UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
Mark One
Annual Report Pursuant to Section 13 or 15(d) of the
 
ý
Securities Exchange Act of 1934
 
 
For the fiscal year ended December 31, 2014
 
OR
o
Transition Report Pursuant to Section 13 or 15(d) of the
 
 
Securities Exchange Act of 1934
 
   
For the transition period from  _____ to _____.
Commission file number 000-50056
  MARTIN MIDSTREAM PARTNERS L.P.
(Exact name of registrant as specified in its charter)
Delaware
 
05-0527861
State or other jurisdiction of incorporation or organization
 
(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
 
Name of each exchange on which registered
Common Units representing limited partnership interests
 
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   ý                        No o
 
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 o                         No ý
 
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 ý                         No o
 
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 ý                         No o
 



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.    ý
 
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 x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a 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 o                         No ý
 
As of June 30, 2014, 30,639,432 common units were outstanding.  The aggregate market value of the common units held by non-affiliates of the registrant as of such date approximated $1,051,991,075 based on the closing sale price on that date.  There were 35,449,662 of the registrant’s common units outstanding as of March 2, 2015 .
 
DOCUMENTS INCORPORATED BY REFERENCE:          None.
 



TABLE OF CONTENTS

 
 
Page
PART I
 
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
 
 
PART II
Item 5.
Market for Our Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
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.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
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
 




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PART I

Item 1.
Business

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, 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

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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, 2014, 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.

The historical operation of our business segments by Martin Resource Management provides us with several decades of experience and a demonstrated track record of customer service across our operations.  Our current lines of business have been developed and systematically integrated over this 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.

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 18 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, blending and packaging of various grades and quantities of naphthenic lubricants and related products. 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 propane retailers, refineries and industrial NGL users in Texas and the Southeastern U.S. 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 the growing NGL production of 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 barges 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

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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-based fertilizer products for wholesale distributors and industrial users. These plants are located in Illinois and Texas. 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 42 inland marine tank barges, 25 inland push boats and four 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

We believe one of the rationales driving investment in master limited partnerships, including us, is the opportunity for distribution growth offered by the partnerships. Such distribution growth is a function of having access to liquidity in the financial markets used for incremental capital investment (development projects and acquisitions) to grow distributable cash flow.
 
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. Over the past year, we have had access to the capital markets and have appropriate levels of liquidity and operating cash flows to adequately fund our growth.

Recent Acquisitions
    
Cardinal Gas Storage. On August 29, 2014, Redbird Gas Storage LLC (“Redbird”), a wholly owned subsidiary of the Partnership, completed the previously announced purchase of all of the outstanding membership interests of Cardinal from Energy Capital Partners I, LP, Energy Capital Partners I-A, LP, Energy Capital Partners I-B IP, LP and Energy Capital Partners I (Cardinal IP), LP (together, “ECP”) for cash of approximately $121.0 million. Prior to the acquisition, we owned an approximate 42.2% interest in the Category A membership interests in Cardinal. As a result of the acquisition, Redbird owns 100% of the outstanding membership interests in Cardinal. Concurrent with the closing of the transaction, we retired all of the project level financing of various Cardinal subsidiaries. This transaction and repayment of the project financings was funded with borrowings under our revolving credit facility. On October 27, 2014, Cardinal merged with and into Redbird, and Redbird subsequently changed its name to Cardinal.

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. This transaction was funded with borrowings under our revolving credit facility.

West Texas LPG Pipeline Limited Partnership. On May 14, 2014, we 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 $133.9 million. Atlas Holdings owned a 19.8% limited partnership interest and a 0.2% general partnership interest in WTLPG. WTLPG is currently operated by 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 transaction was funded with borrowings under our revolving credit facility.

Financing Activities

Public Offering. On September 29, 2014, we 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 $122.2 million.  Our general partner contributed $2.6 million in cash to us in conjunction with the issuance in order to maintain its 2.0% general partner interest in us.  All of the net proceeds were used to reduce outstanding indebtedness under our revolving credit facility.


