full service terminals
and our fuel and lubricant terminals is that our full service terminals generate additional revenues by providing shore bases to
support our customer’s operating activities related to the offshore exploration and production industry. One typical use for our
shore bases is for drilling fluids manufacturers to manufacture and sell drilling fluids to the offshore drilling industry. Offshore
drilling companies may also set up service facilities at these terminals to support their offshore operations. Customers of our
full service terminals are primarily oil and gas exploration and production companies, oilfield service companies such as
drilling fluids companies, marine transportation companies and offshore construction companies.
The following is a summary description of our full service terminals:
Terminal
Location
Aggregate Capacity (barrels)
Amelia 2 (4)
Cameron West (2)(3)
Dock 193 (10)
Fourchon 15 (6)
Freshwater City (7)(8)
Harbor Island (1)
Intracoastal City-2 (5)
Pelican Island
Theodore
Venice (9)
Amelia, Louisiana
Cameron, Louisiana
Gueydan, Louisiana
Fourchon, Louisiana
Freshwater City, Louisiana
Harbor Island, Texas
Intracoastal City, Louisiana
Galveston, Texas
Theodore, Alabama
Venice, Louisiana
13,100
16,600
11,000
7,600
10,000
6,700
17,700
88,400
19,900
25,100
(1) A portion of this terminal is located on land owned by a third party and leased under a lease that expires in January 2020
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
and can be extended by us through January 2025.
This terminal is located on land owned by a third party and leased under a lease that expires in February 2018 and can
be extended by us through February 2033.
This terminal was converted from fuel and lube terminals to full services terminals during 2015.
This terminal is located on land owned by a third party and leased under a lease that expires in August 2018 and can be
extended by us through August 2023.
This terminal is located on land owned by a third party and leased under a lease that expires in December 2020 and can
be extended by us through December 2025.
This terminal is located on land owned by a third party and leased under a lease that expires in February 2017.
This terminal is located on land owned by a third party and leased under a lease that expires in March 2017.
This terminal has a warehousing agreement with a third party and under a lease that expires in March 2017.
This terminal is located on land owned by third parties and leased under multiple leases that expire in September 2017
and can be extended by us through December 2027.
(10) A portion of this terminal is located on land owned by a third party and leased under a lease that expires in May 2018.
Fuel and Lubricant Terminals. We own or operate 19 lubricant and fuel terminals located in the Gulf Coast region
that provide storage and handling services for lubricants and fuel oil.
8
The following is a summary description of our fuel and lubricant terminals:
Terminal
Location
Aggregate Capacity (barrels)
Berwick (1)
Cameron 7 (15)(17)
Cameron 8 (5)(17)
Cameron East (4)(14)(17)
Dulac (8)
Fourchon (6)
Fourchon 16 (12)
Fourchon 17 (9)
Fourchon T (7)
Freeport (17)
Galveston T
Intracoastal City (17)
Lake Charles T (13)
Morgan City DWC 31 (11)
Pascagoula
Port Arthur (16)
Port O'Connor (2)(17)
River Ridge (10)
Sabine Pass (3)(17)
Berwick, Louisiana
Cameron, Louisiana
Cameron, Louisiana
Cameron, Louisiana
Dulac, Louisiana
Fourchon, Louisiana
Fourchon, Louisiana
Fourchon, Louisiana
Fourchon, Louisiana
Freeport, Texas
Galveston Texas
Intracoastal City, Louisiana
Lake Charles, Louisiana
Morgan City, Louisiana
Pascagoula, Mississippi
Port Arthur, Texas
Port O'Connor, Texas
River Ridge, Louisiana
Sabine Pass, Texas
24,600
15,100
0
26,700
15,400
80,900
16,400
41,200
9,800
8,600
10,400
45,900
1,000
7,100
10,700
16,300
6,800
8,700
16,500
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
This terminal is located on land owned by third parties and leased under a lease that expires in September 2017.
This terminal is located on land owned by a third party and leased under a lease that expires in March 2017.
This terminal is located on land owned by a third party and leased under a lease that expires in September 2016 and can
be extended by us through September 2036.
This terminal is located on land owned by a third party and leased under a lease that expires in March 2017 and can be
extended by us through February 2022.
This terminal is located on land owned by a third party and leased under a lease that expires in July 2016 and can be
extended by us through July 2036.
This terminal is located on land owned by a third party at which we throughput lubricants and fuel oil pursuant to an
agreement that expires in May 2027.
This terminal is located on land owned by a third party at which we throughput lubricants and fuel oil pursuant to an
agreement that expires in October 2018 and can be extended by us through October 2038.
This terminal is located on land owned by third parties and leased under a lease that expires in December 2021 and can
be extended by us through December 2041.
This terminal is located on land owned by third parties and leased under a lease that expires in December 2018 and can
be extended by us through December 2023.
(10) This terminal is located on land owned by third parties and leased under multiple leases that expire in April 2019 and
February 2020.
(11) This terminal is located on land owned by third parties and leased under a lease that expires in December 2019 and can
be extended by us through December 2034. In addition, there is an office sublease that expires December 2019.
(12) This terminal is located on land owned by third parties and leased under multiple leases that expire in July 2017, July
2016, and March 2017. These leases can be extended by us through July 2022, July 2026, and March 2022, respectively.
(13) This terminal is located on land owned by third parties and leased under a lease that expires in April 2018 and can be
extended by us through April 2023.
(14) This terminal was converted from full services terminals to fuel and lube terminals during 2015.
(15) This terminal is located on land owned by a third party and leased under a lease that expires in July 2017 and can be
extended by us through July 2027.
(16) This terminal is located on land owned by third parties and leased under a lease that expires in November 2020.
(17) These terminals are currently in caretaker status.
9
Competition. We compete with independent terminal operators and major energy and chemical companies that own
their own terminalling and storage facilities. Many customers prefer to contract with independent terminal operators rather
than terminal operators owned by integrated energy and chemical companies that may have refining or marketing interests that
compete with the customers.
Independent terminal owners generally compete on the basis of the location and versatility of terminals, service and
price. A favorably-located terminal has access to various cost effective transportation modes, both to and from the terminal,
such as waterways, railroads, roadways and pipelines. Terminal versatility depends upon the operator’s ability to handle
diverse products, some of which have complex or specialized handling and storage requirements. The service function of a
terminal includes, among other things, the safe storage of product at specified temperature, moisture and other conditions and
receiving and delivering product to and from the terminal. All of these services must be in compliance with applicable
environmental and other regulations.
We successfully compete for terminal customers because of the strategic location of our terminals along the Gulf
Coast, our integrated transportation services, our reputation, the prices we charge for our services and the quality and versatility
of our services. Additionally, while some companies have significantly more terminalling and storage capacity than us, not all
terminalling and storage facilities located in the markets we serve are equipped to properly handle specialty products such as
asphalt, sulfur and anhydrous ammonia.
The principal competitive factors affecting our terminals, which provide fuel and lubricants distribution and
marketing, as well as shore bases at certain terminals, are the locations of the facilities, availability of competing logistical
support services and the experience of personnel and dependability of service. The distribution and marketing of our lubricant
products is brand sensitive and we encounter brand loyalty competition. Shore base rental contracts are generally long-term
contracts and provide more protection from competition. Our primary competitors for both lubricants and shore bases include
several independent operations as well as major companies that maintain their own similarly equipped marine terminals, shore
bases and fuel and lubricant supply sources.
Natural Gas Services Segment
Industry Overview. NGLs are produced through natural gas processing and as a by-product of crude oil refining.
NGLs include ethane, propane, normal butane, iso butane and natural gasoline.
Ethane is almost entirely used as a petrochemical feedstock in the production of ethylene and propylene. Propane is
used as a petrochemical feedstock in the production of ethylene and propylene, as a fuel for heating, for industrial applications,
as motor fuel and as a refrigerant. Normal butane is used as a petrochemical feedstock, as a blend stock for motor gasoline and
as a component in aerosol propellants. Normal butane can also be made into iso butane through isomerization. Iso butane is
used in the production of motor gasoline, alkylation and as a component in aerosol propellants. Natural gasoline is used as a
component of motor gasoline, as a petrochemical feedstock and as a diluent.
Facilities. We purchase NGLs primarily from major domestic oil refiners and natural gas processors. We transport
NGLs using Martin Resource Management’s land transportation fleet or by contracting with common carriers, owner-operators
and railroad tank cars. We typically enter into annual contracts with independent retail propane distributors to deliver their
estimated annual volume requirements based on prevailing market prices. Dependable delivery is very important to these
customers and in some cases may be more important than price. We ensure adequate supply of NGLs through:
•
•
storage of NGLs purchased in off-peak months;
efficient use of railroad tank cars and the transportation fleet of vehicles owned by Martin Resource Management;
and
•
product management expertise to obtain supplies when needed.
10
The following is a summary description of our owned and leased NGL facilities:
NGL Facility
Wholesale terminals
Retail terminals
Location
Capacity
Description
Arcadia, Louisiana
Breaux Bridge, Louisiana (1)
Hattiesburg, Mississippi (1)
Mt. Belvieu, Texas (1)
Kilgore, Texas
Longview, Texas
Henderson, Texas
2,400,000 barrels
420,000 barrels
140,000 barrels
65,000 barrels
90,000 gallons
30,000 gallons
12,000 gallons
Underground storage
Underground storage
Underground storage
Underground storage
Retail propane distribution
Retail propane distribution
Retail propane distribution
(1) We lease our underground storage at Breaux Bridge, Louisiana, Hattiesburg, Mississippi, and Mont Belvieu, Texas, from
third parties under one-year lease agreements.
Our NGL customers consist of refiners, industrial processors and retail propane distributors. The majority of our NGL
volumes are sold to refiners and industrial processors.
We generally maintain consistent margins in our natural gas services business because we attempt to pass increases
and decreases in the cost of NGLs directly to our customers. We generally try to coordinate our sales and purchases of NGLs
based on the same daily price index of NGLs in order to decrease the impact of NGL price volatility on our profitability.
Natural Gas Storage. Natural gas storage facilities provide a staging and warehousing function for seasonal swings in
demand relative to supply, as well as an essential reliability cushion against disruptions in natural gas supply, demand and
transportation by allowing natural gas to be injected into, withdrawn from or warehoused in such storage facilities as dictated
by market conditions. The long term demand for storage services in the U.S. is driven primarily by the long-term demand for
natural gas and the overall lack of balance between the supply of and demand for natural gas on a seasonal, monthly, daily or
other basis. In general and on a long-term basis, to the extent the overall demand for natural gas increases and such growth
includes higher demand from seasonal or weather-sensitive end-users (such as gas-fired power generators and residential and
commercial consumers), demand for natural gas storage services should also grow. In addition, any factors that contribute to
more frequent and severe imbalances between the supply of and demand for natural gas, whether caused by supply or demand
fluctuations, should increase the need for and the value of storage services. On a short term basis, storage demand and values
are also significantly influenced by operational imbalances, near term seasonal spreads, shorter term spreads and basis
differentials.
We own 100% of the interests in Cardinal, which is focused on the operation, management, development, and
construction of natural gas storage facilities across northern Louisiana and Mississippi.
Cardinal facilities are summarized below:
Facility Name / Location
Facility Type
Arcadia Gas Storage, LLC
Bienville Parish, Louisiana
Cadeville Gas Storage, LLC
Ouachita Parish, Louisiana
Perryville Gas Storage, LLC
Franklin Parish, Louisiana
Salt dome
Salt dome
Monroe Gas Storage Company, LLC
Monroe County, Mississippi
Depleted reservoir
(1) Contracted capacity refers specifically to firm contracted capacity.
Depleted reservoir
17.0 bcf
Storage
Capacity
17.5 billion
cubic feet (bcf)
8.7 bcf
7.0 bcf
Percent of
Capacity
Contracted (1)
Weighted
Average Life
of Remaining
Contract Term
84%
100%
98%
100%
2.0 years
7.4 years
3.0 years
< 1 year
These facilities were developed to provide producers, end users, local distribution companies, pipelines and energy
marketers with high-deliverability storage services and hub services.
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NGL Marine Storage. We owned six LPG pressure barges, which we acquired in February 2013. These assets were
primarily operated under the floating storage component of our NGL distribution business. On February 12, 2015, we sold the
barges for $41.3 million.
LPG Pipeline Investment. On May 14, 2014, we acquired a combined 20% interest in WTLPG. WTLPG owns an
approximate 2,300 mile common-carrier pipeline system that transports NGLs from New Mexico and Texas to Mont Belvieu,
Texas for fractionation. This acquisition will enable the Partnership to participate in the transportation of NGL production in West
Texas and other basins along the WTLPG pipeline route.
Competition. We compete with large integrated NGL producers and marketers, as well as small local independent
marketers. The primary components of competition related to our natural gas storage operations are location, rates, terms and
flexibility of service and supply. Our natural gas storage facilities compete with other storage providers and increased
competition could result form newly developed storage facilities or expanded capacity from existing competitors.
Seasonality. The level of NGL supply and demand is subject to changes in domestic production, weather, inventory
levels and other factors. While production is not seasonal, residential, refinery, and wholesale demand is highly seasonal. This
imbalance causes increases in inventories during summer months when consumption is low and decreases in inventories during
winter months when consumption is high. If inventories are low at the start of the winter, higher prices are more likely to occur
during the winter. Additionally, abnormally cold weather can put extra upward pressure on propane prices during the winter
because there are less readily available sources of additional supply except for imports, which are less accessible and may take
several weeks to arrive. General economic conditions and inventory levels have a greater impact on industrial and refinery use
of NGLs than the weather.
Sulfur Services Segment
Industry Overview. Sulfur is a natural element and is required to produce a variety of industrial products. In the U.S.,
approximately 10 million tons of sulfur are consumed annually with the Tampa, Florida area being the largest single market.
Currently, all sulfur produced in the U.S. is "recovered sulfur," or sulfur that is a by-product from oil refineries and natural gas
processing plants. Sulfur production in the U.S. is principally located along the Gulf Coast, along major inland waterways and
in some areas of the western U.S.
Sulfur is an important plant nutrient and is primarily used in the manufacture of phosphate fertilizers and other
industrial purposes. The primary application of sulfur in fertilizers occurs in the form of sulfuric acid. Burning sulfur creates
sulfur dioxide, which is subsequently oxidized and dissolved in water to create sulfuric acid. The sulfuric acid is then
combined with phosphate rock to make phosphoric acid, the base material for most high-grade phosphate fertilizers.
Sulfur-based fertilizers are manufactured chemicals containing nutrients known to improve the fertility of soils.
Nitrogen, phosphorus, potassium and sulfur are the four most important nutrients for crop growth. These nutrients are found
naturally in soils. However, soils used for agriculture become depleted of nutrients and require fertilizers rich in nutrients to
restore fertility.
Industrial sulfur products (including sulfuric acid) are used in a wide variety of industries. For example, these
products are used in power plants, paper mills, auto and tire manufacturing plants, food processing plants, road construction,
cosmetics and pharmaceuticals.
Our Operations and Products. We maintain an integrated system of transportation assets and facilities relating to our
sulfur services. We gather molten sulfur from refiners, primarily located on the Gulf Coast. We transport sulfur by inland and
offshore barges, railcars and trucks. In the U.S., recovered sulfur is mainly kept in liquid form from production to usage at a
temperature of approximately 275 degrees Fahrenheit. Because of the temperature requirement, the sulfur industry uses
specialized equipment to store and transport molten sulfur. We have the necessary assets and expertise to handle the unique
requirements for transportation and storage of molten sulfur.
The terms of our commercial sulfur contracts typically range from one to five years in length. We handle molten
sulfur on cost-plus contracts and margin-based contracts, and the prices in such contracts are usually tied to a published market
indicator and fluctuate according to the price movement of the indicator. We also provide barge transportation and tank storage
services to large integrated oil companies that produce sulfur and fertilizer manufacturers that consume sulfur under
transportation and storage contracts with remaining terms from one to two years in duration.
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The sulfur assets located at the Port of Stockton in California are used to process (prill) molten sulfur into pellets. The
Stockton facility can process approximately 1,000 metric tons of molten sulfur per day and the resulting dry pellets are stored
in bulk until sold into certain U.S. and international agricultural markets. Our two Beaumont prillers along with our granulator
have the capacity to process approximately 5,500 metric tons of molten sulfur per day. We process molten sulfur into formed
sulfur on take-or-pay fee contracts, providing refiners access to the export market for the sale of their residual sulfur.
Our sulfuric acid production facility at our Plainview, Texas location processes molten sulfur to produce
approximately 150,000 tons of sulfuric acid per year. This acid production provides a dedicated supply of raw material sulfuric
acid to our ammonium sulfate production plant. The ammonium sulfate plant produces approximately 400 tons per day of
quality ammonium sulfate and is marketed to our customers throughout the U.S. The sulfuric acid produced and not consumed
by the captive ammonium sulfate production is sold to Martin Resource Management, which markets the excess production to
third parties.
Fertilizer and related sulfur products are a natural extension of our molten sulfur business because of our access to
sulfur and our distribution capabilities. These products allow us to leverage the Sulfur Services segment of our business. Our
annual fertilizer and industrial sulfur products sales have grown significantly as a result of acquisitions and internal growth.
In the U.S., fertilizer is generally sold to farmers through local dealers. These dealers are typically owned and
supplied by much larger wholesale distributors. We sell to these wholesale distributors. Our industrial sulfur products are
marketed primarily in the southern U.S., where many paper manufacturers and power plants are located. Our products are sold
in accordance with price lists that vary from state to state. These price lists are updated periodically to reflect changes in
seasonal or competitive prices. We transport our fertilizer and industrial sulfur products to our customers using third-party
common carriers. We utilize rail shipments for large volume and long distance shipments where available.
We manufacture and market the following sulfur-based fertilizer and related sulfur products:
•
Plant nutrient sulfur products. We produce plant nutrient and agricultural ground sulfur products at our facilities
in Odessa, Texas, Seneca, Illinois and Cactus, Texas. Our plant nutrient sulfur product is a 90% degradable sulfur
product marketed under the Disper-Sul® trade name and sold throughout the U.S. to direct application
agricultural markets. Our agricultural ground sulfur products are used primarily in the western U.S. on grapes and
vegetable crops.
• Ammonium sulfate products. We produce various grades of ammonium sulfate including granular, coarse,
standard, and 40% ammonium sulfate solution. These products primarily serve direct application agricultural
markets. We blend our ammonium sulfate to make custom grades of lawn and garden fertilizer at our facility in
Salt Lake City, Utah. We package these custom grade products under both proprietary and private labels and sell
them to major retail distributors and other retail customers.
•
Industrial sulfur products. We produce industrial sulfur products such as elemental pastille sulfur, industrial
ground sulfur products, and emulsified sulfur. We produce elemental pastille sulfur at our Odessa, Texas and
Seneca, Illinois facilities. Elemental pastille sulfur is used to increase the efficiency of the coal-fired precipitators
in the power industry. These industrial ground sulfur products are also used in a variety of dusting and wettable
sulfur applications such as rubber manufacturing, fungicides, sugar and animal feeds. We produce emulsified
sulfur at our Nash, Texas facility. Emulsified sulfur is primarily used to control the sulfur content in the pulp and
paper manufacturing processes.
• Liquid sulfur products. We produce ammonium thiosulfate at our Neches terminal facility in Beaumont, Texas.
This agricultural sulfur product is a clear liquid containing 12% nitrogen and 26% sulfur. This product serves as a
liquid plant nutrient used directly through spray rigs or irrigation systems. It is also blended with other nitrogen
phosphorus potassium liquids or suspensions as well. Our market is predominantly the Mid-South U.S. and
Coastal Bend area of Texas.
Our Sulfur Services Facilities.
We own 55 railcars and lease 98 railcars equipped to transport molten sulfur. We own the following marine assets and
use them to transport molten sulfur from our Beaumont, Texas terminal to our Tampa, Florida terminal as well as provide third
party marine transportation services to others:
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Asset
Margaret Sue
M/V Martin Explorer
M/V Martin Express
MGM 101
MGM 102
Class of Equipment
Offshore tank barge
Offshore tugboat
Inland push boat
Inland tank barge
Inland tank barge
Capacity/Horsepower
10,450 long tons
7,200 horsepower
1,200 horsepower
2,450 long tons
2,450 long tons
Products Transported
Molten sulfur
N/A
N/A
Molten sulfur
Molten sulfur
We operate the following sulfur forming facilities as part of our sulfur services business:
Terminal
Location
Beaumont, Texas
Daily Production Capacity
5,500 metric tons per day
Products Stored
Molten, prilled and
granulated sulfur
Stockton, California
1,000 metric tons per day
Molten and prilled sulfur
Neches
Stockton
We lease 132 railcars to transport our fertilizer products. We own the following manufacturing plants as part of our
sulfur services business:
Facility
Location
Annual Capacity
Description
Fertilizer plant
Fertilizer plant
Plainview, Texas
Beaumont, Texas
150,000 tons
110,000 tons
Fertilizer plants
Odessa, Texas
35,000 tons
Fertilizer plant
Seneca, Illinois
36,000 tons
Fertilizer plant
Fertilizer plant
Salt Lake City, Utah
Cactus, Texas
Industrial sulfur plant
Nash, Texas
Sulfuric acid plant
Plainview, Texas
25,000 tons
20,000 tons
18,000 tons
150,000 tons
Fertilizer production
Liquid sulfur fertilizer
production
Dry sulfur fertilizer
production
Dry sulfur fertilizer
production
Blending and packaging
Dry sulfur fertilizer
production
Emulsified sulfur production
Sulfuric acid production
Competition. We own one of the four vessels currently used to transport molten sulfur between U.S. ports on the Gulf
of Mexico and Tampa, Florida. Phosphate fertilizer manufacturers consume a vast majority of the sulfur produced in the U.S.,
which they purchase from resellers as well as directly from producers. We compete primarily with U.S. producers that sell
directly to consumers with access to transportation and storage assets as well as foreign suppliers from Mexico or Venezuela
that may sell into the Florida market. Our sulfur-based fertilizer products compete with several large fertilizer and sulfur
product manufacturers. However, the close proximity of our manufacturing plants to our customer base is a competitive
advantage for us in the markets we serve and allows us to minimize freight costs and respond quickly to customer requests.
Our sulfuric acid products compete with regional producers and importers in the South and Southwest portion of the U.S. from
Louisiana to California.
Seasonality. Sales of our agricultural fertilizer products are partly seasonal as a result of increased demand during the
growing season.
Marine Transportation Segment
Industry Overview. The inland waterway system is composed of a network of interconnected rivers and canals that
serve as water highways and is used to transport vast quantities of products annually. This waterway system extends
approximately 26,000 miles, of which 12,000 miles are generally considered significant for domestic commerce.
The Gulf Coast region is a major hub for petroleum refining. The petroleum refining process generates products and
by-products that require transportation in large quantities from the refinery or processor. Convenient access to and use of this
waterway system by the petroleum and petrochemical industry is a major reason for the current location of U.S. refineries and
petrochemical facilities. The marine transportation industry uses push boats and tugboats as power sources and tank barges for
freight capacity. The combination of the power source and tank barge freight capacity is called a tow.
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Marine Fleet. We utilize a fleet of inland and offshore tows that provide marine transportation of petroleum products
and by-products produced in oil refining and natural gas processing. Our marine transportation business operates coastwise
along the Gulf of Mexico and East Coast and on the U.S. inland waterway system, primarily between domestic ports along the
Gulf of Mexico, Intracoastal Waterway, the Mississippi River system and the Tennessee-Tombigbee Waterway system.
Additionally, we participate in Caribbean, Central America, and South American transport. Our inland tows generally consist
of one push boat and one to three tank barges, depending upon the horsepower of the push boat, the river or canal capacity and
conditions, and customer requirements. Each of our offshore tows consist of one tugboat, with much greater horsepower than
an inland push boat, and one large tank barge. We transport asphalt, fuel oil, gasoline, sulfur and other bulk liquids.
The following is a summary description of the marine vessels we use in our marine transportation business:
Class of Equipment
Number in Class
Capacity/Horsepower
Inland tank barges
Inland tank barges
Inland push boats
Offshore tank barges
Offshore tugboats
14
31
25
3
3
Under 20,000 barrels
20,000 - 31,000 barrels
800 - 3,800 horsepower
52,000 - 95,000 barrels
5,100 - 7,200 horsepower
N/A
Description of Products
Carried
Asphalt, crude oil, fuel oil,
gasoline and sulfur
Asphalt, crude oil, fuel oil and
gasoline
N/A
Crude oil, diesel fuel, fuel oil
and NGLs
Our largest marine transportation customers include major and independent oil and gas refining companies, petroleum
marketing companies and Martin Resource Management. We conduct our marine transportation services on a fee basis
primarily under annual contracts.
We are a party to a marine transportation agreement under which we provide marine transportation services to Martin
Resource Management on a spot contract basis at applicable market rates. Effective each January 1, this agreement
automatically renews for consecutive one-year periods unless either party terminates the agreement by giving written notice to
the other party at least 60 days prior to the expiration of the then-applicable term.
Competition. We compete primarily with other marine transportation companies. Competition in this industry has
historically been based primarily on price. However, customers are placing an increased emphasis on safety, environmental
compliance, quality of service and the availability of a single source of supply of services. Specifically, customers are
increasingly seeking suppliers that can offer marine, land, rail and terminal distribution services while providing a high level of
flexibility, health, safety, environmental and financial responsibility, adequate insurance and quality of services consistent with
the customer’s standards.
In addition to competitors that provide marine transportation services, we also compete with providers of other modes
of transportation, such as rail, trucks and, to a lesser extent, pipelines. For example, a typical two inland barge unit carries a
volume of product equal to approximately 80 railcars or 250 tanker trucks. Pipelines generally provide a less expensive form
of transportation than marine transportation. However, pipelines are not able to transport most of the products we transport and
are generally a less flexible form of transportation because they are limited to the fixed point-to-point distribution of
commodities in high volumes over extended periods of time.
Our Relationship with Martin Resource Management
Martin Resource Management is engaged in the following principal business activities:
•
•
•
providing land transportation of various liquids using a fleet of trucks and road vehicles and road trailers;
distributing fuel oil, ammonia, asphalt, sulfuric acid, marine fuel and other liquids;
providing marine bunkering and other shore-based marine services in Alabama, Louisiana, Florida, Mississippi
and Texas;
•
operating a crude oil gathering business in Stephens, Arkansas;
15
•
•
•
•
•
•
•
•
providing crude oil gathering, refining, and marketing services of base oils, asphalt, and distillate products in
Smackover, Arkansas;
providing crude oil marketing and transportation from the well head to the end market;
operating an environmental consulting company;
operating an engineering services company;
supplying employees and services for the operation of our business;
operating a natural gas optimization business;
operating, for its account and our account, the docks, roads, loading and unloading facilities and other common
use facilities or access routes at our Stanolind terminal; and
operating, solely for our account, the asphalt facilities in Omaha, Nebraska, Port Neches, Texas and South
Houston, Texas.
We are and will continue to be closely affiliated with Martin Resource Management as a result of the following
relationships.
Ownership
Martin Resource Management owns approximately 17.7% of the outstanding limited partner units. In addition, Martin
Resource Management controls MMGP, our general partner, by virtue of its 51% voting interest in Holdings, the sole member
of MMGP. MMGP owns a 2.0% general partner interest in us and all of our incentive distribution rights.
Management
Martin Resource Management directs our business operations through its ownership interests in and control of our
general partner. We benefit from our relationship with Martin Resource Management through access to a significant pool of
management expertise and established relationships throughout the energy industry. We do not have employees. Martin
Resource Management employees are responsible for conducting our business and operating our assets on our behalf.
Related Party Agreements
The Omnibus Agreement with Martin Resource Management requires us to reimburse Martin Resource Management
for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business. We
reimbursed Martin Resource Management for $149.3 million, $183.2 million and $177.1 million of direct costs and expenses
for the years ended December 31, 2015, 2014 and 2013, respectively. There is no monetary limitation on the amount we are
required to reimburse Martin Resource Management for direct expenses.
In addition to the direct expenses, under the Omnibus Agreement, we are required to reimburse Martin Resource
Management for indirect general and administrative and corporate overhead expenses. For the years ended December 31,
2015, 2014, and 2013, the conflicts committee of our general partner ("Conflicts Committee") approved reimbursement
amounts of $13.7 million, $12.5 million and $10.6 million, respectively, reflecting our allocable share of such expenses. The
Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any,
annually. These indirect expenses covered the centralized corporate functions Martin Resource Management provides for us,
such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance,
environmental and safety compliance, general office expenses and employee benefit plans and other general corporate overhead
functions we share with Martin Resource Management’s retained businesses. The Omnibus Agreement also contains
significant non-compete provisions and indemnity obligations. Martin Resource Management also licenses certain of its
trademarks and trade names to us under the Omnibus Agreement.
Other agreements include, but are not limited to, a motor carrier agreement, marine transportation agreements,
terminal services agreements, a tolling agreement, and a sulfuric acid sales agency agreement. Pursuant to the terms of the
Omnibus Agreement, we are prohibited from entering into certain material agreements with Martin Resource Management
without the approval of the Conflicts Committee.
16
For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have
entered into with Martin Resource Management, please see "Item 13. Certain Relationships and Related Transactions, and
Director Independence."
Commercial
We have been and anticipate that we will continue to be both a significant customer and supplier of products and
services offered by Martin Resource Management. Our motor carrier agreement with Martin Resource Management provides
us with access to Martin Resource Management’s fleet of road vehicles and road trailers to provide land transportation in the
areas served by Martin Resource Management. Our ability to utilize Martin Resource Management’s land transportation
operations is currently a key component of our integrated distribution network.
In the aggregate, our purchases from Martin Resource Management accounted for approximately 9%, 7%, and 8% of
our total cost of products sold during for the years ended December 31, 2015, 2014 and 2013, respectively. We also purchase
marine fuel from Martin Resource Management, which we account for as an operating expense.
Correspondingly, Martin Resource Management is one of our significant customers. Our sales to Martin Resource
Management accounted for approximately 11% of our total revenues for the year ended December 31, 2015 and 6% of our total
revenues for each of the years ended December 31, 2014, and 2013. We have entered into certain agreements with Martin
Resource Management pursuant to which we provide terminalling and storage and marine transportation services to its
subsidiary, Martin Energy Services LLC ("MES"), and MES provides terminal services to us to handle lubricants, greases and
drilling fluids. Additionally, we have entered into a long-term, fee for services-based tolling agreement with Martin Resource
Management where Martin Resource Management agrees to pay us for the processing of its crude oil into finished products,
including naphthenic lubricants, distillates, asphalt and other intermediate cuts.
For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have
entered into with Martin Resource Management, please see "Item 13. Certain Relationships and Related Transactions, and
Director Independence."
Approval and Review of Related Party Transactions
If we contemplate entering into a transaction, other than a routine or in the ordinary course of business transaction, in
which a related person will have a direct or indirect material interest, the proposed transaction is submitted for consideration to
the board of directors of our general partner or to our management, as appropriate. If the board of directors is involved in the
approval process, it determines whether to refer the matter to the Conflicts Committee, as provided under our limited
partnership agreement. If a matter is referred to the Conflicts Committee, it obtains information regarding the proposed
transaction from management and determines whether to engage independent legal counsel or an independent financial advisor
to advise the members of the committee regarding the transaction. If the Conflicts Committee retains such counsel or financial
advisor, it considers such advice and, in the case of a financial advisor, such advisor’s opinion as to whether the transaction is
fair and reasonable to us and to our unitholders.
Insurance
Our deductible for onshore physical damage resulting from named windstorms is 5% of the total value located at an
individual location subject to an overall minimum deductible of $3.5 million for damage caused by the named windstorm at all
locations. Our onshore program currently provides $40.0 million per occurrence for named windstorm events. For non-
windstorm events, our deductible applicable to onshore physical damage is $1.0 million per occurrence. Business interruption
coverage in connection with a windstorm event is subject to the same $40.0 million per occurrence and aggregate limit as the
property damage coverage and a waiting period of 45 days. For non-windstorm events, our waiting period applicable to
business interruption is 30 days.
Our deductible for physical damage at our refining, blending and packaging division in Smackover, Arkansas is $0.5
million per occurrence. The waiting period applicable to business interruption is 30 days.
We have various pollution liability policies which provide coverages ranging from remediation of our property to third
party liability. The limits of these policies vary based on our assessments of exposure at each location.
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Loss of, or damage to, our vessels and cargo is insured through hull and cargo insurance policies. Vessel operating
liabilities such as collision, cargo, environmental and personal injury are insured primarily through our participation in mutual
insurance associations and other reinsurance arrangements, pursuant to which we are potentially exposed to assessments in the
event claims by us or other members exceed available funds and reinsurance. Protection and indemnity ("P&I") insurance
coverage is provided by P&I associations and other insurance underwriters. Our vessels are entered in P&I associations that
are parties to a pooling agreement, known as the International Group Pooling Agreement ("Pooling Agreement") through which
approximately 90% of the world's ocean-going tonnage is reinsured through a group reinsurance policy. With regard to
collision coverage, the first $1.0 million of coverage is insured by our hull policy and any excess is insured by a P&I
association. We insure our owned cargo through a domestic insurance company. We insure cargo owned by third parties
through our P&I coverage. As a member of P&I associations that are parties to the Pooling Agreement, we are subject to
supplemental calls payable to the associations of which we are a member, based on our claims record and the other members of
the other P&I associations that are parties to the Pooling Agreement. Except for our marine operations, we self-insure against
liability exposure up to a predetermined amount, beyond which we are covered by catastrophe insurance coverage.
For marine claims, our insurance covers up to $1.0 billion of liability per accident or occurrence. We believe our
current insurance coverage is adequate to protect us against most accident related risks involved in the conduct of our business.
However, there can be no assurance that all risks are adequately insured against, that any particular claim will be paid by the
insurer, or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.
Environmental and Regulatory Matters
Our activities are subject to various federal, state and local laws and regulations, as well as orders of regulatory bodies,
governing a wide variety of matters, including marketing, production, pricing, community right-to-know, protection of the
environment, safety and other matters.
Environmental
We are subject to complex federal, state, and local environmental laws and regulations governing the discharge of
materials into the environment or otherwise relating to protection of human health, natural resources and the environment.
These laws and regulations can impair our operations that affect the environment in many ways, such as requiring the
acquisition of permits to conduct regulated activities; restricting the manner in which we can release materials into the
environment; requiring remedial activities or capital expenditures to mitigate pollution from former or current operations; and
imposing substantial liabilities on us for pollution resulting from our operations. Many environmental laws and regulations can
impose joint and several, strict liability, and any failure to comply with environmental laws and regulations may result in the
assessment of administrative, civil, and criminal penalties, the imposition of investigatory and remedial obligations, and, in
some circumstances, the issuance of injunctions that can limit or prohibit our operations.
The clear trend in environmental regulation is to place more restrictions and limitations on activities that may affect
the environment, and, thus, any changes in environmental laws and regulations that result in more stringent and costly waste
handling, storage, transport, disposal, or remediation requirements could have a material adverse effect on our operations and
financial position. Moreover, there is inherent risk of incurring significant environmental costs and liabilities in the
performance of our operations due to our handling of petroleum products and by-products, chemical substances, and wastes as
well as the accidental release or spill of such materials into the environment. Consequently, we cannot provide assurance that
we will not incur significant costs and liabilities as result of such handling practices, releases or spills, including those relating
to claims for damage to property and persons. In the event of future increases in costs, we may be unable to pass on those
increases to our customers. While we believe that we are in substantial compliance with current environmental laws and
regulations and that continued compliance with existing requirements would not have a material adverse impact on us, we
cannot provide any assurance that our environmental compliance expenditures will not have a material adverse effect on us in
the future.
Superfund
The Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, ("CERCLA"),
also known as the "Superfund" law, and similar state laws, impose liability without regard to fault or the legality of the original
conduct, on certain classes of "responsible persons," including the owner or operator of a site where regulated hazardous
substances have been released into the environment and companies that disposed or arranged for the disposal of the hazardous
substances found at such site. Under CERCLA, these responsible persons may be subject to joint and several strict liability for
the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural
18
resources, and for the costs of certain health studies, and it is not uncommon for neighboring landowners and other third parties
to file claims for personal injury and property damage allegedly caused by the release of hazardous substances into the
environment. Although certain hydrocarbons are not subject to CERCLA’s reach because "petroleum" is excluded from
CERCLA’s definition of a "hazardous substance," in the course of our ordinary operations we will generate wastes that may fall
within the definition of a "hazardous substance." In addition, some state counterparts to CERCLA tie liability to a broader set of
substances than does CERCLA.
Solid Waste
We generate both hazardous and nonhazardous solid wastes, which are subject to requirements of the federal Resource
Conservation and Recovery Act, as amended ("RCRA") and comparable state statutes. From time to time, the U.S.
Environmental Protection Agency ("EPA") has considered making changes in nonhazardous waste standards that would result
in stricter disposal requirements for these wastes. Furthermore, it is possible some wastes generated by us that are currently
classified as nonhazardous may in the future be designated as "hazardous wastes," resulting in the wastes being subject to more
rigorous and costly disposal requirements. Changes in applicable regulations may result in an increase in our capital
expenditures or operating expenses.
We currently own or lease, and have in the past owned or leased, properties that have been used for the manufacturing,
processing, transportation and storage of petroleum products and by-products. Solid waste disposal practices within oil and gas
related industries have improved over the years with the passage and implementation of various environmental laws and
regulations. Nevertheless, a possibility exists that petroleum and other solid wastes may have been disposed of on or under
various properties owned or leased by us during the operating history of those facilities. In addition, a number of these
properties have been operated by third parties over whom we had no control as to such entities’ handling of petroleum,
petroleum by-products or other wastes and the manner in which such substances may have been disposed of or released. State
and federal laws and regulations applicable to oil and natural gas wastes and properties have gradually become more strict and,
under such laws and regulations, we could be required to remove or remediate previously disposed wastes or property
contamination, including groundwater contamination, even under circumstances where such contamination resulted from past
operations of third parties.
Clean Air Act
Our operations are subject to the federal Clean Air Act ("CAA"), as amended, and comparable state statutes.
Amendments to the CAA adopted in 1990 contain provisions that may result in the imposition of increasingly stringent
pollution control requirements with respect to air emissions from the operations of our terminal facilities, processing and
storage facilities and fertilizer and related products manufacturing and processing facilities. Such air pollution control
requirements may include specific equipment or technologies to control emissions, permits with emissions and operational
limitations, pre-approval of new or modified projects or facilities producing air emissions, and similar measures. For example,
the Neches Terminal is located in an EPA-designated ozone non-attainment area, referred to as the Beaumont/Port Arthur non-
attainment area, which is subject to a EPA-adopted 8-hour standard for complying with the national standard for ozone. In
addition, existing sources of air emissions in the Beaumont/Port Arthur area are already subject to stringent emission reduction
requirements. Failure to comply with applicable air statutes or regulations may lead to the assessment of administrative, civil
or criminal penalties, and/or result in the limitation or cessation of construction or operation of certain air emission sources.
We believe our operations, including our manufacturing, processing and storage facilities and terminals, are in substantial
compliance with applicable requirements of the CAA and analogous state laws.
Global Warming and Climate Change. Recent scientific studies have suggested that emissions of certain gases,
commonly referred to as "greenhouse gases" and including carbon dioxide and methane, may be contributing to warming of the
Earth’s atmosphere. In response to such studies, the U.S. Congress has from time to time considered climate change-related
legislation to restrict greenhouse gas emissions. At least 17 states have already taken legal measures to reduce emissions of
greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and/or regional
greenhouse gas cap and trade programs. Also, as a result of the U.S. Supreme Court’s decision on April 2, 2007, in
Massachusetts, et al. v. EPA, the EPA eventually concluded that it is required to regulate greenhouse gas emissions from mobile
sources (e.g., cars and trucks) even if Congress does not adopt new legislation specifically addressing emissions of greenhouse
gases. The Court's holding in Massachusetts that greenhouse gases fall under the federal CAA's definition of air pollutant has
also led the EPA to determine that regulation of greenhouse gas emissions from stationary sources under various Clean Air Act
programs is required. To that end, EPA promulgated regulations, referred to as the Tailoring Rule, 75 Fed. Red. 31514, to begin
gradually subjecting stationary greenhouse gas emission sources to various Clean Air Act programs, including permitting
programs applicable to new and existing major sources of greenhouse gas emissions. To date, such requirements have not had
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a substantial effect upon our operations. Still, new legislation or regulatory programs that restrict emissions of greenhouse
gases in areas in which we conduct business could adversely affect our operations and demand for our services.
Clean Water Act
The Federal Water Pollution Control Act of 1972, as amended, also known as Clean Water Act and comparable state
laws impose restrictions and strict controls regarding the discharge of pollutants, including hydrocarbon-bearing wastes, into
state waters and waters of the U.S.. Pursuant to the Clean Water Act and similar state laws, a National Pollutant Discharge
Elimination System, or state permit, or both, must be obtained to discharge pollutants into federal and state waters. In addition,
the Clean Water Act and comparable state laws require that individual permits or coverage under general permits be obtained
by subject facilities for discharges of storm water runoff. We believe that we are in substantial compliance with Clean Water
Act permitting requirements as well as the conditions imposed thereunder, and that our continued compliance with such
existing permit conditions will not have a material adverse effect on our business, financial condition or results of operations.
Oil Pollution Act
The Oil Pollution Act of 1990, as amended ("OPA") imposes a variety of regulations on "responsible parties" related
to the prevention of oil spills and liability for damages resulting from such spills in U.S. waters. A "responsible party" includes
the owner or operator of a facility or vessel or the lessee or permittee of the area in which an offshore facility is located. The
OPA assigns liability to each responsible party for oil removal costs and a variety of public and private damages including
natural resource damages. Under the OPA, vessels and shore facilities handling, storing, or transporting oil are required to
develop and implement oil spill response plans, and vessels greater than 300 tons in weight must provide to the U.S. Coast
Guard evidence of financial responsibility to cover the costs of cleaning up oil spills from such vessels. The OPA also requires
that all newly constructed tank barges engaged in oil transportation in the U.S. be double hulled and all existing single hull tank
barges be retrofitted with double hulls or phased out by 2015. We believe we are in substantial compliance with all of the oil
spill-related and financial responsibility requirements. Nonetheless, in the aftermath of the Deepwater Horizon incident in
2010, Congress has from time to time considered oil spill related legislation that could have the effect of substantially
increasing financial responsibility requirements and potential fines and damages for violations and discharges subject to the
OPA, and similar legislation. Any such changes in law affecting areas where we conduct business could materially affect our
operations.
Safety Regulation
The Company’s marine transportation operations are subject to regulation by the U.S. Coast Guard, federal laws, state
laws and certain international treaties. Tank ships, push boats, tugboats and barges are required to meet construction and repair
standards established by the American Bureau of Shipping, a private organization, and the U.S. Coast Guard and to meet
operational and safety standards presently established by the U.S. Coast Guard. We believe our marine operations and our
terminals are in substantial compliance with current applicable safety requirements.
Occupational Health Regulations
The workplaces associated with our manufacturing, processing, terminal and storage facilities are subject to the
requirements of the federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. We believe we have
conducted our operations in substantial compliance with OSHA requirements, including general industry standards, record
keeping requirements and monitoring of occupational exposure to regulated substances. Our marine vessel operations are also
subject to safety and operational standards established and monitored by the U.S. Coast Guard.
In general, we expect to increase our expenditures relating to compliance with likely higher industry and regulatory
safety standards such as those described above. These expenditures cannot be accurately estimated at this time, but we do not
expect them to have a material adverse effect on our business.
Jones Act
The Jones Act is a federal law that restricts maritime transportation between locations in the U.S. to vessels built and
registered in the U.S. and owned and manned by U.S. citizens. Since we engage in maritime transportation between locations
in the U.S., we are subject to the provisions of the law. As a result, we are responsible for monitoring the ownership of our
subsidiaries that engage in maritime transportation and for taking any remedial action necessary to ensure that no violation of
the Jones Act ownership restrictions occurs. The Jones Act also requires that all U.S.-flagged vessels be manned by U.S.
citizens. Foreign-flagged seamen generally receive lower wages and benefits than those received by U.S. citizen seamen. This
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requirement significantly increases operating costs of U.S.-flagged vessel operations compared to foreign-flagged vessel
operations. Certain foreign governments subsidize their nations’ shipyards. This results in lower shipyard costs both for new
vessels and repairs than those paid by U.S.-flagged vessel owners. The U.S. Coast Guard and American Bureau of Shipping
maintain the most stringent regimen of vessel inspection in the world, which tends to result in higher regulatory compliance
costs for U.S.-flagged operators than for owners of vessels registered under foreign flags of convenience.
Merchant Marine Act of 1936
The Merchant Marine Act of 1936 is a federal law that provides that, upon proclamation by the President of the U.S.
of a national emergency or a threat to the national security, the U.S. Secretary of Transportation may requisition or purchase
any vessel or other watercraft owned by U.S. citizens (including us, provided that we are considered a U.S. citizen for this
purpose). If one of our push boats, tugboats or tank barges were purchased or requisitioned by the U.S. government under this
law, we would be entitled to be paid the fair market value of the vessel in the case of a purchase or, in the case of a requisition,
the fair market value of charter hire. However, if one of our push boats or tugboats is requisitioned or purchased and its
associated tank barge is left idle, we would not be entitled to receive any compensation for the lost revenues resulting from the
idled barge. We also would not be entitled to be compensated for any consequential damages we suffer as a result of the
requisition or purchase of any of our push boats, tugboats or tank barges.
Employees
We do not have any employees. Under our Omnibus Agreement with Martin Resource Management, Martin Resource
Management provides us with corporate staff and support services. These services include centralized corporate functions,
such as accounting, treasury, engineering, information technology, insurance, administration of employee benefit plans and
other corporate services. Martin Resource Management employs approximately 871 individuals, including 54 employees
represented by labor unions, who provide direct support to our operations as of December 31, 2015.
Financial Information about Segments
Information regarding our operating revenues and identifiable assets attributable to each of our segments is presented
in Note 20 to our consolidated financial statements included in this annual report on Form 10-K.
Access to Public Filings
We provide public access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to these reports filed with the SEC under the Securities and Exchange Act of 1934. These
documents may be accessed free of charge on our website at the following address: www.martinmidstream.com. These
documents are provided as soon as is reasonably practicable after their filing with the SEC. This website address is intended to
be an inactive, textual reference only, and none of the material on this website is part of this report. These documents may also
be found at the SEC’s website at www.sec.gov.
Item 1A. Risk Factors
Limited partner interests are inherently different from the capital stock of a corporation, although many of the business
risks to which we are subject are similar to those that would be faced by a corporation engaged in a business similar to ours. If
any of the following risks were actually to occur, our business, financial condition or results of operations could be materially
adversely affected. In this case, we might not be able to pay distributions on our common units, the trading price of our
common units could decline and unitholders could lose all or part of their investment. These risk factors should be read in
conjunction with the other detailed information concerning us set forth herein.
Risks Relating to Our Business
Important factors that could cause actual results to differ materially from our expectations include, but are not limited
to, the risks set forth below. The risks described below should not be considered to be comprehensive and all-inclusive. Many
of such factors are beyond our ability to control or predict. Unitholders are cautioned not to put undue reliance on forward-
looking statements. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our
business operations, financial condition and results of operations.
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We may not have sufficient cash after the establishment of cash reserves and payment of our general partner's expenses to
enable us to pay the minimum quarterly distribution each quarter.
We may not have sufficient available cash each quarter in the future to pay the minimum quarterly distributions on all
our units. Under the terms of our partnership agreement, we must pay our general partner's expenses and set aside any cash
reserve amounts before making a distribution to our unitholders. The amount of cash we can distribute on our common units
principally depends upon the amount of net cash generated from our operations, which will fluctuate from quarter to quarter
based on, among other things:
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the costs of acquisitions, if any;
the prices of petroleum products and by-products;
fluctuations in our working capital;
the level of capital expenditures we make;
restrictions contained in our debt instruments and our debt service requirements;
our ability to make working capital borrowings under our credit facility; and
the amount, if any, of cash reserves established by our general partner in its discretion.
Unitholders should also be aware that the amount of cash we have available for distribution depends primarily on our
cash flow, including cash flow from working capital borrowings, and not solely on profitability, which will be affected by non-
cash items. In addition, our general partner determines the amount and timing of asset purchases and sales, capital
expenditures, borrowings, issuances of additional partnership securities and the establishment of reserves, each of which can
affect the amount of cash available for distribution to our unitholders. As a result, we may make cash distributions during
periods when we record losses and may not make cash distributions during periods when we record net income.
Restrictions in our credit facility could prevent us from making distributions to our unitholders.
The payment of principal and interest on our indebtedness reduces the cash available for distribution to our
unitholders. In addition, we are prohibited by our credit facility from making cash distributions during a default or an event of
default under our credit facility or if the payment of a distribution would cause a default or an event of default thereunder. Our
leverage and various limitations in our credit facility may reduce our ability to incur additional debt, engage in certain
transactions, and capitalize on acquisition or other business opportunities that could increase cash flows and distributions to our
unitholders.
Debt we owe or incur in the future could limit our flexibility to obtain financing and to pursue other business opportunities.
Our indebtedness could have important consequences, including the following:
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our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions
or other purposes may be impaired or such financing may not be available on favorable terms;
our funds available for operations, future business opportunities and distributions to unitholders will be
reduced by that portion of our cash flows required to make interest payments on the debt;
• we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally;
and
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our flexibility in responding to changing business and economic conditions may be limited.
Our ability to service our debt will depend upon, among other things, our future financial and operating performance,
which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which
are beyond our control. If our operating results are not sufficient to service any future indebtedness, we will be forced to take
actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments or capital
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expenditures, selling assets or seeking additional equity capital. We may not be able to effect any of these actions on
satisfactory terms or at all.
If we do not have sufficient capital resources for acquisitions or opportunities for expansion, our growth will be limited.
We intend to explore acquisition opportunities in order to expand our operations and increase our profitability. We
may finance acquisitions through public and private financing, or we may use our limited partner interests for all or a portion of
the consideration to be paid in acquisitions. Distributions of cash with respect to these equity securities or limited partner
interests may reduce the amount of cash available for distribution to the common units. In addition, in the event our limited
partner interests do not maintain a sufficient valuation, or potential acquisition candidates are unwilling to accept our limited
partner interests as all or part of the consideration, we may be required to use our cash resources, if available, or rely on other
financing arrangements to pursue acquisitions. If we use funds from operations, other cash resources or increased borrowings
for an acquisition, the acquisition could adversely impact our ability to make our minimum quarterly distributions to our
unitholders. Additionally, if we do not have sufficient capital resources or are not able to obtain financing on terms acceptable
to us for acquisitions, our ability to implement our growth strategies may be adversely impacted.
A higher cost of capital relative to our peers could limit our ability to grow through acquisitions.
In order to expand our operations and increase profitability, we explore acquisition opportunities. When competing
for acquisition targets, firms with a lower cost of capital will be in a stronger position to secure the acquisition. A higher cost of
capital relative to our peers could put us in a weaker position to grow through acquisitions.
We are exposed to counterparty risk in our credit facility and related interest rate protection agreements.
We rely on our credit facility to assist in financing a significant portion of our working capital, acquisitions and capital
expenditures. Our ability to borrow under our credit facility may be impaired because:
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one or more of our lenders may be unable or otherwise fail to meet its funding obligations;
the lenders do not have to provide funding if there is a default under the credit facility or if any of the
representations or warranties included in the credit facility are false in any material respect; and
if any lender refuses to fund its commitment for any reason, whether or not valid, the other lenders are not
required to provide additional funding to make up for the unfunded portion.
If we are unable to access funds under our credit facility, we will need to meet our capital requirements, including
some of our short-term capital requirements, using other sources. Alternative sources of liquidity may not be available on
acceptable terms, if at all. If the cash generated from our operations or the funds we are able to obtain under our credit facility
or other sources of liquidity are not sufficient to meet our capital requirements, then we may need to delay or abandon capital
projects or other business opportunities, which could have a material adverse effect on our business, financial condition and
results of operations.
In addition, we have from time to time entered into interest rate protection agreements to manage our interest rate risk
exposure by fixing a portion of the interest expense we pay on our long-term debt under our credit facility. Uncertainty in the
global economy and banking markets exists, which could affect whether the counterparties to such interest rate protection
agreements are able to honor their agreements. If the counterparties fail to honor their commitments, we could experience
higher interest rates, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, if the counterparties fail to honor their commitments, we also may be required to replace such interest rate
protection agreements with new interest rate protection agreements, and such replacement interest rate protection agreements
may be at higher rates than our current interest rate protection agreements, which could have a material adverse effect on our
business, financial condition and results of operations.
The impacts of climate-related initiatives at the international, federal and state levels remain uncertain at this time.
Currently, there are numerous international, federal and state-level initiatives and proposals addressing domestic and
global climate issues. Within the U.S., most of these proposals would regulate and/or tax, in one fashion or another, the
production of carbon dioxide and other "greenhouse gases" to facilitate the reduction of carbon compound emissions to the
atmosphere and provide tax and other incentives to produce and use more "clean energy." Costs to comply with future climate-
related initiatives could have a material impact on our business, financial condition and results of operations.
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Our recent and future acquisitions may not be successful, may substantially increase our indebtedness and contingent
liabilities and may create integration difficulties.
As part of our business strategy, we intend to acquire businesses or assets we believe complement our existing
operations. We may not be able to successfully integrate recent or any future acquisitions into our existing operations or
achieve the desired profitability from such acquisitions. These acquisitions may require substantial capital expenditures and the
incurrence of additional indebtedness. If we make acquisitions, our capitalization and results of operations may change
significantly. Further, any acquisition could result in:
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post-closing discovery of material undisclosed liabilities of the acquired business or assets;
the unexpected loss of key employees or customers from the acquired businesses;
difficulties resulting from our integration of the operations, systems and management of the acquired
business; and
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an unexpected diversion of our management's attention from other operations.
If recent or any future acquisitions are unsuccessful or result in unanticipated events or if we are unable to successfully
integrate acquisitions into our existing operations, such acquisitions could adversely affect our results of operations, cash flow
and ability to make distributions to our unitholders.
Adverse weather conditions, including droughts, hurricanes, tropical storms and other severe weather, could reduce our
results of operations and ability to make distributions to our unitholders.
Our distribution network and operations are primarily concentrated in the Gulf Coast region and along the Mississippi
River inland waterway. Weather in these regions is sometimes severe (including tropical storms and hurricanes) and can be a
major factor in our day-to-day operations. Our marine transportation operations can be significantly delayed, impaired or
postponed by adverse weather conditions, such as fog in the winter and spring months and certain river conditions.
Additionally, our marine transportation operations and our assets in the Gulf of Mexico, including our barges, push boats,
tugboats and terminals, can be adversely impacted or damaged by hurricanes, tropical storms, tidal waves or other related
events. Demand for our lubricants and the diesel fuel we throughput in our Terminalling and Storage segment can be affected
if offshore drilling operations are disrupted by weather in the Gulf of Mexico.
National weather conditions have a substantial impact on the demand for our products. Unusually warm weather
during the winter months can cause a significant decrease in the demand for NGL products. Likewise, extreme weather
conditions (either wet or dry) can decrease the demand for fertilizer. For example, an unusually wet spring can delay planting
of seeds, which can leave insufficient time to apply fertilizer at the planting stage. Conversely, drought conditions can kill or
severely stunt the growth of crops, thus eliminating the need to nurture plants with fertilizer. Any of these or similar conditions
could result in a decline in our net income and cash flow, which would reduce our ability to make distributions to our
unitholders.
If we incur material liabilities that are not fully covered by insurance, such as liabilities resulting from accidents on rivers
or at sea, spills, fires or explosions, our results of operations and ability to make distributions to our unitholders could be
adversely affected.
Our operations are subject to the operating hazards and risks incidental to terminalling and storage, marine
transportation and the distribution of petroleum products and by-products and other industrial products. These hazards and
risks, many of which are beyond our control, include:
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accidents on rivers or at sea and other hazards that could result in releases, spills and other environmental
damages, personal injuries, loss of life and suspension of operations;
leakage of NGLs, natural gas, and other petroleum products and by-products;
fires and explosions;
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damage to transportation, terminalling and storage facilities and surrounding properties caused by natural
disasters; and
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terrorist attacks or sabotage.
Our insurance coverage may not be adequate to protect us from all material expenses related to potential future claims
for personal-injury and property damage, including various legal proceedings and litigation resulting from these hazards and
risks. If we incur material liabilities that are not covered by insurance, our operating results, cash flow and ability to make
distributions to our unitholders could be adversely affected.
Changes in the insurance markets attributable to the effects of Hurricanes Katrina, Rita and Ike and their aftermath
may make some types of insurance more difficult or expensive for us to obtain. As a result, we may be unable to secure the
levels and types of insurance we would otherwise have secured prior to such events. Moreover, the insurance that may be
available to us may be significantly more expensive than our existing insurance coverage.
The price volatility of petroleum products and by-products could reduce our liquidity and results of operations and ability to
make distributions to our unitholders.
We purchase petroleum products and by-products, such as molten sulfur, fuel oils, NGLs, lubricants, and other bulk
liquids and sell these products to wholesale and bulk customers and to other end users. We also generate revenues through the
terminalling and storage of certain products for third parties. The price and market value of petroleum products and by-
products could be, and has recently been, volatile. Our liquidity and revenues have been adversely affected by this volatility
during periods of decreasing prices because of the reduction in the value and resale price of our inventory. In addition, our
liquidity and costs have been adversely affected during periods of increasing prices because of the increased costs associated
with our purchase of petroleum products and by-products. Future price volatility could have an adverse impact on our liquidity
and results of operations, cash flow and ability to make distributions to our unitholders.
Increasing energy prices could adversely affect our results of operations.
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 our results of operations including net income and cash flows. We cannot assure unitholders that
we will be able to pass along increased operating expenses to our customers.
Decreasing energy prices could adversely affect our results of operations.
Commodity prices have declined substantially and experienced significant volatility. If commodity prices remain
weak for a sustained period, our pipeline, terminalling throughput and NGL volumes may be negatively impacted, particularly
as producers are curtailing or redirecting drilling, adversely affecting our results of operations. A sustained decline in
commodity prices could result in a decrease in activity in the areas served by certain of our terminalling and storage and marine
transportation assets resulting in reduced utilization of these assets.
Increased competition from alternative natural gas transportation and storage options and alternative fuel sources could
have a significant financial impact on us.
Our ability to renew or replace existing contracts at rates sufficient to maintain current revenues and cash flows could
be adversely affected by activities of other interstate and intrastate pipelines and storage facilities that may expand or construct
competing transportation and storage systems. In addition, future pipeline transportation and storage capacity could be
constructed in excess of actual demand and with lower fuel requirements, operating and maintenance costs than our facilities,
which could reduce the demand for and the rates that we receive for our services in particular areas. Further, natural gas also
competes with alternative energy sources available to our customers that are used to generate electricity, such as hydroelectric
power, solar, wind, nuclear, coal and fuel oil.
Demand for a portion of our terminalling and storage services is substantially dependent on the level of offshore oil and gas
exploration, development and production activity.
The level of offshore oil and gas exploration, development and production activity historically has been volatile and is
likely to continue to be so in the future. The level of activity is subject to large fluctuations in response to relatively minor
changes in a variety of factors that are beyond our control, including:
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prevailing oil and natural gas prices and expectations about future prices and price volatility;
the cost of offshore exploration for and production and transportation of oil and natural gas;
• worldwide demand for oil and natural gas;
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consolidation of oil and gas and oil service companies operating offshore;
availability and rate of discovery of new oil and natural gas reserves in offshore areas;
local and international political and economic conditions and policies;
technological advances affecting energy production and consumption;
• weather conditions;
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environmental regulation; and
the ability of oil and gas companies to generate or otherwise obtain funds for exploration and production.
We expect levels of offshore oil and gas exploration, development and production activity to continue to be volatile
and affect demand for our terminalling and storage services.
Our NGL and sulfur-based fertilizer products are subject to seasonal demand and could cause our revenues to vary.
The demand for NGLs and natural gas is highest in the winter. Therefore, revenue from our natural gas services
business is higher in the winter than in other seasons. Our sulfur-based fertilizer products experience an increase in demand
during the spring, which increases the revenue generated by this business line in this period compared to other periods. The
seasonality of the revenue from these products may cause our results of operations to vary on a quarter-to-quarter basis and thus
could cause our cash available for quarterly distributions to fluctuate from period to period.
The highly competitive nature of our industry could adversely affect our results of operations and ability to make
distributions to our unitholders.
We operate in a highly competitive marketplace in each of our primary business segments. Most of our competitors in
each segment are larger companies with greater financial and other resources than we possess. We may lose customers and
future business opportunities to our competitors and any such losses could adversely affect our results of operations and ability
to make distributions to our unitholders.
Our business is subject to compliance with environmental laws and regulations that could expose us to significant costs and
liabilities and adversely affect our results of operations and ability to make distributions to our unitholders.
Our business is subject to federal, state and local environmental laws and regulations governing the discharge of
materials into the environment or otherwise relating to protection of human health, natural resources and the environment.
These laws and regulations may impose numerous obligations that are applicable to our operations, such as: requiring the
acquisition of permits to conduct regulated activities; restricting the manner in which we can release materials into the
environment; requiring remedial activities or capital expenditures to mitigate pollution from former or current operations; and
imposing substantial liabilities on us for pollution resulting from our operations. Numerous governmental authorities, such as
the U.S. Environmental Protection Agency and analogous state agencies, have the power to enforce compliance with these laws
and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Many environmental laws
and regulations can impose joint and several strict liability, and any failure to comply with environmental laws, regulations and
permits may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and
remedial obligations and, in some circumstances, the issuance of injunctions that can limit or prohibit our operations. The clear
trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment,
and, thus, any changes in environmental laws and regulations that result in more stringent and costly waste handling, storage,
transport, disposal or remediation requirements could have a material adverse effect on our operations and financial position.
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The loss or insufficient attention of key personnel could negatively impact our results of operations and ability to make
distributions to our unitholders.
Our success is largely dependent upon the continued services of members of the senior management team of Martin
Resource Management. Those senior officers have significant experience in our businesses and have developed strong
relationships with a broad range of industry participants. The loss of any of these executives could have a material adverse
effect on our relationships with these industry participants, our results of operations and our ability to make distributions to our
unitholders.
We do not have employees. We rely solely on officers and employees of Martin Resource Management to operate and
manage our business. Martin Resource Management operates businesses and conducts activities of its own in which we have
no economic interest. There could be competition for the time and effort of the officers and employees who provide services to
our general partner. If these officers and employees do not or cannot devote sufficient attention to the management and
operation of our business, our results of operations and ability to make distributions to our unitholders may be reduced.
Our loss of significant commercial relationships with Martin Resource Management could adversely impact our results of
operations and ability to make distributions to our unitholders.
Martin Resource Management provides us with various services and products pursuant to various commercial
contracts. The loss of any of these services and products provided by Martin Resource Management could have a material
adverse impact on our results of operations, cash flow and ability to make distributions to our unitholders. Additionally, we
provide terminalling and storage, processing and marine transportation services to Martin Resource Management to support its
businesses under various commercial contracts. The loss of Martin Resource Management as a customer could have a material
adverse impact on our results of operations, cash flow and ability to make distributions to our unitholders.
Our business could be adversely affected if operations at our transportation, terminalling and storage and distribution
facilities experienced significant interruptions. Our business could also be adversely affected if the operations of our
customers and suppliers experienced significant interruptions.
Our operations are dependent upon our terminalling and storage facilities and various means of transportation. We are
also dependent upon the uninterrupted operations of certain facilities owned or operated by our suppliers and customers. Any
significant interruption at these facilities or inability to transport products to or from these facilities or to or from our customers
for any reason would adversely affect our results of operations, cash flow and ability to make distributions to our unitholders.
Operations at our facilities and at the facilities owned or operated by our suppliers and customers could be partially or
completely shut down, temporarily or permanently, as the result of any number of circumstances that are not within our control,
such as:
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catastrophic events, including hurricanes;
environmental remediation;
labor difficulties; and
disruptions in the supply of our products to our facilities or means of transportation.
Additionally, terrorist attacks and acts of sabotage could target oil and gas production facilities, refineries, processing
plants, terminals and other infrastructure facilities. Any significant interruptions at our facilities, facilities owned or operated
by our suppliers or customers, or in the oil and gas industry as a whole caused by such attacks or acts could have a material
adverse effect on our results of operations, cash flow and ability to make distributions to our unitholders.
Political, regulatory and economic factors could significantly affect our operations, the manner in which we conduct our
business and slow our rate of growth.
Due to changes in the political climate as a result of the outcome of recent state elections and the Congressional
election in the U.S., we cannot predict with any certainty the nature and extent of the changes in federal, state and local laws,
regulations and policy we will face, or the effect of such elections on any pending legislation. Any increased regulation, new
policy initiatives, increased taxes or any other changes in federal law may have an adverse effect on our business, financial
condition and results of operations.
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NASDAQ does not require a publicly traded partnership like us to comply with certain of its corporate governance
requirements, and therefore, unitholders do not have the same protections afforded to shareholders of corporations subject
to all NASDAQ requirements.
Because we are a publicly traded partnership, the Nasdaq Global Select Market ("NASDAQ") does not require our
general partner to have a majority of independent directors on its board of directors or to establish a compensation committee
or nominating and corporate governance committee. Accordingly, unitholders do not have the same protections afforded to
certain corporations that are subject to all of NASDAQ corporate governance requirements.
Our marine transportation business could be adversely affected if we do not satisfy the requirements of the Jones Act or if
the Jones Act were modified or eliminated.
The Jones Act is a federal law that restricts domestic marine transportation in the U.S. to vessels built and registered in
the U.S. Furthermore, the Jones Act requires that the vessels be manned and owned by U.S. citizens. If we fail to comply with
these requirements, our vessels lose their eligibility to engage in coastwise trade within U.S. Domestic waters.
The requirements that our vessels be U.S. built and manned by U.S. citizens, the crewing requirements and material
requirements of the Coast Guard and the application of U.S. labor and tax laws significantly increase the costs of U.S. flagged
vessels when compared with foreign-flagged vessels. During the past several years, certain interest groups have lobbied
Congress to repeal the Jones Act to facilitate foreign flag competition for trades and cargoes reserved for U.S. flagged vessels
under the Jones Act and cargo preference laws. If the Jones Act were to be modified to permit foreign competition that would
not be subject to the same U.S. government imposed costs, we may need to lower the prices we charge for our services in
order to compete with foreign competitors, which would adversely affect our cash flow and ability to make distributions to our
unitholders.
Our marine transportation business could be adversely affected if the U.S. Government purchases or requisitions any of
our vessels under the Merchant Marine Act.
We are subject to the Merchant Marine Act of 1936, which provides that, upon proclamation by the President of the
U.S. of a national emergency or a threat to the national security, the U.S. Secretary of Transportation may requisition or
purchase any vessel or other watercraft owned by U.S. citizens (including us, provided that we are considered a U.S. citizen
for this purpose). If one of our push boats, tugboats or tank barges were purchased or requisitioned by the U.S. government
under this law, we would be entitled to be paid the fair market value of the vessel in the case of a purchase or, in the case of a
requisition, the fair market value of charter hire. However, if one of our push boats or tugboats is requisitioned or purchased
and its associated tank barge is left idle, we would not be entitled to receive any compensation for the lost revenues resulting
from the idled barge. We also would not be entitled to be compensated for any consequential damages we suffer as a result of
the requisition or purchase of any of our push boats, tugboats or tank barges. If any of our vessels are purchased or
requisitioned for an extended period of time by the U.S. government, such transactions could have a material adverse effect on
our results of operations, cash flow and ability to make distributions to our unitholders.
Our interest rate swap activities could have a material adverse effect on our earnings, profitability, liquidity, cash flows and
financial condition.
We enter into interest rate swap agreements from time to time to manage some of our exposure to interest rate
volatility. These swap agreements involve risks, such as the risk that counterparties may fail to honor their obligations under
these arrangements. In addition, these arrangements may not be effective in reducing our exposure to changes in interest rates.
When we use forward-starting interest rate swaps, there is a risk that we will not complete the long-term borrowing against
which the swap is intended to hedge. If such events occur, our results of operations may be adversely affected.
The industry in which we operate is highly competitive, and increased competitive pressure could adversely affect our
business and operating results.
We compete with similar enterprises in our respective areas of operation. Some of our competitors are large oil,
natural gas and petrochemical companies that have greater financial resources and access to supplies of NGLs than we do. In
addition, our customers who are significant producers of natural gas may develop their own gathering, processing and
transportation systems in lieu of using ours. Likewise, our customers who produce NGLs may develop their own systems to
transport NGLs in lieu of using ours. Our ability to renew or replace existing contracts with our customers at rates sufficient
to maintain current revenues and cash flows could be adversely affected by the activities of our competitors and our
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customers. All of these competitive pressures could have a material adverse effect on our business, results of operations,
financial condition and ability to make cash distributions to our unitholders.
Information technology systems present potential targets for cyber security attacks, which could adversely affect our
business.
We are reliant on technology to improve efficiency in our business. Information technology systems are critical to
our operations. These systems could be a potential target for a cyber security attack as they are used to store and process
sensitive information regarding our operations, financial position, and information pertaining to our customers and vendors.
While we take the utmost precautions, we cannot guarantee safety from all threats and attacks. Any successful breach of
security could result in the spread of inaccurate or confidential information, disruption of operations, environmental harm,
endangerment of employees, damage to our assets, and increased costs to respond. Any of these instances could have a
negative impact on cash flows, litigation status and/or our reputation, which could have a material adverse affect on our
business, financial conditions and operations.
If we are deemed an "investment company" under the Investment Company Act of 1940, it would adversely affect the price
of our common units and could have a material adverse effect on our business.
Our assets include interests in joint ventures, specifically a 20.0% interest in WTLPG. This joint venture interest may
be deemed to be "investment securities" within the meaning of the Investment Company Act of 1940, or the Investment
Company Act. If a sufficient amount of our assets are deemed to be "investment securities" within the meaning of the
Investment Company Act, and we are unable to rely on an exemption under the Investment Company Act, we would either
have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or
modify our organizational structure or our contract rights to fall outside the definition of an investment company. Registering as
an investment company could, among other things, materially limit our ability to engage in transactions with affiliates,
including the purchase and sale of certain securities or other property to or from our affiliates, restrict our ability to borrow
funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us or
our affiliates. The occurrence of some or all of these events may have a material adverse effect on our business.
Moreover, treatment of us as an investment company would prevent our qualification as a partnership for federal
income tax purposes in which case we would be treated as a corporation for federal income tax purposes, and be subject to
federal income tax at the corporate tax rate, significantly reducing the cash available for distributions. Additionally,
distributions to the unitholders would be taxed again as corporate distributions and none of our income, gains, losses or
deductions would flow through to the unitholders.
Additionally, as a result of our desire to avoid having to register as an investment company under the Investment
Company Act, we may have to forego potential future acquisitions of interests in companies that may be deemed to be
investment securities within the meaning of the Investment Company Act or dispose of our current interests in any of our assets
that are deemed to be "investment securities."
Risks Relating to an Investment in the Common Units
Units available for future sales by us or our affiliates could have an adverse impact on the price of our common units or on
any trading market that may develop.
Common units will generally be freely transferable without restriction or further registration under the Securities Act,
except that any common units held by an "affiliate" of ours may not be resold publicly except in compliance with the
registration requirements of the Securities Act or under an exemption under Rule 144 or otherwise.
Our partnership agreement provides that we may issue an unlimited number of limited partner interests of any type
without a vote of the unitholders. Our general partner may also cause us to issue an unlimited number of additional common
units or other equity securities of equal rank with the common units, without unitholder approval, in a number of
circumstances such as:
•
the issuance of common units in additional public offerings or in connection with acquisitions that increase
cash flow from operations on a pro forma, per unit basis;
•
the conversion of subordinated units into common units;
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•
•
the conversion of units of equal rank with the common units into common units under some circumstances;
or
the conversion of our general partner's general partner interest in us and its incentive distribution rights into
common units as a result of the withdrawal of our general partner.
Our partnership agreement does not restrict our ability to issue equity securities ranking junior to the common units at
any time. Any issuance of additional common units or other equity securities would result in a corresponding decrease in the
proportionate ownership interest in us represented by, and could adversely affect the cash distributions to and market price of,
common units then outstanding.
Under our partnership agreement, our general partner and its affiliates have the right to cause us to register under the
Securities Act and applicable state securities laws the offer and sale of any units that they hold. Subject to the terms and
conditions of our partnership agreement, these registration rights allow the general partner and its affiliates or their assignees
holding any units to require registration of any of these units and to include any of these units in a registration by us of other
units, including units offered by us or by any unitholder. Our general partner will continue to have these registration rights for
two years following its withdrawal or removal as a general partner. In connection with any registration of this kind, we will
indemnify each unitholder participating in the registration and its officers, directors, and controlling persons from and against
any liabilities under the Securities Act or any applicable state securities laws arising from the registration statement or
prospectus. Except as described below, the general partner and its affiliates may sell their units in private transactions at any
time, subject to compliance with applicable laws. Our general partner and its affiliates, with our concurrence, have granted
comparable registration rights to their bank group to which their partnership units have been pledged.
The sale of any common or subordinated units could have an adverse impact on the price of the common units or on
any trading market that may develop.
Unitholders have less power to elect or remove management of our general partner than holders of common stock in a
corporation. It is unlikely that our common unitholders will have sufficient voting power to elect or remove our general
partner without the consent of Martin Resource Management and its affiliates.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting
our business and therefore limited ability to influence management's decisions regarding our business. Unitholders did not
elect our general partner or its directors and will have no right to elect our general partner or its directors on an annual or other
continuing basis. Holdings, the sole member of MMGP, elects the board of directors of our general partner.
If unitholders are dissatisfied with the performance of our general partner, they will have a limited ability to remove
our general partner. Our general partner generally may not be removed except upon the vote of the holders of at least 66 2/3%
of the outstanding units voting together as a single class. As of December 31, 2015, Martin Resource Management owned
17.7% of our total outstanding common limited partner units.
Unitholders' voting rights are further restricted by our partnership agreement provision prohibiting any units held by a
person owning 20% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees
and persons who acquired such units with the prior approval of our general partner's directors, from voting on any matter. In
addition, our partnership agreement contains provisions limiting the ability of unitholders to call meetings or to acquire
information about our operations, as well as other provisions limiting the unitholders' ability to influence the manner or
direction of management.
As a result of these provisions, it will be more difficult for a third party to acquire our partnership without first
negotiating the acquisition with our general partner. Consequently, it is unlikely the trading price of our common units will
ever reflect a takeover premium.
Our general partner's discretion in determining the level of our cash reserves may adversely affect our ability to make cash
distributions to our unitholders.
Our partnership agreement requires our general partner to deduct from operating surplus cash reserves that it
determines in its reasonable discretion to be necessary to fund our future operating expenditures. In addition, our partnership
agreement permits our general partner to reduce available cash by establishing cash reserves for the proper conduct of our
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business, to comply with applicable law or agreements to which we are a party, or to provide funds for future distributions to
partners. These cash reserves will affect the amount of cash available for distribution to our unitholders.
Unitholders may not have limited liability if a court finds that we have not complied with applicable statutes or that
unitholder action constitutes control of our business.
The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have
not been clearly established in some states. The holder of one of our common units could be held liable in some circumstances
for our obligations to the same extent as a general partner if a court were to determine that:
• we had been conducting business in any state without compliance with the applicable limited partnership
statute; or
•
the right or the exercise of the right by our unitholders as a group to remove or replace our general partner, to
approve some amendments to our partnership agreement, or to take other action under our partnership
agreement constituted participation in the "control" of our business.
Our general partner generally has unlimited liability for our obligations, such as our debts and environmental
liabilities, except for our contractual obligations that are expressly made without recourse to our general partner. In addition,
under some circumstances, a unitholder may be liable to us for the amount of a distribution for a period of nine years from the
date of the distribution.
Our partnership agreement contains provisions that reduce the remedies available to unitholders for actions that might
otherwise constitute a breach of fiduciary duty by our general partner.
Our partnership agreement limits the liability and reduces the fiduciary duties of our general partner to the unitholders.
Our partnership agreement also restricts the remedies available to unitholders for actions that would otherwise constitute
breaches of our general partner's fiduciary duties. For example, our partnership agreement:
•
•
•
•
permits our general partner to make a number of decisions in its "sole discretion." This entitles our general
partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any
consideration to any interest of, or factors affecting, us, our affiliates or any limited partner;
provides that our general partner is entitled to make other decisions in its "reasonable discretion," which may
reduce the obligations to which our general partner would otherwise be held;
generally provides that affiliated transactions and resolutions of conflicts of interest not involving a required
vote of unitholders must be "fair and reasonable" to us and that, in determining whether a transaction or
resolution is "fair and reasonable," our general partner may consider the interests of all parties involved,
including its own; and
provides that our general partner and its officers and directors will not be liable for monetary damages to us,
our limited partners or assignees for errors of judgment or for any acts or omissions if our general partner and
those other persons acted in good faith.
Unitholders are treated as having consented to the various actions contemplated in our partnership agreement and
conflicts of interest that might otherwise be considered a breach of fiduciary duties under applicable state law.
We may issue additional common units without unitholder approval, which would dilute unitholder ownership interests.
Our general partner may also cause us to issue an unlimited number of additional common units or other equity
securities of equal rank with the common units, without unitholder approval, in a number of circumstances such as:
•
the issuance of common units in additional public offerings or in connection with acquisitions that increase
cash flow from operations on a pro forma, per unit basis;
•
the conversion of subordinated units into common units;
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•
•
the conversion of units of equal rank with the common units into common units under some circumstances;
or
the conversion of our general partner's general partner interest in us and its incentive distribution rights into
common units as a result of the withdrawal of our general partner.
We may issue an unlimited number of limited partner interests of any type without the approval of our unitholders.
Our partnership agreement does not give our unitholders the right to approve our issuance of equity securities ranking junior to
the common units at any time.
The issuance of additional common units or other equity securities of equal or senior rank will have the following
effects:
•
•
•
•
•
•
our unitholders' proportionate ownership interest in us will decrease;
the amount of cash available for distribution on a per unit basis may decrease;
because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the
payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
the relative voting strength of each previously outstanding unit will diminish;
the market price of the common units may decline; and
the ratio of taxable income to distributions may increase.
The control of our general partner may be transferred to a third party and that party could replace our current management
team, without unitholder consent.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or
substantially all of its assets without the consent of the unitholders. Furthermore, there is no restriction in our partnership
agreement on the ability of the owner of our general partner to transfer its ownership interest in our general partner to a third
party. A new owner of our general partner could replace the directors and officers of our general partner with its own designees
and control the decisions taken by our general partner.
Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time
or price.
If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will
have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of
the remaining common units held by unaffiliated persons at a price not less than the then-current market price. As a result,
unitholders may be required to sell their common units at an undesirable time or price and may not receive any return on their
investment. Unitholders may also incur a tax liability upon a sale of their units. No provision in our partnership agreement, or
in any other agreement we have with our general partner or Martin Resource Management, prohibits our general partner or its
affiliates from acquiring more than 80% of our common units. For additional information about this call right and unitholders'
potential tax liability, please see "Risk Factors - Tax Risks - Tax gain or loss on the disposition of our common units could be
different than expected."
Our common units have a limited trading volume compared to other publicly traded securities.
Our common units are quoted on the NASDAQ under the symbol "MMLP." However, daily trading volumes for our
common units are, and may continue to be, relatively small compared to many other securities quoted on the NASDAQ. The
price of our common units may, therefore, be volatile.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could
have a material adverse effect on our unit price.
In order to comply with Section 404 of the Sarbanes-Oxley Act, we periodically document and test our internal control
procedures. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our
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internal controls over financial reporting addressing these assessments. During the course of our testing we may identify
deficiencies, which we may not be able to address in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as
such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude
on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could have a material adverse
effect on the price of our common units.
Risks Relating to Our Relationship with Martin Resource Management
Cash reimbursements due to Martin Resource Management may be substantial and will reduce our cash available for
distribution to our unitholders.
Under our Omnibus Agreement with Martin Resource Management, Martin Resource Management provides us with
corporate staff and support services on behalf of our general partner that are substantially identical in nature and quality to the
services it conducted for our business prior to our formation. The Omnibus Agreement requires us to reimburse Martin
Resource Management for the costs and expenses it incurs in rendering these services, including an overhead allocation to us of
Martin Resource Management's indirect general and administrative expenses from its corporate allocation pool. These
payments may be substantial. Payments to Martin Resource Management will reduce the amount of available cash for
distribution to our unitholders.
Martin Resource Management has conflicts of interest and limited fiduciary responsibilities, which may permit it to favor its
own interests to the detriment of our unitholders.
As of December 31, 2015, Martin Resource Management owned 17.7% of our total outstanding common limited
partner units and a 51% voting interest in Holdings, the sole member of MMGP. MMGP owns a 2.0% general partnership
interest in us and all of our incentive distribution rights. Conflicts of interest may arise between Martin Resource Management
and our general partner, on the one hand, and our unitholders, on the other hand. As a result of these conflicts, our general
partner may favor its own interests and the interests of Martin Resource Management over the interests of our unitholders.
Potential conflicts of interest between us, Martin Resource Management and our general partner could occur in many of our
day-to-day operations including, among others, the following situations:
• Officers of Martin Resource Management who provide services to us also devote significant time to the
businesses of Martin Resource Management and are compensated by Martin Resource Management for that
time;
• Neither our partnership agreement nor any other agreement requires Martin Resource Management to pursue
a business strategy that favors us or utilizes our assets or services. Martin Resource Management's directors
and officers have a fiduciary duty to make these decisions in the best interests of the shareholders of Martin
Resource Management without regard to the best interests of the unitholders;
• Martin Resource Management may engage in limited competition with us;
• Our general partner is allowed to take into account the interests of parties other than us, such as Martin
Resource Management, in resolving conflicts of interest, which has the effect of reducing its fiduciary duty to
our unitholders;
• Under our partnership agreement, our general partner may limit its liability and reduce its fiduciary duties,
while also restricting the remedies available to our unitholders for actions that, without the limitations and
reductions, might constitute breaches of fiduciary duty. As a result of purchasing units, our unitholders will
be treated as having consented to some actions and conflicts of interest that, without such consent, might
otherwise constitute a breach of fiduciary or other duties under applicable state law;
• Our general partner determines which costs incurred by Martin Resource Management are reimbursable by
us;
• Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for
any services rendered on terms that are fair and reasonable to us or from entering into additional contractual
arrangements with any of these entities on our behalf;
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• Our general partner controls the enforcement of obligations owed to us by Martin Resource Management;
• Our general partner decides whether to retain separate counsel, accountants or others to perform services for
us;
• The audit committee of our general partner retains our independent auditors;
•
In some instances, our general partner may cause us to borrow funds to permit us to pay cash distributions,
even if the purpose or effect of the borrowing is to make incentive distributions; and
• Our general partner has broad discretion to establish financial reserves for the proper conduct of our business.
These reserves also will affect the amount of cash available for distribution.
Martin Resource Management and its affiliates may engage in limited competition with us.
Martin Resource Management and its affiliates may engage in limited competition with us. For a discussion of the
non-competition provisions of the Omnibus Agreement, please see "Item 13. Certain Relationships and Related Transactions,
and Director Independence." If Martin Resource Management does engage in competition with us, we may lose customers or
business opportunities, which could have an adverse impact on our results of operations, cash flow and ability to make
distributions to our unitholders.
If Martin Resource Management were ever to file for bankruptcy or otherwise default on its obligations under its credit facility,
amounts we owe under our credit facility may become immediately due and payable and our results of operations could be
adversely affected.
If Martin Resource Management were ever to commence or consent to the commencement of a bankruptcy proceeding
or otherwise defaults on its obligations under its credit facility, its lenders could foreclose on its pledge of the interests in our
general partner and take control of our general partner. If Martin Resources Management no longer controls our general
partner, the lenders under our credit facility may declare all amounts outstanding thereunder immediately due and payable. In
addition, either a judgment against Martin Resource Management or a bankruptcy filing by or against Martin Resource
Management could independently result in an event of default under our credit facility if it could reasonably be expected to
have a material adverse effect on us. If our lenders do declare us in default and accelerate repayment, we may be required to
refinance our debt on unfavorable terms, which could negatively impact our results of operations and our ability to make
distributions to our unitholders. A bankruptcy filing by or against Martin Resource Management could also result in the
termination or material breach of some or all of the various commercial contracts between us and Martin Resource
Management, which could have a material adverse impact on our results of operations, cash flow and ability to make
distributions to our unitholders.
Tax Risks
The IRS could treat us as a corporation for tax purposes, which would substantially reduce the cash available for
distribution to unitholders.
The anticipated after-tax economic benefit of an investment in us depends largely on our classification as a partnership
for federal income tax purposes. Despite the fact that we are organized as a limited partnership under Delaware law, it is
possible in certain circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes.
In order for us to be classified as a partnership for U.S. federal income tax purposes, more than 90% of our gross income each
year must be "qualifying income" under Section 7704 of the U.S. Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). "Qualifying income" includes income and gains derived from the transportation, storage, processing and
marketing of crude oil, natural gas and products thereof. Other types of qualifying income include interest (other than from a
financial business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets
held for the production of income that otherwise constitutes qualifying income.
Although we intend to meet this gross income requirement, we may not find it possible, regardless of our efforts, to
meet this gross income requirement or may inadvertently fail to meet this gross income requirement. If we do not meet this
gross income requirement for any taxable year and the U.S. Internal Revenue Service ("IRS") does not determine that such
failure was inadvertent, we would be treated as a corporation for such taxable year and each taxable year thereafter. Moreover,
current law may change so as to cause us to be treated as a corporation for federal income tax purposes or otherwise subject us
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to entity-level taxation. At the federal level, members of Congress have considered substantive changes to the existing U.S. tax
laws that would have affected certain publicly traded partnerships. Although the legislation considered would not have
appeared to affect our tax treatment, we are unable to predict whether any such change or other proposals will ultimately be
enacted. Moreover, any modification to the federal income tax laws and interpretations thereof may or may not be applied
retroactively. Any such changes could negatively impact the value of an investment in our common units. At the state level,
because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to
entity-level taxation through the imposition of state income, franchise and other forms of taxation. For example, we are
required to pay a Texas margin tax at a maximum effective rate of 0.525% of our gross income apportioned to Texas in the
prior year. Imposition of any such tax on us by any other state will reduce the cash available for distribution to you.
If we were treated as a corporation for federal income tax purposes, we would owe federal income tax on our income
at the corporate tax rate, which is currently a maximum of 35%, and would likely owe state income tax at varying rates.
Distributions would generally be taxed again to unitholders as corporate distributions and no income, gains, losses, or
deductions would flow through to unitholders. Because a tax would be imposed upon us as an entity, cash available for
distribution to unitholders would be reduced. Treatment of us as a corporation would result in a reduction in the anticipated
cash flow and after-tax return to unitholders and therefore would likely result in a reduction in the value of the common units.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax
purposes, then the minimum quarterly distribution amount and the target distribution amount will be adjusted to reflect the
impact of that law on us.
A successful IRS contest of the federal income tax positions we take could adversely affect the market for our common units
and the costs of any contest will be borne by our unitholders, debt security holders and our general partner. Recently
enacted legislation alters the procedures for assessing and collecting taxes due for taxable years beginning after December
31, 2017, in a manner that could substantially reduce cash available for distribution to you.
The IRS may adopt positions that differ from our counsel's conclusions. It may be necessary to resort to
administrative or court proceedings to sustain some or all of our counsel's conclusions or the positions we take. A court may
not agree with some or all our counsel's conclusions or the positions we take. Any contest with the IRS may materially and
adversely impact the market for our common units and the prices at which they trade. In addition, the costs of any contest with
the IRS will be borne directly or indirectly by all of our unitholders, debt security holders and our general partner.
Recently enacted legislation applicable to us for taxable years beginning after December 31, 2017 alters the procedures
for auditing large partnerships and also alters the procedures for assessing and collecting taxes due (including applicable penalties
and interest) as a result of an audit. Unless we are eligible to (and choose to) elect to issue revised Schedules K-1 to our unitholders
with respect to an audited and adjusted return, the IRS may assess and collect taxes (including any applicable penalties and interest)
directly from us in the year in which the audit is completed under the new rules. If we are required to pay taxes, penalties and
interest as the result of audit adjustments, cash available for distribution to our unitholders may be substantially reduced. In addition,
because payment would be due for the taxable year in which the audit is completed, unitholders during that taxable year would
bear the expense of the adjustment even if they were not unitholders during the audited taxable year.
Unitholders may be required to pay taxes on income from us, including their share of income from the cancellation of debt,
even if they do not receive any cash distributions from us.
Unitholders may be required to pay federal income taxes and, in some cases, state, local and foreign income taxes on
their share of our taxable income even if they receive no cash distributions from us. Unitholders may not receive cash
distributions from us equal to their share of our taxable income or even the tax liability that results from the taxation of their
share of our taxable income.
We may engage in transactions to delever the partnership and manage our liquidity that may result in income to our unitholders
without a corresponding cash distribution. For example, if we sell assets and use the proceeds to repay existing debt or fund capital
expenditures, you may be allocated taxable income and gain resulting from the sale without receiving a cash distribution. Further,
taking advantage of opportunities to reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our
existing debt could result in “cancellation of indebtedness income” (also referred to as “COD income”) being allocated to our
unitholders as taxable income. Unitholders may be allocated COD income, and income tax liabilities arising therefrom may exceed
cash distributions or the value of the units. The ultimate effect of any such allocations will depend on the unitholder's individual
tax position with respect to its units. Unitholders are encouraged to consult their tax advisor with respect to the consequences to
them of COD income.
35
Tax gain or loss on the disposition of our common units could be different than expected.
If our unitholders sell their common units, they will recognize gain or loss equal to the difference between the amount
realized and their tax basis in those common units. Prior distributions in excess of the total net taxable income unitholders
were allocated for a common unit, which decreased unitholder tax basis in that common unit, will, in effect, become taxable
income to our unitholders if the common unit is sold at a price greater than their tax basis in that common unit, even if the price
they receive is less than their original cost. A substantial portion of the amount realized, whether or not representing gain, may
be ordinary income to our unitholders. Should the IRS successfully contest some positions we take, our unitholders could
recognize more gain on the sale of units than would be the case under those positions without the benefit of decreased income
in prior years. In addition, if our unitholders sell their units, they may incur a tax liability in excess of the amount of cash they
receive from the sale.
Tax-exempt entities and non-U.S. persons face unique tax issues from owning common units that may result in adverse tax
consequences to them.
Investment in common units by tax-exempt entities, such as employee benefit plans, individual retirement accounts
(known as IRAs), Keogh plans and other retirement plans, regulated investment companies, real estate investment trusts,
mutual funds and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to
organizations exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business income
and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable
effective tax rate, and non-U.S persons will be required to file U.S. federal income tax returns and pay tax on their share of our
taxable income. Tax-exempt entities, non-U.S. persons and other unique investors should consult their tax advisor regarding
their investment in our common units.
We treat a purchaser of our common units as having the same tax benefits without regard to the seller's identity. The IRS
may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of common units and because of other reasons, we have adopted
depreciation positions that may not conform to all aspects of the U.S Department of the Treasury's regulations ("Treasury
regulations"). Any position we take that is inconsistent with applicable Treasury regulations may have to be disclosed on our
federal income tax return. This disclosure increases the likelihood that the IRS will challenge our positions and propose
adjustments to some or all of our unitholders. A successful IRS challenge to those positions could adversely affect the amount
of tax benefits available to our unitholders. It also could affect the timing of these tax benefits or the amount of gain from the
sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to our
unitholders' tax returns.
Unitholders may be subject to state, local and foreign taxes and return filing requirements as a result of investing in our
common units.