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Private Placement of Common Units. On August 29, 2014, we closed a private equity sale with Martin Resource Management, under which Martin Resource Management invested $45.0 million 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 our common units for the 10 trading days ending August 8, 2014 (per unit value is in dollars, not thousands).  In connection with the issuance of these common units, our general partner contributed $0.9 million in order to maintain its 2.0% general partner interest in us. All of the net proceeds were used to reduce outstanding indebtedness under our revolving credit facility.

Amendment to Revolving Credit Facility. On June 27, 2014, we increased the maximum amount of borrowings and letters of credit available under our revolving credit facility from $637.5 million to $900.0 million. In addition, we amended certain financial covenants that govern our credit facility.

Public Offering. 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 $143.4 million.  Our general partner contributed $3.1 million in cash to us in conjunction with the issuance in order to maintain its 2.0% general partner interest in us.  All of the net proceeds were used to reduce outstanding indebtedness under our revolving credit facility.

Equity Distribution Program. In March 2014, we entered into an equity distribution agreement with multiple underwriters (the “Sales Agents”) for the ongoing distribution of our common units. Pursuant to this program, we offered and sold common unit equity through the Sales Agents for aggregate proceeds of $21.1 million for the year ended December 31, 2014. We paid $0.4 million in compensation to the Sales Agents for the year ended December 31, 2014. Under the program, we 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. We also received capital contributions from our general partner of $0.4 million during the year ended December 31, 2014 related to these issuances to maintain its 2.0% general partner interest in us. The net proceeds from the common unit issuances were used to pay down outstanding amounts under our revolving credit facility.

Issuance of 7.250% Senior Unsecured Notes Due 2021. On April 1, 2014, we completed a private placement add-on of $150.0 million of the 7.250% senior unsecured notes due 2021.  We filed with the SEC a registration statement on Form S-4 to exchange these notes for substantially identical notes that are registered under the Securities Act and commenced an exchange offer on April 28, 2014. The exchange offer was completed during the second quarter of 2014.

Redemption of 8.875% Senior Unsecured Notes Due 2018. On April 1, 2014, we redeemed all $175.0 million of the 8.875% senior unsecured notes due in 2018 from their holders.  In conjunction with the redemption, the Partnership incurred a debt prepayment premium of $7.8 million and a non-cash charge of $3.9 million for the write-off of unamortized debt issuance costs and unamortized debt discount related to the redemption of the senior unsecured notes.

For a more detailed discussion regarding our financing activities, see “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Subsequent Events

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.     
    
Quarterly Distribution.   On January 22, 2015, we declared a quarterly cash distribution of $0.8125 per common unit for the fourth quarter of 2014, or $3.25 per common unit on an annualized basis, which was paid on February 13, 2015 to unitholders of record as of February 6, 2015. Additionally, we paid a distribution to our general partner in the amount of $4.4 million. Of this amount, $0.7 million is related to the base general partner distribution and $3.7 million represents incentive distribution rights paid to our general partner.

Common Unit Grants.    On January 5, 2015, we issued 84,750 restricted common units under our long-term incentive plan to the executive officers of our general partner and certain Martin Resource Management employees who provide services to us. These restricted units vest 100% on January 5, 2018.

Our Growth Strategy


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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 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

We believe we are well positioned to execute our business strategy because of the following competitive strengths:
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 . 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

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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
 
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 18 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 25 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 18, 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.


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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. A secondary warehousing and distribution operation is owned in Kansas City, Kansas, that allows us to serve markets that we cannot out of our Smackover facility.     

In Kansas City, Missouri, we own 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 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 Broussard, Louisiana, we own a lubricant terminal on leased land whose use is dedicated to an affiliate of Martin Resource Management through a terminalling service agreement based on throughput rates.