In addition to federal income taxes, unitholders may be subject to other taxes, such as state, local and foreign income
taxes, unincorporated business taxes and estate, inheritance, or intangible taxes that are imposed by the various jurisdictions in
which we do business or own property. Unitholders may be required to file state, local and foreign income tax returns and pay
state and local income taxes in some or all of the various jurisdictions in which we do business or own property and may be
subject to penalties for failure to comply with those requirements. We own property and/or conduct business in Alabama,
Arizona, Arkansas, California, Florida, Georgia, Illinois, Indiana, Kansas, Louisiana, Minnesota, Mississippi, Missouri,
Nebraska, Nevada, New Mexico, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, and West Virginia. We may do business or
own property in other states or foreign countries in the future. It is the unitholder's responsibility to file all federal, state, local
and foreign tax returns. Our counsel has not rendered an opinion on the state, local or foreign tax consequences of an
investment in our common units.
There are limits on the deductibility of our losses that may adversely affect our unitholders.
There are a number of limitations that may prevent unitholders from using their allocable share of our losses as a deduction
against unrelated income. In cases when our unitholders are subject to the passive loss rules (generally, individuals and closely-
held corporations), any losses generated by us will only be available to offset our future income and cannot be used to offset
income from other activities, including other passive activities or investments. Unused losses may be deducted when the unitholder
disposes of its entire investment in us in a fully taxable transaction with an unrelated party. A unitholder's share of our net passive
36
income may be offset by unused losses from us carried over from prior years but not by losses from other passive activities,
including losses from other publicly traded partnerships. Other limitations that may further restrict the deductibility of our losses
by a unitholder include the at-risk rules and the prohibition against loss allocations in excess of the unitholder's tax basis in its
units.
The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial
or administrative changes and differing interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our
common units may be modified by administrative, legislative or judicial interpretation at any time. For example, the Obama
administration's budget proposal for fiscal year 2017 recommends that certain publicly traded partnerships earning income from
activities related to fossil fuels be taxed as corporations beginning in 2022. Also, from time to time, members of Congress have
considered substantive changes to the existing U.S. tax laws including the definition of qualifying income under Section 7704
(d) of the Internal Revenue Code and the treatment of certain types of income earned from profits interests in partnerships. It is
possible that these efforts could result in changes to the existing U.S. tax laws that affect publicly traded partnerships, including
us. In addition, the IRS, on May 5, 2015, issued proposed regulations (“Proposed Regulations”) concerning which activities
give rise to qualifying income within the meaning of Section 7704 of the Internal Revenue Code. The Proposed Regulations
also provide that a partnership may treat income from an activity as qualifying income during a ten year transition period if the
partnership received a private letter ruling from the IRS holding that the income from that activity is qualifying income. We
have obtained favorable private letter rulings from the IRS in the past as to what constitutes “qualifying income” within the
meaning of Section 7704 of the Internal Revenue Code and we would expect to rely upon these private letter rulings for
purposes of the ten year transition rule contained in the Proposed Regulations. The U.S. Department of the Treasury and the
IRS have requested comments from industry participants regarding the standards set forth in the Proposed Regulations. We do
not believe the Proposed Regulations affect our ability to qualify as a publicly traded partnership. However, finalized Treasury
regulations could modify the amount of our gross income that we are able to treat as qualifying income for the purposes of the
qualifying income requirement. Any modification to the U.S. federal income tax laws and interpretations thereof may or may
not be applied retroactively and could make it more difficult or impossible to meet the exception for us to be treated as a
partnership for U.S. federal income tax purposes that is not taxable as a corporation, affect or cause us to change our business
activities, affect the tax considerations of an investment in us, change the character or treatment of portions of our income and
adversely affect an investment in our common units. We are unable to predict whether any of these changes or other proposals
will ultimately be enacted. Any such changes could negatively impact the value of an investment in our common units.
The sale or exchange of 50% or more of our capital and profits interests during any 12-month period will result in the termination
of our partnership for federal income tax purposes.
We will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or
more of the total interests in our capital and profits within a 12-month period. Our termination would, among other things,
result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns for one fiscal year.
For purposes of determining whether the 50% threshold is met, multiple sales of the same units are counted only once. Our
termination could also result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of
a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also
result in more than 12 months of our taxable income or loss being includable in his taxable income for the year of termination.
Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead, we
would be treated as a new partnership for tax purposes. If treated as a new partnership, we must make new tax elections and
could be subject to penalties if we are unable to determine that a termination occurred. The IRS announced a relief procedure
whereby, if a publicly traded partnership that has technically terminated requests and the IRS grants special relief, among other
things, the partnership will be allowed to provide only a single Schedule K-1 to unitholders for the tax year in which the
termination occurred.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based
upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred.
The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among
our unitholders.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month
based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is
transferred. The U.S. Department of the Treasury recently adopted final Treasury regulations allowing a similar monthly
simplifying convention for taxable years beginning on or after August 3, 2015. However, such regulations do not specifically
authorize the use of the proration method we have adopted for our 2015 taxable year and may not specifically authorize all
37
aspects of our proration method thereafter. Therefore, the use of our proration method may not be permitted under existing
Treasury regulations, and, accordingly, our counsel is unable to opine as to the validity of such method. If the IRS were to
challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction
among our unitholders.
A unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as having disposed of
those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of
the loan and may recognize gain or loss from the disposition.
Because a unitholder whose units are loaned to a "short seller" to cover a short sale of units may be considered as
having disposed of the loaned units, he may no longer be treated for tax purposes as a partner with respect to those units during
the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during
the period of the loan to the short seller any of our income, gain, loss or deduction with respect to those units may not be
reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully taxable as
ordinary income. Our counsel has not rendered an opinion regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units; therefore, unitholders desiring to assure their status as partners
and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account
agreements to prohibit their brokers from borrowing their units.
38
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
A description of our properties is contained in "Item 1. Business" and is incorporated herein by reference.
We believe we have satisfactory title to our assets. Some of the easements, rights-of-way, permits, licenses or similar
documents relating to the use of the properties that have been transferred to us in connection with our initial public offering and
the assets we acquired in our acquisitions, required the consent of third parties, which in some cases is a governmental
entity. We believe we have obtained sufficient third-party consents, permits and authorizations for the transfer of assets
necessary for us to operate our business in all material respects. With respect to any third-party consents, permits or
authorizations that have not been obtained, we believe the failure to obtain these consents, permits or authorizations will not
have a material adverse effect on the operation of our business. Title to our property may be subject to encumbrances,
including liens in favor of our secured lender. We believe none of these encumbrances materially detract from the value of our
properties or our interest in these properties or materially interfere with their use in the operation of our business.
Item 3.
Legal Proceedings
From time to time, we are subject to certain legal proceedings, claims and disputes that arise in the ordinary course of
our business. Although we cannot predict the outcomes of these legal proceedings, we do not believe these actions, in the
aggregate, will have a material adverse impact on our financial position, results of operations or liquidity. A description of our
legal proceedings is included in "Item 8. Financial Statements and Supplementary Data, Note 22. Commitments and
Contingencies", and is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
39
PART II
Item 5. Market for Our Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders
Our common units are traded on the NASDAQ under the symbol "MMLP." As of February 29, 2016 there were
approximately 398 holders of record and approximately 24,944 beneficial owners of our common units. The following table
sets forth the high and low sale prices of our common units for the periods indicated, based on the daily composite listing of
stock transactions for NASDAQ during those periods:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Cash Distributions
Year Ended December 31, 2015 Year Ended December 31, 2014
High
Low
High
Low
$
$
$
$
35.44
38.03
32.83
29.44
$
$
$
$
24.97
30.95
23.43
18.62
$
$
$
$
44.36
43.48
41.64
37.40
$
$
$
$
40.28
39.22
35.75
25.80
The following table sets forth the quarterly cash distribution declared and paid for our common units during the periods
indicated:
Declared for Quarter Ending
Distribution Per
Common Unit
December 31, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
Cash Distribution Policy
$
$
$
$
$
$
$
$
0.8125
0.8125
0.8125
0.8125
0.8125
0.8125
0.7925
0.7875
Date Paid
Date Declared
January 21, 2016
February 12, 2016
October 22, 2015 November 13, 2015
August 14, 2015
July 23, 2015
May 15, 2015
April 23, 2015
February 13, 2015
January 22, 2015
October 23, 2014 November 14, 2014
August 14, 2014
May 15, 2014
July 24, 2014
April 23, 2014
Within 45 days after the end of each quarter, we distribute all of our available cash, as defined in our partnership
agreement, to unitholders of record on the applicable record date. Our general partner has broad discretion to establish cash
reserves that it determines are necessary or appropriate to properly conduct our business. These can include cash reserves for
future capital and maintenance expenditures, reserves to stabilize distributions of cash to the unitholders and our general
partner, reserves to reduce debt, or, as necessary, reserves to comply with the terms of any of our agreements or
obligations. Our distributions are effectively made 98% to unitholders and 2.0% to our general partner, subject to the payment
of incentive distributions to our general partner if certain target cash distribution levels to common unitholders are
achieved. Distributions to our general partner increase to 15%, 25% and 50% based on incremental distribution thresholds as
set forth in our partnership agreement. On October 2, 2012, our general partner executed Amendment No. 3 to the Second
Amended and Restated Agreement of Limited Partnership of the Partnership ("the Partnership Agreement Amendment"). The
Partnership Agreement Amendment provides that our general partner, currently the holder of the incentive distribution rights,
shall forego the next $18.0 million in incentive distributions that it would otherwise be entitled to receive. Additionally, on
May 5, 2014, the owner of our general partner agreed to forego an additional $3.0 million in incentive distributions. As of
February 29, 2016, the amount of incentive distributions the general partner has foregone is $21.0 million, and incentive
distributions were paid in conjunction with the fourth quarter 2014 cash distribution paid on February 13, 2015 and every
quarter thereafter.
Our ability to distribute available cash is contractually restricted by the terms of our credit facility. Our credit facility
contains covenants requiring us to maintain certain financial ratios. We are prohibited from making any distributions to
40
unitholders if the distribution would cause a default or an event of default, or a default or an event of default exists, under our
credit facility. Please read "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Liquidity and Capital Resources — Description of Our Credit Facility."
Item 6.
Selected Financial Data
The following table sets forth selected financial data and other operating data of the Partnership for the years ended
December 31, 2015, 2014, 2013, 2012 and 2011 and is derived from the audited consolidated financial statements of the
Partnership.
The following selected financial data are qualified by reference to and should be read in conjunction with the
Partnership's Consolidated Financial Statements and Notes thereto and "Management’s Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this document.
Revenues
Income (loss) from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income (loss)
Net income (loss) attributable to limited
partners
Net income (loss) per limited partner unit –
continuing operations
Net income (loss) per limited partner unit –
discontinued operations
Net income (loss) per limited partner unit
Total assets
Long-term debt
$
$
$
$
$
$
$
$
2015
1,036,844
37,165
1,215
38,380
21,902
2014
2013
(Dollars in thousands, except per unit amounts)
2012
$
$
$
$
1,642,141
$
1,612,739
$
1,490,361
(6,367) $
(14,562) $
37,122
(5,338)
(11,705) $
1,208
(13,354) $
64,865
101,987
(15,176) $
(13,047) $
92,617
$
$
$
$
0.60
$
(0.27) $
(0.54) $
1.32
$
0.02
0.62
1,380,473
865,003
(0.22)
(0.49) $
0.04
(0.50) $
2.64
3.96
$
$
$
1,012,996
474,992
1,553,919
902,005
3.18
$
$
$
1,097,919
658,695
3.11
$
$
$
2011
1,242,490
13,367
9,392
22,759
17,945
0.57
0.35
0.92
1,069,108
458,941
Cash dividends per common unit (in dollars) $
3.25
3.06
$
3.05
$
$
$
$
41
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in the United States
("U.S.") Gulf Coast region. Our four primary business lines include:
• Terminalling and storage services for petroleum products and by-products including the refining of naphthenic crude
oil and the blending and packaging of finished lubricants;
• Natural gas liquids transportation and distribution services and natural gas storage;
•
Sulfur and sulfur-based products gathering, processing, marketing, manufacturing and distribution; and
• Marine transportation services for petroleum products and by-products.
The petroleum products and by-products we collect, transport, store and market are produced primarily by major and
independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these
products. In addition to these major and independent oil and gas companies, our primary customers include independent
refiners, large chemical companies, fertilizer manufacturers and other wholesale purchasers of these products. We operate
primarily in the U.S. Gulf Coast region. This region is a major hub for petroleum refining, natural gas gathering and
processing, and support services for the exploration and production industry.
We were formed in 2002 by Martin Resource Management, a privately-held company whose initial predecessor was
incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then, Martin Resource
Management has expanded its operations through acquisitions and internal expansion initiatives as its management identified
and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids.
Martin Resource Management is an important supplier and customer of ours. As of December 31, 2015, Martin Resource
Management owned 17.7% of our total outstanding common limited partner units. Furthermore, Martin Resource Management
controls Martin Midstream GP LLC ("MMGP"), our general partner, by virtue of its 51% voting interest in MMGP Holdings,
LLC ("Holdings"), the sole member of MMGP. MMGP owns a 2.0% general partner interest in us and all of our incentive
distribution rights. Martin Resource Management directs our business operations through its ownership interests in and control
of our general partner.
We entered into an omnibus agreement dated November 1, 2002, with Martin Resource Management (the "Omnibus
Agreement") that governs, among other things, potential competition and indemnification obligations among the parties to the
agreement, related party transactions, the provision of general administration and support services by Martin Resource
Management and our use of certain of Martin Resource Management’s trade names and trademarks. Under the terms of the
Omnibus Agreement, the employees of Martin Resource Management are responsible for conducting our business and
operating our assets.
Martin Resource Management has operated our business since 2002. Martin Resource Management began operating
our natural gas services business in the 1950s and our sulfur business in the 1960s. It began our marine transportation business
in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s. In recent years,
Martin Resource Management has increased the size of our asset base through expansions and strategic acquisitions.
Recent Developments
Commodity prices have declined substantially and experienced significant volatility. If commodity prices remain
weak for a sustained period, our pipeline, terminalling throughput and NGL volumes may be negatively impacted, particularly
as producers are curtailing or redirecting drilling. A sustained decline in commodity prices could result in a decrease in activity
in the areas served by certain of our terminalling and storage and marine transportation assets resulting in reduced utilization of
these assets. Drilling activity levels vary by geographic area, but in general, we have observed widespread decreases in drilling
activity, particularly in the Gulf of Mexico, with lower commodity prices. We continually adjust our business strategy to focus
on maximizing liquidity; maintaining a stable asset base, which generates fee based revenues not sensitive to commodity
prices; and improving profitability by increasing asset utilization and controlling costs, which includes force reductions and
asset rationalization strategies. Given the current environment, we have altered and reduced our planned growth capital
42
expenditures. We believe that controlling our spending in an effort to preserve liquidity is prudent and reduces our need for
near-term access to the somewhat uncertain capital markets.
The following information highlights selected developments since January 1, 2015.
Reduction of Commitments Under Revolving Credit Facility. On August 14, 2015, we notified the Royal Bank of
Canada, the administrative agent of our revolving credit facility, that we were reducing the aggregate committed sum (as
defined in the underlying credit agreement) from $900.0 million to $700.0 million. We have the ability to exercise the
accordion feature of our revolving credit facility at any time and expand the facility up to an aggregate committed sum of $1.0
billion. As a result of the decreased capacity, we expect to reduce the amount of commitment fees under our revolving credit
facility by approximately $1.0 million on an annual basis.
Disposition of Floating Storage Assets. On February 12, 2015, we sold six liquefied petroleum gas pressure barges for
$41.3 million. These assets were primarily operated under the floating storage component of our NGL distribution business.
The proceeds from the disposition were used to reduce outstanding indebtedness under our revolving credit facility.
Subsequent Events
Quarterly Distribution. On January 21, 2016, we declared a quarterly cash distribution of $0.8125 per common unit
for the fourth quarter of 2015, or $3.25 per common unit on an annualized basis, which was paid on February 12, 2016 to
unitholders of record as of February 5, 2016. Additionally, we paid a distribution to our general partner in the amount of $4.6
million. Of this amount, $0.7 million is related to the base general partner distribution and $3.9 million represents incentive
distribution rights paid to our general partner.
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, 2015 and 2014:
Description
Judgments and Uncertainties
Effect if Actual Results Differ from
Estimates and Assumptions
Allowance for Doubtful Accounts
We evaluate our allowance for doubtful
accounts on an ongoing basis and
record adjustments when, in
management's judgment, circumstances
warrant it. Reserves are recorded to
reduce receivables to the amount
ultimately expected to be collected.
Depreciation
Depreciation expense is computed using
the straight-line method over the useful
life of the assets.
We evaluate the collectability of our
accounts receivable based on factors
such as the customer's ability to pay, the
age of the receivable and our historical
collection experience. A deterioration
in any of these factors could result in an
increase in the allowance for doubtful
accounts balance.
If actual collection results are not
consistent with our judgments, we may
experience an increase in uncollectible
receivables. A 10% increase in our
allowance for doubtful accounts would
result in a decrease in net income of
approximately $0.04 million.
Determination of depreciation expense
requires judgment regarding estimated
useful lives and salvage values of
property, plant and equipment. As
circumstances warrant, estimates are
reviewed to determine if any changes in
the underlying assumptions are needed.
The lives of our fixed assets range from
3 - 50 years. If the depreciable lives of
our assets were decreased by 10%, we
estimate that annual depreciation
expense would increase approximately
$7.4 million, resulting in a
corresponding reduction in net income.
Impairment of Long-Lived Assets
43
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.
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.
Purchase Price Allocations
We allocate the purchase price of an
acquired business to its identifiable
assets (including identifiable intangible
assets) and liabilities based on their fair
values at the date of acquisition. Any
excess of purchase price in excess of
amounts allocated to identifiable assets
and liabilities is recorded as goodwill.
As additional information becomes
available, we may adjust the
preliminary allocation for a period of up
to one year.
Asset Retirement Obligations
Asset retirement obligations ("AROs")
associated with a contractual or
regulatory remediation requirement are
recorded at fair value in the period in
which the obligation can be reasonably
estimated and depreciated over the life
of the related asset or contractual term.
The liability is determined using a
credit-adjusted risk-free interest rate
and is accreted over time until the
obligation is settled.
Environmental Liabilities
We estimate environmental liabilities
using both internal and external
resources. Activities include feasibility
studies and other evaluations
management considers appropriate.
Environmental liabilities are recorded in
the period in which the obligation can
be reasonably estimated.
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, in 2015 we recorded an
impairment charge of $9.3 in our
Terminalling and Storage segment and
$1.3 in our Marine Transportation
segment. During 2014, we recorded an
impairment charge of $3.4 million in
our Marine Transportation segment.
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.
The determination of fair values of
acquired assets and liabilities requires a
significant level of management
judgment. Fair values are estimated
using various methods as deemed
appropriate. For significant
transactions, third party assessments
may be utilized to assist in the valuation
process.
We completed the most recent review of
goodwill as of August 31, 2015 and
determined there was no impairment.
Additionally, management is aware of
no change in circumstance which would
indicate a need for an interim
impairment evaluation.
If subsequent factors indicate that
estimates and assumptions used to
allocate costs to acquired assets and
liabilities differ from actual results, the
allocation between goodwill, other
intangible assets and fixed assets could
significantly differ. Any such
differences could impact future earnings
through depreciation and amortization
expense. Additionally, if estimated
results supporting the valuation of
goodwill or other intangible assets are
not achieved, impairments could result.
Determining the fair value of AROs
requires management judgment to
evaluate required remediation activities,
estimate the cost of those activities and
determine the appropriate interest rate.
If actual results differ from judgments
and assumptions used in valuing an
ARO, we may experience significant
changes in ARO balances. The
establishment of an ARO has no initial
impact on earnings.
Estimating environmental liabilities
requires significant management
judgment as well as possible use of
third party specialists knowledgeable in
such matters.
Environmental liabilities have not
significantly affected our results of
operations or financial condition in the
past, and we do not anticipate that they
will in the future.
44
Our Relationship with Martin Resource Management
Martin Resource Management directs our business operations through its ownership and control of our general partner
and under the Omnibus Agreement. In addition to the direct expenses, under the Omnibus Agreement, we are required to
reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. For the
years ended December 31, 2015, 2014 and 2013, the conflicts committee of our general partner ("Conflicts Committee")
approved reimbursement amounts of $13.7 million, $12.5 million and $10.6 million, respectively, reflecting our allocable share
of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for
indirect expenses, if any, annually.
We are required to reimburse Martin Resource Management for all direct expenses it incurs or payments it makes on
our behalf or in connection with the operation of our business. Martin Resource Management also licenses certain of its
trademarks and trade names to us under the Omnibus Agreement.
We are both an important supplier to and customer of Martin Resource Management. Among other things, we sell
sulfuric acid and provide marine transportation and terminalling and storage services to Martin Resource Management. We
purchase land transportation services and marine fuel from Martin Resource Management. All of these services and goods are
purchased and sold pursuant to the terms of a number of agreements between us and Martin Resource Management.
For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have
entered into with Martin Resource Management, please see "Item 13. Certain Relationships and Related Transactions, and
Director Independence."
How We Evaluate Our Operations
Our management uses a variety of financial and operational measurements other than our financial statements
prepared in accordance with U.S. GAAP to analyze our performance. These include: (1) net income before interest expense,
income tax expense, and depreciation and amortization ("EBITDA"), (2) adjusted EBITDA and (3) distributable cash flow.
Our management views these measures as important performance measures of core profitability for our operations and the
ability to generate and distribute cash flow, and as key components of our internal financial reporting. We believe investors
benefit from having access to the same financial measures that our management uses.
EBITDA and Adjusted EBITDA. Certain items excluded from EBITDA and adjusted EBITDA are significant
components in understanding and assessing an entity's financial performance, such as cost of capital and historic costs of
depreciable assets. We have included information concerning EBITDA and adjusted EBITDA because they provide investors
and management with additional information to better understand the following: financial performance of our assets without
regard to financing methods, capital structure or historical cost basis; our operating performance and return on capital as
compared to those of other similarly situated entities; and the viability of acquisitions and capital expenditure projects. Our
method of computing adjusted EBITDA may not be the same method used to compute similar measures reported by other
entities. The economic substance behind our use of adjusted EBITDA is to measure the ability of our assets to generate cash
sufficient to pay interest costs, support our indebtedness and make distributions to our unit holders.
Distributable Cash Flow. Distributable cash flow is a significant performance measure used by our management
and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic
cash flows generated by us to the cash distributions we expect to pay our unitholders. Distributable cash flow is also an
important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on
investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level
that can sustain or support an increase in our quarterly distribution rates. Distributable cash flow is also a quantitative
standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit
of such an entity is generally determined by the unit's yield, which in turn is based on the amount of cash distributions the
entity pays to a unitholder.
EBITDA, adjusted EBITDA and distributable cash flow should not be considered alternatives to, or more meaningful
than, net income, cash flows from operating activities, or any other measure presented in accordance with U.S. GAAP. Our
method of computing these measures may not be the same method used to compute similar measures reported by other
entities.
45
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, 2015, 2014, and 2013, which represents EBITDA, Adjusted
EBITDA and Distributable Cash Flow from continuing operations.
Reconciliation of EBITDA, Adjusted EBITDA, and Distributable Cash Flow
Year Ended December 31,
2014
2013
2015
Net income (loss)
Less: (Income) loss from discontinued operations, net of income taxes
Income (loss) from continuing operations
$
$
38,380
(1,215)
37,165
(11,705) $
5,338
(6,367)
(13,354)
(1,208)
(14,562)
Adjustments:
Interest expense
Income tax expense
Depreciation and amortization
EBITDA
Adjustments:
Equity in (income) loss of unconsolidated entities
(Gain) loss on sale of property, plant and equipment
Gain on sale of equity method investment
Gain on involuntary conversion of property, plant and equipment
Gain on retirement of senior unsecured notes
Impairment of long lived assets
Unrealized mark to market on commodity derivatives
Reduction in fair value of investment in Cardinal due to purchase of the
controlling interest
Debt prepayment premium
Distributions from unconsolidated entities
Unit-based compensation
Adjusted EBITDA
Adjustments:
Interest expense
Income tax expense
Amortization of deferred debt issuance costs
Amortization of debt discount
Amortization of debt premium
Non-cash mark to market on interest rate derivatives
Payments of installment notes payable and capital lease obligations
Payments for plant turnaround costs
Maintenance capital expenditures
Distributable Cash Flow
$
Results of Operations
43,292
1,048
92,250
173,755
(8,986)
2,149
—
—
(1,242)
10,629
(675)
—
—
11,200
1,429
188,259
(43,292)
(1,048)
4,859
—
(324)
206
—
(1,908)
(12,902)
133,850
$
42,203
1,137
68,830
105,803
(5,466)
1,353
—
—
—
3,445
818
30,102
7,767
4,323
817
148,962
(42,203)
(1,137)
6,263
1,305
(245)
—
—
(3,974)
(14,556)
94,415
$
42,495
753
50,962
79,648
53,048
(217)
(750)
(909)
—
—
—
—
272
3,476
911
135,479
(42,495)
(753)
3,700
306
—
—
(307)
—
(11,445)
84,485
The results of operations for the years ended December 31, 2015, 2014, and 2013 have been derived from our consolidated
financial statements.
We evaluate segment performance on the basis of operating income, which is derived by subtracting cost of products
sold, operating expenses, selling, general and administrative expenses, and depreciation and amortization expense from
revenues. The following table sets forth our operating revenues and operating income by segment for the years ended
December 31, 2015, 2014, and 2013.
46
Our consolidated results of operations are presented on a comparative basis below. There are certain items of income
and expense which we do not allocate on a segment basis. These items, including equity in earnings (loss) of unconsolidated
entities, interest expense, and indirect selling, general and administrative expenses, are discussed after the comparative
discussion of our results within each segment.
The Natural Gas Services segment information below excludes the discontinued operations of the Floating Storage
Assets disposed of on February 12, 2015 for the years ended December 31, 2015, 2014, and 2013. See Item 8, Note 5.
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,
2015:
Terminalling and storage
$
270,440
$
(5,670) $
264,770
$
18,750
$
523,160
170,161
81,784
—
1,045,545
326,654
1,013,835
215,471
97,049
$
$
$
$
—
—
(3,031)
523,160
170,161
78,753
—
(8,701) $
—
1,036,844
(5,191) $
—
—
(5,677)
321,463
1,013,835
215,471
91,372
$
$
38,611
27,113
4,630
(18,951)
70,153
27,007
30,610
25,656
3,310
$
$
(3,046) $
2,609
(3,509)
3,946
15,704
41,220
23,604
8,576
—
— $
(18,951)
70,153
(2,014) $
3,964
(6,191)
4,241
24,993
34,574
19,465
7,551
—
1,653,009
$
$
—
(10,868) $
—
1,642,141
$
(18,712)
67,871
$
—
— $
(18,712)
67,871
Terminalling and storage
$
341,966
$
(4,756) $
337,210
$
35,282
$
966,909
213,124
99,511
—
—
(4,015)
966,909
213,124
95,496
28,003
26,002
9,014
(2,427) $
2,521
(4,491)
4,397
32,855
30,524
21,511
13,411
Natural gas services
Sulfur services
Marine transportation
Indirect selling, general and
administrative
Total
Year Ended December 31,
2014:
Terminalling and storage
Natural gas services
Sulfur services
Marine transportation
Indirect selling, general and
administrative
Total
Year Ended December 31,
2013:
Natural gas services
Sulfur services
Marine transportation
Indirect selling, general and
administrative
Total
—
1,621,510
$
$
—
(8,771) $
—
1,612,739
$
(16,837)
81,464
$
—
— $
(16,837)
81,464
47
Terminalling and Storage Segment
Comparative Results of Operations for the Twelve Months Ended December 31, 2015 and 2014
Year Ended
December 31,
2015
2014
(In thousands)
Variance
Percent
Change
Revenues:
Services
Products
Total revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Impairment of long lived assets
Depreciation and amortization
Other operating income (loss)
Operating income
$ 138,614
131,826
270,440
$ 135,697
190,957
326,654
$
2,917
(59,131)
(56,214)
115,460
83,917
3,804
9,305
38,731
19,223
(473)
$ 18,750
175,246
83,504
3,565
—
37,622
26,717
290
$ 27,007
$
2%
(31)%
(17)%
(34)%
—%
7%
3%
(28)%
263%
(31)%
(29)%
(37)%
—%
(6)%
(59,786)
413
239
9,305
1,109
(7,494)
(763)
(8,257)
(9,509)
(93,664)
3
(9,842)
Lubricant sales volumes (gallons)
Shore-based throughput volumes (gallons)
Smackover refinery throughput volumes (barrels per day)
22,909
32,418
159,598
253,262
6,162
6,159
Corpus Christi crude terminal throughput volumes (barrels per day)
154,381
164,223
Services revenues. Services revenue increased $2.9 million attributable to increased throughput rates at our
Smackover Refinery. In addition, $1.5 million of the increase is due to revenues generated by our shore-based terminals
primarily related to increased consigned lube revenue and increased throughput rates. Service revenues at our specialty
terminals decreased $0.9 million overall resulting from increased revenues at several of our terminals offset by decreased
throughput fees of $2.6 million at our crude terminal in Corpus Christi, Texas.
Products revenues. A 43% decrease in sales volumes at our blending and packaging facilities resulted in a $53.6
million decrease to products revenues. Product sales volumes from our shore-based terminals increased 1%, resulting in a $0.6
million increase in products revenues. The average sales price at our blending and packaging facilities increased 1%, resulting
in a $0.8 million increase in product revenues. The average sales price at our shore-based terminals decreased 10%, resulting
in a $6.9 million decrease to product revenues.
Cost of products sold. A 43% decrease in sales volumes at our blending and packaging facilities resulted in a $44.4
million reduction in cost of products sold. Product sales volumes from our shore-based terminals increased 1%, resulting in a
$0.5 million increase in cost of products sold. The average price per gallon at our blending and packaging facilities decreased
8% resulting in a reduction of $9.2 million in cost of products sold. The average price per gallon at our shore-based terminals
decreased 11%, resulting in a reduction of $6.7 million in cost of products sold.
Operating expenses. Increased expenses at our specialty terminals accounted for $2.0 million of the total increase,
primarily attributable to the Corpus Christi crude terminal. This is offset by a $1.6 million reduction of expenses at our
Smackover Refinery primarily attributable to decreased natural gas expense.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses is primarily
attributable to increased compensation expense.
Impairment of long-lived assets. Impairment of long-lived assets represents the write-off of certain organic growth
project costs during 2015.
48
Depreciation and amortization. The increase in depreciation and amortization is due to the impact of recent capital
expenditures.
Other operating income (loss). Other operating income (loss) represents gains and losses from the disposition of
property, plant and equipment.
Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
Revenues:
Services
Products
Total revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Other operating income
Operating income
Lubricant sales volumes (gallons)
Shore-based throughput volumes (gallons)
Smackover refinery throughput volumes (barrels per day)
Corpus Christi crude terminal (barrels per day)
Year Ended
December 31,
2014
2013
(In thousands)
Variance
Percent
Change
$ 135,697
190,957
326,654
$ 120,717
221,249
341,966
$ 14,980
(30,292)
(15,312)
175,246
83,504
3,565
37,622
26,717
290
$ 27,007
197,974
74,441
3,238
31,823
34,490
792
$ 35,282
$
32,418
253,262
6,159
164,223
39,342
270,522
6,912
108,652
(22,728)
9,063
327
5,799
(7,773)
(502)
(8,275)
(6,924)
(17,260)
(753)
55,571
12%
(14)%
(4)%
(11)%
12%
10%
18%
(23)%
63%
(23)%
(18)%
(6)%
(11)%
51%
Services revenues. Services revenue increased $7.7 million attributable to increased throughput volumes at our crude
terminal in Corpus Christi, Texas. In addition, $4.7 million of the increase is due to revenues generated by our Smackover
refinery related to increased tolling fees resulting from a new contract effective July 1, 2013. Our new Dunphy terminal in
Elko, Nevada, which was placed in service in May 2014, also contributed to $1.2 million of the increase.
Products revenues. A 23% decrease in sales volumes at our blending and packaging facilities resulted in a $36.6
million reduction in product revenues. Product sales volumes from our shore-based terminals decreased 3%, resulting in a $2.2
million reduction in product revenues. The average sales price at our blending and packaging facilities increased 7%, resulting
in a $10.2 million increase in product revenues. The average sales price at our shore-based terminals decreased 2%, resulting
in a $1.7 million decrease in product revenues.
Cost of products sold. A 23% decrease in sales volumes at our blending and packaging facilities resulted in a $33.2
million decrease in cost of products sold. Product sales volumes from our shore-based terminals decreased 3%, resulting in a
$2.0 million decrease in cost of products sold. Increased average cost at our blending and packaging facilities of 10% resulted
in an increase of $13.6 million in cost of products sold. Decreased average cost at our shore-based terminals of 2% resulted in
a decrease of $1.1 million in cost of products sold.
Operating expenses. Increased expenses at our specialty terminals accounted for $6.2 million of the total increase,
primarily attributable to the Corpus Christi crude terminal. Our shore-based terminal expenses increased $0.4 million primarily
due to repair and maintenance cost at the terminals. In addition, $2.5 million of the increase is attributable to the Smackover
refining assets, primarily as a result of increased compensation expense.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses is primarily
attributable to increased compensation expense.
49
Depreciation and amortization. The increase in depreciation and amortization is due to the impact of recent capital
expenditures.
Other operating income. Other operating income consists primarily of business interruption recoveries in 2014 and a
gain on an involuntary conversion of property, plant and equipment in 2013.
Natural Gas Services Segment
Comparative Results of Operations for the Twelve Months Ended December 31, 2015 and 2014
Year Ended
December 31,
2015
2014
(In thousands)
Variance
Percent
Change
Revenues:
Services
Products
Total revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Other operating loss
Operating income
Distributions from unconsolidated entities
$ 64,858
$
22,991
458,302
523,160
990,844
1,013,835
$ 41,867
(532,542)
(490,675)
416,404
23,979
9,791
34,072
38,914
(303)
$ 38,611
$ 11,200
950,742
10,797
8,596
13,090
30,610
—
30,610
4,323
$
$
$
$
(534,338)
13,182
1,195
20,982
8,304
(303)
8,001
182%
(54)%
(48)%
(56)%
122%
14%
160%
27%
26%
6,877
159%
NGLs Volumes (barrels)
14,340
16,448
(2,108)
(13)%
Services Revenues. The increase in services revenue is a result of the 2015 period including a full year of natural gas
storage revenue related to the acquisition of Cardinal Gas Storage Partners LLC ("Cardinal"), which occurred August 29, 2014.
Products Revenues. Our NGL average sales price per barrel decreased $28.28, or 47%, resulting in a decrease to
products revenues of $465.2 million. The decrease in average sales price per barrel was a result of a decline in market prices.
Product sales volumes decreased 13%, decreasing revenues $67.4 million.
Cost of products sold. Our average cost per barrel decreased $28.77, or 50%, decreasing cost of products sold by
$473.1 million. The decrease in average cost per barrel was a result of a decline in market prices. The decrease in sales
volume of 13%, resulted in a $61.2 million decrease to cost of products sold. Our margins increased $0.48 per barrel, or 20%
during the period.
Operating expenses. Operating expenses increased $13.2 million, $11.0 million of which is related to the acquisition
of Cardinal, $1.1 million is a result of the acquisition of NGL storage assets from Martin Resource Management in May 2014,
$0.6 million is a result of expenses associated with the hydrostatic test of our 200 mile NGL Pipeline, and $0.5 million is
related to the rail operations at our Arcadia facility which was placed into service in June 2015.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.4 million as a
result of the acquisition of Cardinal. Offsetting this increase was a decrease to property taxes of $0.2 million.
Depreciation and amortization. Depreciation and amortization increased $20.2 million due to the acquisition of
Cardinal and $0.9 million is related to increased capital expenditure activity.
Other operating loss. Other operating loss represents losses from the disposition of property, plant and equipment.
50
Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
Year Ended
December 31,
2014
2013
(In thousands)
Variance
Revenues:
Services
Products
Total revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Other operating income
Operating income
Distributions from unconsolidated entities
$
22,991
990,844
1,013,835
$
— $
966,909
966,909
950,742
10,797
8,596
13,090
30,610
—
30,610
930,315
3,918
3,731
962
27,983
20
$ 28,003
4,323
$
3,476
$
$
$
$
22,991
23,935
46,926
20,427
6,879
4,865
12,128
2,627
(20)
2,607
Percent
Change
2%
5%
2%
176%
130%
1,261%
9%
(100)%
9%
847
24%
NGLs Volumes (barrels)
16,448
14,874
1,574
11%
Revenues. Services revenue for 2014 are attributable to the acquisition of Cardinal on August 29, 2014. NGL sales
volumes increased 11%, positively impacting product revenues by $94.8 million. Our NGL average sales price per barrel
decreased $4.77, or 7%, resulting in an offsetting decrease to product revenues of $70.9 million.
Cost of products sold. Our average cost per barrel decreased $4.74, or 8%. The impact of lower prices reduced cost
of products sold by $70.6 million while the growth in volumes increased our costs $91.0 million. Our margins decreased by
$0.02, or 0.9%, per barrel during the period.
Operating expenses. Operating expenses increased $6.9 million, $5.3 million of which is related to the acquisition of
Cardinal and $1.5 million is a result of the acquisition of NGL storage assets from Martin Resource Management in May 2014.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $2.7 million due
to the acquisition of Cardinal, $1.0 million due to increased compensation expense, $0.5 million due to increased property
taxes, and $0.3 million due to increased bad debt expense.
Depreciation and amortization. Depreciation and amortization increased due to the acquisition of Cardinal.
51
Sulfur Services Segment
Comparative Results of Operations for the Twelve Months Ended December 31, 2015 and 2014
Revenues:
Services
Products
Total revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Other operating loss
Operating income
Sulfur (long tons)
Fertilizer (long tons)
Sulfur services volumes (long tons)
Year Ended
December 31,
2015
2014
(In thousands)
Variance
Percent
Change
$ 12,270
157,891
170,161
$ 12,149
203,322
215,471
$
121
(45,431)
(45,310)
115,133
15,279
3,805
8,455
27,489
(376)
$ 27,113
160,144
17,136
4,359
8,176
25,656
—
$ 25,656
(45,011)
(1,857)
(554)
279
1,833
(376)
1,457
$
856.0
274.0
1,130.0
848.0
306.0
1,154.0
8.0
(32.0)
(24.0)
1%
(22)%
(21)%
(28)%
(11)%
(13)%
3%
7%
6%
1%
(10)%
(2)%
Revenues. Product revenue decreased $42.1 million as a result of a 21% decrease in sales prices for both sulfur and
fertilizer products. Further, product revenue decreased an additional $3.3 million due to a 2% decrease in sales volumes,
primarily related to decreased fertilizer volumes.
Cost of products sold. A 27% decrease in prices reduced our cost by $42.6 million. A 2% decrease in sales volumes
decreased cost of products sold by $2.4 million. Margin per ton remained consistent.
Operating expenses. Our operating expenses decreased due to a reduction in repairs and maintenance on marine
vessels of $1.3 million and a decrease in fuel expense of $0.6 million.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased as a result of
decreased compensation expense.
Depreciation and amortization. The slight increase in depreciation and amortization is due to the impact of recent
capital expenditures.
Other operating loss. Other operating loss represents losses from the disposition of property, plant and equipment.
52
Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
Revenues:
Services
Products
Total revenues
Cost of products sold
Operating expenses
Selling, general and administrative expenses
Depreciation and amortization
Operating income
Sulfur (long tons)
Fertilizer (long tons)
Sulfur services volumes (long tons)
Year Ended
December 31,
2014
2013
(In thousands)
Variance
Percent
Change
$ 12,149
203,322
215,471
$ 12,004
201,120
213,124
160,144
17,136
4,359
8,176
$ 25,656
158,085
16,975
4,083
7,979
$ 26,002
$
$
848.0
306.0
1,154.0
837.0
273.0
1,110.0
145
2,202
2,347
2,059
161
276
197
(346)
11.0
33.0
44.0
1%
1%
1%
1%
1%
7%
2%
(1)%
1%
12%
4%
Revenues. Product revenue increased $7.9 million as a result of a 4% increase in sales volumes, attributable primarily
to 12% increase in fertilizer volumes, and were offset by a decrease of $5.7 million due to a 3% decline in sales prices for both
sulfur and fertilizer products.
Cost of products sold. A 4% increase in sales volumes increased cost of products sold by $6.2 million. A 3% decrease
in prices reduced our cost by $4.1 million. Margin per ton decreased $1.38, or 4%.
Operating expenses. Our operating expenses increased due to higher railcar lease expense of $0.3 million and a $0.1
million decrease in outside towing expenses.
Selling, general and administrative expenses. Selling, general and administrative expenses increased as a result of
increased compensation and travel expense.
Depreciation and amortization. The increase in depreciation and amortization is due to the impact of recent capital
expenditures.
Marine Transportation Segment
Comparative Results of Operations for the Twelve Months Ended December 31, 2015 and 2014
Revenues
Operating expenses
Selling, general and administrative expenses
Impairment of long lived assets
Depreciation and amortization
Other operating loss
Operating income
53
Year Ended
December 31,
2015
2014
(In thousands)
$ 97,049
77,964
1,084
3,445
9,942
4,614
(1,304)
3,310
$
Variance
Percent
Change
$ (15,265)
(14,552)
(667)
(2,121)
1,050
1,025
295
1,320
$
(16)%
(19)%
(62)%
(62)%
11%
22%
(23)%
40%
$ 81,784
63,412
417
1,324
10,992
5,639
(1,009)
4,630
$
Inland Revenues. A $6.4 million decrease in inland revenues is primarily attributable to decreased utilization of the
inland fleet. Additionally, $4.9 million related to a decrease in pass-through revenues.
Offshore Revenues. Revenue from offshore operations decreased $1.9 million due to a decrease in utilization of the
offshore fleet. Additionally, $1.2 million related to a decrease in pass-through revenues.
Operating expenses. Operating expenses decreased $6.4 million due to decreased pass-through expenses, primarily
fuel. Additionally, there were decreases in repairs and maintenance of $4.5 million, compensation expense of $1.5 million,
insurance premiums of $0.5 million, operating supplies of $0.4 million, property taxes of $0.5 million, and Jones Act claims of
$0.4 million.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased as a result of a
decrease in a legal contingency reserve established during the purchase of Talen's Marine & Fuel, LLC of $1.4 million, offset
by an increase in the reserve for an uncollectible customer receivable of $0.9 million.
Impairment of long-lived assets. Impairment of long-lived assets for the 2015 period represents the write-down of
four assets as a result of the inability to generate cash flows in recent quarters and going forward. Impairment of long-lived
assets for the 2014 period represents the write-down of one offshore tow which was the result of the decision to remove that
asset from service and ultimately dispose of it.
Depreciation and amortization. Depreciation and amortization decreased as a result of the disposal of equipment,
offset by increases in depreciable assets related to recent capital expenditures.
Other operating loss. Other operating loss represents losses from the disposition of property, plant and equipment.
Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
Revenues
Operating expenses
Selling, general and administrative expenses
Impairment of long lived assets
Depreciation and amortization
Other operating income (loss)
Operating income
Year Ended
December 31,
2014
2013
(In thousands)
$ 99,511
79,306
1,347
—
10,198
8,660
354
9,014
$
Variance
Percent
Change
$
$
(2,462)
(1,342)
(263)
3,445
(256)
(4,046)
(1,658)
(5,704)
(2)%
(2)%
(20)%
(3)%
(47)%
468%
(63)%
$ 97,049
77,964
1,084
3,445
9,942
4,614
(1,304)
3,310
$
Inland Revenues. A $2.3 million increase in inland revenues is primarily attributable to increased utilization of the
inland fleet. Offsetting this increase was a $1.3 million decrease in pass-through revenues.
Offshore Revenues. Revenue from offshore operations decreased $4.0 million due to a decrease in utilization of the
offshore fleet resulting from downtime associated with regulatory inspections and maintenance.
Operating expenses. Operating expenses decreased $1.3 million due to less outside towing expense of $1.3 million,
barge lease rental of $0.8 million, ancillary expenses (primarily fuel) of $1.7 million. Offsetting these decreases were increases
in repairs and maintenance of $2.7 million.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased primarily due to
an increase in cost recoveries associated with management of marine vessels owned by the sulfur services and natural gas
services segments.
Impairment of long-lived assets. Impairment of long-lived assets represents the write-down of one offshore tow which
was the result of the decision to remove that asset from service and ultimately dispose of it.
54
Depreciation and amortization. Depreciation and amortization decreased as a result of the disposal of equipment,
offset by increases in depreciable assets related to recent capital expenditures.
Other operating income (loss). Other operating income (loss) represents gains and losses from the disposition of
property, plant and equipment.
Equity in Earnings (Loss) of Unconsolidated Entities
Equity in earnings of WTLPG
Equity in earnings of Cardinal
Equity in earnings of MET
Equity in earnings of unconsolidated entities
Year Ended
December 31,
2014
(In thousands)
2015
Variance
Percent
Change
$
$
8,986
—
—
8,986
$
$
3,076
892
1,498
5,466
5,910
(892)
(1,498)
3,520
192%
(100)%
(100)%
64%
$
The investment in West Texas LPG Pipeline L.P. ("WTLPG") was made in May 2014.
On August 29, 2014, the Partnership acquired the remaining 57.8% Category A interest in Cardinal it did not
previously own and began consolidating Cardinal's results.
Equity in earnings of Martin Energy Trading LLC ("MET") represents dividends on our 100% investment in its
preferred interests. The MET investment was acquired in March 2013. In August 2014, MET converted its preferred equity to
subordinated debt, resulting in a Partnership note receivable from MET. Subsequent to this conversion, we recorded interest on
the note receivable in "Interest expense, net" in the Consolidated Statements of Operations.
Year Ended
December 31,
Equity in earnings of WTLPG
Equity in earnings (loss) of Cardinal
Equity in earnings of MET
Equity in loss of Caliber
Equity in earnings (loss) of unconsolidated entities
The investment in WTLPG was made in May 2014.
2014
$
$
3,076
892
1,498
—
5,466
Variance
2013
(In thousands)
— $
$
3,076
55,118
(240)
560
$ (53,048) $ 58,514
(54,226)
1,738
(560)
Percent
Change
102%
(14)%
100%
110%
Equity in loss of Cardinal in 2013 includes $54.1 million of impairment related to the long-lived assets of Monroe Gas
Storage Company LLC ("Monroe"), a subsidiary of Cardinal. On August 29, 2014, the Partnership acquired the remaining
57.8% Category A interest in Cardinal it did not previously own, and began consolidating Cardinal's results.
Equity in earnings of MET represents dividends on our 100% investment in its preferred interests. The MET
investment was acquired in March 2013. In August 2014, MET converted its preferred equity to subordinated debt, resulting in
a Partnership note receivable from MET.
The investment in Caliber was acquired in June 2012 and sold in November 2013.
55
Interest Expense
Comparative Components of Interest Expense, Net for the Twelve Months Ended December 31, 2015 and 2014
Revolving loan facility
8.875 % senior unsecured notes
7.250 % senior unsecured notes
Amortization of deferred debt issuance costs
Amortization of debt discount and premium
Impact of interest rate derivative activity, including cash settlements
Other
Capitalized interest
Interest income
Total interest expense, net
2015
Year Ended
December 31,
2014
(In thousands)
$ 12,684
$
3,882
26,252
6,263
1,059
(6,692)
944
(1,437)
(752)
$ 42,203
$ 16,270
—
28,583
4,859
(324)
(2,289)
387
(1,944)
(2,250)
$ 43,292
$
Variance
3,586
(3,882)
2,331
(1,404)
(1,383)
4,403
(557)
(507)
(1,498)
1,089
Comparative Components of Interest Expense, Net for the Twelve Months Ended December 31, 2014 and 2013
Revolving loan facility
8.875 % senior unsecured notes
7.250 % senior unsecured notes
Amortization of deferred debt issuance costs
Amortization of debt discount and premium
Cash settlements on interest rate swaps
Other
Capitalized interest
Interest income
Total interest expense, net
Indirect Selling, General and Administrative Expenses
Year Ended
December 31,
2014
Variance
2013
(In thousands)
$
$
$ 12,684
3,882
26,252
6,263
1,059
(6,692)
944
(1,437)
(752)
$ 42,203
7,683
15,531
16,061
3,700
306
—
310
(1,096)
— $
$
$ 42,495
5,001
(11,649)
10,191
2,563
753
(6,692)
634
(341)
(752)
460
Percent
Change
28%
(100)%
9%
(22)%
(131)%
(66)%
(59)%
(35)%
(199)%
3%
Percent
Change
65%
(75)%
63%
69%
246%
205%
(31)%
(1)%
Year Ended
December 31,
2015
2014
(In thousands)
Variance
Percent
Change
Year Ended
December 31,
2014
2013
(In thousands)
Variance
Percent
Change
Indirect selling, general and
administrative expenses
$ 18,951
$ 18,712
$
239
1%
$ 18,712
$ 16,837
$
1,875
11%
Indirect selling, general and administrative expenses remained consistent from 2014 to 2015.
The increase in indirect selling, general and administrative expenses from 2013 to 2014 is primarily a result of higher
allocated overhead expenses from Martin Resource Management as a result of increased time spent on Partnership activities.
Martin Resource Management allocates to us a portion of its indirect selling, general and administrative expenses for
services such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance,
general office expenses and employee benefit plans and other general corporate overhead functions we share with Martin
Resource Management retained businesses. This allocation is based on the percentage of time spent by Martin Resource
56
Management personnel that provide such centralized services. GAAP also permits other methods for allocation of these
expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these
expenses between Martin Resource Management and us is subject to a number of judgments and estimates, regardless of the
method used. We can provide no assurances that our method of allocation, in the past or in the future, is or will be the most
accurate or appropriate method of allocation for these expenses. Other methods could result in a higher allocation of selling,
general and administrative expense to us, which would reduce our net income.
Under the Omnibus Agreement, we are required to reimburse Martin Resource Management for indirect general and
administrative and corporate overhead expenses. The Conflicts Committee approved the following reimbursement amounts:
Year Ended
December 31,
2015
2014
(In thousands)
Variance
Percent
Change
Year Ended
December 31,
2014
2013
Variance
(In thousands)
Percent
Change
Conflicts Committee approved
reimbursement amount
$ 13,679
$ 12,535
$
1,144
9%
$ 12,535
$ 10,621
$
1,914
18%
The amounts reflected above represent our allocable share of such expenses. The Conflicts Committee will review
and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
Liquidity and Capital Resources
General
Our primary sources of liquidity to meet operating expenses, pay distributions to our unitholders and fund capital
expenditures have historically been cash flows generated by our operations and access to debt and equity markets, both public
and private. Management believes that expenditures for our current capital projects will be funded with cash flows from
operations, current cash balances and our current borrowing capacity under the expanded revolving credit facility. Given the
current environment, we have altered and reduced our planned growth capital expenditures. We believe that controlling our
spending in an effort to preserve liquidity is prudent and reduces our need for near-term access to the somewhat uncertain
capital markets.
Our ability to satisfy our working capital requirements, to fund planned capital expenditures and to satisfy our debt
service obligations will also depend upon our future operating performance, which is subject to certain risks. Please read "Item
1A. Risk Factors - Risks related to Our Business" for a discussion of such risks.
Recent Debt Financing Activity
In 2015, we repurchased on the open market an aggregate $26.2 million of our outstanding 7.25% senior unsecured
notes. These transactions resulted in a gain on retirement of debt of $1.2 million.
On August 14, 2015, we notified the Royal Bank of Canada, the administrative agent of our revolving credit facility,
that we were reducing the aggregate committed sum (as defined in the underlying credit agreement) from $900.0 million to
$700.0 million. We have the ability to exercise the accordion feature of our revolving credit facility at any time and expand the
facility up to an aggregate committed sum of $1.0 billion. As a result of the decreased capacity, we expect to reduce the amount
of commitment fees under our revolving credit facility by approximately $1.0 million on an annual basis.
On June 23, 2015, we amended the definition of Consolidated EBITDA (as defined in the credit facility agreement) to
include cash interest payments received by the Partnership in respect of subordinated debt owed to the Partnership by MET.
Additionally, the amendment permits us to purchase, redeem or otherwise acquire up to $25.0 million of our common units
and/or senior unsecured notes, subject to compliance with certain minimum liquidity, maximum leverage and other conditions
set forth in the amendment.
Due to the foregoing, we believe that cash generated from operations and our borrowing capacity under our credit
facility will be sufficient to meet our working capital requirements and anticipated maintenance capital expenditures in 2016.
57
Finally, our ability to satisfy our working capital requirements, to fund planned capital expenditures and to satisfy our
debt service obligations will depend upon our future operating performance, which is subject to certain risks. Please read "Item
1A. Risk Factors - Risks Relating to Our Business" for a discussion of such risks.
Cash Flows - Twelve Months Ended December 31, 2015 Compared to Twelve Months Ended December 31, 2014
The following table details the cash flow changes between the twelve months ended December 31, 2015 and 2014:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net decrease in cash and cash equivalents
Years Ended
December 31,
2015
2014
(In thousands)
Variance
$ 182,572
(23,805)
(158,778)
$
$ 115,580
(324,663)
192,583
$ 66,992
300,858
(351,361)
(11) $ (16,500) $ 16,489
Percent
Change
58%
93%
(182)%
(100)%
Net cash provided by operating activities. The change in net cash provided by operating activities includes an increase
in operating results from continuing operations of $43.5 million, distributions from WTLPG of $8.6 million, and a $21.7
million favorable variance in working capital. Offsetting the increase in cash flows provided by operating activities was a
decrease in other non-cash charges of $6.9 million. Changes in working capital are primarily affected by the timing of
payments of trade and other accounts payable as well as the collections of trade and other accounts receivable. In addition,
cash used in discontinued operations increased $2.1 million in 2015.
Net cash used in investing activities. Acquisition expenditures decreased $102.7 million. Investments in
unconsolidated entities and capital expenditures decreased $134.0 million and $18.5 million in 2015, respectively. Net cash
provided by discontinued investing activities of $41.3 million in 2015 is attributable to the sale of the six pressure barges which
occurred in February 2015. There was no cash provided by or used in discontinued investing activities in 2014.
Net cash (used in) provided by financing activities. Net cash (used in) provided by financing activities decreased for
the year ended December 31, 2015 as a result of: (i) a decrease of $339.3 million in equity offering proceeds, including $7.0
million from the general partner; (ii) a $13.0 million increase in net proceeds from long-term debt (borrowings less
repayments); (iii) a $35.9 million increase in cash distributions; (iv) a $3.4 million reduction in the payment of debt issuance
costs; and (v) an increase of $7.2 million related to excess purchase price over the carrying value of acquired assets in common
control transactions.
Cash Flows - Twelve Months Ended December 31, 2014 Compared to Twelve Months Ended December 31, 2013
The following table details the cash flow changes between the twelve months ended December 31, 2014 and 2013:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Years Ended
December 31,
2014
2013
(In thousands)
Variance
Percent
Change
$ 115,580
(324,663)
192,583
$ 112,183
(186,777)
85,974
$ (16,500) $ 11,380
$
3,397
(137,886)
106,609
$ (27,880)
3%
(74)%
(124)%
(245)%
The change in net cash provided by operating activities includes an increase in operating results from continuing
operations plus other non cash items of $7.5 million, distributions from WTLPG of $2.6 million, and a $10.1 million
unfavorable variance in working capital. Changes in working capital are primarily affected by the timing of payments of trade
and other accounts payable as well as the collections of trade and other accounts receivable. In addition, cash used in
discontinued operations decreased $2.0 million in 2014.
58
Net cash used in investing activities in 2014 includes the $133.9 million net investment in WTLPG. Acquisition
expenditures increased $71.4 million, including the Cardinal acquisition of $100.2 million, net of cash acquired. Contributions
to unconsolidated entities and capital expenditures decreased $27.5 million and $7.9 million in 2014, respectively. Net cash
used in discontinued investing activities of $42.6 million in 2013 is attributable to the purchase of the six pressure barges which
were sold in February 2015. There was no cash provided by or used in discontinued investing activities in 2014.
Net cash provided by financing activities increased for the year ended December 31, 2014 as a result of: (i) $338.7
million in equity offering proceeds, including $7.0 million from the general partner; (ii) a $228.8 million decrease in net
proceeds from long-term debt (borrowings less repayments); (iii) a $12.8 million increase in cash distributions; and (iv) a $5.4
million reduction in the payment of debt issuance costs.
Capital Expenditures
Our operations require continual investment to upgrade or enhance operations and to ensure compliance with safety,
operational, and environmental regulations. Our capital expenditures consist primarily of:
• maintenance capital expenditures made to maintain existing assets and operations;
•
expansion capital expenditures to acquire assets to grow our business, to expand existing facilities, such as
projects that increase operating capacity, or to reduce operating costs; and
•
plant turnaround costs made at our refinery to perform maintenance, overhaul and repair operations and to
inspect, test and replace process materials and equipment.
The following table summarizes maintenance and expansion capital expenditures, excluding amounts paid for
acquisitions, for the periods presented:
Expansion capital expenditures
Maintenance capital expenditures
Plant turnaround costs
Total
Three Months Ended
December 31,
2015
2014
(In thousands)
Years Ended
December 31,
2015
2014
(In thousands)
$ 17,026
5,281
154
$ 22,461
$ 29,465
1,296
(26)
$ 30,735
$ 53,917
12,902
1,908
$ 68,727
$ 74,727
14,556
3,974
$ 93,257
Expansion capital expenditures were made primarily in our Terminalling and Storage and Natural Gas Services
segments during the three and twelve months ended December 31, 2015. Within our Terminalling and Storage segment,
expenditures were made primarily at our Smackover refinery, and on certain organic growth projects ongoing in our specialty
terminalling operations. Within our Natural Gas Services segment, expenditures were made primarily on certain organic
growth projects ongoing in our Natural Gas Services operations. Maintenance capital expenditures were made primarily in our
Terminalling and Storage, Marine Transportation, and Natural Gas Services segments to maintain our existing assets and
operations during the three and twelve months ended December 31, 2015.
Expansion capital expenditures were made primarily in our Terminalling and Storage and Natural Gas Services
segments during the three and twelve months ended December 31, 2014. Within our Terminalling and Storage segment,
expenditures were made primarily at our Corpus Christi crude terminal, Smackover refinery, and certain smaller organic growth
projects ongoing in our specialty terminalling operations. Within our Natural Gas Services segment, expenditures were made
primarily on certain organic growth projects ongoing in our Natural Gas Services operations. Maintenance capital expenditures
were made primarily in our Terminalling and Storage, Marine Transportation, and Sulfur Services segments to maintain our
existing assets and operations during the three and twelve months ended December 31, 2014.
Capital Resources
Historically, we have generally satisfied our working capital requirements and funded our capital expenditures with
cash generated from operations and borrowings. We expect our primary sources of funds for short-term liquidity will be cash
flows from operations and borrowings under our credit facility.
59
As of December 31, 2015, we had $873.4 million of outstanding indebtedness, consisting of outstanding borrowings
of $375.4 million (including unamortized premium) in senior unsecured notes and $498.0 million under our revolving credit
facility.
Total Contractual Cash Obligations. A summary of our total contractual cash obligations as of December 31, 2015, is
as follows (dollars in thousands):
Type of Obligation
Revolving credit facility
2021 senior unsecured notes
Throughput commitment
Operating leases
Interest expense: ¹
Revolving credit facility
2021 Senior unsecured notes
Total contractual cash obligations
Total
Obligation
498,000
$
373,800
34,042
45,114
35,318
138,890
$ 1,125,164
$
$
Less than
One Year
Payments due by period
1-3
Years
498,000
—
12,565
15,262
— $
—
6,075
13,676
$
3-5
Years
Due
Thereafter
—
373,800
2,331
9,241
— $
—
13,071
6,935
15,798
27,101
62,650
$
19,520
54,201
599,548
$
—
54,201
74,207
$
—
3,387
388,759
¹Interest commitments are estimated using our current interest rates for the respective credit agreements over their
remaining terms.
Letter of Credit. At December 31, 2015, we had outstanding irrevocable letters of credit in the amount of $1.1 million,
which were issued under our revolving credit facility.
Off Balance Sheet Arrangements. We do not have any off-balance sheet financing arrangements.
Description of Our Long-Term Debt
2021 Senior Notes
We and Martin Midstream Finance Corp., a subsidiary of us (collectively, the "Issuers"), entered into (i) an Indenture,
dated as of February 11, 2013 (the "2021 Indenture") among the Issuers, certain subsidiary guarantors (the "2021 Guarantors")
and Wells Fargo Bank, National Association, as trustee (the "2021 Trustee") and (ii) a Registration Rights Agreement, dated as
of February 11, 2013 (the "2021 Registration Rights Agreement"), among the Issuers, the 2021 Guarantors and Wells Fargo
Securities, LLC, RBC Capital Markets, LLC, RBS Securities Inc., SunTrust Robinson Humphrey, Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as representatives of a group of initial purchasers, in connection with a private placement
to eligible purchasers of $250.0 million in aggregate principal amount of the Issuers' 7.25% senior unsecured notes due 2021
(the "2021 Notes"). On April 1, 2014, we completed a private placement add-on of $150.0 million of the 2021 Notes. In 2015,
we repurchased on the open market and subsequently retired an aggregate $26.2 million of our outstanding 2021 Notes.
Interest and Maturity. The Issuers issued the 2021 Notes pursuant to the 2021 Indenture in transactions exempt from
registration requirements under the Securities Act of 1933, as amended (the "Securities Act"). The 2021 Notes were resold to
qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside the United States pursuant
to Regulation S under the Securities Act. The 2021 Notes will mature on February 15, 2021. The interest payment dates are
February 15 and August 15.
Optional Redemption. Prior to February 15, 2016, the Issuers have the option on any one or more occasions to redeem
up to 35% of the aggregate principal amount of the 2021 Notes issued under the 2021 Indenture, at a redemption price of
107.250% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date of the 2021 Notes with the
proceeds of certain equity offerings. Prior to February 15, 2017, the Issuers may on any one or more occasions redeem all or a
part of the 2021 Notes at the redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make whole
premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. On or after February 15,
2017, the Issuers may on any one or more occasions redeem all or a part of the 2021 Notes at the redemption prices (expressed
as percentages of principal amount) equal to 103.625% for the twelve-month period beginning on February 15, 2017,
60
101.813% for the twelve-month period beginning on February 15, 2018 and 100.00% for the twelve-month period beginning
on February 15, 2019 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date on
the 2021 Notes.
Certain Covenants. The 2021 Indenture restricts our ability and the ability of certain of our subsidiaries to: (i) sell
assets including equity interests in our subsidiaries; (ii) pay distributions on, redeem or repurchase our units or redeem or
repurchase our subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred
units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from our restricted
subsidiaries to us; (vii) consolidate, merge or transfer all or substantially all of our assets; (viii) engage in transactions with
affiliates; (ix) create unrestricted subsidiaries; (x) enter into sale and leaseback transactions; or (xi) engage in certain business
activities. These covenants are subject to a number of important exceptions and qualifications. If the 2021 Notes achieve an
investment grade rating from each of Moody's Investors Service, Inc. and Standard & Poor's Ratings Services and no Default
(as defined in the 2021 Indenture) has occurred and is continuing, many of these covenants will terminate.
Events of Default. The 2021 Indenture provides that each of the following is an Event of Default: (i) default for 30
days in the payment when due of interest on the 2021 Notes; (ii) default in payment when due of the principal of, or premium,
if any, on the 2021 Notes; (iii) failure by us to comply with certain covenants relating to asset sales, repurchases of the 2021
Notes upon a change of control and mergers or consolidations; (iv) failure by us for 180 days after notice to comply with our
reporting obligations under the Securities Exchange Act of 1934; (v) failure by us for 60 days after notice to comply with any
of the other agreements in the 2021 Indenture; (vi) default under any mortgage, indenture or instrument governing any
indebtedness for money borrowed or guaranteed by us or any of our restricted subsidiaries, whether such indebtedness or
guarantee now exists or is created after the date of the 2021 Indenture, if such default: (a) is caused by a payment default; or
(b) results in the acceleration of such indebtedness prior to its stated maturity, and, in each case, the principal amount of the
indebtedness, together with the principal amount of any other such indebtedness under which there has been a payment default
or acceleration of maturity, aggregates $20.0 million or more, subject to a cure provision; (vii) failure by us or any of our
restricted subsidiaries to pay final judgments aggregating in excess of $20.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (viii) except as permitted by the 2021 Indenture, any subsidiary guarantee is held in any
judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force or effect, or any 2021 Guarantor,
or any person acting on behalf of any Guarantor, denies or disaffirms its obligations under its subsidiary guarantee; and
(ix) certain events of bankruptcy, insolvency or reorganization described in the 2021 Indenture with respect to the Issuers or
any of our restricted subsidiaries that is a significant subsidiary or any group of restricted subsidiaries that, taken together,
would constitute a significant subsidiary of us. Upon a continuing Event of Default, the 2021 Trustee, by notice to the Issuers,
or the holders of at least 25% in principal amount of the then outstanding 2021 Notes, by notice to the Issuers and the 2021
Trustee, may declare the 2021 Notes immediately due and payable, except that an Event of Default resulting from entry into a
bankruptcy, insolvency or reorganization with respect to the Issuers, any restricted subsidiary of us that is a significant
subsidiary or any group of its restricted subsidiaries that, taken together, would constitute a significant subsidiary of us, will
automatically cause the 2021 Notes to become due and payable.
Revolving Credit Facility
We maintain a $700.0 million credit facility, which was reduced from $900.0 million on August 14, 2015 through
notification to our credit facility's administrative agent. On June 23, 2015, we amended the credit facility to change the
definition of Consolidated EBITDA (as defined in the credit facility agreement) to include cash interest payments received by
the Partnership in respect of subordinated debt owed to the Partnership by MET. Additionally, the amendment permits us to
purchase, redeem or otherwise acquire up to $25.0 million of our common units and/or senior unsecured notes, subject to
compliance with certain minimum liquidity, maximum leverage and other conditions set forth in the amendment.
As of December 31, 2015, the capacity of our revolving credit facility was $700.0 million. We had $498.0 million
outstanding under the revolving credit facility and $1.1 million of letters of credit issued, leaving a maximum available to be
borrowed under our credit facility for future revolving credit borrowings and letters of credit of $200.9 million. Subject to the
financial covenants contained in our credit facility and based on our existing EBITDA (as defined in our credit facility)
calculations, as of December 31, 2015, we have the ability to borrow approximately $124.6 million of that amount.
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, 2015, the level of
outstanding draws on our credit facility ranged from a low of $450.0 million to a high of $520.0 million.
The credit facility is guaranteed by substantially all of our subsidiaries. Obligations under the credit facility are
secured by first priority liens on substantially all of our assets and those of the guarantors, including, without limitation,
61
inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in our subsidiaries and
certain of our equity method investees.
We may prepay all amounts outstanding under the credit facility at any time without premium or penalty (other than
customary LIBOR breakage costs), subject to certain notice requirements. The credit facility requires mandatory prepayments
of amounts outstanding thereunder with the net proceeds of certain asset sales, equity issuances and debt incurrences.
Indebtedness under the credit facility bears interest at our option at the Eurodollar Rate (the British Bankers
Association LIBOR Rate) plus an applicable margin or the Base Rate (the highest of the Federal Funds Rate plus 0.50%, the
30-day Eurodollar Rate plus 1.0%, or the administrative agent’s prime rate) plus an applicable margin. We pay a per annum fee
on all letters of credit issued under the credit facility, and we pay a commitment fee per annum on the unused revolving credit
availability under the credit facility. The letter of credit fee, the commitment fee and the applicable margins for our interest rate
vary quarterly based on our leverage ratio (as defined in the credit facility, being generally computed as the ratio of total funded
debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) and are as
follows:
Leverage Ratio
Less than 3.00 to 1.00
Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00
Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00
Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00
Greater than or equal to 4.50 to 1.00
Base Rate
Loans
Eurodollar
Rate
Loans
Letters of
Credit
0.75%
1.00%
1.25%
1.50%
1.75%
1.75%
2.00%
2.25%
2.50%
2.75%
1.75%
2.00%
2.25%
2.50%
2.75%
The applicable margin for revolving loans that are LIBOR loans ranges from 1.75% to 2.75% and the applicable
margin for revolving loans that are base prime rate loans ranges from 0.75% to 1.75%. The applicable margin for LIBOR
borrowings at December 31, 2015 is 2.75%.
The credit facility includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter
period that ends on the last day of each fiscal quarter. The maximum permitted leverage ratio is 5.25 to 1.00 with a temporary
springing provision to 5.50 to 1.00 under certain scenarios. The maximum permitted senior leverage ratio (as defined in the
credit facility but generally computed as the ratio of total secured funded debt to consolidated earnings before interest, taxes,
depreciation, amortization and certain other non-cash charges) is 3.50 to 1.00. The minimum interest coverage ratio (as defined
in the credit facility but generally computed as the ratio of consolidated earnings before interest, taxes, depreciation,
amortization and certain other non-cash charges to consolidated interest charges) is 2.50 to 1.00.
In addition, the credit facility contains various covenants, which, among other things, limit our and our subsidiaries’
ability to: (i) grant or assume liens; (ii) make investments (including investments in our joint ventures) and acquisitions;
(iii) enter into certain types of hedging agreements; (iv) incur or assume indebtedness; (v) sell, transfer, assign or convey assets;
(vi) repurchase our equity, make distributions and certain other restricted payments, but the credit facility permits us to make
quarterly distributions to unitholders so long as no default or event of default exists under the credit facility; (vii) change the
nature of our business; (viii) engage in transactions with affiliates; (ix) enter into certain burdensome agreements; (x) make
certain amendments to the Omnibus Agreement and our material agreements; (xi) make capital expenditures; and (xii) permit
our joint ventures to incur indebtedness or grant certain liens.
The credit facility contains customary events of default, including, without limitation, (i) failure to pay any principal,
interest, fees, expenses or other amounts when due; (ii) failure to meet the quarterly financial covenants; (iii) failure to observe
any other agreement, obligation, or covenant in the credit facility or any related loan document, subject to cure periods for
certain failures; (iv) the failure of any representation or warranty to be materially true and correct when made; (v) our, or any of
our subsidiaries’ default under other indebtedness that exceeds a threshold amount; (vi) bankruptcy or other insolvency events
involving us or any of our subsidiaries; (vii) judgments against us or any of our subsidiaries, in excess of a threshold amount;
(viii) certain ERISA events involving us or any of our subsidiaries, in excess of a threshold amount; (ix) a change in control (as
defined in the credit facility); and (x) the invalidity of any of the loan documents or the failure of any of the collateral
documents to create a lien on the collateral.
The credit facility also contains certain default provisions relating to Martin Resource Management. If Martin
Resource Management no longer controls our general partner, the lenders under the credit facility may declare all amounts
62
outstanding thereunder immediately due and payable. In addition, an event of default by Martin Resource Management under
its credit facility could independently result in an event of default under our credit facility if it is deemed to have a material
adverse effect on us.
If an event of default relating to bankruptcy or other insolvency events occurs with respect to us or any of our
subsidiaries, all indebtedness under our credit facility will immediately become due and payable. If any other event of default
exists under our credit facility, the lenders may terminate their commitments to lend us money, accelerate the maturity of the
indebtedness outstanding under the credit facility and exercise other rights and remedies. In addition, if any event of default
exists under our credit facility, the lenders may commence foreclosure or other actions against the collateral.
As of February 29, 2016, our outstanding indebtedness includes $530.0 million under our credit facility.
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 are dependent on sales prices of products, particularly NGLs and fertilizers,
which fluctuate in part based on winter and spring weather conditions. The demand for NGLs is strongest during the winter
heating season and the refinery blending season. The demand for fertilizers is strongest during the early spring planting season.
However, our WTLPG and natural gas storage divisions of the Natural Gas Services segment each provide stable cash flows
and are not generally subject to seasonal demand factors. Additionally, our Terminalling and Storage and Marine
Transportation segments and the molten sulfur business are typically not impacted by seasonal fluctuations and a significant
portion of our net income is derived from our terminalling and storage, sulfur and marine transportation businesses. Therefore,
we do not expect that our overall net income will be impacted by seasonality factors. However, extraordinary weather events,
such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage and Marine Transportation
segments.
Impact of Inflation
Inflation did not have a material impact on our results of operations in 2015, 2014 or 2013. 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 2015, 2014 or 2013.
63
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Commodity Risk. The Partnership from time to time uses 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. We have established a hedging policy and monitor and manage the commodity market risk associated with
potential commodity risk exposure. In addition, we focus on utilizing counterparties for these transactions whose financial
condition is appropriate for the credit risk involved in each specific transaction.
We have entered into hedging transactions through June 30, 2016 to protect a portion of our commodity price risk
exposure. These hedging arrangements are in the form of swaps for NGLs. We have arrangements totaling a notional quantity
of 0.2 million barrels settling during the period from January 31, 2016 through June 30, 2016. These instruments settle against
OPIS Mont Belvieu (non-TET) monthly average price. These instruments are recorded on our Consolidated Balance Sheets at
December 31, 2015 in "Fair value of derivatives" as a current asset of $0.7 million. Based on the current notional volume
hedged as of December 31, 2015, a $0.10 change in the expected settlement price of these contracts would result in an impact
to the Partnership's net income of approximately $1.0 million.
Interest Rate Risk. We are exposed to changes in interest rates as a result of our credit facility, which had a weighted-
average interest rate of 3.16% as of December 31, 2015. Based on the amount of unhedged floating rate debt owed by us on
December 31, 2015, the impact of a 100 basis point increase in interest rates on this amount of debt would result in an increase
in interest expense and a corresponding decrease in net income of approximately $5.0 million annually.
We are not exposed to changes in interest rates with respect to our senior unsecured notes as these obligations are
fixed rate. The estimated fair value of the senior unsecured notes was approximately $318.0 million as of December 31, 2015,
based on market prices of similar debt at December 31, 2015. Market risk is estimated as the potential decrease in fair value of
our long-term debt resulting from a hypothetical increase in interest rates. A hypothetical increase in interest rates of 100 basis
points would result in an approximate $12.7 million decrease in fair value of our long-term debt at December 31, 2015.
We have entered into an interest rate swap agreement to reduce the amount of interest we pay on our senior unsecured
notes due in February of 2021. Pursuant to the terms of these interest rate swap agreements, we pay a variable rate interest
payment based on the one-month LIBOR and receive a fixed rate. The net difference to be paid or received from the
counterparties under the interest rate swap agreement is settled semiannually and is recognized as an adjustment to interest
expense. The risk associated with these interest rate swaps exposes us to an increase in interest rates which would result in an
increase in interest expense and a corresponding decrease in net income. The impact of a 100 basis point increase in the one
month LIBOR would result in an decrease in the fair value of our interest rate swaps of $2.3 million.
At December 31, 2015, we are a party to interest rate swap agreements as shown below:
Interest Rate Swaps
As of December 31, 2015
(Dollars in Thousands)
Date of Swap
Bank
Maturity
December
2015
BBVA
Compass
December
2020
Notional
Amount
Interest Rate
We Pay
Interest Rate
We Receive
Fair Value
Asset
Fair Value
Liability
$
$
50,000
50,000
1 MO LIBOR
1.47%
$
$
— $
— $
206
206
64
Item 8.
Financial Statements and Supplementary Data
The following financial statements of Martin Midstream Partners L.P. (Partnership) are listed below:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Capital for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Page
66
68
69
72
73
74
65
Report of Independent Registered Public Accounting Firm
The Board of Directors
Martin Midstream GP LLC:
We have audited the accompanying consolidated balance sheets of Martin Midstream Partners L.P. and subsidiaries as
of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in capital, and cash flows for each
of the years in the three year period ended December 31, 2015. These consolidated financial statements are the responsibility of
Martin Midstream’s management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations
and their cash flows for the each of the years in a three-year period ended December 31, 2015 in conformity with U.S. generally
accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Martin Midstream Partners L.P. and subsidiaries’ internal control over financial reporting as of December 31, 2015, based
on criteria establish in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated February 29, 2016 expressed an unqualified opinion on the effectiveness
of Martin Midstream Partners L.P. and subsidiaries’ internal control over financial reporting.
/s/ KPMG LLP
Dallas, Texas
February 29, 2016
66
Report of Independent Registered Public Accounting Firm
The Board of Directors
Martin Midstream GP LLC:
We have audited Martin Midstream Partners L.P. and subsidiaries’ internal control over financial reporting as of December
31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)). Martin Midstream’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over Financial Reporting in Item 9A(b). Our responsibility
is to express an opinion on Martin Midstream’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Martin Midstream Partners L.P. and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2015 and 2014,
and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2015, and our report dated February 29, 2016 expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG LLP
Dallas, Texas
February 29, 2016
67
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Cash
Trade and accrued accounts receivable, less allowance for doubtful accounts of $430 and
$
Assets
$1,620 respectively
Product exchange receivables
Inventories
Due from affiliates
Fair value of derivatives
Other current assets
Assets held for sale
Total current assets
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant and equipment, net
Goodwill
Investment in unconsolidated entities
Notes receivable - Martin Energy Trading LLC
Intangibles and other assets, net
Liabilities and Partners’ Capital
Trade and other accounts payable
Product exchange payables
Due to affiliates
Income taxes payable
Other accrued liabilities
Total current liabilities
Long-term debt, net
Fair value of derivatives
Other long-term obligations
Total liabilities
Commitments and contingencies
Partners’ capital
See accompanying notes to consolidated financial statements.
68
December 31,
2015
2014
31
$
42
74,355
1,050
75,870
10,126
675
5,718
—
167,825
134,173
3,046
88,718
14,512
—
6,772
40,488
287,751
1,387,814
1,343,674
(404,574)
983,240
(345,397)
998,277
23,802
132,292
15,000
58,314
23,802
134,506
15,000
81,465
1,380,473
$
1,540,801
81,180
$
125,332
$
$
12,732
5,738
985
18,533
119,168
865,003
206
2,217
10,396
4,872
1,174
21,801
163,575
888,887
—
2,668
986,594
1,055,130
393,879
485,671
$
1,380,473
$
1,540,801
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit amounts)
Year Ended December 31,
2014
2013
2015
$
132,945
78,753
64,858
12,270
$
130,506
91,372
22,991
12,149
$
115,965
95,496
—
12,004
Revenues:
Terminalling and storage *
Marine transportation *
Natural gas storage services *
Sulfur services
Product sales: *
Natural gas services
Sulfur services
Terminalling and storage
Total revenues
Costs and expenses:
Cost of products sold: (excluding depreciation and amortization)
Natural gas services *
Sulfur services *
Terminalling and storage *
Expenses:
Operating expenses *
Selling, general and administrative *
Impairment of long lived assets
Depreciation and amortization
Total costs and expenses
Other operating income (loss)
Operating income
Other income (expense):
Equity in earnings (loss) of unconsolidated entities
Debt prepayment premium
Interest expense, net
Gain on retirement of senior unsecured notes
Reduction in fair value of investment in Cardinal due to the purchase of
the controlling interest
Other, net
Total other income (expense)
Net income (loss) before taxes
Income tax expense
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income (loss)
Less general partner's interest in net (income) loss
Less (income) loss allocable to unvested restricted units
Limited partner's interest in net income (loss)
*Related Party Transactions Shown Below
See accompanying notes to consolidated financial statements.
$
69
458,302
157,891
131,825
748,018
1,036,844
990,844
203,322
190,957
1,385,123
1,642,141
413,795
114,766
112,836
641,397
183,466
36,788
10,629
92,250
964,530
(2,161)
70,153
8,986
—
(43,292)
1,242
—
1,124
(31,940)
38,213
(1,048)
37,165
1,215
38,380
(16,338)
(140)
21,902
948,765
159,782
172,069
1,280,616
184,049
36,316
3,445
68,830
1,573,256
(1,014)
67,871
5,466
(7,767)
(42,203)
—
(30,102)
1,505
(73,101)
(5,230)
(1,137)
(6,367)
(5,338)
(11,705)
(3,503)
32
(15,176)
$
966,909
201,120
221,245
1,389,274
1,612,739
928,725
157,723
195,640
1,282,088
170,155
29,236
—
50,962
1,532,441
1,166
81,464
(53,048)
(272)
(42,495)
—
—
542
(95,273)
(13,809)
(753)
(14,562)
1,208
(13,354)
267
40
(13,047)
$
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit amounts)
Year Ended December 31,
2014
2013
2015
$
$
78,233
27,724
878
5,671
$
74,467
24,389
—
7,661
25,797
16,579
17,718
77,871
24,968
37,703
18,390
36,341
79,577
23,679
71,517
24,654
—
4,698
32,639
18,161
48,868
70,333
17,689
*Related Party Transactions Included Above
Revenues:
Terminalling and storage
Marine transportation
Natural gas services
Product sales
Costs and expenses:
Cost of products sold: (excluding depreciation and amortization)
Natural gas services
Sulfur services
Terminalling and storage
Expenses:
Operating expenses
Selling, general and administrative
See accompanying notes to consolidated financial statements.
70
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per unit amounts)
Year Ended December 31,
2014
2013
2015
Allocation of net income (loss) attributable to:
Limited partner interest:
Continuing operations
Discontinued operations
General partner interest:
Continuing operations
Discontinued operations
Net income (loss) per unit attributable to limited partners:
Basic:
Continuing operations
Discontinued operations
Weighted average limited partner units - basic
Diluted:
Continuing operations
Discontinued operations
$
$
$
$
$
$
$
$
21,208
694
21,902
15,821
517
16,338
0.60
0.02
0.62
35,309
0.60
0.02
0.62
$
$
$
$
$
$
$
$
(8,255) $
(6,921)
(15,176) $
(14,227)
1,180
(13,047)
1,906
1,597
3,503
$
$
(291)
24
(267)
(0.27) $
(0.22)
(0.49) $
(0.54)
0.04
(0.50)
30,785
26,558
(0.27) $
(0.22)
(0.49) $
(0.54)
0.04
(0.50)
Weighted average limited partner units - diluted
35,372
30,785
26,558
See accompanying notes to consolidated financial statements.
71
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(Dollars in thousands)
Balances – December 31, 2012
26,566,776
$
349,490
$
8,472
$
357,962
Partners’ Capital
Common
Units
Amount
General
Partner
Amount
Total
Net loss
Issuance of restricted units
Forfeiture of restricted units
General partner contribution
Cash distributions ($3.11 per unit)
Excess purchase price over carrying value of acquired assets
Unit-based compensation
Purchase of treasury units
Balances – December 31, 2013
Net income (loss)
Issuance of common units
Issuance of restricted units
Forfeiture of restricted units
General partner contribution
Cash distributions ($3.18 per unit)
Excess purchase price over carrying value of acquired assets
Unit-based compensation
Purchase of treasury units
Balances – December 31, 2014
Net income
Issuance of common units
Issuance of restricted units
Forfeiture of restricted units
General partner contribution
Cash distributions ($3.25 per unit)
Reimbursement of excess purchase price over carrying value of acquired assets
Unit-based compensation
Balances – December 31, 2015
See accompanying notes to consolidated financial statements.
—
(13,087)
(267)
(13,354)
64,500
(250)
—
—
—
—
(6,000)
—
—
—
—
—
37
—
—
37
(82,735)
(1,853)
(84,588)
(301)
911
(250)
—
—
—
(301)
911
(250)
26,625,026
254,028
6,389
260,417
—
8,743,386
8,900
(5,000)
—
—
—
—
(6,400)
(15,208)
331,728
—
—
—
(95,197)
(4,948)
817
(277)
3,503
—
—
—
7,007
(2,171)
—
—
—
(11,705)
331,728
—
—
7,007
(97,368)
(4,948)
817
(277)
35,365,912
470,943
14,728
485,671
—
—
91,950
(1,250)
—
—
—
—
22,042
(590)
—
—
—
16,338
—
—
—
55
38,380
(590)
—
—
55
(115,229)
(18,087)
(133,316)
2,250
1,429
—
—
2,250
1,429
35,456,612
$
380,845
$
13,034
$
393,879
72
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
2014
2015
2013
$
$
(11,705)
5,338
(6,367)
(13,354)
(1,208)
(14,562)
Cash flows from operating activities:
Net income (loss)
Less: (Income) loss from discontinued operations
Net income (loss) from continuing operations
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$
Depreciation and amortization
Amortization of deferred debt issue costs
Amortization of discount on notes payable
Amortization of premium on notes payable
(Gain) loss on disposition or sale of property, plant, and equipment
Gain on sale of equity method investment
Gain on retirement of senior unsecured notes
Impairment of long lived assets
Equity in (earnings) loss of unconsolidated entities
Reduction in fair value of investment in Cardinal due to the purchase of the controlling interest
Derivative (income)
Net cash received for commodity derivatives
Net premiums received on derivatives that settled during the year on interest rate swaption contracts
Unit-based compensation
Preferred dividends from Martin Energy Trading
Return on investment
Other
Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
38,380
(1,215)
37,165
92,250
4,859
—
(324)
2,149
—
(1,242)
10,629
(8,986)
—
(3,107)
143
2,495
1,429
—
11,200
—
59,479
1,996
12,799
4,386
891
(44,153)
2,336
866
(189)
(2,802)
(345)
183,924
(1,352)
182,572
(65,791)
—
(1,908)
2,644
—
—
—
—
—
(65,055)
41,250
(23,805)
(308,836)
—
282,000
(590)
55
—
2,250
—
(341)
(133,316)
(158,778)
68,830
6,263
1,305
(245)
1,353
—
—
3,445
(5,466)
30,102
(5,877)
3
6,692
817
1,498
2,600
—
29,025
(319)
5,680
(2,413)
4,123
(26,349)
801
2,276
(30)
1,084
181
119,012
(3,432)
115,580
(84,307)
(102,696)
(3,974)
1,030
—
2,475
(134,030)
225
(3,386)
(324,663)
—
(324,663)
(1,533,087)
—
1,493,250
331,728
7,007
(4,948)
—
(277)
(3,722)
(97,368)
192,583
50,962
3,700
306
—
(217)
(750)
—
—
53,048
—
—
—
—
911
1,738
—
6
26,270
689
4,559
1,244
(5,432)
(9,978)
(2,592)
(1,203)
(357)
10,749
(1,449)
117,642
(5,459)
112,183
(92,243)
(31,321)
—
5,576
750
2,200
—
1,738
(30,877)
(144,177)
(42,600)
(186,777)
(650,000)
(8,809)
839,000
—
37
(301)
—
(250)
(9,115)
(84,588)
85,974
11,380
5,162
16,542
(11)
42
31
$
(16,500)
16,542
42
$
$
Accounts and other receivables
Product exchange receivables
Inventories
Due from affiliates
Other current assets
Trade and other accounts payable
Product exchange payables
Due to affiliates
Income taxes payable
Other accrued liabilities
Change in other non-current assets and liabilities
Net cash provided by continuing operating activities
Net cash used in discontinued operating activities
Net cash provided by operating activities
Cash flows from investing activities:
Payments for property, plant, and equipment
Acquisitions, net of cash acquired
Payments for plant turnaround costs
Proceeds from sale of property, plant, and equipment
Proceeds from sale of equity method investment
Proceeds from involuntary conversion of property, plant and equipment
Investments in unconsolidated entities
Return of investments from unconsolidated entities
Contributions to unconsolidated entities for operations
Net cash used in continuing investing activities
Net cash provided by (used in) discontinued investing activities
Net cash used in investing activities
Cash flows from financing activities:
Payments of long-term debt
Payments of notes payable and capital lease obligations
Proceeds from long-term debt
Net proceeds from issuance of common units
General partner contributions
Excess purchase price over carrying value of acquired assets
Reimbursement of excess purchase price over carrying value of acquired assets
Purchase of treasury units
Payments of debt issuance costs
Cash distributions paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
See accompanying notes to consolidated financial statements.
73
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(1)
Organization and Description of Business
Martin Midstream Partners L.P. (the "Partnership") is a publicly traded limited partnership with a diverse set of
operations focused primarily in the United States ("U.S.") Gulf Coast region. Its four primary business lines
include: terminalling and storage services for petroleum products and by-products including the refining of naphthenic crude
oil and the blending and packaging of finished lubricants; natural gas services, including liquids transportation and distribution
services and natural gas storage; sulfur and sulfur-based products processing, manufacturing, marketing and distribution; and
marine transportation services for petroleum products and by-products.
The petroleum products and by-products the Partnership collects, transports, stores and distributes are produced
primarily by major and independent oil and gas companies who often turn to third parties, such as the Partnership, for the
transportation and disposition of these products. In addition to these major and independent oil and gas companies, the
Partnership's primary customers include independent refiners, large chemical companies, fertilizer manufacturers and other
wholesale purchasers of these products. The Partnership operates primarily in the U.S. Gulf Coast region, which is a major hub
for petroleum refining, natural gas gathering and processing and support services for the oil and gas exploration and production
industry.
On August 30, 2013, Martin Resource Management completed the sale of a 49% non-controlling voting interest (50%
economic interest) in MMGP Holdings, LLC ("Holdings"), a newly-formed sole member of Martin Midstream GP LLC
("MMGP"), the general partner of the Partnership, to certain affiliated investment funds managed by Alinda Capital Partners
("Alinda"). Upon closing the transaction, Alinda appointed two representatives to serve on the board of directors of the general
partner of the Partnership.
(2)
Significant Accounting Policies
(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, 2015 or 2014.
As discussed in Note 5, on February 12, 2015, the Partnership sold all six 16,101 barrel liquefied petroleum gas
("LPG") pressure barges, collectively referred to as the "Floating Storage Assets." These assets were acquired on February 28,
2013. On December 19, 2014, the Partnership made the decision to dispose of the Floating Storage Assets. As a result, the
Partnership has classified the Floating Storage Assets as held for sale at December 31, 2014 and has presented the results of
operations and cash flows of the Floating Storage Assets as discontinued operations for the years ended December 31, 2015,
2014, and 2013.
(b) Product Exchanges
The Partnership enters into product exchange agreements with third parties, whereby the Partnership agrees to
exchange natural gas liquids ("NGLs") and sulfur with third parties. The Partnership records the balance of exchange products
due to other companies under these agreements at quoted market product prices and the balance of exchange products due from
other companies at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. Product
exchanges with the same counterparty are entered into in contemplation of one another and are combined. The net amount
related to location differentials is reported in "Product sales" or "Cost of products sold" in the Consolidated Statements of
Operations.
74
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is generally determined by using the FIFO method for all
inventories except lubricants and lubricants packaging inventories. Lubricants and lubricants packaging inventories cost is
determined using standard cost, which approximates actual cost, computed on a FIFO basis.
(d) Revenue Recognition
Terminalling and Storage – Revenue is recognized for storage contracts based on the contracted monthly tank fixed
fee. For throughput contracts, revenue is recognized based on the volume moved through the Partnership’s terminals at the
contracted rate. For the Partnership’s tolling agreement, revenue is recognized based on the contracted monthly reservation fee
and throughput volumes moved through the facility. When lubricants and drilling fluids are sold by truck or rail, revenue is
recognized upon delivering product to the customers as title to the product transfers when the customer physically receives the
product.
Natural Gas Services – NGL distribution revenue is recognized when product is delivered by truck, rail, or pipeline to
the Partnership's NGL customers. Natural gas storage revenue is recognized when the service is provided to the customer.
Sulfur Services – Revenue from sulfur product sales is recognized when the customer takes title to the product.
Revenue from sulfur services is recognized as deliveries are made during each monthly period.
Marine Transportation – Revenue is recognized for time charters based on a per day rate. For contracted trips,
revenue is recognized upon completion of the particular trip.
(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. Investments in excess of the underlying net assets of equity method investees, specifically
identifiable to property, plant and equipment, are amortized over the useful life of the related assets. Excess investment
representing equity method goodwill is not amortized but is evaluated for impairment, annually. Under certain provisions of
ASC 350-20, related to goodwill, this goodwill is not subject to amortization and is accounted for as a component of the
investment. Equity method investments are subject to impairment under the provisions of ASC 323-10, which relates to the
equity method of accounting for investments in common stock. No portion of the net income from these entities is included in
the Partnership’s operating income.
(f) Property, Plant, and Equipment
Owned property, plant, and equipment is stated at cost, less accumulated depreciation. Owned buildings and
equipment are depreciated using straight-line method over the estimated lives of the respective assets.
Equipment under capital leases is stated at the present value of minimum lease payments less accumulated
amortization. Equipment under capital leases is amortized on a straight line basis over the estimated useful life of the asset.