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 own a lubricant terminal on leased land 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
 
Location
 
Aggregate Capacity
 
Products
 
Description
Tampa (1)
 
Tampa, Florida
 
718,000 barrels
 
Asphalt, sulfur and fuel oil
 
Marine terminal, loading/unloading for vessels, barges, railcars and trucks
Stanolind
 
Beaumont, Texas
 
581,000 barrels
 
Asphalt, crude oil, sulfur, sulfuric acid and fuel oil
 
Marine terminal, marine dock for loading/unloading of vessels, barges, railcars and trucks
Neches
 
Beaumont, Texas
 
555,800 barrels
 
Molten sulfur, ammonia, asphalt, fuel oil, crude oil and sulfur-based fertilizer
 
Marine terminal, loading/unloading for vessels, barges, railcars and trucks
Corpus Christi Barge Terminal
 
Corpus Christi, Texas
 
250,000 barrels
 
Fuel oil and diesel
 
Marine terminal, loading/unloading barges and vessels and unloading trucks
Corpus Christi Crude Terminal (2)
 
Corpus Christi, Texas
 
900,000 barrels
 
Crude oil
 
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.

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(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 18, 2011 with five five-year options.

The following is a summary description of our non shore-based specialty terminals:
Terminal
 
Location
 
Aggregate Capacity
 
Products
 
Description
Channelview
 
Houston, Texas
 
44,000 sq. ft. Warehouse; 39,800 barrels
 
Lubricants
 
Lubricants blending, storage, packaging and distribution
Smackover Refinery
 
Smackover, Arkansas
 
7,700 barrels per day
 
Naphthenic lubricants, distillates, asphalt
 
Crude refining facility
Martin Lubricants
 
Smackover, Arkansas
 
235,000 sq. ft. Warehouse; 3.9 million gallons bulk storage
 
Gard, SynGard, Unimark and Xtreme brands, and automotive grease
 
Lubricants packaging facility
Martin Lubricants
 
Kansas City, Kansas
 
65,000 sq. ft. Warehouse; 1.2 million gallons bulk storage
 
Various
 
Lubricants and grease warehousing and distribution facility
Martin Lubricants (6)
 
Kansas City, Missouri
 
75,000 sq. ft. Warehouse; 0.2 million gallons bulk storage
 
Automotive, commercial and industrial greases
 
Grease manufacturing and packaging facility
South Houston Asphalt
 
Houston, Texas
 
71,400 barrels
 
Asphalt
 
Asphalt processing and storage
Port Neches Asphalt
 
Port Neches, Texas
 
31,300 barrels
 
Asphalt
 
Asphalt processing and storage
Omaha Asphalt
 
Omaha, Nebraska
 
114,200 barrels
 
Asphalt
 
Asphalt processing and storage
Dunphy
 
Elko, Nevada
 
63,200 barrels
 
Sulfuric acid
 
Sulfuric acid storage
Spindletop
 
Beaumont, Texas
 
90,000 barrels
 
Natural gasoline
 
Pipeline receipts and shipments
Broussard Bulk Facility (4)(5)(7)
 
Broussard, Louisiana
 
43,000 sq. ft. Warehouse;
8,200 barrels
 
Lubricants, fuel
 
Lubricants and fuel storage
Jennings Bulk Plant (5)
 
Jennings, Louisiana
 
36,000 sq. ft. building;
6,000 barrels
 
Lubricants, fuel
 
Lubricants and fuel storage
Lake Charles (3)
 
Lake Charles, Louisiana
 
18,000 sq. ft.Warehouse; 6,800 barrels
 
Lubricants
 
Lubricants storage

(3)
This terminal is located on land owned by third parties and leased under a lease that expires in January 2016 and can be extended by us through January 2021.  This terminal was acquired from Martin Resource Management on January 31, 2011.
(4)
This terminal is located on land owned by third parties and leased under a lease that expires in November 2015.
(5)
These terminals were acquired from the purchase of Talen's on December 31, 2012.
(6)
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 and was acquired from the purchase of the NL Grease assets on June 13, 2013.
(7)
This terminal is currently in caretaker status.