Routine maintenance and repairs are charged to operating 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 would be
75
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
required to perform the second step of the impairment test, as this is an indication that the reporting unit goodwill may be
impaired.
All four of the Partnership's reporting units, terminalling and storage, natural gas services, sulfur services and marine
transportation, contain goodwill.
The Partnership has performed the annual impairment tests as of August 31, 2015, 2014, and 2013. The determination
of fair value for 2013 for each reporting unit was based on the weighted average of two valuation techniques: (i) the discounted
cash flow method and (ii) the guideline public company method. Fair value for 2015 and 2014 for the terminalling and storage
and marine transportation reporting units was determined based on weighted average of the discounted cash flow method, the
guideline public company method and the guideline transaction method. No change was made in the 2015 and 2014
methodology for determining fair value of the natural gas services and sulfur services segments. At August 31, 2015, 2014, and
2013, the estimated fair value of each of the four reporting units was in excess of its carrying value, resulting in no impairment.
No triggering events occurred that would cause the Partnership to perform an impairment test at either December 31,
2015 or 2014.
Significant changes in these estimates and assumptions could materially affect the determination of fair value for each
reporting unit which could give rise to future impairment. Changes to these estimates and assumptions can include, but may
not be limited to, varying commodity prices, volume changes and operating costs due to market conditions and/or alternative
providers of services.
Other intangible assets that have finite lives are tested for impairment when events or circumstances indicate that the
carrying value may not be recoverable. An impairment is indicated if the carrying amount of a long-lived intangible asset
exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If
impairment is indicated, the Partnership would record an impairment loss equal to the difference between the carrying value
and the fair value of the asset. There were no intangible asset impairments in 2015, 2014 or 2013.
(h) Debt Issuance Costs
Debt issuance costs relating to the Partnership’s revolving credit facility and senior unsecured notes are deferred and
amortized over the terms of the debt arrangements and are shown, net of accumulated amortization, as a reduction of the related
long-term debt.
In connection with the issuance, amendment, expansion and restatement of debt arrangements, the Partnership
incurred debt issuance costs of $341, $3,722 and $9,115 in the years ended December 31, 2015, 2014 and 2013, respectively.
During 2015, the Partnership repurchased on the open market an aggregate $26,200 of 7.25% senior unsecured notes.
The repurchase transaction resulted in the write-off of $235 of existing debt issuance costs that were determined not to have
continuing benefit. On August 14, 2015, the Partnership reduced its borrowing capacity under the revolving credit facility from
$900,000 to $700,000, resulting in the write-off of $1,625 of deferred debt costs that were determined not to have continuing
benefit.
Due to the redemption of the remaining $175,000 of 8.875% senior unsecured notes in 2014 and a reduction in the
number of lenders under the Partnership’s multi-bank credit agreement, $3,078 and $502 of the existing debt issuance costs
were determined not to have continuing benefit and were expensed during the years ended December 31, 2014 and 2013,
respectively.
Remaining unamortized deferred issuance costs are amortized over the term of each respective revised debt
arrangement.
Amortization of debt issuance costs, which is included in interest expense, totaled $4,859, $6,263 and $3,700 for the
years ended December 31, 2015, 2014 and 2013, respectively. Accumulated amortization amounted to $10,581 and $5,488 at
December 31, 2015 and 2014, respectively.
76
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(i) Impairment of Long-Lived Assets
In accordance with ASC 360-10, long-lived assets, such as property, plant and equipment, and intangible assets with
definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and
reported at the lower of the carrying amount or fair value less costs to sell and would no longer be depreciated. The assets and
liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
In the fourth quarter of 2015, the Partnership identified a triggering event related to the condensate splitter project in
the specialty terminals division of the Partnership's Terminalling and Storage segment. The triggering event was the decision to
not move forward with the project due to the evaporation of the economic viability of the project. As a result, an impairment
charge of $9,305 was recorded in the Terminalling and Storage segment results of operations for the year ended December 31,
2015. In the fourth quarter of 2015, the Partnership identified a triggering event related to one inland push boat and three
inland tank barges in the Marine Transportation segment. The triggering event was the assets' inability to generate cash flows
in recent quarters and going forward. As a result, an impairment charge of $1,324 was recorded in the Marine Transportation
segment results of operations in the fourth quarter of 2015.
In the third quarter of 2014, the Partnership identified a triggering event related to one offshore tow in the Marine
Transportation segment. The triggering event was the tow's inability to generate cash flows in recent quarters. As a result, an
impairment charge of $3,445 was recorded in the Marine Transportation segment results of operations in the third quarter of
2014. No other triggering events occurred in 2015, 2014 or 2013 that would require an additional assessment for impairment
of long-lived assets.
(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.
77
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(m) Indirect Selling, General and Administrative Expenses
Indirect selling, general and administrative expenses are incurred by Martin Resource Management and allocated to
the Partnership to cover costs of centralized corporate functions such as accounting, treasury, engineering, information
technology, risk management and other corporate services. Such expenses are based on the percentage of time spent by Martin
Resource Management’s personnel that provide such centralized services. Under an omnibus agreement with Martin Resource
Management, the Partnership is required to reimburse Martin Resource Management for indirect general and administrative
and corporate overhead expenses. For the years ended December 31, 2015, 2014 and 2013, the conflicts committee of the
Partnership's general partner ("Conflicts Committee") approved reimbursement amounts of $13,679, $12,535 and $10,621,
respectively, reflecting the Partnership's allocable share of such expenses. The Conflicts Committee will review and approve
future adjustments in the reimbursement amount for indirect expenses, if any, annually.
(n) Environmental Liabilities and Litigation
The Partnership’s policy is to accrue for losses associated with environmental remediation obligations when such
losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets
when their receipt is deemed probable.
(o) Trade and Accrued Accounts Receivable and Allowance for Doubtful Accounts.
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful
accounts is the Partnership’s best estimate of the amount of probable credit losses in the Partnership’s existing accounts
receivable.
(p) Deferred Catalyst Costs
The cost of the periodic replacement of catalysts is deferred and amortized over the catalyst’s estimated useful life,
which ranges from 12 to 36 months.
(q) Deferred Turnaround Costs
The Partnership capitalizes the cost of major turnarounds and amortizes these costs over the estimated period to the
next turnaround, which ranges from 12 to 36 months.
(r) Income Taxes
The Partnership is subject to the Texas margin tax, which is considered a state income tax, and is included in income
tax expense on the Consolidated Statements of Operations. The Texas margin tax restructured the state business tax by
replacing the taxable capital and earned surplus components of the existing franchise tax with a new "taxable margin"
component. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed
as an income tax and, therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a
result of this provision is immaterial.
(s) Comprehensive Income
Comprehensive income includes net income and other comprehensive income. There are no items of other
comprehensive income or loss in any of the years presented.
(3)
Recent Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments,
which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period
78
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
in the reporting period in which the adjustment amounts are determined. This ASU requires that the acquirer record, in the
same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if
any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition
date. The ASU also requires an entity to present separately on the face of the income statement or disclose in the notes the
portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting
periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective for
fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The ASU should be applied
prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application
permitted for financial statements that have not been issued. The Partnership is evaluating the effect that ASU 2015-06 will
have on its consolidated and financial statements and related disclosures.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory,
which applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory
method. This includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this
standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling
price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new
standard will be effective on January 1, 2017. The Partnership is evaluating the effect that ASU 2015-11 will have on its
consolidated and financial statements and related disclosures.
In April 2015, the FASB issued ASU No. 2015-06, Earnings Per Share (Topic 260): Effects on Historical Earnings per
Unit of Master Limited Partnership Dropdown Transactions, which requires an MLP to allocate earnings (losses) of a
transferred business entirely to the general partner when computing earnings per unit ("EPU") for periods before the dropdown
transaction occurred. The EPU for limited partners that was previously reported would not change as a result of the dropdown
transaction. The ASU also requires an MLP to disclose the effects of the dropdown transaction on EPU for the periods before
and after the dropdown transaction occurred. This ASU is effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years. The ASU requires retrospective application and early adoption is permitted. The
Partnership is evaluating the effect that ASU 2015-06 will have on its consolidated and financial statements and related
disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest, which simplifies presentation of
debt issuance costs. The amended guidance requires that debt issuance costs related to a recognized debt liability be presented
in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Early
application is permitted under the retrospective transition method. The Partnership has elected to early adopt this guidance
effective January 1, 2015. The standard only affects presentation on the Partnership's Consolidated Balance Sheets and does
not affect any of the Partnership's other financial statements. The amount of debt issuance costs, net of accumulated
amortization, from the December 31, 2014 audited balance sheet that were reclassified and shown as a reduction of the related
long-term debt balances is $13,118.
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 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard
is effective for the Partnership on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect
transition method. The Partnership is evaluating the effect that ASU 2014-09 will have on its consolidated and financial
statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the effect of
the standard on its ongoing financial reporting.
(4)
Acquisitions
Cardinal Gas Storage Partners LLC
On August 29, 2014, the Partnership acquired from Energy Capital Partners ("ECP") all of ECP’s approximate 57.8%
Category A membership interests in Cardinal Gas Storage Partners LLC ("Cardinal") for cash consideration of approximately
$120,973, subject to certain post-closing adjustments. Prior to the acquisition, the Partnership owned an approximate 42.2%
interest in the Category A membership interests in Cardinal. Based on the application of purchase accounting, the Partnership
reduced the carrying value of its existing investment in Cardinal at the acquisition date by $30,102, which was recognized in
the Partnership's Consolidated Statements of Operations for the year ended December 31, 2014. Concurrent with the closing of
79
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
the transaction, the Partnership retired all of the project level financing of various Cardinal subsidiaries. The Partnership
funded the acquisition and repayment of the project financings with borrowings under its revolving credit facility and the use of
restricted cash acquired.
The total purchase price is as follows:
Cash payment for 57.8% interest in Cardinal
Fair value of the Partnership's previously owned 42.2% interest in Cardinal
Total
$
$
120,973
87,613
208,586
Assets acquired and liabilities assumed were recorded in the Natural Gas Services segment at fair value in the
following purchase price allocation which was finalized in the fourth quarter of 2014:
Restricted cash
Other current assets
Property, plant and equipment
Intangible and other assets
Project level finance debt
Other current liabilities
Other non-current liabilities
Total
$
$
17,566
9,385
390,895
80,135
(282,087)
(6,713)
(595)
208,586
Intangible assets consist of above-market gas storage customer contracts which are amortized based upon the terms of
the individual contracts. At the acquisition date, the weighted average life of these contracts, based upon contracted volumes,
was 5.1 years.
The Partnership’s results of operations from the Cardinal acquisition include revenues and net income of $64,881 and
$11,899, respectively, for the year ended December 31, 2015 and revenues and net income of $22,991 and $1,916, respectively,
for the period from August 29, 2014 to December 31, 2014.
Natural Gas Liquids ("NGL") Storage Assets
On May 31, 2014, the Partnership acquired certain NGL storage assets, located in Arcadia, Louisiana, from a
subsidiary of Martin Resource Management for $7,388. This acquisition is considered a transfer of net assets between entities
under common control. The acquisition of these assets was recorded at the historical carrying value of the assets at the
acquisition date. The Partnership recorded the purchase in the following allocation:
Property, plant and equipment
Current liabilities
$
$
2,453
(13)
2,440
The excess of the purchase price over the carrying value of the assets of $4,948 was recorded as an adjustment to
"Partners' capital." This transaction was funded with borrowings under the Partnership's revolving credit facility. As no
individual line item of the historical financial statements of the assets was in excess of 3% of the Partnership's relative financial
statement captions, the Partnership elected not to retrospectively recast the historical financial information to include these
assets.
80
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
West Texas LPG Pipeline L.P.
On May 14, 2014, the Partnership acquired from a subsidiary of Atlas Pipeline Partners L.P. ("Atlas"), all of the
outstanding membership interests in Atlas Pipeline NGL Holdings, LLC and Atlas Pipeline NGL Holdings II, LLC
(collectively, "Atlas Holdings") for cash of approximately $134,400. The purchase price was subsequently reduced $501 due to
a post-closing working capital adjustment. This transaction was recorded in "Investments in unconsolidated entities" in the
Partnership's Consolidated Balance Sheet. Atlas Holdings owned a 19.8% limited partnership interest and a 0.2% general
partnership interest in West Texas LPG Pipeline L.P. ("WTLPG"). At the time of the purchase, WTLPG was operated by
Chevron Pipe Line Company. The 80% interest was subsequently sold to ONEOK Partners, L.P. who assumed operational
responsibility. WTLPG owns an approximate 2,300 mile common-carrier pipeline system that transports NGLs from New
Mexico and Texas to Mont Belvieu, Texas for fractionation. This acquisition will enable the Partnership to participate in the
transportation of NGL production in West Texas and other basins along the WTLPG pipeline route. This acquisition of the
WTLPG business complements the Partnership's existing East Texas NGL pipeline that delivers Y-grade NGLs from East
Texas production areas into Beaumont, Texas on a smaller scale. This transaction was funded with borrowings under the
Partnership's revolving credit facility.
Pro Forma Unaudited Financial Information for Cardinal and WTLPG
The following pro forma unaudited consolidated results of operations have been prepared as if the acquisitions of
Cardinal and WTLPG occurred at the beginning of fiscal 2014:
Revenue:
As reported
Pro forma
Net income (loss) from continuing operations attributable to limited partners:
As reported
Pro forma
Net loss from discontinued operations attributable to limited partners:
As reported
Pro forma
Net income (loss) from continuing operations per unit attributable to limited partners - basic
As reported
Pro forma
Net loss from discontinued operations per unit attributable to limited partners - basic
As reported
Pro forma
Net income (loss) from continuing operations per unit attributable to limited partners - diluted
As reported
Pro forma
Net loss from discontinued operations per unit attributable to limited partners - diluted
As reported
Pro forma
Year Ended
December 31,
2014
1,642,141
1,688,629
(8,255)
1,676
(6,921)
(6,921)
(0.27)
0.05
(0.22)
(0.22)
(0.27)
0.05
(0.22)
(0.22)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Pro forma adjustments included above are based upon currently available information which includes certain estimates
and assumptions. Although actual results could differ from the pro forma results, the Partnership believes the pro forma results
provide a reasonable basis for presenting the the significant effects of the transactions. However, the pro forma results are not
necessarily indicative of the results that would have occurred if the transactions had occurred at the beginning of fiscal 2014.
81
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Marine Transportation Equipment Purchase
On September 30, 2013, the Partnership acquired two previously leased inland tank barges from Martin Resource
Management for $7,100. This acquisition is considered a transfer of net assets between entities under common control. The
acquisition of these assets was recorded at the historical carrying value of the assets at the acquisition date. The Partnership
recorded $6,799 to property, plant and equipment in the Marine Transportation segment and the excess of the purchase price
over the carrying value of the assets of $301 was recorded as an adjustment to partners' capital. This transaction was funded
with borrowings under the Partnership's revolving credit facility.
Sulfur Production Facility
On August 5, 2013, the Partnership acquired a plant nutrient sulfur production facility in Cactus, Texas for $4,118.
The transaction was accounted for under the acquisition method of accounting in accordance with ASC 805 relating to business
combinations. This transaction was funded by borrowings under the Partnership's revolving credit facility. Assets acquired and
liabilities assumed were recorded in the Sulfur Services segment at fair value as follows:
Inventory
Property, plant and equipment
Current liabilities
Total
$
$
162
4,000
(44)
4,118
The Partnership's results of operations from these assets included revenues of $2,792 and net income of $608 for the
year ended December 31, 2014 and revenues of $267 and a net loss of $284 for the year ended December 31, 2013.
NL Grease, LLC
On June 13, 2013, the Partnership acquired certain assets of NL Grease, LLC ("NLG") for $12,148. NLG is a Kansas
City, Missouri based grease manufacturer that specializes in packaging of automotive, commercial and industrial greases. The
transaction was accounted for under the acquisition method of accounting in accordance with ASC 805 relating to business
combinations. This transaction was funded by borrowings under the Partnership's revolving credit facility. The assets acquired
by the Partnership were recorded in the Terminalling and Storage segment at fair value of $12,148 in the following purchase
price allocation:
Inventory and other current assets
Property, plant and equipment
Other assets
Other accrued liabilities
Other long-term obligations
Total
$
$
1,513
6,136
5,113
(168)
(446)
12,148
The purchase price allocation resulted in the recognition of $5,113 in definite-lived intangible assets with no residual
value, including $2,418 of technology, $2,218 attributable to a customer list, and $477 attributable to a non-compete agreement.
The amounts assigned to technology, the customer list, and the non-compete agreement are amortized over the estimated useful
lives of ten years, three years, and five years, respectively. The weighted average life over which these acquired intangibles
will be amortized is approximately six years.
The Partnership completed the purchase price allocation during the third quarter of 2013, which resulted in an
adjustment to working capital from the preliminary purchase price allocation in the amount of $55.
The Partnership's results of operations included revenues of $14,054 and net income of $517 for the year ended
December 31, 2014 and revenues of $7,875 and a net loss of $22 for the year ended December 31, 2013 related to the NLG
acquisition.
82
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
NGL Marine Equipment Purchase
On February 28, 2013, the Partnership purchased from affiliates of Florida Marine Transporters, Inc. six liquefied
petroleum gas pressure barges and two commercial push boats for approximately $50,801, of which the commercial push boats
totaling $8,201 were allocated to property, plant and equipment in the Partnership's Marine Transportation segment and the six
pressure barges totaling $42,600 were allocated to property, plant and equipment in the Partnership's Natural Gas Services
segment. This transaction was funded with borrowings under the Partnership's revolving credit facility. As discussed in Notes
2 and 5, on February 12, 2015, the Partnership sold the six LPG pressure barges for $41,250.
(5)
Discontinued Operations and Divestitures
Floating Storage Assets. On February 12, 2015, the Partnership sold the Floating Storage Assets. These assets were
acquired on February 28, 2013. The Partnership classified the related assets as assets held for sale at December 31, 2014, and
the results of operations of these assets, which were previously presented as a component of the Natural Gas Services segment,
as discontinued operations in the Consolidated Statements of Operations for 2015, 2014 and 2013. The Partnership has
retrospectively adjusted its prior period consolidated financial statements to comparably classify the amounts related to the
operations and cash flows of the Floating Storage Assets as discontinued operations. The Floating Storage Assets were
presented as discontinued operations under the guidance prior to the Partnership's adoption of ASU 2014-08 related to
discontinued operations. The adoption of the amended guidance was effective for the Partnership January 1, 2015.
The Floating Storage Assets’ operating results, which are included in income from discontinued operations, were as
follows:
Year Ended December 31,
2014
2013
2015
Total revenues from third parties1
Total costs and expenses and other, net, excluding depreciation and amortization
Depreciation and amortization
Other operating income 2
Income (loss) from discontinued operations before income taxes
Income tax expense
Income (loss) from discontinued operations, net of income taxes
$
$
791
1,038
—
1,462
1,215
—
1,215
$
$
$
51,264
55,068
1,534
—
(5,338)
—
(5,338) $
20,771
18,285
1,278
—
1,208
—
1,208
1 Total revenues from third parties excludes intercompany revenues of $0, $5,241 and $945 for the years ended
December 31, 2015, 2014 and 2013, respectively.
2 Other operating income represents the gain on the disposition of the Floating Storage Assets.
(6)
Inventories
Components of inventories at December 31, 2015 and 2014 were as follows:
Natural gas liquids
Sulfur
Sulfur based products
Lubricants
Other
(7)
Property, Plant and Equipment
83
2015
2014
$
$
20,959
13,812
19,400
18,675
3,024
75,870
$
$
27,820
12,231
16,280
29,096
3,291
88,718
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
At December 31, 2015 and 2014, property, plant and equipment consisted of the following:
Land
Improvements to land and buildings
Storage equipment
Marine vessels
Operating plant and equipment
Base Gas
Furniture, fixtures and other equipment
Transportation equipment
Construction in progress
Depreciable
Lives
—
10-25 years
5-50 years
4-25 years
3-50 years
—
3-20 years
3-7 years
2015
23,931
159,160
191,095
257,858
631,728
43,799
4,375
2,237
73,631
1,387,814
$
$
2014
23,595
149,112
171,373
260,588
598,314
43,799
4,224
2,273
90,396
1,343,674
$
$
Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $67,134, $56,309 and $48,596,
respectively, which includes amortization of fixed assets under capital lease obligations of $0, $0 and $233, respectively. All
capital lease obligations were retired in November 2013.
Additions to property, plant and equipment included in accounts payable at December 31, 2015 and 2014 were $6,004
and $4,976, respectively.
(8)
Goodwill
The following table represents the goodwill balance at December 31, 2015 and 2014:
Carrying amount of goodwill:
Terminalling and storage
Natural gas services
Sulfur services
Marine transportation
Total goodwill
(9)
Leases
December 31,
2015
2014
$
$
14,229
79
5,349
4,145
23,802
$
$
14,229
79
5,349
4,145
23,802
The Partnership has numerous non-cancelable operating leases primarily for terminal facilities and transportation and
other equipment. The leases generally provide that all expenses related to the equipment are to be paid by the lessee.
Management expects to renew or enter into similar leasing arrangements for similar equipment upon the expiration of the
current lease agreements. The Partnership also has cancelable operating lease land rentals and outside marine vessel charters.
84
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, 2015 consist of the following:
Fiscal year
2016
2017
2018
2019
2020
Thereafter
Total
Operating
Leases
$
$
13,676
9,423
5,839
3,817
3,118
9,241
45,114
Rent expense for continuing operating leases for the years ended December 31, 2015, 2014 and 2013 was $18,831,
$18,724 and $15,629, respectively. The amount recognized in interest expense for capital leases was $0, $0, and $796 for the
years ended December 31, 2015, 2014 and 2013, respectively. The Partnership's capital lease obligations were retired in
November of 2013.
(10)
Investments in Unconsolidated Entities and Joint Ventures
On August 29, 2014, the Partnership acquired ECP's approximate 57.8% Category A interest in Cardinal. Prior to the
acquisition, the Partnership owned an approximate 42.2% Category A interest in Cardinal which was accounted for by the
equity method. See Note 4 for discussion of the acquisition of the remaining interests.
On May 14, 2014, the Partnership acquired from a subsidiary of Atlas, all of the outstanding membership interests in
Atlas Holdings for cash of approximately $134,400 at closing. The purchase price was subsequently reduced $501 due to a
post-closing working capital adjustment. Atlas Holdings owned a 19.8% limited partner interest and a 0.2% general partner
interest in WTLPG. At the time of the purchase, WTLPG was operated by Chevron Pipe Line Company. The 80% interest
was subsequently sold to ONEOK Partners, L.P. who assumed operational responsibility. WTLPG owns an approximate 2,300
mile common-carrier pipeline system that transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for
fractionation. The Partnership recognizes its combined 20% interest in WTLPG as "Investment in unconsolidated entities" on
its Consolidated Balance Sheet. The Partnership accounts for its ownership interest in WTLPG under the equity method of
accounting with recognition of its ownership interest in the income of WTLPG as "Equity in earnings of unconsolidated
entities" on its Consolidated Statement of Operations.
In March 2013, the Partnership acquired 100% of the preferred interests in Martin Energy Trading LLC ("MET"), a
subsidiary of Martin Resource Management for $15,000. On August 31, 2014, MET converted its preferred equity to
subordinated debt. The resulting $15,000 note receivable from MET bears an annual interest rate of 15% and matures August
31, 2026. MET may prepay any or all of the note balance after September 1, 2016. See Note 13.
In December 2013, Cardinal recorded a $129,384 impairment charge related to long-lived assets of Monroe Gas
Storage Company LLC ("Monroe"). This amount represents the carrying value of the assets in excess of their fair value. The
impairment resulted from weaker than anticipated results of operations of Monroe. The Partnership's share of this charge is
$54,053 and is included in "Equity in loss of unconsolidated entities" in the Consolidated Statement of Operations for the year
ended December 31, 2013. The Partnership evaluated its remaining investment in Cardinal and determined that no additional
impairment was necessary.
During the second quarter of 2012, the Partnership acquired an unconsolidated 50% interest in Caliber Gathering, LLC
("Caliber"). The Partnership sold its interest in Caliber during the fourth quarter of 2013 for $750, resulting in a gain of $750
recorded in "Other, net" in the Partnership's Consolidated Statements of Operations for the year ended December 31, 2013.
These investments are accounted for by the equity method.
85
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The following tables summarize the components of the "Investment in unconsolidated entities" on the Partnership’s
Consolidated Balance Sheets and the components of "Equity in earnings of unconsolidated entities" included in the
Partnership’s Consolidated Statements of Operations:
WTLPG
Total investment in unconsolidated entities
Equity in earnings of WTLPG
Equity in earnings (loss) of Cardinal
Equity in earnings of MET
Equity in loss of Caliber
Equity in earnings (loss) of unconsolidated entities
December 31,
2015
December 31,
2014
$
$
132,292
132,292
$
$
134,506
134,506
$
Years Ended December 31,
2014
2013
2015
$
8,986
—
—
—
8,986
$
3,076
892
1,498
—
5,466
—
(54,226)
1,738
(560)
(53,048)
Selected financial information for significant unconsolidated equity method investees is as follows:
2015
2014
2013
WTLPG
WTLPG
Cardinal1
Cardinal
As of December 31,
Years ended December 31,
Total Assets
Long-Term Debt
Members’ Equity/
Partners' Capital
Revenues
Net Income
(Loss)
$
$
$
$
819,342
827,697
$
$
— $
804,023
— $
818,546
$
$
— $
— $
— $
100,708
95,315
46,488
661,816
$
295,261
$
346,584
$
52,762
$
$
$
$
46,294
38,698
1,911
(128,283
1 Financial information for Cardinal includes revenues and net income for the 2014 period prior to the Partnership's
acquisition of the 57.8% interest not previously owned.
As of December 31, 2015 and 2014, the Partnership’s interest in cash of the unconsolidated equity method investees
was $1,060 and $10, respectively.
(11) 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.
86
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:
Commodity derivative contracts
Interest rate derivative contracts
Level 2
December 31,
2015
2014
$
$
675
(206)
—
—
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 above.
There is negligible credit risk associated with these instruments.
• Note receivable and long-term debt including current portion: The carrying amount of the revolving credit facility
approximates fair value due to the debt having a variable interest rate and is in Level 2. The Partnership has not had
any indicators which represent a change in the market spread associated with its variable interest rate debt.
• The estimated fair value of the senior unsecured notes is based on market prices of similar debt. The estimated fair
value of the note receivable from Martin Energy Trading was determined by calculating the net present value of the
interest payments over the life of the note. The note is considered Level 3 due to the lack of observable inputs for
similar transactions between related parties.
Note receivable - MET
2021 Senior unsecured notes
(12)
Derivative Instruments and Hedging Activities
December 31, 2015
December 31, 2014
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$
15,000
$
15,830
$
15,000
$
15,852
375,368
318,000
402,005
385,077
The Partnership’s revenues and cost of products sold are materially impacted by changes in NGL prices. Additionally,
the Partnership's results of operations are materially impacted by changes in interest rates. In an effort to manage its exposure
to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate
hedges. All 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 through June 30, 2016 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 notional quantity of 240,000
barrels settling during the period from January 31, 2016 through June 30, 2016. These instruments settle against OPIS Mont
Belvieu (TET or non-TET) monthly average price. MET serves as the counterparty for all positions outstanding at December
31, 2015. These instruments are recorded on the Partnership's Consolidated Balance Sheets at December 31, 2015 in "Fair
value of derivatives" as a current asset of $675.
87
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Due to the acquisition of the remaining interests of Cardinal on August 29, 2014, the Partnership acquired a notional
quantity of 3,631,740 MMBtu of natural gas call options with a strike price of $4.50 per MMBtu. These options managed the
purchase of base gas at Monroe Gas Storage Company, LLC for the portion of base gas that was leased with Credit Suisse at the
acquisition date and was scheduled to be returned in January and February 2015. The options were set to settle in two
increments of 2,345,498 MMBtu and 1,286,242 MMBtu on January 31, 2015 and February 28, 2015, respectively. On
December 31, 2014, the Partnership terminated these options, resulting in a termination benefit of $3, which was recorded in
"Other, net" in the Partnership's Consolidated Statement of Operations for the year ended December 31, 2014.
(b)
Interest Rate Derivative Instruments
The Partnership is exposed to market risks associated with interest rates. Market risk is the adverse effect on the value
of a financial instrument that results from a change in interest rates. We minimize this market risk by establishing and
monitoring parameters that limit the types and degree of market risk that may be undertaken. The Partnership enters into
interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate credit facility and it's senior
unsecured notes.
As of December 31, 2015, the Partnership had a fixed-to-variable interest rate swap agreement with a notional
principal amount of $50,000, effectively converting the interest expense associated with a portion of the Partnership's 2021
senior unsecured notes from fixed rate to variable rate based on the LIBOR interest rate. The Partnership's swap agreement has
a termination date that corresponds to the maturity date of the 2021 senior unsecured notes. As of December 31, 2015, the
maximum length of time over which the Partnership has hedged a portion of its exposure to the variability in the value of this
debt due to interest rate risk is through December of 2020. This instrument is recorded on the Partnership's Consolidated
Balance Sheets at December 31, 2015 in "Fair value of derivatives" as a non current liability of $206. This position terminated
on January 7, 2016, resulting in a benefit of $160.
During the twelve months ended December 31, 2015, the Partnership entered into contracts which provided the
counterparty the option to enter into swap contracts to hedge the Partnership's exposure to changes in the fair value of its senior
unsecured notes ("interest rate swaptions"). In connection with the interest rate swaption contracts, the Partnership received
premiums of $2,495, which represented their fair value on the date the transactions were initiated and were initially recorded as
derivative liabilities on the Partnership's Consolidated Balance Sheet, during the twelve months ended December 31, 2015.
Each of the interest rate swaptions was fully amortized as of December 31, 2015. Interest rate swaption contract premiums
received are amortized over the period from initiation of the contract through their termination date. For the twelve months
ended December 31, 2015, the Partnership recognized $2,495 of premium in "Interest expense, net" on the Partnership's
Consolidated Statement of Operations related to the interest rate swaption contracts.
On April 1, 2014, the Partnership entered into two fixed-to-variable interest rate swap agreements with an aggregate
notional amount of $100,000 each to hedge its exposure to changes in the fair value of its senior unsecured notes. On May 14,
2014 the Partnership terminated these swaps and received a termination benefit of $2,380 upon cancellation of these swap
agreements. This amount was recorded in "Interest expense, net" in the Partnership's Consolidated Statement of Operations for
the year ended December 31, 2014. Additionally, subsequent to the termination on May 14, 2014, the Partnership entered into
two fixed-to-variable interest rate swap agreements on May 14, 2014 with an aggregate notional amount of $100,000 each to
hedge its exposure to changes in the fair value of its senior unsecured notes. In August 2014, the Partnership received a
scheduled swap settlement related to these agreements totaling $976. This amount was recorded in "Interest expense, net" in
the Partnership's Consolidated Statement of Operations for the year ended December 31, 2014.
On September 18, 2014, the Partnership entered into a fixed-to-variable interest rate swap agreement, with an
aggregate notional amount of $50,000, to hedge its exposure to changes in the fair value of its senior unsecured notes.
On October 9, 2014, the Partnership terminated each of its three outstanding swaps, receiving a termination benefit of
$2,125, which was recorded in "Interest expense, net" in the Partnership's Consolidated Statement of Operations for the year
ended December 31, 2014.
Subsequent to the termination on October 9, 2014, the Partnership entered into two fixed-to-variable interest rate swap
agreements, each with an aggregate notional amount of $50,000 to hedge its exposure to changes in the fair value of its senior
unsecured notes. On October 14, 2014, the Partnership terminated each of these two swaps, receiving a termination benefit of
88
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
$500, which was recorded in "Interest expense, net" in the Partnership's Consolidated Statement of Operations for the year
ended December 31, 2014.
Subsequent to the termination on October 14, 2014, the Partnership entered into two fixed-to-variable interest rate
swap agreements, each with an aggregate notional amount of $50,000 to hedge its exposure to changes in the fair value of its
senior unsecured notes. On October 14, 2014, the Partnership terminated each of these two swaps, receiving a termination
benefit of $711, which was recorded in "Interest expense, net" in the Partnership's Consolidated Statement of Operations for the
year ended December 31, 2014.
For information regarding fair value amounts and gains and losses on interest rate derivative instruments and related
hedged items, see "Tabular Presentation of Gains and Losses on Derivative Instruments and Related Hedged Items" below.
(c)
Tabular Presentation of Gains and Losses on Derivative Instruments
The following table summarizes the fair values and classification of the Partnership’s derivative instruments in its
Consolidated Balance Sheet:
Fair Values of Derivative Instruments in the Consolidated Balance Sheet
Derivative Assets
Fair Values
Derivative Liabilities
Fair Values
Balance
Sheet
Location
December 31,
2015
December 31,
2014
Balance
Sheet
Location
December 31,
2015
December 31,
2014
Derivatives not designated
as hedging instruments:
Current:
Commodity contracts
Derivatives not designated
as hedging instruments:
Interest rate contracts
Total derivatives not
designated as hedging
instruments
Fair value of
derivatives
$
675
$
Fair value of
derivatives
—
$
— $
—
Non Current:
Fair value of
derivatives
Non Current:
Fair value of
derivatives
—
—
206
$
675
$
—
$
206
$
—
—
Effect of Derivative Instruments on the Consolidated Statement of Operations
For the Twelve Months Ended December 31, 2015 and 2014
Location of Gain or (Loss)
Recognized in Income
on Derivatives
Amount of Gain or (Loss) Recognized in Income on
Derivatives
2015
2014
2013
Interest expense
Interest expense
Cost of products sold
Other income
$
$
2,495
$
— $
(206)
818
—
6,692
—
(818)
3,107
$
5,874
$
—
—
—
—
—
Derivatives not designated as hedging instruments:
Interest rate swaption contracts
Interest rate contracts
Commodity contracts
Commodity contracts
Total derivatives not designated as hedging instruments
(13)
Related Party Transactions
As of December 31, 2015, Martin Resource Management owned 6,264,532 of the Partnership’s common units
representing approximately 17.7% of the Partnership’s outstanding limited partnership units. Martin Resource Management
controls the Partnership's general partner by virtue of its 51% voting interest in Holdings, the sole member of the Partnership's
general partner. The Partnership’s general partner, MMGP, owns a 2% general partner interest in the Partnership and the
89
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Partnership’s incentive distribution rights. The Partnership’s general partner’s ability, as general partner, to manage and operate
the Partnership, and Martin Resource Management’s ownership as of December 31, 2015, of approximately 17.7% of the
Partnership’s outstanding limited partnership units, effectively gives Martin Resource Management the ability to veto some of
the Partnership’s actions and to control the Partnership’s management.
The following is a description of the Partnership’s material related party agreements:
Omnibus Agreement
Omnibus Agreement. The Partnership and its general partner are parties to the Omnibus Agreement dated November
1, 2002, with Martin Resource Management that governs, among other things, potential competition and indemnification
obligations among the parties to the agreement, related party transactions, the provision of general administration and support
services by Martin Resource Management and the Partnership’s use of certain Martin Resource Management trade names and
trademarks. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into finished
products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was
amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to
Martin Resource Management.
Non-Competition Provisions. Martin Resource Management has agreed for so long as it controls the general partner of
the Partnership, not to engage in the business of:
•
•
•
providing terminalling and storage services for petroleum products and by-products including the refining, blending
and packaging of finished lubricants;
providing marine transportation of petroleum products and by-products;
distributing NGLs; and
• manufacturing and selling sulfur-based fertilizer products and other sulfur-related products.
This restriction does not apply to:
•
•
the ownership and/or operation on the Partnership’s behalf of any asset or group of assets owned by it or its affiliates;
any business operated by Martin Resource Management, including the following:
providing land transportation of various liquids;
distributing fuel oil, sulfuric acid, marine fuel and other liquids;
providing marine bunkering and other shore-based marine services in Alabama, Florida, Louisiana,
Mississippi and Texas;
operating a crude oil gathering business in Stephens, Arkansas;
providing crude oil gathering, refining, and marketing services of base oils, asphalt, and distillate products in
Smackover, Arkansas;
providing crude oil marketing and transportation from the well head to the end market;
operating an environmental consulting company;
operating an engineering services company;
supplying employees and services for the operation of the Partnership's business;
90
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
operating a natural gas optimization 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 acquires or constructs that has a fair market value of less than $5,000;
any business that Martin Resource Management acquires or constructs that has a fair market value of $5,000 or more if
the Partnership has been offered the opportunity to purchase the business for fair market value and the Partnership
declines to do so with the concurrence of the Conflicts Committee; and
any business that Martin Resource Management acquires or constructs where a portion of such business includes a
restricted business and the fair market value of the restricted business is $5,000 or more and represents less than 20%
of the aggregate value of the entire business to be acquired or constructed; provided that, following completion of the
acquisition or construction, the Partnership will be provided the opportunity to purchase the restricted business.
Services. Under the Omnibus Agreement, Martin Resource Management provides the Partnership with corporate staff,
support services, and administrative services necessary to operate the Partnership’s business. The Omnibus Agreement requires
the Partnership to reimburse Martin Resource Management for all direct expenses it incurs or payments it makes on the
Partnership’s behalf or in connection with the operation of the Partnership’s business. There is no monetary limitation on the
amount the Partnership is required to reimburse Martin Resource Management for direct expenses. In addition to the direct
expenses, under the Omnibus Agreement, the Partnership is required to reimburse Martin Resource Management for indirect
general and administrative and corporate overhead expenses.
Effective January 1, 2016, through December 31, 2016, the Conflicts Committee approved an annual reimbursement
amount for indirect expenses of $13,033. The Partnership reimbursed Martin Resource Management for $13,679, $12,535 and
$10,621 of indirect expenses for the years ended December 31, 2015, 2014 and 2013, respectively. The Conflicts Committee
will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
These indirect expenses are intended to cover the centralized corporate functions Martin Resource Management
provides for the Partnership, such as accounting, treasury, clerical, engineering, legal, billing, information technology,
administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions
the Partnership shares with Martin Resource Management retained businesses. The provisions of the Omnibus Agreement
regarding Martin Resource Management’s services will terminate if Martin Resource Management ceases to control the general
partner of the Partnership.
Related Party Transactions. The Omnibus Agreement prohibits the Partnership from entering into any material
agreement with Martin Resource Management without the prior approval of the Conflicts Committee. For purposes of the
Omnibus Agreement, the term material agreements means any agreement between the Partnership and Martin Resource
Management that requires aggregate annual payments in excess of then-applicable agreed upon reimbursable amount of indirect
general and administrative expenses. Please read "Services" above.
License Provisions. Under the Omnibus Agreement, Martin Resource Management has granted the Partnership a
nontransferable, nonexclusive, royalty-free right and license to use certain of its trade names and marks, as well as the trade
names and marks used by some of its affiliates.
Amendment and Termination. The Omnibus Agreement may be amended by written agreement of the parties;
provided, however, that it may not be amended without the approval of the Conflicts Committee if such amendment would
adversely affect the unitholders. The Omnibus Agreement was first amended on November 25, 2009, to permit the Partnership
to provide refining services to Martin Resource Management. The Omnibus Agreement was amended further on October 1,
2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource
Management. Such amendments were approved by the Conflicts Committee. The Omnibus Agreement, other than the
indemnification provisions and the provisions limiting the amount for which the Partnership will reimburse Martin Resource
Management for general and administrative services performed on its behalf, will terminate if the Partnership is no longer an
affiliate of Martin Resource Management.
91
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Motor Carrier Agreement
Motor Carrier Agreement. The Partnership is a party to a motor carrier agreement effective January 1, 2006 as
amended, with Martin Transport, Inc., a wholly owned subsidiary of Martin Resource Management through which Martin
Transport, Inc. operates its land transportation operations. Under the agreement, Martin Transport, Inc. agreed to transport the
Partnership's NGLs as well as other liquid products.
Term and Pricing. The agreement has an initial term that expired in December 2007 but automatically renews for
consecutive one year periods unless either party terminates the agreement by giving written notice to the other party at least 30
days prior to the expiration of the then-applicable term. The Partnership has the right to terminate this agreement at any time by
providing 90 days prior notice. Under this agreement, Martin Transport, Inc. transports the Partnership’s NGL shipments as
well as other liquid products. These rates are subject to any adjustments which are mutually agreed or in accordance with a
price index. Additionally, during the term of the agreement, shipping charges are also subject to fuel surcharges determined on
a weekly basis in accordance with the U.S. Department of Energy’s national diesel price list.
Indemnification. Martin Transport has indemnified us against all claims arising out of the negligence or willful
misconduct of Martin Transport and its officers, employees, agents, representatives and subcontractors. We indemnified Martin
Transport against all claims arising out of the negligence or willful misconduct of us and our officers, employees, agents,
representatives and subcontractors. In the event a claim is the result of the joint negligence or misconduct of Martin Transport
and us, our indemnification obligations will be shared in proportion to each party’s allocable share of such joint negligence or
misconduct.
Marine Agreements
Marine Transportation Agreement. The Partnership is a party to a marine transportation agreement effective January
1, 2006, as amended, under which the Partnership provides marine transportation services to Martin Resource Management on
a spot-contract basis at applicable market rates. Effective each January 1, this agreement automatically renews for consecutive
one year periods unless either party terminates the agreement by giving written notice to the other party at least 60 days prior to
the expiration of the then applicable term. The fees the Partnership charges Martin Resource Management are based on
applicable market rates.
Marine Fuel. The Partnership is a party to an agreement with Martin Resource Management dated November 1, 2002
under which Martin Resource Management provides the Partnership with marine fuel from its locations in the Gulf of Mexico
at a fixed rate in excess of the Platt’s U.S. Gulf Coast Index for #2 Fuel Oil. Under this agreement, the Partnership agreed to
purchase all of its marine fuel requirements that occur in the areas serviced by Martin Resource Management.
Terminal Services Agreements
Diesel Fuel Terminal Services Agreement. Effective January 1, 2016, the Partnership entered into a new terminalling
services agreement under which the Partnership provides terminal services to Martin Resource Management for marine fuel
distribution. This agreement replaced the prior agreement that was in place concerning the same services which was dated
January 1, 2015. The minimum throughput requirements were reduced under the new agreement. The per gallon throughput
fee the Partnership charges under this agreement was increased and may be adjusted annually based on a price index.
Miscellaneous Terminal Services Agreements. The Partnership is currently party to several terminal services
agreements and from time to time the Partnership may enter into other terminal service agreements for the purpose of providing
terminal services to related parties. Individually, each of these agreements is immaterial but when considered in the aggregate
they could be deemed material. These agreements are throughput based with a minimum volume commitment. Generally, the
fees due under these agreements are adjusted annually based on a price index.
Other Agreements
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
92
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
crude oil at the facility at a fixed price per barrel. Any additional barrels are processed at a modified price per barrel. In
addition, Cross agreed to pay a monthly reservation fee and a periodic fuel surcharge fee based on certain parameters specified
in the tolling agreement. All of these fees (other than the fuel surcharge) are subject to escalation annually based upon the
greater of 3% or the increase in the Consumer Price Index for a specified annual period. In addition, on the third, sixth and
ninth anniversaries of the agreement, the parties can negotiate an upward or downward adjustment in the fees subject to their
mutual agreement.
Sulfuric Acid Sales Agency Agreement. The Partnership is party to a second amended and restated sulfuric acid sales
agency agreement dated August 5, 2013, under which Martin Resource Management purchases and markets the sulfuric acid
produced by the Partnership’s sulfuric acid production plant at Plainview, Texas, that is not consumed by the Partnership’s
internal operations. This agreement, as amended, will remain in place until the Partnership terminates it by providing 180 days’
written notice. Under this agreement, the Partnership sells all of its excess sulfuric acid to Martin Resource Management.
Martin Resource Management then markets such acid to third-parties and the Partnership shares in the profit of Martin
Resource Management’s sales of the excess acid to such third parties.
Other Miscellaneous Agreements. From time to time the Partnership enters into other miscellaneous agreements with
Martin Resource Management for the provision of other services or the purchase of other goods.
The tables below summarize the related party transactions that are included in the related financial statement captions
on the face of the Partnership’s Consolidated Statements of Operations. The revenues, costs and expenses reflected in these
tables are tabulations of the related party transactions that are recorded in the corresponding caption of the Consolidated
Statements of Operations and do not reflect a statement of profits and losses for related party transactions.
The impact of related party revenues from sales of products and services is reflected in the Consolidated Statements of
Operations as follows:
Revenues:
Terminalling and storage
Marine transportation
Natural gas services
Product sales:
Natural gas services
Sulfur services
Terminalling and storage
2015
2014
2013
78,233
27,724
878
196
3,639
1,836
5,671
112,506
$
$
74,467
24,389
—
3,064
3,921
676
7,661
106,517
$
$
71,517
24,654
—
10
3,890
798
4,698
100,869
$
$
The impact of related party cost of products sold is reflected in the Consolidated Statements of Operations as follows:
Cost of products sold:
Natural gas services
Sulfur services
Terminalling and storage
$
$
25,797
16,579
17,718
60,094
$
$
37,703
18,390
36,341
92,434
$
$
32,639
18,161
48,868
99,668
The impact of related party operating expenses is reflected in the Consolidated Statements of Operations as follows:
Operating expenses:
Marine transportation
Natural gas services
Sulfur services
Terminalling and storage
$
$
32,373
8,639
6,928
29,931
77,871
$
$
37,703
4,870
7,479
29,525
79,577
$
$
38,373
1,971
8,223
21,766
70,333
93
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The impact of related party selling, general and administrative expenses is reflected in the Consolidated Statements of
Operations as follows:
Selling, general and administrative:
Marine transportation
Natural gas services
Sulfur services
Terminalling and storage
Indirect overhead allocation, net of reimbursement
Other Related Party Transactions
$
$
29
6,216
2,760
2,284
13,679
24,968
$
$
30
6,039
3,201
1,874
12,535
23,679
$
$
50
2,671
3,081
1,266
10,621
17,689
As discussed in Note 10, during March 2013, the Partnership acquired 100% of the preferred interests in MET, a
subsidiary of Martin Resource Management, for $15,000. On August 31, 2014, MET converted its preferred equity to
subordinated debt. The resulting $15,000 note receivable from MET bears an annual interest rate of 15% and matures
August 31, 2026. MET may prepay any or all of the note balance on or after September 1, 2016. The note is recorded in "Note
receivable - Martin Energy Trading LLC" on the Partnership's Consolidated Balance Sheet. Interest income for the years ended
December 31, 2015 and 2014 was $2,250 and $752, respectively, and is included in "Interest expense, net" in the Consolidated
Statements of Operations.
As discussed in Note 12, during the twelve months ended December 31, 2015, the Partnership entered into certain
derivative financial instruments through June 30, 2016 to protect a portion of its commodity price risk exposure related to
NGLs. MET serves as counterparty to the outstanding positions at December 31, 2015.
(14)
Supplemental Balance Sheet Information
Components of "Intangibles and other assets, net" at December 31, 2015 and 2014 were as follows:
Customer contracts and relationships, net
Other intangible assets
Other
2015
2014
$
$
50,452
1,818
6,044
58,314
$
$
72,171
2,215
7,079
81,465
Customer contracts were acquired through the Partnership's acquisition of the remaining interests in Cardinal on
August 29, 2014.
Other intangible assets consist of covenants not-to-compete, technology-based assets, and customer relationships.
Aggregate amortization expense for customer contracts and other intangible assets included in continuing operations
was $22,115, $9,772, and $1,153, for the years ended December 31, 2015, 2014 and 2013, respectively, and accumulated
amortization amounted to $32,842 and $12,125 at December 31, 2015 and 2014, respectively.
Estimated amortization expense for customer contract and relationships and other intangible assets for the years
subsequent to December 31, 2015 are as follows: 2016 - $14,961; 2017 - $11,122; 2018 - $7,148; 2019 - $4,305; 2020 -
$4,287; subsequent years - $10,447.
Components of "Other accrued liabilities" at December 31, 2015 and 2014 were as follows:
94
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Accrued interest
Property and other taxes payable
Accrued payroll
Other
(15)
Long-Term Debt
2015
2014
$
$
10,365
6,668
1,389
111
18,533
$
$
10,996
7,524
3,125
156
21,801
At December 31, 2015 and 2014, long-term debt consisted of the following:
$700,0001 Revolving loan facility at variable interest rate (3.16%2 weighted average at
December 31, 2015), due March 2018 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 and equity method
investees, net of unamortized debt issuance costs of $4,858 and $8,656, respectively5
$400,0003,4 Senior notes, 7.250% interest, including unamortized premium of $1,568 and
$2,005, respectively, also net of unamortized debt issuance costs of $3,507 and $4,462
respectively, issued $250,000 February 2013 and $150,000 April 2014 and due February
2021, unsecured5,6
Total long-term debt
2015
2014
$
493,142
$
491,344
371,861
$
865,003
$
397,543
888,887
1 On August 14, 2015, the Partnership reduced its borrowing capacity under the revolving credit facility from
$900,000 to $700,000. The facility can be expanded up to $1,000,000 at any time under the accordion feature of the facility.
The reduction in capacity resulted in the write-off of $1,625 of deferred debt costs.
2 Interest rate fluctuates based on the LIBOR rate plus an applicable margin set on the date of each advance. The
margin above LIBOR is set every three months. Indebtedness under the credit facility bears interest at LIBOR plus an
applicable margin or the base prime rate plus an applicable margin. The applicable margin for revolving loans that are LIBOR
loans ranges from 1.75% to 2.75% and the applicable margin for revolving loans that are base prime rate loans ranges from
0.75% to 1.75%. The applicable margin for LIBOR borrowings at December 31, 2015 is 2.75%. The credit facility contains
various covenants which limit the Partnership’s ability to make certain investments and acquisitions; enter into certain
agreements; incur indebtedness; sell assets; and make certain amendments to the Omnibus Agreement. The Partnership is
permitted to make quarterly distributions so long as no event of default exists.
3 Pursuant to the indenture under which the senior notes were issued, the Partnership has the option to redeem up
to 35% of the aggregate principal amount at a redemption price of 108.875% of the principal amount, plus accrued and unpaid
interest with the proceeds of certain equity offerings. On April 1, 2014, the Partnership redeemed the remaining $175,000 of
the 8.875% senior unsecured notes due in 2018 from all holders. On April 1, 2014 the Partnership completed a private
placement add-on of $150,000 in aggregate principal amount of 7.25% senior unsecured notes due February 2021 to qualified
institutional buyers under Rule 144A. The Partnership filed with the SEC a registration statement to exchange these notes for
substantially identical notes that are registered under the Securities Act and completed the exchange offer during the second
quarter of 2014. In conjunction with the redemption, the Partnership incurred a debt prepayment premium in the amount
of $7,767, which is included in the Consolidated Statement of Operations for the year ended December 31, 2014. Also in
conjunction with this redemption, the Partnership expensed $2,643 and $1,228 of unamortized debt issuance costs and
unamortized discount on notes payable, respectively, which is included in "Interest expense, net" on the Partnership's
Consolidated Statement of Operations for the year ended December 31, 2014.
4 In September 2015, the Partnership repurchased on the open market an aggregate $26,200 of 7.25% senior unsecured
notes. These transactions resulted in a gain on retirement of $1,242, including the write-off of applicable pro-rata portion of
deferred debt costs and premium.
5 The Partnership is in compliance with all debt covenants as of December 31, 2015.
95
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
6 The 2021 indentures restrict the Partnership’s ability to sell assets; pay distributions or repurchase units or redeem or
repurchase subordinated debt; make investments; incur or guarantee additional indebtedness or issue preferred units; and
consolidate, merge or transfer all or substantially all of its assets. Many of these covenants will terminate if the notes achieve an
investment grade rating from each of Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no default
(as defined in the indentures) has occurred.
The Partnership paid cash interest, net of proceeds received from interest rate swaptions, in the amount of $43,376,
$37,112, and $33,038 for the years ended December 31, 2015, 2014 and 2013, respectively. Capitalized interest was $1,944,
$1,437, and $1,096 for the years ended December 31, 2015, 2014 and 2013, respectively.
(16)
Partners' Capital
As of December 31, 2015, partners’ capital consisted of 35,456,612 common limited partner units, representing a 98%
partnership interest and a 2.0% general partner interest. Martin Resource Management, through subsidiaries, owned
6,264,532 of the Partnership's common limited partnership units representing approximately 17.7% of the Partnership's
outstanding common limited partnership units. MMGP, the Partnership's general partner, owns the 2.0% general partnership
interest.
The partnership agreement of the Partnership (the "Partnership Agreement") contains specific provisions for the
allocation of net income and losses to each of the partners for purposes of maintaining their respective partner capital accounts.
Issuance of Common Units
On September 29, 2014, the Partnership completed a public offering of 3,450,000 common units at a price of $36.91
per common unit, before the payment of underwriters' discounts, commissions and offering expenses (per unit value is in
dollars, not thousands). Total proceeds from the sale of the 3,450,000 common units, net of underwriters' discounts,
commissions and offering expenses, were $122,176. The Partnership's general partner contributed $2,599 in cash to the
Partnership in conjunction with the issuance in order to maintain its 2.0% general partner interest in the Partnership. All of the
net proceeds were used to pay down outstanding amounts under the Partnership's revolving credit facility.
On August 29, 2014, the Partnership closed a private equity sale with Martin Resource Management, under which
Martin Resource Management invested $45,000 in cash in exchange for 1,171,265 common units. The pricing of $38.42 per
common unit was based on the 10-day weighted average price of the Partnership's common units for the 10 trading days ending
August 8, 2014. In connection with the issuance of these common units, the Partnership's general partner contributed $918 in
order to maintain its 2.0% general partner interest in the Partnership. All of the net proceeds were used to pay down
outstanding amounts under the Partnership's revolving credit facility.
On May 12, 2014, the Partnership completed a public offering of 3,600,000 common units at a price of $41.51 per
common unit, before the payment of underwriters' discounts, commissions and offering expenses (per unit value is in dollars,
not thousands). Total proceeds from the sale of the 3,600,000 common units, net of underwriters' discounts, commissions and
offering expenses, were $143,431. The Partnership's general partner contributed $3,049 in cash to the Partnership in
conjunction with the issuance in order to maintain its 2.0% general partner interest in the Partnership. All of the net proceeds
were used to pay down outstanding amounts under the Partnership's revolving credit facility.
In March 2014, the Partnership entered into an equity distribution agreement with multiple underwriters (the "Sales
Agents") for the ongoing distribution of the Partnership's common units. Pursuant to this program, the Partnership offered and
sold common unit equity through the Sales Agents for aggregate proceeds of $0 and $21,501 for the years ended December 31,
2015 and 2014, respectively. The Partnership paid $591 and $380 in equity issuance related costs for the years ended
December 31, 2015 and 2014, respectively. Under the the program, the Partnership issued 522,121 common units during the
year ended December 31, 2014. Common units issued were at market prices prevailing at the time of the sale. The Partnership
also received capital contributions from the Partnership's general partner of $441 during the year ended December 31, 2014
related to these issuances to maintain its 2.0% general partner interest in the Partnership. The net proceeds from the common
unit issuances were used to pay down outstanding amounts under the Partnership's revolving credit facility.
Incentive Distribution Rights
96
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The Partnership’s general partner, MMGP, holds a 2.0% 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. On October 2, 2012, the Partnership Agreement was amended to
provide that the general partner shall forego the next $18,000 in incentive distributions that it would otherwise be entitled to
receive. Additionally, on May 5, 2014, the owner of the Partnership's general partner agreed to forego an additional $3,000 in
incentive distributions. No incentive distributions were allocated to the general partner from July 1, 2012 (which would have
been payable to the general partner on November 14, 2012 for the third quarter of 2012 distribution) through December 31,
2014. As of December 31, 2015, all incentive distributions were satisfied and incentive distributions started being paid for the
distribution paid on February 13, 2015.
The target distribution levels entitle the general partner to receive 2.0% 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, 2015, 2014 and 2013, the general partner received $15,571, $0, and $0 in 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
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:
97
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
Years Ended December 31,
2014
2013
2015
Continuing operations:
Income (loss) from continuing operations
Less general partner’s interest in net income:
Distributions payable on behalf of IDRs
Distributions payable on behalf of general partner interest
General partner interest in undistributed earnings
Less income (loss) allocable to unvested restricted units
Limited partners’ interest in net income (loss)
Discontinued operations:
Income (loss) from discontinued operations
Less general partner’s interest in net income:
Distributions payable on behalf of IDRs
Distributions payable on behalf of general partner interest
General partner interest in undistributed earnings
Less income (loss) allocable to unvested restricted units
Limited partners’ interest in net income (loss)
$
37,165
$
(6,367) $
(14,562)
15,078
2,585
(1,842)
136
21,208
$
2,033
1,181
(1,308)
(18)
(8,255) $
—
2,021
(2,312)
(44)
(14,227)
$
Years Ended December 31,
2014
2013
2015
$
1,215
$
(5,338) $
1,208
493
84
(60)
4
694
$
1,704
990
(1,097)
(14)
(6,921) $
—
(168)
192
4
1,180
$
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 weighted average units outstanding for basic net income per unit were 35,308,649, 30,785,035 and 26,557,829 for
the years ended December 31, 2015, 2014 and 2013, respectively. 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.
For diluted net income per unit, the weighted average units outstanding were increased by 62,880 for the year ended December
31, 2015, due to the dilutive effect of restricted units granted under the Partnership’s long-term incentive plan. All common
unit equivalents were antidilutive for the years ended December 31, 2014 and 2013 because the limited partners were allocated
a net loss in these periods.
(17)
Unit Based Awards
The Partnership recognizes compensation cost related to stock-based awards to employees in its consolidated financial
statements in accordance with certain provisions of ASC 718. The Partnership recognizes compensation costs related to stock-
based awards to directors under certain provisions of ASC 505-50-55 related to equity-based payments to non-employees.
Amounts recognized in selling, general, and administrative expense in the consolidated financial statements with respect to
these plans are as follows:
Employees
Non-employee directors
Total unit-based compensation expense
Long-Term Incentive Plans
98
For the Year Ended December 31,
2015
2014
2013
$
$
1,338
91
1,429
$
$
537
280
817
$
$
668
243
911
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.
The plan consists of two components, restricted units and unit options. The plan currently permits the grant of awards
covering an aggregate of 725,000 common units, 241,667 of which may be awarded in the form of restricted units and 483,333
of which may be awarded in the form of unit options. The plan is administered by the compensation committee of the general
partner’s board of directors ("Compensation Committee").
Restricted Units. A restricted unit is a unit that is granted to grantees with certain vesting restrictions. Once these
restrictions lapse, the grantee is entitled to full ownership of the unit without restrictions. In addition, the restricted units will
vest upon a change of control of the Partnership, the general partner or Martin Resource Management or if the general partner
ceases to be an affiliate of Martin Resource Management. The Partnership intends the issuance of the common units upon
vesting of the restricted units under the plan to serve as a means of incentive compensation for performance and not primarily
as an opportunity to participate in the equity appreciation of the common units. Therefore, plan participants will not pay any
consideration for the common units they receive, and the Partnership will receive no remuneration for the units. The restricted
units issued to directors generally vest in equal annual installments over a four-year period. Restricted units issued to
employees generally cliff vest after three years of service.
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, 2015 is provided below:
Non-vested, beginning of year
Granted
Vested
Forfeited
Non-Vested, end of year
Weighted
Average
Grant-Date
Fair Value
Per Unit
Number of
Units
63,824
$
91,950
$
(4,050) $
(1,250) $
$
150,474
30.79
27.97
30.67
30.55
29.07
Aggregate intrinsic value, end of year
$
3,265
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, 2015, 2014 and 2013 is provided below:
Aggregate intrinsic value of units vested
Fair value of units vested
For the Year Ended
December 31,
2015
2014
2013
$
$
110
128
$
$
514
450
$
$
153
157
As of December 31, 2015, there was $1,829 of unrecognized compensation cost related to non-vested restricted units.
That cost is expected to be recognized over a weighted-average period of 1.4 years.
Unit Options. The plan currently permits the grant of options covering common units. As of December 31, 2015, the
Partnership has not granted any common unit options to directors or employees of the Partnership's general partner, or its
affiliates. In the future, the Compensation Committee may determine to make grants under the plan to employees and directors
containing such terms as the Compensation Committee shall determine. Unit options will have an exercise price that, in the
discretion of the Compensation Committee, may not be less than the fair market value of the units on the date of grant. In
addition, the unit options will become exercisable upon a change in control of the Partnership's general partner, Martin
Resource Management or if the general partner ceases to be an affiliate of Martin Resource Management or upon the
achievement of specified financial objectives.
99
(18)
Stanolind Tank Damage
During the third quarter of 2011, a single tank fire occurred at the Partnership’s Stanolind Terminal in Beaumont,
Texas. This specific tank stores No. 6 oil for Martin Resource Management under a throughput agreement. The tank contained
approximately 3,200 barrels of No. 6 oil at the time the incident occurred, all of which was the property of Martin Resource
Management.
Physical damage to the Partnership’s asset caused by the fire as well as the related removal and recovery costs, are
fully covered by the Partnership’s non-windstorm insurance policy subject to a deductible of $443, which has been expensed
and included in "operating expenses" in the Consolidated Statements of Operations for the year ended December 31, 2011.
Insurance proceeds received as a result of the claim were used to replace the tank. The proceeds received exceeded the
net book value of the tank that was destroyed and the Partnership recognized a gain in the amount of $909 in "other operating
income" in the Consolidated Statement of Operations for the year ended December 31, 2013.
(19)
Income Taxes
The operations of a partnership are generally not subject to income taxes because its income is taxed directly to its
partners.
The Partnership is subject to the Texas margin tax, which is considered a state income tax, and is included in income
tax expense on the Consolidated Statements of Operations. The Texas margin tax restructured the state business tax by
replacing the taxable capital and earned surplus components of the existing franchise tax with a new "taxable margin"
component. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed
as an income tax and, therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a
result of this provision is immaterial. State income taxes attributable to the Texas margin tax of $1,048, $1,137 and $753 were
recorded in income tax expense for the years ended December 31, 2015, 2014 and 2013, respectively.
A current income tax liability of $985, and $1,174 existed at December 31, 2015 and 2014, respectively.
Cash paid for income taxes was $1,237, $1,167, and $9,789 for the years ended December 31, 2015, 2014 and 2013,
respectively.
The Bipartisan Budget Act of 2015 provides that any tax adjustments resulting from partnership audits will generally
be determined, and any resulting tax, interest and penalties collected, at the partnership level for tax years beginning after
December 31, 2017. The Bipartisan Budget Act of 2015 allows a partnership to elect to apply these provisions to any return of
the partnership filed for partnership taxable years beginning after the date of the enactment, November 2, 2015. The Partnership
does not intend to elect to apply these provisions for any tax return filed for partnership taxable years beginning before January
1, 2018.
As of December 31, 2015, the tax years that remain open to assessment by federal and state jurisdictions are
2012-2014.
(20)
Business Segments
The Partnership has four reportable segments: terminalling and storage, natural gas services, marine transportation,
and sulfur services. The Partnership’s reportable segments are strategic business units that offer different products and services.
The operating income of these segments is reviewed by the chief operating decision maker to assess performance and make
business decisions.
The accounting policies of the operating segments are the same as those described in Note 2. The Partnership
evaluates the performance of its reportable segments based on operating income. There is no allocation of administrative
expenses or interest expense.
100
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
The Natural Gas Services segment information below excludes the discontinued operations of the Floating Storage
Assets for 2015, 2014, and 2013. See Note 5.
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, 2015:
Terminalling and storage
$
270,440
$
(5,670) $
264,770
$
38,731
$
15,704
$
Natural gas services
Sulfur services
Marine transportation
Indirect selling, general, and
administrative
Total
Year Ended December 31, 2014:
Terminalling and storage
Natural gas services
Sulfur services
Marine transportation
Indirect selling, general, and
administrative
Total
Year Ended December 31, 2013:
Terminalling and storage
Natural gas services
Sulfur services
Marine transportation
Indirect selling, general, and
administrative
$
$
$
$
523,160
170,161
81,784
—
—
—
(3,031)
—
523,160
170,161
78,753
—
34,072
8,455
10,992
41,220
23,604
8,576
—
(18,951)
1,045,545
$
(8,701) $
1,036,844
$
92,250
$
70,153
$
326,654
$
(5,191) $
321,463
$
37,622
$
24,993
$
1,013,835
215,471
97,049
—
—
—
(5,677)
—
1,013,835
215,471
91,372
13,090
8,176
9,942
34,574
19,465
7,551
—
—
(18,712)
1,653,009
$
(10,868) $
1,642,141
$
68,830
$
67,871
$
341,966
$
(4,756) $
337,210
$
31,823
$
32,855
$
966,909
213,124
99,511
—
—
—
(4,015)
—
966,909
213,124
95,496
—
962
7,979
10,198
30,524
21,511
13,411
—
(16,837)
Total
$
1,621,510
$
(8,771) $
1,612,739
$
50,962
$
81,464
$
40,421
24,330
1,201
2,775
—
68,727
53,450
24,194
4,115
11,498
—
93,257
84,582
4,080
3,867
6,517
—
99,046
Revenues from two customers in the Natural Gas Services segment were $148,273, $265,434 and $285,566 for the
years ended December 31, 2015, 2014 and 2013, respectively.
The Partnership's assets by reportable segment as of December 31, 2015 and 2014, are as follows:
Total assets:
Terminalling and storage
Natural gas services
Sulfur services
Marine transportation
Total assets
2015
2014
$
417,202
694,333
134,108
134,830
$ 1,380,473
$
446,313
795,462
145,852
153,174
$ 1,540,801
101
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
(21)
Quarterly Financial Information
Consolidated Quarterly Income Statement Information
2015
Revenues
Operating income
Equity in earnings of unconsolidated entities
Income from continuing operations
Income from discontinued operations
Net income
Limited partners' interest in net income (loss) per limited partner unit
2014
Revenues
Operating income
Equity in earnings (loss) of unconsolidated entities
Income (loss) from continuing operations (a)
Income (loss) from discontinued operations
Net income (loss)
Limited partners' interest in net income (loss) per limited partner unit
(Unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(Dollar in thousands, except per unit amounts)
305,353
24,702
1,740
16,033
1,215
17,248
0.37
$
$
$
251,099
19,630
1,649
10,961
—
10,961
0.19
$
$
$
226,021
12,034
2,363
3,330
—
3,330
$
(0.02) $
254,371
13,787
3,234
6,841
—
6,841
0.08
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(Dollar in thousands, except per unit amounts)
484,809
24,499
(297)
12,384
(589)
11,795
0.43
$
$
$
403,261
17,997
1,939
324
(1,292)
(968) $
(0.03)
$
377,088
13,181
2,655
(25,739)
(1,167)
(26,906) $
(0.82)
376,983
12,194
1,169
6,664
(2,290)
4,374
(0.07)
$
$
$
$
$
$
(a) As discussed in Note 4, during the third quarter of 2014 this amount includes the Partnership's reduction in the carrying
value of its existing investment in Cardinal at the acquisition date of $30,102.
(22)
Commitments and Contingencies
From time to time, the Partnership is subject to various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the
Partnership.
Pursuant to a Purchase Price Reimbursement Agreement between the Partnership and Martin Resource Management
related to the Partnership’s acquisition of the Redbird Gas Storage LLC ("Redbird") Class A interests on October 2, 2012,
beginning in the second quarter of 2015, Martin Resource Management will reimburse the Partnership $750 each quarter for
four consecutive quarters as a reduction in the purchase price of the Redbird Class A interests. These payments are a result of
Cardinal not achieving certain financial targets set forth in the Purchase Price Reimbursement Agreement. These payments are
considered a reduction of the excess of the purchase price over the carrying value of the assets transferred to the Partnership
from Martin Resource Management and will be recorded as an adjustment to "Partners' capital" in each quarter the payments
are made. The agreement further provides for purchase price reimbursements of up to $4,500 in 2016 in the event certain
financial conditions are not met. Currently, the Partnership has made no determination if the conditions are expected to be met
in 2016. For the year ended December 31, 2015, the Partnership received $2,250 related to the Purchase Price Reimbursement
Agreement.
In 2015, the Partnership was named as a defendant in the cause J. A. Davis Properties, LLC v. Martin Operating
Partnership L.P., in the 38th Judicial District Court, Cameron Parish, Louisiana. The plaintiff alleges that the
Partnership has breached a lease agreement by failing to perform work to the plaintiff's property as required under the lease
agreement. Prior to this litigation, the Partnership had planned to spend $1,600 for such work in 2015. The Partnership intends
102
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
to vigorously defend this matter and has asserted appropriate counterclaims against the plaintiff. At this time, the Partnership is
unable to ascertain the damages, if any, that could ultimately be awarded against it.
On December 31, 2015, the Partnership received a demand from a customer in its lubricants packaging business for
defense and indemnity in connection with at least five lawsuits filed against it in the 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 customer has not answered the Complaint. Currently, we are
unable to determine the exposure we may have in this matter, if any.
(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 unsecured notes and any subsidiaries other than the
subsidiary guarantors are minor.
(24)
Subsequent Events
Quarterly Distribution. On January 21, 2016, The Partnership declared a quarterly cash distribution of $0.8125 per
common unit for the fourth quarter of 2015, or $3.25 per common unit on an annualized basis, which was paid on February 12,
2016 to unitholders of record as of February 5, 2016. Additionally, the Partnership paid a distribution to its general partner in
the amount of $4,559. Of this amount, $667 is related to the base general partner distribution and $3,892 represents incentive
distribution rights paid to the Partnership's general partner.
103
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. In accordance with Rules 13a-15 and 15d-15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of the
Chief Executive Officer and Chief Financial Officer of our general partner, carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act) as of December 31,
2015. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of our general partner concluded that
our disclosure controls and procedures were effective as of December 31, 2015.
(b) Management’s Report on Internal Control Over Financial Reporting. Management is responsible for
establishing and maintaining adequate internal control over financial reporting. A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including the Chief Executive Officer and Chief Financial Officer of our general partner, conducted
an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on its evaluation under the framework in Internal Control — Integrated Framework (2013), our management concluded
that our internal control over financial reporting was effective as of December 31, 2015. The effectiveness of our internal
control over financial reporting as of December 31, 2015 has been audited by KPMG LLP, our independent registered public
accounting firm, as stated in their report appearing in "Item 8 - Financial Statements and Supplementary Data."
(c) Changes in Internal Control Over Financial Reporting. There were no changes in our internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
104
Item 9B. Other Information
Departure of Director
Resignation of Alexander W.F. Black as a Director
On February 24, 2016, Alexander W.F. Black resigned from his position as member of the board of directors (“Board”)
of Martin Midstream GP LLC, the general partner (the “General Partner”) of Martin Midstream Partners L.P. (the
“Partnership”). Mr. Black's resignation was not the result of any disagreements with the General Partner or the Partnership on
any matters relating to the General Partner or the Partnership. The Partnership would like to thank Mr. Black for his dedicated
service.
Appointment of Director
Appointment of Zachary S. Stanton as a Director
On February 24, 2016, the Mr. Stanton is a Director of Alinda Capital Partners, which he joined in 2011. Prior to
joining Alinda, he was a Director at Zolfo Cooper, LLC, a consulting firm based in New York. Mr. Stanton has over 15 years
of experience focused on the corporate development and operations of energy and transportation infrastructure businesses as
well as diversified industrial companies. Mr. Stanton received a bachelor's degree from Wesleyan University. Mr. Stanton was
selected to serve as a director on our general partner's board of directors due to his affiliation with Alinda, his knowledge of the
energy industry, and his financial and business expertise.
105
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Management of Martin Midstream Partners L.P.
Martin Midstream GP LLC, as our general partner, manages our operations and activities on our behalf. Our general
partner was not elected by our unitholders and will not be subject to re-election in the future. Unitholders do not directly or
indirectly participate in our management or operation. Our general partner owes a fiduciary duty to our unitholders. Our
general partner is liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness
or other obligations that are made specifically non-recourse to it. However, whenever possible, our general partner seeks to
provide that our indebtedness or other obligations are non-recourse to our general partner.
Three directors of our general partner serve on a conflicts committee of the Partnership's general partner ("Conflicts
Committee") to review specific matters that the directors believe may involve conflicts of interest. The Conflicts Committee
determines if the resolution of the conflict of interest is fair and reasonable to us. The members of the Conflicts Committee
may not be officers or employees of our general partner or directors, officers, or employees of its affiliates and must meet the
independence standards established by NASDAQ to serve on an audit committee of a board of directors. Any matters approved
by the Conflicts Committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners, and
not a breach by our general partner of any duties it may owe us or our unitholders. The current members of our Conflicts
Committee are outside directors, James M. Collingsworth, C. Scott Massey and Byron R. Kelley, all of whom meet the
independence standards established by NASDAQ, except as referenced above.
The Audit Committee reviews our external financial reporting, recommends engagement of our independent auditors
and reviews procedures for internal auditing and the adequacy of our internal accounting controls. The current members of our
Audit Committee are outside directors, C. Scott Massey, Byron R. Kelley and James M. Collingsworth, all of whom meet the
independence standards established by NASDAQ.
The Compensation Committee oversees compensation decisions for the officers of our general partner as well as the
compensation plans described below. The current members of our Compensation Committee are our outside directors, James
M. Collingsworth, C. Scott Massey, and Byron R. Kelley.
The current members of our Nominating Committee are outside directors, James M. Collingsworth, Byron R. Kelley
and C. Scott Massey.
We are managed and operated by the directors and officers of our general partner. All of our operational personnel are
employees of Martin Resource Management. All of the officers of our general partner will spend a substantial amount of time
managing the business and affairs of Martin Resource Management and its other affiliates. These officers may face a conflict
regarding the allocation of their time between our business and the other business interests of Martin Resource Management.
Our general partner intends to cause its officers to devote as much time to the management of our business and affairs as is
necessary for the proper conduct of our business and affairs.
106
Directors and Executive Officers of Martin Midstream GP LLC
The following table shows information for the directors and executive officers of our general partner. Directors and
executive officers are elected for one-year terms.
Name
Ruben S. Martin
Robert D. Bondurant
Randall L. Tauscher
Chris H. Booth
Stephen W. Martin
C. Scott Massey
James M. Collingsworth
Byron R. Kelley
Sean P. Dolan
Zachary S. Stanton
Age
64
57
50
46
38
63
61
68
42
40
Position with the General Partner
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer and Director
Executive Vice President and Chief Operating Officer
Executive Vice President, Chief Legal Officer, General Counsel and Secretary
Vice President, Corporate Development
Director
Director
Director
Director
Director
Ruben S. Martin serves as President, Chief Executive Officer and a member of the board of directors of our general
partner. Mr. Martin has served in such capacities since June 2002. Mr. Martin has served as President of Martin Resource
Management since 1981 and has served in various capacities within the company since 1974. Mr. Martin holds a Bachelor of
Science degree in industrial management from the University of Arkansas. Mr. Martin was selected to serve as a director on
our general partner's board of directors due to his depth of knowledge of the Partnership, including its strategies and operations,
his business judgment and his position within the Partnership.
Robert D. Bondurant serves as Executive Vice President and Chief Financial Officer and a member of the board of
directors of our general partner. Mr. Bondurant has served in such capacities since June 2002. Mr. Bondurant joined Martin
Resource Management in 1983 as Controller and subsequently was appointed Chief Financial Officer and a member of its
board of directors in 1990. Mr. Bondurant served in the audit department at Peat Marwick, Mitchell and Co. from 1980 to
1983. Mr. Bondurant holds a Bachelor of Business Administration degree in accounting from Texas A&M University and is a
Certified Public Accountant, licensed in the state of Texas.
Randall L. Tauscher serves as Executive Vice President and Chief Operating Officer of our general partner. Mr.
Tauscher has served in this capacity since August 2011. From November 2007 through July 2011, Mr. Tauscher served as
Executive Vice President. Prior to joining Martin, Mr. Tauscher was employed by Koch Industries for over 18 years, most
recently as Senior Vice President of the Koch Carbon Division. Mr. Tauscher earned a Bachelor of Business Administration
degree from Kansas State University.
Chris H. Booth serves as Executive Vice President, Chief Legal Officer, General Counsel and Secretary of our general
partner. Mr. Booth has served as an officer of our general partner since February 2006. Mr. Booth joined Martin Resource
Management in October 2005. Prior to joining Martin Resource Management, Mr. Booth was an attorney with the law firm of
Mehaffy Weber located in Beaumont, Texas. Mr. Booth holds a Doctor of Jurisprudence degree and a Masters of Business
Administration degree with a concentration in finance from the University of Houston. Additionally, Mr. Booth holds a
Bachelor of Science degree in business management from LeTourneau University. Mr. Booth is an attorney licensed to practice
in the state of Texas.
Stephen W. Martin serves as Vice President of Corporate Development of our general partner. Mr. Martin has served
in such capacity since October 2013. Prior to his current role, Mr. Martin served in various capacities including Associate and
Vice President of Business Development of our general partner. Mr. Martin joined Martin Resource Management in May 2005.
From 2000 to 2003, Mr. Martin served as a financial analyst in the energy investment banking group of Raymond James
Financial, Inc. Mr. Martin holds a B.S. in Biochemistry from the University of Texas at Austin and a Master of Business
Administration from Columbia Business School. Mr. Martin is not related to Ruben S. Martin.
C. Scott Massey serves as a member of the board of directors of our general partner. Mr. Massey has served as a
Director since June 2002. Mr. Massey has been self employed as a Certified Public Accountant since 1998. From 1977 to
1998, Mr. Massey worked for KPMG Peat Marwick, LLP in various positions, including, most recently, as a Partner in the
firm's Tax Practice - Energy, Real Estate, Timber from 1986 to 1998. Mr. Massey received a Bachelor of Business
Administration degree from the University of Texas at Austin and a Doctor of Jurisprudence degree from the University of
107
Houston. Mr. Massey is a Certified Public Accountant, licensed in the states of Louisiana and Texas. Mr. Massey was selected
to serve as a director on our general partner's board of directors due to his extensive background in public accounting and
taxation. Mr. Massey qualifies as an "audit committee financial expert" under the SEC guidelines.
James M. Collingsworth serves as a member of the board of directors of our general partner. Mr. Collingsworth has
spent 41 years in all facets of the midstream and petrochemical industry. In 2013, Mr. Collingsworth retired from Enterprise
Products Company as a Sr. Vice President of Regulated NGL Pipelines & Natural Gas Storage. Mr. Collingsworth currently
serves on the board of directors of NGL Energy Partners LP, and has served on the board of directors of Texaco Canada, Dixie
Pipeline Company, Seminole Pipeline Company and the Petrochemical Feedstock Association of America. Mr. Collingsworth
has served as a Director since October 2014. Mr. Collingsworth received a bachelor’s degree in Finance and Marketing from
Northeastern State University. Mr. Collingsworth was selected to serve as a director on our general partner's board of directors
due to his extensive corporate business experience.
Byron R. Kelley serves as a member of the board of directors of our general partner and also served as an Advisory
Director from April 2011 to August 2012. On December 31, 2013, Mr. Kelley retired as CEO, President and a member of the
board of directors of CVR Partners, LP, a chemical company engaged in the production of nitrogen based fertilizers and served
in this position from June 2011 through December 2013. Prior to joining CVR Partners in June of 2011 he served as President,
Chief Executive Officer and a member of the board of directors of Regency GP, LLC from April 2008 to November 2010.
From 2004 through March of 2008, Mr. Kelley served as Senior Vice President and Group President of Pipeline and Field
Services at CenterPoint Energy. Preceding his work at CenterPoint, Mr. Kelley served as Executive Vice President of
Development, Operations and Engineering, and as President of El Paso Energy International. Mr. Kelley is a past member and
Chairman of the board of directors of the Interstate National Gas Association and previously served as one of the association's
representatives on the United States Natural Gas Council of America. Mr. Kelley received a Bachelor of Science degree in
civil engineering from Auburn University. Mr. Kelley was selected to serve as a director on our general partner's board of
directors due to his extensive corporate business experience.
Sean P. Dolan serves as a member of the board of directors of our general partner. Mr. Dolan has served as a Director
since 2013. Mr. Dolan is a Managing Director of Alinda Capital Partners, which he joined in 2009. Prior to joining Alinda, Mr.
Dolan spent over 12 years with Citigroup Global Markets in investment banking primarily focused in the energy sector. Mr.
Dolan received a bachelor's degree from Georgetown University. Mr. Dolan was selected to serve as a director on our general
partner's board of directors due to his affiliation with Alinda, his knowledge of the energy industry and his financial and
business expertise.
Zachary S. Stanton serves as a member of the board of directors of our general partner. Mr. Stanton was appointed to
the board of directors on February 24, 2016. Mr. Stanton is a Director of Alinda Capital Partners, which he joined in 2011.
Prior to joining Alinda, he was a Director at Zolfo Cooper, LLC, a consulting firm based in New York. Mr. Stanton has over 15
years of experience focused on the corporate development and operations of energy and transportation infrastructure businesses
as well as diversified industrial companies. Mr. Stanton received a bachelor's degree from Wesleyan University. Mr. Stanton
was selected to serve as a director on our general partner's board of directors due to his affiliation with Alinda, his knowledge
of the energy industry, and his financial and business expertise.
Independence of Directors
Messrs. Massey, Collingsworth, and Kelley qualify as "independent" in accordance with the published listing
requirements of NASDAQ and applicable securities laws. The NASDAQ independence definition includes a series of
objective tests, such as that the director is not an employee of us and has not engaged in various types of business dealings with
us. In addition, as further required by the NASDAQ rules, the board of directors has made a subjective determination as to
each independent director that no relationships exist which, in the opinion of the board, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. In making these determinations, the directors reviewed
and discussed information provided by the directors and us with regard to each director's business and personal activities as
they may relate to us and our management.
Board Meetings and Committees
From January 1, 2015 to December 31, 2015, the board of directors of our general partner held 11 meetings. All
directors then in office attended each of these meetings, either in person, by teleconference or by videoconference with the
exception of: Alex Black, who was not in attendance at the meetings of the board of directors on the dates of January 22, 2015,
April 23, 2015, April 28, 2015, July 23, 2015 and September 8, 2015; Sean Dolan, who was not in attendance at the meetings
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of the board of directors on the dates of April 23, 2015 and September 8, 2015; Byron Kelley, who was not in attendance at the
meeting of the board of directors on the date of July 23, 2015; and Jim Collingsworth, who was not in attendance at the
meetings of the board of directors on the dates of October 22, 2015 and October 27, 2015. Additionally, the board of directors
undertook action two times during 2015 without a meeting by acting through written unanimous consent. We have standing
conflicts, audit, compensation and nominating committees of the board of directors of our general partner. The board of
directors of our general partner appoints the members of the Audit, Compensation, Nominating and Conflicts Committees.
Each member of the Audit Committee is an independent director in accordance with NASDAQ and applicable securities laws.
Each of the board committees has a written charter approved by the board. Copies of each charter are posted on our website at
www.martinmidstream.com under the "Corporate Governance" section. The current members of the committees, the number of
meetings held by each committee from January 1, 2015 to December 31, 2015, and a brief description of the functions
performed by each committee are set forth below:
Conflicts Committee (5 meetings). The members of the Conflicts Committee are: Messrs. Kelley (chairman), Massey
and Collingsworth. All of the members of the Conflicts Committee attended all meetings of the committee for the period noted
above with the exception of Jim Collingsworth, who was not in attendance at the meeting of the Conflicts Committee on the
date of October 27, 2015. The primary responsibility of the Conflicts Committee is to review matters that the directors believe
may involve conflicts of interest. The Conflicts Committee determines if the resolution of the conflict of interest is fair and
reasonable to us. The members of the Conflicts Committee may not be officers or employees of our general partner or
directors, officers, or employees of its affiliates and must meet the independence standards to serve on an audit committee of a
board of directors established by NASDAQ. Any matters approved by the Conflicts Committee will be conclusively deemed to
be fair and reasonable to us, approved by all of our partners, and not a breach by our general partner of any duties it may owe
us or our unitholders.
Audit Committee (4 meetings). The members of the Audit Committee are Messrs. Massey (chairman), Kelley and
Collingsworth. All of the members attended all meetings of the Audit Committee for the period noted above with the exception
of Jim Collingsworth, who was not in attendance at the meeting of the Audit Committee on the date of October 27, 2015. The
primary responsibilities of the Audit Committee are to assist the board of directors in its general oversight of our financial
reporting, internal controls and audit functions, and it is directly responsible for the appointment, retention, compensation and
oversight of the work of our independent auditors. The members of the Audit Committee of the board of directors of our
general partner each qualify as "independent" under standards established by the SEC for members of audit committees, and
the Audit Committee includes at least one member who is determined by the board of directors to meet the qualifications of an
"audit committee financial expert" in accordance with SEC rules, including that the person meets the relevant definition of an
"independent" director. C. Scott Massey is the independent director who has been determined to be an audit committee
financial expert. Unitholders should understand that this designation is a disclosure requirement of the SEC related to Mr.
Massey's experience and understanding with respect to certain accounting and auditing matters. The designation does not
impose on Mr. Massey any duties, obligations or liability that are greater than are generally imposed on him as a member of the
Audit Committee and board of directors, and his designation as an audit committee financial expert pursuant to this SEC
requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or board of
directors.
Compensation Committee (1 meeting). The members of the Compensation Committee are Messrs. Collingsworth
(chairman), Massey and Kelley. All members attended the meeting of the Compensation Committee for the period noted
above. The primary responsibility of the Compensation Committee is to oversee compensation decisions for the outside
directors of our general partner and executive officers of our general partner (in the event they are to be paid by our general
partner) as well as our long-term incentive plan.
Nominating Committee (1 meeting). The members of the Nominating Committee are Messrs. Collingsworth
(chairman), Massey, and Kelley. All of the members attended the meeting of the Nominating Committee for the period noted
above. The primary responsibility of the nominating committee is to select and recommend nominees for election to the board
of directors of our general partner.
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Code of Ethics and Business Conduct
Our general partner has adopted a Code of Ethics and Business Conduct applicable to all of our general partner's
employees (including any employees of Martin Resource Management who undertake actions with respect to us or on our
behalf), including all officers, and including our general partner's independent directors, who are not employees of our general
partner, with regard to their activities relating to us. The Code of Ethics and Business Conduct incorporate guidelines designed
to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. They
also incorporate our expectations of our general partner's employees (including any employees of Martin Resource
Management who undertake actions with respect to us or on our behalf) that enable us to provide accurate and timely
disclosure in our filings with the Securities and Exchange Commission and other public communications. The Code of Ethics
and Business Conduct is publicly available on our website under the "Corporate Governance" section (at
www.martinmidstream.com). This website address is intended to be an inactive, textual reference only, and none of the
material on this website is part of this report. If any substantive amendments are made to the Code of Ethics and Business
Conduct or if we or our general partner grant any waiver, including any implicit waiver, from a provision of the code to any of
our general partner's executive officers and directors, we will disclose the nature of such amendment or waiver on that website
or in a report on Form 8-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Our general partner's directors and officers and beneficial owners of more than 10% of a registered class of our equity
securities are required to file reports of ownership and reports of changes in ownership with the SEC and NASDAQ. Directors,
officers and beneficial owners of more than 10% of our equity securities are also required to furnish us with copies of all such
reports that are filed. Based solely on our review of copies of such forms and amendments previously provided to us, we
believe directors, officers and greater than 10% beneficial owners complied with all filing requirements during the year ended
December 31, 2015.
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Item 11. Executive Compensation
Compensation Discussion and Analysis
Background
We are required to provide information regarding the compensation program in place as of December 31, 2015, for the
CEO, CFO and the three other most highly-compensated executive officers of our general partner as reflected in the summary
compensation table set forth below (the "Named Executive Officers"). This section should be read in conjunction with the
detailed tables and narrative descriptions regarding compensation below.
We are a master limited partnership and have no employees. We are managed by the executive officers of our general
partner. These executive officers are employed by Martin Resource Management, a private corporation that has significant
operations that are separate from ours. The executive officers of our general partner are also the executive officers of Martin
Resource Management and devote significant time to the management of Martin Resource Management’s operations. We
reimburse Martin Resource Management for a portion of the indirect general and administrative expenses, including
compensation expense relating to the service of these individuals that are allocated to us pursuant to the omnibus agreement
between us and our general partner, as amended on October 1, 2012 ("Omnibus Agreement"). Under the Omnibus Agreement,
we are required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead
expenses. For the years ended December 31, 2015, 2014 and 2013, the conflicts committee of our general partner ("Conflicts
Committee") approved reimbursement amounts of $13.7 million, $12.5 million and $10.6 million, respectively, reflecting our
allocable share of such expenses. Please see "Item 13. Certain Relationships and Related Transactions, and Director
Independence — Agreements — Omnibus Agreement" for a discussion of the Omnibus Agreement.
Compensation Objectives
As we do not directly compensate the executive officers of our general partner, we do not have any set compensation
programs. The elements of Martin Resource Management’s compensation program discussed below, along with Martin
Resource Management’s other rewards, are intended to provide a total rewards package designed to yield competitive total cash
compensation, drive performance and reward contributions in support of the businesses of Martin Resource Management and
other Martin Resource Management affiliates, including us, for which the Named Executive Officers perform services.
Although we bear an allocated portion of Martin Resource Management’s costs of providing compensation and benefits to the
Named Executive Officers, we do not have control over such costs and do not establish or direct the compensation policies or
practices of Martin Resource Management. During 2015, Martin Resource Management paid compensation based on the
performance of Martin Resource Management but did not set any specific performance-based criteria and did not have any
other specific performance-based objectives.
Elements of Compensation
Martin Resource Management’s executive officer compensation package includes a combination of annual cash, long-
term incentive compensation and other compensation. Elements of compensation which the Named Executive Officers may be
eligible to receive from Martin Resource Management consist of the following: (1) annual base salary; (2) discretionary annual
cash awards; (3) awards pursuant to Martin Resource Management employee benefit plans and (4) where appropriate, other
compensation, including limited perquisites.
Annual Base Salary. Base salary is intended to provide fixed compensation to the Named Executive Officers for their
performance of core duties with respect to Martin Resource Management and its affiliates, including us, and to compensate for
experience levels, scope of responsibility and future potential. Base salaries are not intended to compensate individuals for
extraordinary performance or for above average company performance. The base salaries of the Named Executive Officers are
reviewed on an annual basis, as well as at the time of promotion and other changes in responsibilities or market conditions.
Discretionary Annual Cash Awards. In addition to the annual base salary, the Named Executive Officers may be
eligible to receive discretionary annual cash awards that, if awarded, are paid in a lump sum in the quarter following the end of
the fiscal year. These cash awards are designed to provide the Named Executive Officers with competitive incentives to help
drive performance and promote achievement of Martin Resource Management’s business objectives. Named Executive
Officers may also be eligible to receive a cash award based upon their services provided to us in the event that any such Named
Executive Officer has devoted a significant amount of their time to working for us. Any such award is determined in
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accordance with the same methodologies as the discretionary annual cash awards for Martin Resource Management, as
described below.
Employee Benefit Plan Awards. The Named Executive Officers may be eligible to receive awards pursuant to the
Martin Midstream Partners L.P. Long-Term Incentive Plan and Martin Resource Management employee benefit plans. These
employee benefit plan awards are designed to reward the performance of the Named Executive Officers by providing annual
incentive opportunities tied to the annual performance of Martin Resource Management. In particular, these awards are
provided to the Named Executive Officers in order to provide competitive incentives to these executives who can significantly
impact performance and promote achievement of the business objectives of Martin Resource Management.
Other Compensation. Martin Resource Management generally does not pay for perquisites for any of the Named
Executive Officers, other than general recreational activities at certain Martin Resource Management’s properties located in
Texas, including aircraft. No perquisites are paid for services rendered to us. Martin Resource Management provides an
executive life insurance policy and long term disability policy for the Named Executive Officers with the annual premiums
being paid by Martin Resource Management. Martin Resource Management does not provide any greater allocation toward
employee health insurance premiums than is provided for all other employees covered on the health benefits plan.
Compensation Methodology
The compensation policies and philosophy of Martin Resource Management govern the types and amount of
compensation granted to each of the Named Executive Officers. The board of directors and Conflicts Committee have
responsibility for evaluating and determining the reasonableness of the total amount we are charged under the Omnibus
Agreement for managerial, administrative and operational support, including compensation of the Named Executive Officers,
provided by Martin Resource Management.
Our allocation for the costs incurred by Martin Resource Management in providing compensation and benefits to its
employees who serve as the Named Executive Officers is governed by the Omnibus Agreement. In general, this allocation is
based upon estimates of the relative amounts of time that these employees devote to the business and affairs of our general
partner and to the business and affairs of Martin Resource Management. We bear substantially less than a majority of Martin
Resource Management’s costs of providing compensation and benefits to the Named Executive Officers.
When setting compensation for the Named Executive Officers, the elements of compensation above are considered
holistically to provide an appropriate combination of compensation. Annual base salaries for the Named Executive Officers are
determined by Mr. Ruben Martin, Chief Executive Officer, Mr. Robert Bondurant, Chief Financial Officer, Mr. Randall
Tauscher, Chief Operating Officer, and Mrs. Melanie Mathews, Vice President-Human Resources (collectively, the
"Management Compensation Committee of Martin Resource Management") based on a periodic performance review of each
Named Executive Officer. Except in the case of an exceptional amount of time devoted to us, discretionary annual cash awards
are based on the performance of Martin Resource Management. Annual discretionary cash awards, if any, are calculated first
by allocating a portion of Martin Resource Management’s earnings as determined by the Management Compensation
Committee of Martin Resource Management for distribution to key employees of Martin Resource Management. Upon such
allocation, the Management Compensation Committee of Martin Resource Management, with input from appropriate business
leaders determines the allocation and distribution of the bonus pool among such employees, including the Named Executive
Officers. All decisions of the Management Compensation Committee of Martin Resource Management concerning the
compensation of the Named Executive Officers are reviewed and approved by the Compensation Committee of the Board of
Directors of Martin Resource Management, which is made up of Mr. Cullen M. Godfrey, an independent director of Martin
Resource Management and Mr. Ruben Martin. With respect to employee benefit plan awards pursuant to plans maintained by
the Partnership, the Management Compensation Committee of Martin Resource Management makes a recommendation as to
whether such awards should be awarded to any employees. Any such employee plan awards are then considered and must be
approved by the Compensation Committee and then are distributed to the employees, including Named Executive Officers,
accordingly. Further, Martin Resource Management, with the approval of the Compensation Committee of the Board of
Directors of Martin Resource Management or the Compensation Committee regularly reviews market data and relevant
compensation surveys when setting base compensation and, when appropriate, engages compensation consultants. Because he
serves on both the Management Compensation Committee of Martin Resource Management and on the Compensation
Committee of the Board of Directors of Martin Resource Management, Mr. Martin, as Chief Executive Officer, has significant
authority in setting base salaries, discretionary annual cash award allocations and amounts and employee benefit award
distributions.
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Any awards granted under our long-term incentive plan, which to date have consisted of the grant of restricted
common units and options to the independent directors and employees of our general partner, are approved by the
Compensation Committee.
Determination of 2015 Compensation Amounts
During 2015, elements of all compensation paid to the Named Executive Officers by Martin Resource Management
consisted of the following: (1) annual base salary; (2) discretionary annual cash awards; (3) awards pursuant to Martin
Resource Management employee benefit plans; and (4) other compensation, including limited perquisites. With respect to the
Named Executive Officers, they were paid an allocated portion of their base salaries.
Annual Base Salary. The portions of the annual base salaries paid by Martin Resource Management to the Named
Executive Officers, which are allocable to us under our Omnibus Agreement with Martin Resource Management, are reflected
in the summary compensation table below. Based upon the agreement of our general partner with Martin Resource
Management, we have reimbursed Martin Resource Management for approximately 48.3% of the aggregate annual base
salaries paid to the Named Executive Officers by Martin Resource Management during 2015. The foregoing agreement has
been developed based on an assessment of the estimated percentage of the time spent by the Named Executive Officers
managing our affairs, relative to the affairs of Martin Resource Management ranging from approximately 40% to 50%. Our
Named Executive Officers are Mr. Ruben Martin, the President and Chief Executive Officer of our general partner, Mr. Robert
Bondurant, an Executive Vice President and Chief Financial Officer of our general partner, Mr. Randall Tauscher, an Executive
Vice President and Chief Operating Officer of our general partner, Mr. Chris Booth, the Executive Vice President, General
Counsel and Secretary of our general partner, and Mr. Stephen W. Martin, a Vice President and Director of Corporate
Development. Aggregate annual base salaries of the Named Executive Officers were not increased during 2015.
Discretionary Annual Cash Awards. Discretionary annual cash awards paid to the Named Executive Officers which
are allocable to us are reflected in the summary compensation table below.
Martin Midstream Partners L.P. Long-Term Incentive Plan
Our general partner has adopted the Martin Midstream Partners L.P. Long-Term Incentive Plan ("LTIP") for
employees and directors of our general partner and its affiliates who perform services for us. The LTIP was amended in
January 2006 to clarify the Partnership’s ability to grant restricted common units under the LTIP and to remove provisions
relating to grants of distribution equivalent rights and phantom units.
The LTIP consists of two components, restricted units and unit options. The LTIP currently permits the grant of
awards covering an aggregate of 725,000 common units, 241,667 of which may be awarded in the form of restricted units and
483,333 of which may be awarded in the form of unit options. The plan is administered by the Compensation Committee of
our general partner’s board of directors.
Our general partner’s board of directors or the Compensation Committee, in their discretion, may terminate or amend
the LTIP at any time with respect to any units for which a grant has not yet been made. Our general partner’s board of directors
or the Compensation Committee also have the right to alter or amend the LTIP or any part of the plan from time to time,
including increasing the number of units that may be reserved for issuance under the plan subject to any applicable unitholder
approval. However, no change in any outstanding grant may be made that would materially impair the rights of the participant
without the consent of the participant.
Restricted Units. A restricted unit is a unit that is granted to grantees with certain vesting restrictions. Once these
restrictions lapse, the grantee is entitled to full ownership of the unit without restrictions. A phantom unit that entitles the
grantee to receive a common unit upon the vesting of the phantom unit, or in the discretion of the Compensation Committee,
cash equivalent to the value of a common unit. The Compensation Committee may determine to make grants under the plan to
employees and directors containing such terms as the Compensation Committee shall determine under the plan. The
Compensation Committee will determine the period over which restricted units or phantom units granted to employees and
directors will vest. The committee may base its determination upon the achievement of specified financial objectives. In
addition, the restricted units or phantom units will vest upon a change of control of us, our general partner or Martin Resource
Management or if our general partner ceases to be an affiliate of Martin Resource Management.
If a grantee’s employment or membership on the board of directors terminates for any reason, the grantee’s restricted
units or phantom units will be automatically forfeited unless, and to the extent, the Compensation Committee provides
otherwise. Common units to be delivered upon the vesting of restricted units or phantom units may be common units acquired
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by our general partner in the open market, common units already owned by our general partner, common units acquired by our
general partner directly from us or any affiliate of our general partner or any combination of the foregoing. Our general partner
will be entitled to reimbursement by us for the cost incurred in acquiring common units. If we issue new common units upon
vesting of the restricted units or phantom units, the total number of common units outstanding will increase.
We intend the issuance of the common units upon vesting of the restricted units or phantom units under the plan to
serve as a means of incentive compensation for performance and not primarily as an opportunity to participate in the equity
appreciation of the common units. Therefore, plan participants will not pay any consideration for the common units they
receive, and we will receive no remuneration for the units.
On February 24, 2016, we issued 4,600 restricted common units to each of our three independent directors under our
LTIP. These restricted common units vest in equal installments of 600 units on February 24, 2017, 2018, 2019, and 2020.
On February 24, 2015, we issued 2,400 restricted common units to each of our three independent directors under our
LTIP. These restricted common units vest in equal installments of 600 units on February 24, 2016, 2017, 2018, and 2019.
On October 29, 2014, we issued 2,000 restricted common units to a newly appointed independent director under our
LTIP. These restricted common units vest in equal installments of 500 units on October 29, 2015, 2016, 2017, and 2018.
On February 25, 2014, we issued 1,600 restricted common units to each of our four independent directors under our
LTIP. These restricted common units vest in equal installments of 400 units on February 25, 2015, 2016, 2017, and 2018.
On April 29, 2013, we issued 1,500 restricted common units to each of our four independent directors under our
LTIP. These restricted common units vest in equal installments of 375 units on January 24, 2014, 2015, 2016, and 2017.
On January 1, 2013, we issued 16,250 restricted common units to our Named Executive Officers which vest on
January 1, 2016. The grant date fair value of these restricted units is reflected in the summary compensation table below.
Unit Options. The LTIP currently permits the grant of options covering common units. As of December 31, 2015 , we
have not granted any common unit options to directors or employees of our general partner, or its affiliates. In the future, the
Compensation Committee may determine to make grants under the plan to employees and directors containing such terms as
the committee shall determine. Unit options will have an exercise price that, in the discretion of the committee, may not be less
than the fair market value of the units on the date of grant. In general, unit options granted will become exercisable over a
period determined by the Compensation Committee. In addition, the unit options will become exercisable upon a change in
control of us, our general partner, Martin Resource Management or if our general partner ceases to be an affiliate of Martin
Resource Management or upon the achievement of specified financial objectives.
Upon exercise of a unit option, our general partner will acquire common units in the open market or directly from us
or any affiliate of our general partner or use common units already owned by our general partner, or any combination of the
foregoing. Our general partner will be entitled to reimbursement by us for the difference between the cost incurred by our
general partner in acquiring these common units and the proceeds received by our general partner from an optionee at the time
of exercise. Thus, the cost of the unit options will be borne by us. If we issue new common units upon exercise of the unit
options, the total number of common units outstanding will increase, and our general partner will pay us the proceeds it
received from the optionee.
Martin Resource Management Employee Benefit Plans
Martin Resource Management has employee benefit plans for its employees who perform services for us. The
following summary of these plans is not complete but outlines the material provisions of these plans.
Martin Resource Management Purchase Plan for Units of Martin Midstream Partners L.P. Martin Resource
Management maintains a purchase plan for our units to provide employees of Martin Resource Management and its affiliates
who perform services for us the opportunity to acquire an equity interest in us through the purchase of our common units. Each
individual employed by Martin Resource Management or an affiliate of Martin Resource Management that provides services to
us is eligible to participate in the purchase plan. Enrollment in the purchase plan by an eligible employee will constitute a grant
by Martin Resource Management to the employee of the right to purchase common units under the purchase plan. The right to
purchase common units granted by the Company under the purchase plan is for the term of a purchase period.
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During each purchase period, each participating employee may elect to make contributions to his bookkeeping account
each pay period in an amount not less than one percent of his compensation and not more than fifteen percent of his
compensation. The rate of contribution shall be designated by the employee at the time of enrollment. On each purchase date
(the last day of such purchase period), units will be purchased for each participating employee at the fair market value of such
units. The fair market value of the Units to be purchased during such purchase period shall mean the closing sales price of a
unit on the purchase date.
Martin Resource Management Employee Stock Ownership Plans.
MRMC Employee Stock Ownership Plan. Martin Resource Management maintains an employee stock ownership
plan that covers employees who satisfy certain minimum age and service requirements ("ESOP"). Under the terms of the
ESOP, Martin Resource Management has the discretion to make contributions in an amount determined by its board of
directors. Those contributions are allocated under the terms of the ESOP and invested primarily in the common stock of Martin
Resource Management. Participants in the ESOP become 100% vested upon completing six years of vesting service or upon
their attainment of Normal Retirement Age (as defined in the plan document), permanent disability or death during
employment. Any forfeitures of non-vested accounts may be used to pay administrative expenses and restore previous
forfeitures of employees rehired before incurring five consecutive breaks-in-service. Any remaining forfeitures will be
allocated to the accounts of employed participants. Participants are not permitted to make contributions including rollover
contributions to the ESOP.
Martin Employee Stock Ownership Plan. Martin Resource Management maintains an employee stock ownership plan
that covers employees who satisfied certain minimum age and service requirements but no Employee shall become eligible to
participate in the Plan on or after January 1, 2013. This plan is referred to as the "Martin Employee Stock Ownership Plan".
Under the terms of the plan, Martin Resource Management has the discretion to make contributions in an amount determined
by its board of directors. Those contributions are allocated under the terms of the Martin Employee Stock Ownership Plan and
invested primarily in the common stock of Martin Resource Management. No contributions will be made to the Plan for any
Plan Year commencing on or after January 1, 2013. The account balances of any participant who was employed by Martin
Resource Management on December 31, 2012 shall be fully vested and non-forfeitable. This plan converted to an employee
stock ownership plan on January 1, 2013.
Martin Resource Management 401(k) Profit Sharing Plan. Martin Resource Management maintains a profit sharing
plan that covers employees who satisfy certain minimum age and service requirements. This profit sharing plan is referred to
as the "401(k) Plan." Eligible employees may elect to participate in the 401(k) Plan by electing pre-tax contributions up to 30%
of their regular compensation and/or a portion of their discretionary bonuses. Matching contributions are made to the 401(k)
Plan equal to 100% of the first 3% of eligible compensation, and 50% of the next 2% of eligible compensation. Martin
Resource Management may make annual discretionary profit sharing contributions in an amount at the plan year end as
determined by the board of directors of Martin Resource Management. Participants in the 401(k) Plan become 100% vested in
matching contributions immediately and become vested in the discretionary contributions made for them upon completing five
years of vesting service or upon their attainment of age 65, permanent disability or death during employment.
Martin Resource Management Non-Qualified Option Plan. In September 1999, Martin Resource Management
adopted a stock option plan designed to retain and attract qualified management personnel, directors and consultants. Under
the plan, Martin Resource Management is authorized to issue to qualifying parties from time to time options to purchase up to
2,000 shares of its common stock with terms not to exceed ten years from the date of grant and at exercise prices generally not
less than fair market value on the date of grant. In November 2007, Martin Resource Management adopted an additional stock
option plan designed to retain and attract qualified management personnel, directors and consultants. In December 2013, all
outstanding options were exercised or redeemed in lieu of redemption. There are no outstanding options under this plan as of
December 31, 2015.
Other Compensation
Martin Resource Management generally does not pay for perquisites for any of our named executive officers other
than general recreational activities at certain Martin Resource Management’s properties located in Texas and use of Martin
Resource Management vehicles, including aircraft.
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SUMMARY COMPENSATION TABLE
The following table sets forth the compensation expense that was allocated to us for the services of the named
executive officers for the years ended December 31, 2015, 2014 and 2013.
Name and Principal Position
Year
Salary
Bonus
Stock
Awards (1)
Total
Compensation
Ruben S. Martin, President and Chief Executive
Officer
Robert D. Bondurant, Executive Vice President and
Chief Financial Officer
Randall L. Tauscher, Executive Vice President and
Chief Operating Officer
Chris H. Booth, Executive Vice President, General
Counsel and Secretary
Stephen W. Martin, Vice President of Corporate
Development
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
2015
2014
2013
$ 412,500
$ 412,500
$ 375,000
$ 230,000
$ 230,000
$ 200,000
$ 230,000
$ 308,200
$ 268,000
$ 146,880
$ 165,240
$ 102,000
$ 162,500
$ 145,000
$ 103,120
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
356,250
310,600
85,500
$
— $
$
$
— $
$
$
— $
$
$
— $
$
$
— $
$
62,120
85,500
62,120
71,250
62,120
71,250
62,120
768,750
412,500
685,600
315,500
230,000
262,120
315,500
308,200
330,120
218,130
165,240
164,120
233,750
145,000
165,240
(1) The amounts shown represent the grant date fair value of awards computed in accordance with FASB ASC 718, however, such awards are
subject to vesting requirements which have not been met as it relates to the 2015 stock award. See Note 17 included in Item 8 herein for the
assumptions made in our valuation of such awards.
Director Compensation
As a partnership, we are managed by our general partner. The board of directors of our general partner performs for
us the functions of a board of directors of a business corporation. Directors of our general partner are entitled to receive total
quarterly retainer fees of $16,250 each which are paid by the general partner. Martin Resource Management employees who
are a member of the board of directors of our general partner do not receive any additional compensation for serving in such
capacity. Officers of our general partner who also serve as directors will not receive additional compensation. All directors of
our general partner are entitled to reimbursement for their reasonable out-of-pocket expenses in connection with their travel to
and from, and attendance at, meetings of the board of directors or committees thereof. Each director will be fully indemnified
by us for actions associated with being a director to the extent permitted under Delaware law.
The following table sets forth the compensation of our board members for the period from January 1, 2015 through
December 31, 2015.
Name
Ruben S. Martin
Robert D. Bondurant
C. Scott Massey (1)
Byron R. Kelley (1)
James M. Collingsworth (1)
Alexander W.F Black
Sean P. Dolan
Fees
Earned
Paid in
Cash
$
$
$
$
$
$
$
65,000
65,000
65,000
— $
— $
$
$
$
— $
— $
Stock
Awards
70,440
70,440
70,440
— $
— $
$
$
$
— $
— $
Total
—
—
135,440
135,440
135,440
—
—
(1) On February 24, 2015, the Partnership issued 2,400 restricted common units to each of three independent directors, C.
Scott Massey, Byron R. Kelley, and James M. Collingsworth under our LTIP. These restricted common units vest in equal
116
installments of 600 units on February 24, 2016, 2017, 2018 and 2019, respectively. In calculating the fair value of the award,
we multiplied the closing price of our common units on the NASDAQ on the date of grant by the number of restricted common
units granted to each director.
COMPENSATION REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the general partner of Martin Midstream Partners L.P. has reviewed and discussed
the Compensation Discussion and Analysis section of this report with management of the general partner of Martin Midstream
Partners L.P. and, based on that review and discussions, has recommended that the Compensation Discussion and Analysis be
included in this report.
Members of the Compensation Committee:
/s/ James M. Collingsworth
James M. Collingsworth, Committee Chair
/s/ Byron R. Kelley
Byron R. Kelley
/s/ C. Scott Massey
C. Scott Massey
Compensation Committee Interlocks and Insider Participation
Other than these independent directors, no other officer or employee of our general partner or its subsidiaries is a
member of the Compensation Committee. Employees of Martin Resource Management, through our general partner, are the
individuals who work on our matters.
117
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth the beneficial ownership of our units as of February 29, 2016 held by beneficial owners
of 5% or more of the units outstanding, by directors of our general partner, by each executive officer and by all directors and
executive officers of our general partner as a group.
Name of Beneficial Owner(1)
MRMC ESOP Trust(5)
Martin Resource Management Corporation(6)
Martin Resource, LLC(6)
Martin Product Sales LLC(6)
Cross Oil Refining & Marketing Inc.(6)
OppenheimerFunds, Inc.(2)
Oppenheimer Steelpath MLP Income Fund(3)
Ruben S. Martin(7)
Robert D. Bondurant
Randall L. Tauscher
Chris H. Booth
Stephen W. Martin(9)
Sean Dolan
Zachary S. Stanton
C. Scott Massey(8)(10)
Byron R. Kelley(10)
James M. Collingsworth(10)
All directors and executive officers as a group (10 persons)(11)
Common Units
Beneficially
Owned
6,264,532
6,264,532
4,203,823
1,171,265
889,444
4,562,875
3,523,563
6,361,171
26,722
16,644
6,460
12,850
—
—
27,000
12,600
10,000
6,473,447
Percentage of
Common Units
Beneficially
Owned(4)
17.7%
17.7%
11.9%
3.3%
2.5%
12.9%
9.9%
17.9%
—%
—%
—%
—%
—%
—%
—%
—%
—%
18.3%
(1) The address for Martin Resource Management Corporation and all of the individuals listed in this table, unless
otherwise indicated, is c/o Martin Midstream Partners L.P., 4200 Stone Road, Kilgore, Texas 75662.
(2) The address for OppenheimerFunds, Inc. is 2 World Financial Center, 225 Liberty Street, New York, NY 10281.
(3) The address for Oppenheimer SteelPath MLP Income Fund is 6803 South Tucson Way, Centennial, CO 80112.
(4) The percent of class shown is less than one percent unless otherwise noted.
(5) By virtue of its ownership of 83.85% of the outstanding common stock of Martin Resource Management
Corporation ("Martin Resource Management"), the MRMC ESOP Trust (the "MRMC ESOP") is the controlling
shareholder of Martin Resource Management, and may be deemed to beneficially own the 6,264,532 MMLP
Common Units held by Martin Resource LLC, Cross Oil Refining & Marketing Inc., and Martin Product Sales
LLC. Wilmington Trust Retirement and Institutional Services Company serves as trustee of the MRMC ESOP but
all of its voting and investment decisions are directed by the board of directors of Martin Resource Management.
The MRMC ESOP expressly disclaims beneficial ownership of the MMLP Common Units as voting and investment
decisions are directed by the board of directors of Martin Resource Management.
(6) Martin Resource Management is the owner of Martin Resource, LLC, Martin Product Sales LLC, and Cross Oil
Refining & Marketing Inc., and as such may be deemed to beneficially own the common units held by Martin
Resource LLC, Cross Oil Refining & Marketing Inc, and Martin Product Sales LLC. The 4,203,823 common units
beneficially owned by Martin Resource Management through its ownership of Martin Resource, LLC have been
pledged as security to a third party to secure payment for a loan made by such third party. The 1,171,265 common
units beneficially owned by Martin Resource Management through its ownership of Martin Product Sales LLC have
been pledged as security to a third party to secure payment for a loan made by such third party. The 889,444
common units beneficially owned by Martin Resource Management through its ownership of Cross Oil Refining &
Marketing Inc. have been pledged as security to a third party to secure payment for a loan made by such third party.
118
(7)
Includes 96,639 common units owned directly by Mr. Martin, 43,000 of which are pledged to third parties to secure
payment for loans. By virtue of serving as the Chairman of the Board and President of Martin Resource
Management, Ruben S. Martin may exercise control over the voting and disposition of the securities owned by
Martin Resource Management, and therefore, may be deemed the beneficial owner of the common units owned by
Martin Resource Management, which include 6,264,532 common units beneficially owned through its ownership of
Martin Resource LLC, Cross Oil Refining & Marketing Inc. and Martin Product Sales LLC.
(8) Mr. Massey may be deemed to be the beneficial owner of 1,250 common units held by his wife.
(9) Mr. Martin may be deemed to be the beneficial owner of 850 common units held by his wife.
(10) In February 2016, we issued 4,600 restricted common units to independent directors under our long-term incentive
plan. These restricted common units vest in equal installments of 1,150 units on January 24, 2017, 2018, 2019 and
2020.
(11) The total for all directors and executive officers as a group includes the common units directly owned by such
directors and executive officers as well as the common units beneficially owned by Martin Resource Management as
Ruben S. Martin may be deemed to be the beneficial owner thereof.
Martin Resource Management owns a 51% voting interest in the holding company that is the sole member of our
general partner and, together with our general partner, owns approximately 17.7% of our outstanding common limited partner
units as of February 3, 2016. The table below sets forth information as of February 3, 2016 concerning (i) each person owning
beneficially in excess of 5% of the voting common stock of Martin Resource Management, and (ii) the beneficial common
stock ownership of (a) each director of Martin Resource Management, (b) each executive officer of Martin Resource
Management, and (c) all such executive officers and directors of Martin Resource Management as a group. Except as
indicated, each individual has sole voting and investment power over all shares listed opposite his or her name.
Name of Beneficial Owner(1)
MRMC ESOP Trust (2)
Martin ESOP Trust (3)
Robert D. Bondurant (3)
Randall Tauscher (3)
Beneficial Ownership of
Voting Common Stock
Number of
Shares
182,621.67
35,194.88
35,194.88
35,194.88
Percent of
Outstanding
Voting Stock
83.84%
16.16%
16.16%
16.16%
(1) The business address of each shareholder, director and executive officer of Martin Resource Management
Corporation is c/o Martin Resource Management Corporation, 4200 Stone Road, Kilgore, Texas 75662.
(2) The MRMC ESOP owns 182,621.67 shares of common stock of Martin Resource Management. Wilmington Trust
Retirement and Institutional Services Company serves as trustee of the MRMC ESOP but all of its voting and
investment decisions related to the unallocated shares of common stock are directed by the board of directors of
Martin Resource Management. Of the common stock held by the MRMC ESOP, 94,417 shares of common stock
are allocated to participant accounts, and 88,205 shares of common stock are unallocated.
(3) Robert D. Bondurant and Randall Tauscher (the "Co-Trustees") are co-trustees of the Martin Employee Stock
Ownership Trust which converted from a profit sharing plan known as the Martin Employees' Stock Profit Sharing
Plan on January 1, 2014. The Co-Trustees exercise shared control over the voting and disposition of the securities
owned by this trust. As a result, the Co-Trustees may be deemed to be the beneficial owner of the securities held by
such trust; thus, the number of shares of common stock reported herein as beneficially owned by the Co-Trustees
includes the 35,195 shares owned by such trust. The Co-Trustees disclaim beneficial ownership of these 35,195
shares.
119
The following table sets forth information regarding securities authorized for issuance under our equity compensation
plans as of December 31, 2015:
Equity Compensation Plan Information
Number of
securities to be
issued upon
exercise
of outstanding
options,
Warrants
and rights
(a)
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
(b)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
(c)
N/A
— $
— $
N/A
—
—
N/A
536,150
536,150
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders (1)
Total
(1) Our general partner has adopted and maintains the Martin Midstream Partners L.P. Long-Term Incentive Plan. For
a description of the material features of this plan, please see "Item 11. Executive Compensation – Employee Benefit Plans –
Martin Midstream Partners L.P. Long-Term Incentive Plan".
In February 2015, we issued 2,400 restricted common units to independent directors under our long-term incentive
plan. These restricted common units vest in equal installments of 600 units on January 24, 2016, 2017, 2018 and 2019.
In January 2015, we issued 84,750 restricted common units to certain Martin Resource Management employees under
its long-term incentive plan. These units vest in January 2018.
120
Item 13. Certain Relationships and Related Transactions, and Director Independence
Martin Resource Management owns 6,264,532 of our common limited partnership units representing approximately
17.7% of our outstanding common limited partnership units as of February 29, 2016. Martin Resource Management controls
Martin Midstream GP LLC, our general partner, by virtue of its 51% voting interest in MMGP Holdings, LLC, the sole member
of our general partner. Our general partner owns a 2.0% general partner interest in us and all of our incentive distribution
rights. Our general partner’s ability to manage and operate us and Martin Resource Management’s ownership of approximately
17.7% of our outstanding common limited partnership units effectively gives Martin Resource Management the ability to veto
some of our actions and to control our management.
Distributions and Payments to the General Partner and its Affiliates
The following table summarizes the distributions and payments to be made by us to our general partner and its
affiliates in connection with our formation, ongoing operation and liquidation. These distributions and payments were
determined by and among affiliated entities and, consequently, are not the result of arm’s-length negotiations.
Formation Stage
The consideration received by our
general partner and Martin
Resource Management for the
transfer of assets to us
Operational Stage
Distributions of available cash to
our general partner
Payments to our general partner
and its affiliates
Withdrawal or removal of our
general partner
4,253,362 subordinated units (All of the original 4,253,362 subordinated units issued
to Martin Resource Management have been converted into common units on a one-for-
one basis since the formation of the Partnership. 850,672 subordinated units were
converted on each of November 14, 2005, 2006, 2007 and 2008, respectively, and
850,674 subordinated units were converted on November 14, 2009)
2.0% general partner interest; and
the incentive distribution rights.
We will generally make cash distributions 98% to our unitholders, including Martin
Resource Management as holder of all of the subordinated units, and 2% to our general
partner. In addition, if distributions exceed the minimum quarterly distribution and other
higher target levels, our general partner will be entitled to increasing percentages of the
distributions, up to 50% of the distributions above the highest target level as a result of
its incentive distribution rights.
Assuming we have sufficient available cash to pay the full minimum quarterly
distribution on all of our outstanding units for four quarters, our general partner would
receive an annual aggregate distribution of approximately $1.4 million on its 2.0%
general partner interest.
Martin Resource Management is entitled to reimbursement for all direct expenses it or
our general partner incurs on our behalf. The direct expenses include the salaries and
benefit costs employees of Martin Resource Management who provide services to
us. Our general partner has sole discretion in determining the amount of these
expenses. In addition to the direct expenses, Martin Resource Management is entitled to
reimbursement for a portion of indirect general and administrative and corporate
overhead expenses. Under the omnibus agreement, we are required to reimburse Martin
Resource Management for indirect general and administrative and corporate overhead
expenses. The conflicts committee of our general partner ("Conflicts Committee") will
review and approve future adjustments in the reimbursement amount for indirect
expenses, if any, annually. Please read "Agreements — Omnibus Agreement" below.
If our general partner withdraws or is removed, its general partner interest and its
incentive distribution rights will either be sold to the new general partner for cash or
converted into common units, in each case for an amount equal to the fair market value
of those interests.
Liquidation Stage
Liquidation Upon our liquidation, the partners, including our general partner, will be entitled to
receive liquidating distributions according to their particular capital account balances.
Agreements
Omnibus Agreement
We and our general partner are parties to an omnibus agreement with Martin Resource Management (the "Omnibus
Agreement") that governs, among other things, potential competition and indemnification obligations among the parties to the
121
agreement, related party transactions, the provision of general administration and support services by Martin Resource
Management and our use of certain of Martin Resource Management’s trade names and trademarks. The Omnibus Agreement
was amended on November 25, 2009, to include processing crude oil into finished products including naphthenic lubricants,
distillates, asphalt and other intermediate cuts. The Omnibus Agreement was amended further on October 1, 2012, to permit
the Partnership to provide certain lubricant packaging products and services to Martin Resource Management.
Non-Competition Provisions. Martin Resource Management agrees for so long as Martin Resource Management
controls the general partner not to engage in the business of
•
•
•
•
providing terminalling and storage services for petroleum products and by-products including the
refining, blending and packaging of finished lubricants;
providing marine transportation of petroleum products and by-products;
distributing NGLs; and
manufacturing and selling sulfur-based fertilizer products and other sulfur-related products.
This restriction does not apply to:
•
•
•
•
•
the ownership and/or operation on our behalf of any asset or group of assets owned by us or our
affiliates;
any business operated by Martin Resource Management, including the following:
providing land transportation of various liquids,
distributing fuel oil, asphalt, sulfuric acid, marine fuel and other liquids,
providing marine bunkering and other shore-based marine services in Alabama, Florida,
Louisiana, Mississippi and Texas,
operating a crude oil gathering business in Stephens, Arkansas,
providing crude oil gathering, refining, and marketing services of base oils, asphalt, and
distillate products in Smackover, Arkansas,
providing crude oil marketing and transportation form the well head to the end market;
operating an environmental consulting company,
operating an engineering services company,
supplying employees and services for the operation of the Partnership's business,
operating a natural gas optimization 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 acquires or constructs that has a fair market value
of less than $5.0 million;
any business that Martin Resource Management acquires or constructs that has a fair market value
of $5.0 million or more if we have been offered the opportunity to purchase the business for fair
market value, and we decline to do so with the concurrence of our Conflicts Committee; and
any business that Martin Resource Management acquires or constructs where a portion of such
business includes a restricted business and the fair market value of the restricted business is
122
$5.0 million 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, we
are provided the opportunity to purchase the restricted business.
Services. Under the Omnibus Agreement, Martin Resource Management provides us with corporate staff and support
services that are substantially identical in nature and quality to the services previously provided by Martin Resource
Management in connection with its management and operation of our assets during the one-year period prior to the date of the
agreement. The Omnibus Agreement requires us to reimburse Martin Resource Management for all direct expenses it incurs or
payments it makes on our behalf or in connection with the operation of our business. There is no monetary limitation on the
amount we are required to reimburse Martin Resource Management for direct expenses. In addition to the direct expenses,
Martin Resource Management is entitled to reimbursement for a portion of indirect general and administrative and corporate
overhead expenses.
Under the Omnibus Agreement, we are required to reimburse Martin Resource Management for indirect general and
administrative and corporate overhead expenses. For the years ended December 31, 2015, 2014 and 2013, the Conflicts
Committee approved and we reimbursed Martin Resource Management of $13.7 million, $12.5 million and $10.6 million,
respectively, reflecting our allocable share of such expenses. The Conflicts Committee will review and approve future
adjustments in the reimbursement amount for indirect expenses, if any, annually.
These indirect expenses cover all of the centralized corporate functions Martin Resource Management provides for us,
such as accounting, treasury, clerical billing, information technology, administration of insurance, general office expenses and
employee benefit plans and other general corporate overhead functions we share with Martin Resource Management retained
businesses. The provisions of the Omnibus Agreement regarding Martin Resource Management’s services will terminate if
Martin Resource Management ceases to control our general partner.
Related Party Transactions. The Omnibus Agreement prohibits us from entering into any material agreement with
Martin Resource Management without the prior approval of the Conflicts Committee. For purposes of the Omnibus
Agreement, the term material agreements means any agreement between us and Martin Resource Management that requires
aggregate annual payments in excess of then-applicable limitation on the reimbursable amount of indirect general and
administrative expenses. Please read " Services" above.
License Provisions. Under the Omnibus Agreement, Martin Resource Management has granted us 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 us to provide
refining services to Martin Resource Management. The Omnibus Agreement was amended further on October 1, 2012, to
permit us to provide certain lubricant packaging products and services to Martin Resource Management. Such amendments
were approved by the Conflicts Committee. The Omnibus Agreement, other than the indemnification provisions and the
provisions limiting the amount for which we will reimburse Martin Resource Management for general and administrative
services performed on our behalf, will terminate if we are no longer an affiliate of Martin Resource Management.
Motor Carrier Agreement
We are a party to a motor carrier agreement effective January 1, 2006, as amended, with Martin Transport, Inc., a
wholly owned subsidiary of Martin Resource Management through which Martin Resource Management operates its land
transportation operations. Under the agreement, Martin Transport, Inc. agrees to ship our NGL shipments as well as other
liquid products.
Term and Pricing. The agreement has an initial term that expired in December 2007 but automatically renews for
consecutive one-year periods unless either party terminates the agreement by giving written notice to the other party at least
30 days prior to the expiration of the then-applicable term. We have the right to terminate this agreement at anytime by
providing 90 days prior notice. Under this agreement, Martin Transport, Inc. transports our NGL shipments as well as other
liquid products. These rates are subject to any adjustment to which are mutually agreed or in accordance with a price
index. Additionally, during the term of the agreement, shipping charges are also subject to fuel surcharges determined on a
weekly basis in accordance with the United States Department of Energy’s national diesel price list.
123
Indemnification. Martin Transport has indemnified us against all claims arising out of the negligence or willful
misconduct of Martin Transport and its officers, employees, agents, representatives and subcontractors. We indemnified Martin
Transport against all claims arising out of the negligence or willful misconduct of us and our officers, employees, agents,
representatives and subcontractors. In the event a claim is the result of the joint negligence or misconduct of Martin Transport
and us, our indemnification obligations will be shared in proportion to each party’s allocable share of such joint negligence or
misconduct.
Terminal Services Agreements
Diesel Fuel Terminal Services Agreement. Effective January 1, 2016, we entered into a new terminalling services
agreement under which we provide terminal services to Martin Resource Management for marine fuel distribution. This
agreement replaced the prior agreement that was in place concerning the same services which was dated January 1, 2015. The
minimum throughput requirements were reduced under the new agreement. The per gallon throughput fee we charge under this
agreement was increased and may be adjusted annually based on a price index.
Miscellaneous Terminal Services Agreements. We are currently party to several terminal services agreements and
from time to time we 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. We are a party to a marine transportation agreement effective January 1, 2006, as
amended, under which we provide marine transportation services to Martin Resource Management on a spot-contract basis at
applicable market rates. Effective each January 1, this agreement automatically renews for consecutive one-year periods unless
either party terminates the agreement by giving written notice to the other party at least 60 days prior to the expiration of the
then- applicable term. The fees we charge Martin Resource Management are based on applicable market rates.
Marine Fuel. We are a party to an agreement with Martin Resource Management dated November 1, 2002 under
which Martin Resource Management provides us with marine fuel from its locations in the Gulf of Mexico at a fixed rate over
the Platt’s U.S. Gulf Coast Index for #2 Fuel Oil. Under this agreement, we agreed to purchase all of its marine fuel
requirements that occur in the areas serviced by Martin Resource Management.
Other Agreements
Cross Tolling Agreement. We are a party to an amended and restated tolling agreement with Cross dated October 28,
2014 under which we process 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, Martin Resource
Management agreed to refine a minimum of 6,500 barrels per day of crude oil at the refinery at a fixed price per barrel. Any
additional barrels are refined at a modified price per barrel. In addition, Martin Resource Management agreed to pay a monthly
reservation fee and a periodic fuel surcharge fee based on certain parameters specified in the tolling agreement. All of these
fees (other than the fuel surcharge) are subject to escalation annually based upon the greater of 3% or the increase in the
Consumer Price Index for a specified annual period. In addition, every three years, the parties can negotiate an upward or
downward adjustment in the fees subject to their mutual agreement.
Sulfuric Acid Sales Agency Agreement. We are a party to a second amended and restated sulfuric acid sales agency
agreement dated August 5, 2013 under which Martin Resource Management purchases and markets the sulfuric acid produced
by our sulfuric acid production plant at Plainview, Texas, and which is not consumed by our internal operations. This
agreement, as amended, will remain in place until we terminate it by providing 180 days’ written notice. Under this agreement,
we sell all of our excess sulfuric acid to Martin Resource Management. Martin Resource Management then markets such acid
to third-parties and we share in the profit of Martin Resource Management’s sales of the excess acid to such third parties.
Other Miscellaneous Agreements. From time to time we enter into other miscellaneous agreements with Martin
Resource Management for the provision of other services or the purchase of other goods.
124
Other Related Party Transactions
Related Party Note Receivable
During March 2013, we acquired 100% of the preferred interests in Martin Energy Trading, LLC ("MET"), for $15.0
million. On August 31, 2014, MET converted its preferred equity to subordinated debt. The resulting $15.0 million note
receivable from MET bears an annual interest rate of 15% and matures August 31, 2026. MET may prepay any or all of the
note balance on or after September 1, 2016. Interest income for the years ended December 31, 2015 and 2014 was $2.3 million
and $0.8 million, respectively.
2014 Public Offerings
In conjunction with public offerings, our general partner contributed $7.0 million in order to maintain its 2.0% general
partner interest in us.
Transfers of Assets Between Entities Under Common Control
Natural Gas Liquids ("NGL") Storage Assets. On May 31, 2014, we acquired certain NGL storage assets located in
Arcadia, Louisiana, from Martin Resource Management for $7.4 million. The excess carrying value of the assets over the
purchase price paid by Martin Resource Management at the sales date was $4.9 million and was recorded as an adjustment to
partners' capital.
Marine Transportation Equipment Purchase. On September 30, 2013, we acquired two inland tank barges from
Martin Resource Management for $7.1 million. The excess carrying value of the assets over the purchase price paid by Martin
Resource Management at the sales date was $0.3 million and was recorded as an adjustment to partners' capital.
Miscellaneous
Certain of directors, officers and employees of our general partner and Martin Resource Management maintain margin
accounts with broker-dealers with respect to our common units held by such persons. Margin account transactions for such
directors, officers and employees were conducted by such broker-dealers in the ordinary course of business.
For information regarding amounts of related party transactions that are included in the Partnership's Consolidated
Statements of Operations, please see Footnote 13, "Related Party Transactions", in Part II, Item 8.
Approval and Review of Related Party Transactions
If we contemplate entering into a transaction, other than a routine or in the ordinary course of business transaction, in
which a related person will have a direct or indirect material interest, the proposed transaction is submitted for consideration to
the board of directors of our general partner or to our management, as appropriate. If the board of directors is involved in the
approval process, it determines whether to refer the matter to the Conflicts Committee, as constituted under our limited
partnership agreement. If a matter is referred to the Conflicts Committee, it obtains information regarding the proposed
transaction from management and determines whether to engage independent legal counsel or an independent financial advisor
to advise the members of the committee regarding the transaction. If the Conflicts Committee retains such counsel or financial
advisor, it considers such advice and, in the case of a financial advisor, such advisor’s opinion as to whether the transaction is
fair and reasonable to us and to our unitholders.
125
Item 14. Principal Accounting Fees and Services
KPMG, LLP served as our independent auditors for the fiscal years ended December 31, 2015 and 2014. The following
fees were paid to KPMG, LLP for services rendered during our last two fiscal years:
Audit fees
Audit related fees
Audit and audit related fees
Tax fees
All other fees
Total fees
2015
1,347,500 (1) $ 1,612,141 (1)
2014
—
1,347,500
—
1,612,141
253,700 (2)
—
1,601,200
218,110 (2)
—
$ 1,830,251
$
$
(1)
2015 audit fees include fees for the annual integrated audit and fees related to services in connection with filing
updated financial statements and in connection with transactions. 2014 audit fees include fees for the annual
integrated audit and fees related to services in connection with filing updated financial statements and in connection
with transactions.
(2)
Tax fees are for services related to the review of our partnership K-1's returns, and research and consultations on other
tax related matters.
Under policies and procedures established by the Board of Directors and the Audit Committee, the Audit Committee is
required to pre-approve all audit and non-audit services performed by our independent auditor to ensure that the provisions of
such services do not impair the auditor’s independence. All of the services described above that were provided by KPMG, LLP
in years ended December 31, 2015 and December 31, 2014 were approved in advance by the Audit Committee.
126
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
Financial Statements, Schedules
(1)
The following financial statements of Martin Midstream Partners L.P. are included in Part II, Item 8:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Capital for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Notes to the Consolidated Financial Statements
(2)
Financial Statements of Cardinal Gas Storage Partners for the period January 1, 2014 to August 29, 2014 and
year ended December 31, 2013, an affiliate accounted for by the equity method, which constituted a
significant subsidiary.
127
(b)
Exhibits
Exhibit
Number
INDEX TO EXHIBITS
Exhibit Name
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
3.15
3.16
3.17
3.18
Certificate of Limited Partnership of Martin Midstream Partners L.P. (the "Partnership"), dated June 21, 2002
(filed as Exhibit 3.1 to the Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706), filed July 1,
2002, and incorporated herein by reference).
Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated November 25, 2009
(filed as Exhibit 10.1 to the Partnership's Amendment to Current Report on Form 8-K/A (SEC File No.
000-50056), filed January 19, 2010, and incorporated herein by reference).
Amendment No. 2 to the Second Amended and Restated Agreement of Limited Partnership of the Partnership
dated January 31, 2011 (filed as Exhibit 3.1 to the Partnership's Current Report on Form 8-K (SEC File No.
000-50056), filed February 1, 2011, and incorporated herein by reference).
Amendment No. 3 to the Second Amended and Restated Agreement of Limited Partnership of the Partnership
dated October 2, 2012 (filed as Exhibit 10.5 to the Partnership's Current Report on Form 8-K (SEC File No.
000-50056), filed October 9, 2012, and incorporated herein by reference).
Certificate of Limited Partnership of Martin Operating Partnership L.P. (the "Operating Partnership"), dated June
21, 2002 (filed as Exhibit 3.3 to the Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706), filed
July 1, 2002, and incorporated herein by reference).
Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated November 6, 2002
(filed as Exhibit 3.2 to the Partnership's Current Report on Form 8-K (SEC File No. 000-50056), filed November
19, 2002, and incorporated herein by reference).
Certificate of Formation of Martin Midstream GP LLC (the "General Partner"), dated June 21, 2002 (filed as
Exhibit 3.5 to the Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706), filed July 1, 2002, and
incorporated herein by reference).
Amended and Restated Limited Liability Company Agreement of the General Partner, dated August 30, 2013
(filed as Exhibit 3.1 to the Partnership's Current Report on Form 8-K (Reg. No. 000-50056), filed September 3,
2013, and incorporated herein by reference).
Certificate of Formation of Martin Operating GP LLC (the "Operating General Partner"), dated June 21, 2002
(filed as Exhibit 3.7 to the Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706), filed July 1,
2002, and incorporated herein by reference).
Limited Liability Company Agreement of the Operating General Partner, dated June 21, 2002 (filed as Exhibit 3.8
to the Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706), filed July 1, 2002, and
incorporated herein by reference).
Certificate of Formation of Arcadia Gas Storage, LLC, dated June 26, 2006 (filed as Exhibit 3.11 to the
Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated
herein by reference).
Company Agreement of Arcadia Gas Storage, LLC, dated December 27, 2006 (filed as Exhibit 3.12 to the
Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated
herein by reference).
Amendment to the Company Agreement of Arcadia Gas Storage, LLC, dated September 5, 2014 (filed as Exhibit
3.13 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and
incorporated herein by reference).
Certificate of Formation of Cadeville Gas Storage LLC, dated May 23, 2008 (filed as Exhibit 3.14 to the
Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated
herein by reference).
Limited Liability Company Agreement of Cadeville Gas Storage LLC, dated May 23, 2008 (filed as Exhibit 3.15
to the Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and
incorporated herein by reference).
First Amendment to the Limited Liability Company Agreement of Cadeville Gas Storage LLC, dated April 16,
2012 (filed as Exhibit 3.16 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed
October 29, 2014, and incorporated herein by reference).
Second Amendment to the Limited Liability Company Agreement of Cadeville Gas Storage LLC, dated
September 5, 2014 (filed as Exhibit 3.17 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No.
000-50056), filed October 29, 2014, and incorporated herein by reference).
Certificate of Formation of Monroe Gas Storage Company, LLC, dated June 14, 2006 (filed as Exhibit 3.18 to the
Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated
herein by reference).
128
3.19
3.20
3.21
3.22
3.23
3.24
3.25
3.26
3.27
3.28
3.29
4.1
4.2
4.3
4.4
4.5
10.1
10.2
Amended and Restated Limited Liability Company Agreement of Monroe Gas Storage Company, LLC, dated May
31, 2011 (filed as Exhibit 3.19 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056),
filed October 29, 2014, and incorporated herein by reference).
First Amendment to the Amended and Restated Limited Liability Company Agreement of Monroe Gas Storage
Company, LLC, dated September 5, 2014 (filed as Exhibit 3.20 to the Partnership’s Quarterly Report on Form 10-
Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated herein by reference).
Certificate of Formation of Perryville Gas Storage LLC, dated May 23, 2008.(filed as Exhibit 3.21 to the
Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated
herein by reference).
Limited Liability Company Agreement of Perryville Gas Storage LLC, dated June 16, 2008 (filed as Exhibit 3.22
to the Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and
incorporated herein by reference).
First Amendment to the Limited Liability Company Agreement of Perryville Gas Storage LLC, dated April 14,
2010 (filed as Exhibit 3.23 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed
October 29, 2014, and incorporated herein by reference).
Second Amendment to the Limited Liability Company Agreement of Perryville Gas Storage LLC, dated
September 5, 2014 (filed as Exhibit 3.24 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No.
000-50056), filed October 29, 2014, and incorporated herein by reference).
Certificate of Formation of Cardinal Gas Storage Partners LLC, dated April 2, 2008 (filed as Exhibit 3.25 to the
Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated
herein by reference).
Third Amended and Restated Limited Liability Company Agreement of Cardinal Gas Storage Partners LLC
(F/K/A Redbird Gas Storage LLC) dated October 27, 2014 (filed as Exhibit 3.26 to the Partnership’s Quarterly
Report on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated herein by reference).
Certificate of Formation of Redbird Gas Storage LLC, dated May 24, 2011 (filed as Exhibit 3.27 to the
Partnership's Annual Report on Form 10-K (SEC File No. 000-50056), filed March 2, 2015, and incorporation
herein by reference).
Second Amended and Restated LLC Agreement of Redbird Gas Storage LLC, dated as of October 2, 2012. (filed
as Exhibit 10.6 to the Partnership's Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed November 5,
2012, and incorporated herein by reference).
Certificate of Merger of Cardinal Gas Storage Partners LLC with and into Redbird Gas Storage LLC, dated
October 27, 2014 (filed as Exhibit 3.27 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No.
000-50056), filed October 29, 2014, and incorporated herein by reference).
Specimen Unit Certificate for Common Units (contained in Exhibit 3.2).
Specimen Unit Certificate for Subordinated Units (filed as Exhibit 4.2 to Amendment No. 4 to the Partnership’s
Registration Statement on Form S-1 (SEC File No. 333-91706), filed October 25, 2002, and incorporated herein
by reference).
Indenture (including form of 7.250% Senior Notes due 2021), dated February 11, 2013, by and among the
Partnership, Martin Midstream Finance Corp., the Guarantors named therein and Wells Fargo Bank, National
Association, as trustee (filed as Exhibit 4.1 to the Partnership's Current Report on Form 8-K (SEC File No.
000-50056), filed February 12, 2013, and incorporated herein by reference).
Second Supplemental Indenture, to the Indenture dated February 11, 2013 dated September 30, 2014, by and
among the Partnership, Martin Midstream Finance Corp., the Guarantors named therein and Wells Fargo Bank
National Association, as trustee (filed as Exhibit 4.4 to the Partnership’s Quarterly Report on Form 10-Q (SEC
File No. 000-50056), filed October 29, 2014 and incorporated herein by reference).
Third Supplemental Indenture, to the Indenture dated February 11, 2013 dated October 27, 2014, by and among
the Partnership, Martin Midstream Finance Corp., the Guarantors named therein and Wells Fargo Bank National
Association, as trustee (filed as Exhibit 4.5 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No.
000-50056), filed October 29, 2014 and incorporated herein by reference).
Third Amended and Restated Credit Agreement, dated March 28, 2013, among the Partnership, the Operating
Partnership, Royal Bank of Canada and the other Lenders set forth therein (filed as Exhibit 10.1 to the
Partnership's Current Report on Form 8-K (SEC File No. 000-50056), filed April 3, 2013 and incorporated herein
by reference).
First Amendment to Third Amended and Restated Credit Agreement, dated as of July 12, 2013, among the
Partnership, the Operating Partnership, Royal Bank of Canada and the other Lenders as set forth therein (filed as
Exhibit 10.2 to the Partnership’s Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed May 5, 2014
and incorporated herein by reference).
129
10.3
10.4
10.5
10.6
10.7
10.8
Second Amendment to Third Amended and Restated Credit Agreement, dated as of May 5, 2014, among the
Partnership, the Operating Partnership, Royal Bank of Canada and the other Lenders as set forth therein (filed as
Exhibit 10.2 to the Partnership's Current Report on Form 8-K/A (SEC File No. 000-50056), filed May 6, 2014 and
incorporated herein by reference)
Third Amendment to Third Amended and Restated Credit Agreement, dated June 27, 2014, among the Partnership,
the Operating Partnership, Royal Bank of Canada and the other Lenders as set forth therein (filed as Exhibit 10.1
to the Partnership's Current Report on Form 8-K (SEC File No. 000-50056), filed July 1, 2014, and incorporated
herein by reference).
Fourth Amendment to Third Amended and Restated Credit Agreement, dated June 23, 2015, among the
Partnership, the Operating Partnership, Royal Bank of Canada and the other Lenders as set forth therein (filed as
Exhibit 10.1 to the Partnership's Current Report on Form 8-K (SEC File No. 000-50056), filed June 24, 2015, and
incorporated herein by reference).
Omnibus Agreement, dated November 1, 2002, by and among Martin Resource Management Corporation, the
General Partner, the Partnership and the Operating Partnership (filed as Exhibit 10.3 to the Partnership’s Current
Report on Form 8-K (SEC File No. 000-50056), filed November 19, 2002, and incorporated herein by reference).
Amendment No. 1 to Omnibus Agreement, dated as of November 25, 2009, by and among Martin Resource
Management Corporation, the General Partner, the Partnership and the Operating Partnership (filed as Exhibit 10.3
to the Partnership’s Current Report on Form 8-K (SEC File No. 000-50056), filed December 1, 2009, and
incorporated herein by reference).
Amendment No. 2 to Omnibus Agreement, dated October 1, 2012, by Martin Resource Management Corporation,
the General Partner, the Partnership and the Operating Partnership (filed as Exhibit 10.4 to the Partnership's
Current Report on Form 8-K (SEC File No. 000-50056), filed October 9, 2012, and incorporated herein by
reference).
10.9 Motor Carrier Agreement, dated January 1, 2006, by and between the Operating Partnership and Martin Transport,
Inc. (filed as Exhibit 10.9 to the Partnership’s Annual Report on Form 10-K (SEC File No. 000-50056), filed
March 2, 2011, and incorporated herein by reference).
10.10 Membership Interests Purchase Agreement, dated August 10, 2014, by and among Energy Capital Partners and its
affiliated funds and Redbird Gas Storage LLC (filed as Exhibit 10.1 to the Partnership’s Current Report on Form
8-K (Sec File No. 000-50056), filed August 12, 2014, and incorporated herein by reference).
10.11
2014 Amended and Restated Tolling Agreement, dated October 28, 2014, by and between the Operating
Partnership and Cross Oil Refining & Marketing, Inc. (filed as Exhibit 10.5 to the Partnership’s Quarterly Report
on Form 10-Q (SEC File No. 000-50056), filed October 29, 2014, and incorporated herein by reference).
10.12 Marine Transportation Agreement, dated January 1, 2006, by and between the Operating Partnership and
Midstream Fuel Service, L.L.C. (filed as Exhibit 10.10 to the Partnership’s Annual Report on Form 10-K (SEC
File No. 000-50056), filed March 2, 2011, and incorporated herein by reference).
10.13
Product Storage Agreement, dated November 1, 2002, by and between Martin Underground Storage, Inc. and the
Operating Partnership (filed as Exhibit 10.8 to the Partnership’s Current Report on Form 8-K (SEC File No.
000-50056), filed November 19, 2002, and incorporated herein by reference).
10.14 Marine Fuel Agreement, dated November 1, 2002, by and between Martin Fuel Service LLC and the Operating
Partnership (filed as Exhibit 10.9 to the Partnership’s Current Report on Form 8-K (SEC No. 000-50056), filed
November 19, 2002, and incorporated herein by reference).
10.15† Martin Midstream Partners L.P. Amended and Restated Long-Term Incentive Plan (filed as Exhibit 10.1 to the
Partnership’s Current Report on Form 8-K (SEC No. 000-50056), filed January 26, 2006, and incorporated herein
by reference).
10.16†
10.17
10.18
10.19
Form of Restricted Common Unit Grant Notice (filed as Exhibit 10.2 to the Partnership’s Current Report on Form
8-K (SEC No. 000-50056), filed January 26, 2006, and incorporated herein by reference).
Purchaser Use Easement, Ingress-Egress Easement, and Utility Facilities Easement dated November 1, 2002, by
and between MGSLLC and the Operating Partnership (filed as Exhibit 10.13 to the Partnership’s Current Report
on Form 8-K/A (SEC No. 000-50056), filed November 19, 2002, and incorporated herein by reference).
Amended and Restated Terminal Services Agreement by and between the Operating Partnership and Martin Fuel
Service LLC ("MFSLLC"), dated October 27, 2004 (filed as Exhibit 10.1 to the Partnership's Current Report on
Form 8-K (SEC No. 000-50056), filed October 28, 2004, and incorporated herein by reference).
Lubricants and Drilling Fluids Terminal Services Agreement by and between the Operating Partnership and
MFSLLC, dated December 23, 2003 (filed as Exhibit 10.4 to the Partnership’s Amendment No. 1 to Current
Report on Form 8-K/A (SEC No. 000-50056), filed January 23, 2004, and incorporated herein by reference).
10.20(1) Second Amended and Restated Sales Agency Agreement, dated August 5, 2013, by and between the Operating
Partnership and Martin Product Sales LLC (filed as Exhibit 10.2 to the Partnership's Quarterly Report on Form 10-
Q (SEC No. 000-50056) filed November 4, 2013).
130
10.21† Amended and Restated Martin Resource Management Corporation Purchase Plan for Units of the Partnership,
effective April 1, 2015 (filed as Exhibit 10.1 to the Partnership's registration statement on Form S-8 (SEC File No.
333-203857), filed May 5, 2015, and incorporated herein by reference).
Form of Partnership Indemnification Agreement (filed as Exhibit 10.1 to the Partnership’s Quarterly Report on
Form 10-Q (SEC File No. 000-50056), filed November 6, 2008, and incorporated herein by reference).
Amended and Restated Common Unit Purchase Agreement, dated as of November 24, 2009, by and between the
Partnership and Martin Resource Management (filed as Exhibit 10.4 to the Partnership’s Current Report on Form
8-K (SEC File No. 000-50056), filed December 1, 2009, and incorporated herein by reference).
Supply Agreement dated, as of October 2, 2012, by and between the Partnership and Cross Oil & Refining
Marketing Inc. (filed as Exhibit 10.7 to the Partnership's Quarterly Report on Form 10-Q (SEC File No.
000-50056), filed November 5, 2012, and incorporated herein by reference).
Noncompetition Agreement dated, as of October 2, 2012, by and among the Partnership, Cross Oil Refining &
Marketing, Inc., and Martin Resource Management Corporation (filed as Exhibit 10.8 to the Partnership's
Quarterly Report on Form 10-Q (SEC File No. 000-50056), filed November 5, 2012, and incorporated herein by
reference).
Purchase Price Reimbursement Agreement, dated October 2, 2012, by Martin Resource Management Corporation
to and for the benefit of the Operating Partnership (filed as Exhibit 10.2 to the Partnership's Current Report on
Form 8-K (SEC File No. 000-50056), filed October 9, 2012, and incorporated herein by reference).
Lubricants Terminalling Services Agreement, dated January 1, 2015, by and between the Operating Partnership
and Martin Energy Services LLC (filed as Exhibit 10.26 to the Partnership's Annual Report on Form 10-K (SEC
File No. 000-50056), filed March 2, 2015, and incorporated herein by reference).
Fuel Terminalling Services Agreement, dated January 1, 2015, by and between the Operating Partnership and
Martin Energy Services LLC (filed as Exhibit 10.27 to the Partnership's Current Report on Form 8-K (SEC File
No. 000-50056), filed October 9, 2012, and incorporated herein by reference).
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29(2)* First Amended and Restated Fuel Terminalling Services Agreement, dated January 1, 2016, by and between the
Operating Partnership and Martin Energy Services, LLC.
21.1*
23.1*
23.2*
31.1*
31.2*
32.1*
32.2*
101
*
†
List of Subsidiaries.
Consent of KPMG LLP.
Consent of PricewaterhouseCoopers LLP.
Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and
shall not be deemed to be "filed."
Certification of Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551, this Exhibit is furnished to the SEC and
shall not be deemed to be "filed."
Interactive Data: the following financial information from Martin Midstream Partners L.P.’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2015, formatted in Extensible Business Reporting Language:
(1) the Consolidated Balance Sheets; (2) the Consolidated Statements of Income; (3) the Consolidated Statements
of Cash Flows; (4) the Consolidated Statements of Capital; and (6) the Notes to Consolidated Financial
Statements.
Filed or furnished herewith.
As required by Item 15(a)(3) of Form 10-K, this exhibit is identified as a compensatory plan or arrangement.
(1) Material has been redacted from this exhibit and filed separately with the Commission pursuant to a request for confidential
treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, which has been granted.
(2) Material has been redacted from this exhibit and filed separately with the Commission pursuant to a request for confidential
treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
131
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this
Report to be signed on our behalf by the undersigned, thereunto duly authorized representative.
SIGNATURES
Martin Midstream Partners L.P
(Registrant)
By:
Martin Midstream GP LLC
It's General Partner
Date: February 29, 2016
By:
/s/ Ruben S. Martin
Ruben S. Martin
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on the 29th day of February, 2016.
132
Signature
Title
/s/ Ruben S. Martin
Ruben S. Martin
/s/ Robert D. Bondurant
Robert D. Bondurant
/s/ Zachary S. Stanton
Zachary S. Stanton
President, Chief Executive Officer and Director of Martin
Midstream GP LLC (Principal Executive Officer)
Executive Vice President, Director, and Chief Financial
Officer of Martin Midstream GP LLC (Principal Financial
Officer, Principal Accounting Officer)
Director of Martin Midstream GP LLC
/s/ James M. Collingsworth
James M. Collingsworth
Director of Martin Midstream GP LLC
/s/ Sean P. Dolan
Sean P. Dolan
/s/ Byron R. Kelley
Byron R. Kelley
/s/ C. Scott Massey
C. Scott Massey
Director of Martin Midstream GP LLC
Director of Martin Midstream GP LLC
Director of Martin Midstream GP LLC
133
Financial Statement Schedule
Pursuant to Item 15(a)(2)
Cardinal Gas Storage Partners, LLC
and Subsidiaries
Consolidated Financial Statements
The period January 1, 2014 through August 29, 2014 (unaudited)
and the year ended December 31, 2013
1
Cardinal Gas Storage Partners, LLC and Subsidiaries
Table of Contents
August 29, 2014, December 31, 2013
Independent Auditor's Report
Consolidated Financial Statements
Statement of Financial Position
Statements of Operations
Statements of Members' Capital
Statements of Cash Flows
Notes to Financial Statements
Page
3
4
5
6
7
8
2
Independent Auditor’s Report
To the Members of Cardinal Gas Storage Partners LLC
We have audited the accompanying consolidated financial statements of Cardinal Gas Storage Partners LLC and
its subsidiaries, which comprise the consolidated statements of operations, of members’ capital and of cash flows
for the period ended December 31, 2013.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on our judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the Company's preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated results of Cardinal Gas Storage Partners LLC and its subsidiaries’ operations, members’ capital and
cash flows for the period ended December 31, 2013 in accordance with accounting principles generally accepted in
the United States of America.
Emphasis of Matter
The accompanying balance sheet of Cardinal Gas Storage Partners LLC and its subsidiaries as of August 29, 2014,
and the related consolidated statements of operations, of members’ capital and of cash flows for the period from
January 1, 2014 through August 29, 2014 were not audited, reviewed, or compiled by us and, accordingly, we do
not express an opinion or any other form of assurance on them.
/s/PricewaterhouseCoopers LLP
March 28, 2014
PricewaterhouseCoopers LLP, 1201 Louisiana, Suite 2900, Houston, TX 77002-5678
T: (713) 356 4000, F: (713) 356 4717, www.pwc.com/us
3
Cardinal Gas Storage Partners, LLC and Subsidiaries
Consolidated Statement of Financial Position
August 29, 2014 (unaudited)
(Dollars in thousands)
Assets
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Value of derivative instruments, current
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Debt issuance costs, net
Value of derivative instruments
Intangible assets, net
Other assets
Total assets
Current liabilities
Liabilities and Members' Capital
Accounts payable and accrued liabilities
Current portion of long term debt
Total current liabilities
Long term debt
Other long term liabilities
Total liabilities
Commitments and contingencies (Note 4)
Members' capital
Total liabilities and members' capital
The accompanying notes are an integral part of these consolidated financial statements.
$
$
$
2014
3,178
17,566
3,901
809
1,496
26,950
611,769
6,735
17
783
118
646,372
6,714
12,420
19,134
269,666
595
289,395
356,977
$
646,372
4
Cardinal Gas Storage Partners, LLC and Subsidiaries
Consolidated Statements of Operations
Period Ended August 29, 2014 (unaudited) and Year Ended December 31, 2013
(Dollars in thousands)
Revenues
Firm capacity revenues
Hub services revenues
Fuel charges
Professional service fees
Total revenues
Expenses
Operating expenses
Depreciation and amortization
General and administrative
Impairment losses
Loss on abandoned project
Loss (gain) on sale/disposal of assets
Loss (gain) on natural gas sold
Total expenses
Income (loss) from operations
Other income (expense)
Gain (loss) on derivative instruments
Royalty income
Interest income
Interest expense
Total other expense
Net income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
2014
2013
$
41,290
$
47,427
3,117
2,081
—
46,488
18,267
12,038
3,109
—
—
2,274
111
35,799
10,689
(745)
9
1
(8,043)
(8,778)
1,911
$
$
2,449
2,659
227
52,762
14,285
18,752
7,998
129,384
—
921
20
171,360
(118,598)
110
—
3
(9,798)
(9,685)
(128,283)
5
Cardinal Gas Storage Partners, LLC and Subsidiaries
Consolidated Statements of Members' Capital
Period Ended August 29, 2014 (unaudited) and Year Ended December 31, 2013
(Dollars in thousands)
Members' capital at December 31, 2012
Contributions
Distributions
Net loss
Members' capital at December 31, 2013
Contributions
Distributions
Net income
ECP
Redbird
Total
351,806
5,887
(2,456)
(74,089)
281,148
5,635
(313)
1,009
105,491
15,878
(1,739)
(54,194)
65,436
3,385
(225)
902
457,297
21,765
(4,195)
(128,283)
346,584
9,020
(538)
1,911
Members' capital at August 29, 2014
$
287,479
$
69,498
$
356,977
The accompanying notes are an integral part of these consolidated financial statements.
6
Cardinal Gas Storage Partners, LLC and Subsidiaries
Consolidated Statements of Cash Flows
Period Ended August 29, 2014 (unaudited) and Year Ended December 31, 2013
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
2014
2013
$
1,911
$
(128,283)
(Gain) loss on derivative instruments
Depreciation and amortization expense
Amortization of debt issuance cost
Impairment losses
Loss on abandoned project
Loss on disposal of assets
Provision for (recovery of) doubtful accounts
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other noncurrent assets
Accounts payable and accrued liabilities
Deferred revenue
Other noncurrent liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Settlement of derivative instrument
Derivative instrument
Acquisition of a business and related adjustments
Capital expenditures
Proceeds from sale of fixed asset
Restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long term debt
Repayment of debt
Cash paid for financing costs
Contributions from members
Distributions to members
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Beginning of year
End of year
Supplemental disclosure:
Cash paid for interest, net of capitalized interest
Noncash investing activities:
745
12,038
1,268
—
—
2,274
—
292
(112)
190
1,286
—
(585)
19,307
—
(8)
—
(3,981)
385
(2,674)
(6,278)
—
(25,593)
—
9,020
(538)
(17,111)
(4,082)
7,260
3,178
5,834
$
$
$
$
(110)
18,752
1,901
129,384
—
921
2
(2,744)
(1,057)
(308)
2,052
—
1,179
21,689
160
—
—
(131,857)
4,897
(2,128)
(128,928)
118,117
(25,316)
—
21,765
(4,195)
110,371
3,132
4,128
7,260
7,086
Change in capital expenditures included in accounts payable and accrued liabilities
(945)
(17,567)
The accompanying notes are an integral part of these consolidated financial statements.
7
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
1. Business Description, Formation of Company and Acquisitions
Cardinal Gas Storage Partners LLC (the "Company") was formed on May 1, 2008, as a Delaware limited liability
company with Energy Capital Partners ("ECP") and Martin Resource Management Corporation ("MRMC") as the two
members. In April 2011, Redbird Gas Storage LLC ("Redbird") was formed as a joint venture between MRMC and
Martin Midstream Partners ("MMLP"). In October 2012, MMLP acquired the MRMC interest in Redbird. As a result of
this transaction, Redbird became a wholly owned subsidiary of MMLP. As of August 29, 2014, ECP had a 57.8%
ownership and Redbird had a 42.2% ownership in the Company.
The Company focuses on the development, construction, operation, and management of natural gas storage facilities.
The Company has four natural gas storage facilities in operation. Arcadia Gas Storage LLC ("Arcadia"), located in
Bienville Parish, Louisiana is in service with approximately 17.5 bcf of working gas storage capacity. Monroe Gas
Storage LLC ("Monroe"), located in Monroe County, Mississippi, is in operation with a current working gas capacity of
approximately 7.0 bcf. Cadeville Gas Storage LLC ("Cadeville"), located in Ouachita Parish, Louisiana was placed into
operation during 2013 with working gas capacity of 17.0 bcf. Perryville Gas Storage LLC ("Perryville"), located in
Franklin Parish, Louisiana was placed into operation during 2013 with working gas capacity of 8.7 bcf. These facilities
provide producers, end users, local distribution companies, pipelines and energy marketers with high deliverability
storage services and hub services.
The Company maintains two classes of member units, Category A units and Category B units. Category B Unit holders
do not receive loss allocations; however, they do participate in income resulting from certain triggering events, including
the sale of assets or the sale of the Company. The Board approved 7% to be allocated as Category B units; however, due
to departed employees during 2012 and 2013, only 6.46% is currently outstanding as of August 29, 2014. Income is
allocated first to Category A members until certain conditions are met; thereafter, 93.54% and 6.46% to Category A and
Category B members, respectively.
Under the LLC agreement, each Category A member appoints two managers to the Board. If either member fails to hold
a 30%-interest in the Company, one manager position would be transferred to the other member. The wholly owned
subsidiaries of the Company are Arcadia Gas Storage Holding LLC, Cadeville Gas Storage Holding LLC, Perryville Gas
Storage Holding LLC, MGS Holding LLC, and International Gas Consulting LLC.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements and the accompanying notes are prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The consolidated financial statements include
the accounts of the Company and the subsidiaries on a consolidated basis. All intercompany transactions have been
eliminated.
Management’s Estimates and Assumptions
The preparation of consolidated financial statements in conformity with the accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the consolidated financial statements. Actual results could differ from these
estimates.
Subsequent Events
The Company has performed an evaluation of subsequent events through March 2, 2015, which is the date the financial
statements were made available for issuance.
Cash and Cash Equivalents
The Company considers cash and highly liquid investments with a maturity of three months or less, at the time of
purchase, to be cash equivalents.
8
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
Restricted Cash
At August 29, 2014, the Company held $17.6 million in restricted cash for the primary purpose of making future
principal reduction payments under the terms of a loan agreement.
Accounts Receivable and Bad Debt
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful
accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts
receivable. As of August 29, 2014, all receivables were considered collectible and no allowance for doubtful accounts
was recorded.
Inventory
Inventory consists of natural gas received as a result of fuel revenue and certain balancing agreements and is stated at the
lower of weighted average cost or market. The inventory balance as of August 29, 2014 is reflected within other current
assets on the statement of financial position.
Revenue Recognition
The Company provides various types of natural gas storage services to customers. Revenues from these services are
classified as firm capacity revenue, hub services revenue, and fuel charges. In addition, the Company provided
consulting services for natural gas storage projects. Revenues from these consulting services are classified as
professional service fees.
Firm capacity revenues consist of firm storage reservation revenues which are contractually obligated monthly capacity
reservation fees. These fees are paid to the Company and recognized in revenue over the term of the contract regardless
of the actual storage capacity utilized.
Hub service revenue consist of fees from (i) "interruptible" storage services pursuant to which customers receive only
limited assurance regarding the availability of capacity in the Company’s storage facilities and pay fees based on actual
utilization of assets, (ii) "park and loan" services, (iii) "wheeling and balancing" services pursuant to which customers
pay fees for the right to move a volume of gas through our facilities from an interconnection point to another and true up
their deliveries of gas to, or takeaways of gas from, our facilities, and (iv) firm storage cycling revenues for the use of
injection and withdrawal services based on the volume of natural gas nominated for injection and/or withdrawal. The
interruptible fees are recognized in revenue over the term of the contract. The park and loan, wheeling and balancing
and firm cycling fees are recognized in revenue in the period the volumes are nominated. A portion of our revenues
related to these activities may include fuel collections.
Fuel charges consist of the small portion of a customer’s natural gas nominated for injection retained by the Company as
compensation for fuel use. These fees are reflected as revenue when received. Any excess fuel collected is carried as
inventory until sold.
Professional service fees consist of consulting services and are recognized as the services are performed.
Property and Equipment
Property and equipment are recorded at cost. The costs of major renewals and betterments are capitalized; repair and
maintenance costs are expensed as incurred. The Company capitalizes interest related to the debt facility used for
funding development as well as certain general and administrative costs associated with employees that are deemed to be
dedicated to capitalized projects in process. When assets are sold or retired, the cost and related accumulated
depreciation are removed from the appropriate accounts, and the resulting gain or loss is included in current operations.
Leasehold improvements are capitalized and amortized over the lesser of their estimated useful lives or the applicable
lease term.
9
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
Depreciation of property and equipment is provided over the estimated useful lives of the property as follows:
Storage, surface and pipeline facilities
Office equipment
Automobiles
Impairment of Long-lived Assets
Straight Line
20 to 50-year
5 to 7-year
5-year
The Company ensures its long-lived assets, such as property, plant, and equipment, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an
evaluation were required, the estimated future undiscounted cash flows associated with the asset would be compared to
the asset’s carrying amount to determine whether a write-down is required. If this review indicates that the assets will
not be recoverable, the carrying value of the Company’s assets would be reduced to their estimated market value.
During the winter of 2013 and early 2014, the Company determined that the Monroe facility was not able to perform at
the previously calculated 9 bcf of working gas capacity. The facility was determined to have working gas capacity of 7
bcf. Based on the asset’s capability, an impairment of the Monroe fixed assets was calculated using a discounted cash
flow model and recorded in the amount of $129.4 million in 2013 on the consolidated statements of operations.
Debt Issuance Costs
Costs incurred for debt borrowings are capitalized and amortized over the life of the associated debt utilizing the
effective interest rate method. When debt is retired before its scheduled maturity date, any remaining transaction-related
costs associated with that debt are expensed. Total amortization for the period ended August 29, 2014 was
approximately $1.3 million. Total amortization for the year ended December 31, 2013 was approximately $1.9 million,
of which approximately $0.6 million was capitalized during the period of construction. No amortization was capitalized
in 2014.
Income Taxes
The Company’s taxable income (loss) is reported on the respective income tax returns of its members. With respect to a
franchise or income tax imposed by a state or local municipality, these taxes are accounted for under the asset and
liability method.
The amount of Texas margin tax for the period ended August 29, 2014 and year ended December 31, 2013 was
immaterial. No Louisiana franchise tax was due for any of these periods.
Derivative Instruments and Hedging Activities
The Company records its derivative instruments on the balance sheet 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 recorded in the
consolidated statements of operations. As of August 29, 2014, the Company has not elected hedge accounting for any of
its derivative instruments. Fair value changes for these derivative instruments have been recorded in the consolidated
statements of operations.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables,
long-term debt and derivative instruments. Management considers the carrying values of cash and cash equivalents,
trade receivables and trade payables to be representative of their respective fair values because of their short-term
10
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
maturities or expected settlement dates. The carrying value of outstanding amounts under the revolving credit facility
and term debt approximate fair value due to the floating interest rate. Derivative instruments are recorded at fair value in
the accompanying statements of financial position.
The authoritative guidance related to fair value defines a hierarchy of inputs to valuation techniques based upon whether
those inputs reflect assumptions other market participants would use based upon market data obtained from independent
sources (observable inputs). The following summarizes the fair value hierarchy:
Level 1
Inputs utilize quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs utilize data points other than quoted prices included in Level 1 that are observable such as quoted
prices, interest rates and yield curves.
Level 3
Inputs are unobservable data points for the asset or liability, and includes situations where there is little, if
any, market activity for the asset or liability.
The Company performed an analysis on its derivative instruments and recorded a net asset related to its derivative
instruments of approximately $0.8 million at August 29, 2014, within Level 2 of the fair value hierarchy. Refer to Note
9 for more information on these instruments.
The Company does not have any assets or liabilities classified within Level 3 of the fair value hierarchy. The carrying
amounts reflected in the statements of financial position for other current assets and accrued expenses approximate fair
value due to their short-term maturities.
Asset Retirement Obligations and Environmental Liabilities
GAAP guidance establishes accounting requirements for retirement obligations associated with tangible long-lived
assets including (i) the timing of the liability recognition, (ii) initial measurement of the liability, (iii) allocation of asset
retirement cost to expense, (iv) subsequent measurement of the liability and (v) financial statement disclosures.
GAAP guidance also requires that the cost for asset retirement should be capitalized as part of the cost of the related
long-lived asset and subsequently allocated to expense using a systematic and rational method. The Company assets
have contractual or regulatory obligations to perform remediation when the assets are abandoned. These assets, with
regular maintenance, will continue to be in service for many years to come. It is not possible to predict when demands
for our services will cease and we do not believe that such demand will cease for the foreseeable future. Accordingly,
the Company believes the date when these assets will be abandoned is indeterminate. With no reasonably determinable
abandonment date, the Company cannot reasonably estimate the fair value of the associated asset retirement obligation.
The Company will record an asset retirement obligation in the period in which sufficient information becomes available
for us to reasonably determine the settlement date.
The Company’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.
The Company has not identified any environmental remediation obligations as of August 29, 2014.
Pad Gas Lease
The Company has a lease agreement with Credit Suisse executed on June 12, 2009 for the lease of 3.6 bcf of natural gas
to use as pad gas for the storage facility at Monroe. The lease agreement expired on January 1, 2015. The Company is
required to begin returning the natural gas to Credit Suisse upon expiration of the lease and to have all 3.6 bcf of the
leased gas returned by the end of February 2015.
11
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
Share-Based Payments
The Company recognizes compensation expense for all stock-based compensation based on the fair value of the awards
granted, net of estimated forfeitures, at the date of grant. The Company maintained one class of membership interests
that were granted to employees of the Company. Category B membership interests, totaling 7.0% of the total
membership interests, were granted to employees in various dates in 2008, 2009, and 2010. However, due to departed
employees during 2012 and 2013, only 6.46% is held by Category B Unit holders as of August 29, 2014. Category B
membership interests vest over an average service period of four years. Prior to Category B membership interests
receiving profit allocations or equity distributions, certain future triggering events must occur. No compensation
expense has been recorded as the category B membership interests have an initial threshold value of $0.
Capitalization of Interest
Interest on borrowed funds is capitalized on projects during construction based on the approximate average interest rate
of the Company’s debt. The Company capitalized $2.7 million during the year ended December 31, 2013. No interest
was capitalized in the period ended August 29, 2014.
3. Property, Plant and Equipment
A summary of property, plant and equipment as of August 29, 2014 was as follows:
Operating plant
Construction in progress
Base gas
Land
Office equipment
Automobiles
Accumulated depreciation
2014
$ 604,030
25,421
32,457
3,315
910
673
666,806
(55,037)
$ 611,769
Depreciation expense for the period ended August 29, 2014 and year ended December 31, 2013 was $11.4 million and
$16.9 million, respectively.
On April 1, 2013, Arcadia sold 1.22 bcf of base gas for $4.9 million, reducing the total base gas from 2.22 bcf to 1.0 bcf.
This sale was made in order to reduce the amount of capital invested in base gas through entering into a low-turn storage
agreement with Cadeville. The historical cost of the nondepreciable base gas asset was $5.8 million, resulting in a loss
on the sale of assets of $0.9 million.
In February 2014, Perryville incurred damage to its first cavern hanging string, an uncemented 8-5/8" tubing string set
near the bottom of the cavern that allows for fresh water injection and withdrawal through the tubing. Because this
restricts access to the cavern and could cause operational issues in the future, measures were taken to cut and dispose of
the damaged string, replacing it with new materials. The total loss on disposal for this damaged hanging string was $2.5
million.
In March 2014, it was discovered that Arcadia incurred damage to the hanging string in the second cavern. The hanging
string was cut and disposed but was not replaced. The total loss on disposal for this damaged hanging string was $0.1
million.
In May 2013, Monroe entered into an agreement to construct an interconnect for Atmos Energy Corporation. This uni-
directional interconnect pipeline would be fully funded by Atmos, a firm storage customer at Monroe. Construction was
completed and the asset placed in operation in March 2014. The total cost of the interconnect was $0.4 million and is
12
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
included in long term assets in the consolidated statement of financial position and as a gain on investment in the
consolidated statement of operations.
4. Commitments and Contingencies
Leases
The Company has noncancelable operating leases for office space and office equipment. Rental payments for the period
ended August 29, 2014 and the year ended December 31, 2013. Future minimum noncancelable lease payments by year
as of August 29, 2014, are as follows:
2014
2015
2016
2017
2018
Thereafter
Total commitments
Litigation
$
$
171
227
55
28
29
50
560
The Company may be subject to claims and litigation arising in the normal course of its business. The Company
believes that any current or potential claims or proceedings arising in the normal course of its business will not have a
material, adverse effect on its financial position, results of operations or cash flows.
5. Intangible Assets
In connection with the Monroe acquisition in 2011, the Company acquired certain intangible assets. A summary of
intangible assets as of August 29, 2014 was as follows:
Pad Gas Lease
Ad Valorem Tax Contract
Gas Storage Contracts
FERC Permit
Accumulated amortization
Estimated
Lives
2014
4 years
$
8 years
1 to 2 years
50 years
$
3,388
1,611
4,351
500
9,850
(9,067)
783
13
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
Amortization expense for intangible assets was $0.6 million and $1.8 million for the period ended August 29, 2014, and
year ended December 31, 2013, respectively. The estimated future aggregate amortization expense of intangible assets
as of August 29, 2014, is set forth below:
2014
2015
2016
2017
2018
Thereafter
6. Concentrations
Concentration of Credit Risk
$
319
10
10
10
10
424
783
$
As of August 29, 2014, the Company had cash deposits with financial institutions in excess of the amount insured by the
Federal Deposit Insurance Corporation. Management believes that any credit risk associated with excess deposits in
these financial institutions is minimal.
The Company’s principal customers for natural gas storage are natural gas pipeline and natural gas marketing
companies. These concentrations of customers may affect the Company’s overall credit risk in that certain customers
may be similarly affected by changes in economic, regulatory, or other factors. Where exposed to credit risk, the
Company analyzes the counterparties’ financial condition prior to entering into an agreement, obtains additional
financial assurance where possible through guarantees and letters of credit, establishes credit limits, and monitors the
appropriateness of those limits on an ongoing basis.
Gas Storage Inventory
At August 29, 2014, the value of gas storage inventory held for others was approximately $110.8 million. This balance
represents the volume of stored natural gas valued at August 29, 2014 utilizing the closing prices of various published
delivery points. Because the Company does not take title to the gas, the Company’s gas storage inventory and park
transactions are not recorded in the consolidated statements of financial position.
Significant Customers
Significant customers are those that individually account for more than 10% of the Company’s consolidated revenues or
accounts receivables. For the period ended August 29, 2014, three customers accounted for approximately 30%, 25%
and 12% of the Company’s total revenues. At August 29, 2014, four customers accounted for approximately 42%, 14%,
12% and 12% of the Company’s accounts receivable. For the year ended December 31, 2013, four customers accounted
for approximately 26%, 16%, 14% and 12% of the Company’s total revenues.
14
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
8. Long Term Debt
A summary of long term debt at August 29, 2014 was as follows:
Construction loan - Arcadia
Base gas revolver - Arcadia
Construction loan - Perryville
Base gas revolver - Perryville
Construction loan - Cadeville
Less: Current portion
2014
$
63,816
13,747
90,360
15,575
98,588
282,086
(12,420)
$ 269,666
On June 30, 2008, Arcadia entered into a $118 million multibank nonrecourse construction and term loan agreement
comprised of a $92.5 million construction loan and $25.5 million base gas revolver ("Arcadia facility"). The Arcadia
facility matures in 2016. The base gas loan is interest only. The construction loan converted to a five-year term note
upon substantial completion of the construction in September 2011. Arcadia began making principal payments on the
term loan in 2012. The credit facilities are collateralized with a perfected first priority security interest in the Arcadia
assets.
Prior to conversion, the interest rate on the Arcadia construction loan was based on LIBOR, plus 3.25%, set on the date
of each advance. Upon conversion to a term loan in September 2011, the interest rate was based on LIBOR, plus 3.00%,
set on the date of each advance. Upon the second anniversary of the conversion date, which occurred in September
2013, the interest rate was based on LIBOR, plus 3.25%, set on the date of each advance. The interest rate as of August
29, 2014 was approximately 3.41%.
The interest rate on the base gas revolver fluctuates based on LIBOR, plus 3.25%, set on the date of each advance. The
interest rate as of August 29, 2014 was approximately 3.41%.
On May 12, 2010, Perryville entered into a $125 million multibank construction and term loan agreement comprised of a
$105 million construction loan and $20 million base gas revolver ("Perryville facility"). The Perryville facility matures
in 2018. The base gas loan is interest only. Upon conversion to a term loan at substantial completion in July 2013, the
interest rate on the loan was based on LIBOR, plus 3.50%, set on the date of each advance. The interest rate as of
August 29, 2014 was approximately 3.66%. The credit facilities are collateralized with a perfected first security interest
in the Perryville assets.
In May 2010, Perryville entered into interest rate caps effectively capping LIBOR to 4.0% through 2014 and 6.0%
thereafter through 2015. The notional amount changes on a stated monthly basis starting in October 2011 and expires in
December 2015. The maximum notional amount is $125 million.
On April 19, 2012, Cadeville entered into a construction and term loan agreement for an aggregate principal amount up
to $115 million ("Cadeville facility"). The Cadeville facility matures in 2018. Upon conversion to a term loan at
substantial completion in July 2013, the interest rate was based on LIBOR, plus 2.75%, set on the date of each advance.
The interest rate as of August 29, 2014 was approximately 2.91%.
15
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
Maturities of long term debt are as follows as of August 29, 2014:
2014
2015
2016
2017
2018
Thereafter
9. Derivative Instruments
$
6,210
12,420
80,734
8,721
174,001
—
$ 282,086
The Company enters into derivative contracts such as cash flow swaps and call options in an effort to reduce commodity
price risk and interest rate fluctuations. Cash flow swaps exchange a variable price for a fixed price, while a call option
places a limit on the commodity price of a future purchase or the interest rate applied to debt.
The components of gain (loss) on derivative instruments for the period ended August 29, 2014 and the year ended
December 31, 2013 was as follows:
Interest rate
Natural gas
Gain (loss) on derivative instruments
2014
2013
$
$
(47) $
(698)
(745) $
691
(581)
110
A summary of derivative instruments at August 29, 2014 and December 31, 2013 is as follows:
Transaction Type
Settlement Date
Pricing Terms
Quantity
2014
Natural gas call option
2,345,498 MMBTU on January 31,
2015; 1,286,242 MMBTU on
February 15, 2015
Fixed price of $4.50/
MMBTU settled against
Henry Hub Natural Gas
Index
3,631,740
MMBTU
$
Current assets fair value of derivatives
Interest rate cap
$115 million on December 31, 2015
Fixed rate of 2.00% settled
against LIBOR, quarterly
LIBOR resets
$115
million
Non-current assets fair value of derivatives
809
809
17
17
Net fair value of derivatives
$
826
In December 2010, Arcadia entered into an interest rate swap fixing LIBOR at 1.46% for $35 million notional, accreting
by $25 million at December 31, 2011, which settled at $60 million notional at December 31, 2013. In February 2014,
Arcadia paid $8,000 to enter into an interest rate cap for $35 million notional effectively capping LIBOR at 1.00%. The
interest rate cap is classified in value of derivative instruments on the consolidated statement of financial position. The
cash payment is reflected in the consolidated statements of cash flows, and the change in value of the cap is reflected on
the consolidated statements of operations.
On April 19, 2012, Cadeville entered into an interest rate cap agreement effectively capping LIBOR at 2.00% for 100%
of the projected outstanding notional under the construction facility. The notional amount changes on a stated monthly
basis starting in April 2012 and expires in April 2016. The maximum notional amount is $115 million.
16
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
In January 2012, the Company sold natural gas call options for a gain of $0.1 million. These call options had a strike
price of $5.00 per mmbtu, a notional quantity of 3,000,000 mmtbu and were scheduled to settle in three equal increments
of 1,000,000 mmbtu in March 2014, April 2014, and May 2014. The Company received a cash payment of $0.8 million
resulting from this sale which is reflected in the consolidated statements of cash flows. The change in value of the call
options is reflected on the consolidated statements of operations.
In July 2011, Perryville sold call options entered into in May 2010 with a strike price of $6.00 and a notional quantity of
4,000,000 mmbtu and purchased call options with a strike price of $5.00 and a notional quantity of 2,500,000 mmbtu.
Perryville made a cash payment of $0.6 million for this transaction. These swaps settled in April and May 2013. The
change in value of the call options is reflected on the consolidated statements of operations.
On April 19, 2012, Cadeville entered into natural gas call options, settled monthly at the Columbia Gulf Mainline, with a
strike price of $4.00 per mmbtu and a notional quantity of 4,000,000 mmbtu. The call options settled in three equal
installments of 1,333,333 mmbtu in March, April, and May 2013. The change in value is reflected in derivative
instruments on the consolidated statements of operations.
On June 1, 2012, Monroe entered into natural gas call options, settled monthly against Henry Hub, with a strike price of
$4.50 per mmbtu and a notional quantity of 3,631,740 mmbtu. These call options settled in two increments of 2,345,498
mmbtu and 1,286,242 mmbtu on January 31, 2015 and February 28, 2015, respectively. The change in value is reflected
in derivative instruments on the consolidated statements of operations, and the value of the derivative as of August 29,
2014 is reflected in short term assets on the consolidated statement of financial position.
On July 5, 2012, Monroe entered into natural gas call options, settled against Henry Hub, with a strike price of $4.50 per
mmbtu and a notional quantity of 2,500,000 mmbtu. These call options settled in two increments of 1,250,000 mmbtu
on January 31, 2013 and February 28, 2013. The change in value is reflected in derivative instruments on the
consolidated statements of operations.
On July 5, 2012, Monroe entered into natural gas call options, settled against the NYMEX Natural Gas Index, with a
strike price of $5.00 per mmbtu and a notional quantity of 2,000,000 mmbtu. These call options settled on January 31,
2013. The change in value is reflected in derivative instruments on the consolidated statements of operations.
10. Member and Related Party Transactions
The Company maintained one class of membership interests that was granted to employees of the Company. Category B
membership interests totaling 6.46% of the total membership interests were granted to employees in various dates in
2008, 2009 and 2010. Category B membership interests vest over an average service period of four years. Category B
membership participation to receive profit allocations or equity distribution is restricted by certain future triggering
events.
MRMC provides payroll processing, IT services, and other general administrative support services to the Company
under a Master Services Agreement that expires on April 30, 2016. The Company may terminate the agreement upon 30
days’ notice and MRMC may terminate the agreement only if specific events occur during the term of the agreement.
The service fee for the period ended August 29, 2014 and the year ending December 31, 2013 was $0.2 million.
The Company also pays to MRMC a direct cost fee equal to the actual amount incurred that directly benefits the
Company. The most significant ongoing portion of the fee is for salary, wages, taxes, and benefits paid by MRMC to the
employees of the Company.
The Company paid $13.3 million and $13.2 million to MRMC under the Master Services Agreement for the period
ended August 29, 2014 and years ending December 31, 2013, respectively.
Arcadia entered into a Letter Agreement regarding Arcadia’s Brine Pond and SWD Wells with Martin Underground
Storage, Inc. ("MUS") effective February 12, 2014. The agreement sets forth a sharing of costs for certain repairs and
improvements to the Arcadia Brine Pond and connecting the Arcadia Brine Pond to the Martin Brine Pond for
bidirectional flow and shared use of the brine. Under the agreement, MUS will contribute 56.67% and Arcadia will
contribute 43.33% of the total project cost.
17
Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except where otherwise indicated)
Arcadia entered into a Brine Facilities Lease Agreement with Martin Product Sales LLC ("MPS") effective February
2012 and renewed annually. The agreement allows Arcadia to lease the brine facilities from MPS to process its brine for
sale for a monthly rental fee.
The Company entered into a Shared Water Well Services Agreement with MUS effective May 1, 2008, that expires on
April 30, 2016. The agreement permits the Company to utilize the fresh water wells owned by MUS to meet the
Company’s reasonable operation needs. Costs are shared proportionally on water usage.
11. Subsequent Events
On August 29, 2014, Redbird purchased all of the outstanding Term A membership interests of Cardinal from ECP for
cash of approximately $120 million. Concurrent with the closing of the transaction, all of the Cardinal subsidiary project
level financing was retired. On October 27, 2014, Redbird purchased all of the outstanding Term B membership
interests for cash of $1 million. As a result of the acquisition, Redbird owns 100% of the outstanding membership
interests in Cardinal. Cardinal merged with and into Redbird, and Redbird subsequently changed its name to Cardinal.
The pad gas lease with Credit Suisse was terminated in December 2014 when Monroe purchased the leased 3.6 bcf of
pad gas from Credit Suisse for $13 million.
18
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A
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I
N
M
I
D
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T
R
E
A
M
P
A
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T
N
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S
2
0
1
5
A
N
N
U
A
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P
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R
T
42 00 B STONE ROAD | KI LGO RE, T EXAS 7 566 2 | 903- 98 3- 620 0
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