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

8


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 contractual arrangements, pays us for terminalling and storage of fuels and lubricants at these terminal facilities.
 
Our 29 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 10 full service terminals:
Terminal
 
Location
 
Aggregate   Capacity (barrels)
Amelia 2 (3)(4)
 
Amelia, Louisiana
 
13,100
Cameron East (2)
 
Cameron, Louisiana
 
27,500
Dock 193 (7)(11)
 
Gueydan, Louisiana
 
11,000
Fourchon 15 (3)(6)
 
Fourchon, Louisiana
 
7,600
Freshwater City (7)(8)(9)
 
Freshwater City, Louisiana
 
10,000
Harbor Island (1)
 
Harbor Island, Texas
 
6,700
Intracoastal City-2 (3)(5)
 
Intracoastal City, Louisiana
 
18,100
Pelican Island
 
Galveston, Texas
 
88,400
Theodore
 
Theodore, Alabama
 
19,900
Venice (3)(10)
 
Venice, Louisiana
 
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 and can be extended by us through January 2025.
(2)
This terminal is located on land owned by third parties and leased under a lease that expires in March 2017 and can be extended by us through February 2022.
(3)
These terminals were acquired from Martin Resource Management on January 31, 2011.
(4)
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.
(5)
This terminal is located on land owned by a third party and leased under a lease that expires in December 2015 and can be extended by us through December 2025.
(6)
This terminal is located on land owned by a third party and leased under a lease that expires in February 2017.
(7)
These terminals were acquired from the purchase of Talen's on December 31, 2012.
(8)
This terminal is located on land owned by a third party and leased under a lease that expires in March 2017.
(9)
This terminal has a warehousing agreement with a third party and under a lease that expires in March 2017.
(10)
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
(11)
A portion of this terminal is located on land owned by a third party and leased under a lease that expires in May 2016.

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.
 

9


The following is a summary description of our fuel and lubricant terminals:
Terminal
 
Location
 
Aggregate Capacity (barrels)
Berwick (1)
 
Berwick, Louisiana
 
24,600
Cameron 7 (9)(18)
 
Cameron, Louisiana
 
15,400
Cameron 8 (9)(6)
 
Cameron, Louisiana
 
31,900
Cameron West (5)(20)
 
Cameron, Louisiana
 
17,900
Dulac (9)(11)
 
Dulac, Louisiana
 
1,800
Fourchon (8)
 
Fourchon, Louisiana
 
80,900
Fourchon 16 (9)(15)
 
Fourchon, Louisiana
 
16,400
Fourchon 17 (9)(12)
 
Fourchon, Louisiana
 
41,200
Fourchon T (4)(10)
 
Fourchon, Louisiana
 
39,100
Freeport
 
Freeport, Texas
 
8,600
Galveston T (4)(17)
 
Galveston Texas
 
10,400
Intracoastal City (7)(20)
 
Intracoastal City, Louisiana
 
45,900
Lake Charles T (4)(16)
 
Lake Charles, Louisiana
 
1,000
Morgan City DWC 31(9)(14)
 
Morgan City, Louisiana
 
7,100
Pascagoula (18)
 
Pascagoula, Mississippi
 
11,000
Port Arthur (4)(19)
 
Port Arthur, Texas
 
16,300
Port O'Connor (2)
 
Port O'Connor, Texas
 
6,600
River Ridge (9)(13)
 
River Ridge, Louisiana
 
8,700
Sabine Pass (3)(20)
 
Sabine Pass, Texas
 
16,500

(1)
This terminal is located on land owned by third parties and leased under a lease that expires in September 2017.
(2)
This terminal is located on land owned by a third party and leased under a lease that expires in March 2015. We intend to extend this lease.
(3)
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.
(4)
These terminals were acquired from the purchase of Talen's on December 31, 2012.
(5)
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.
(6)
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.
(7)
A portion of this location is leased pursuant to a month-to-month throughput agreement and a portion is under a lease, which expires April of 2015. We intend to renew the lease.
(8)
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.
(9)
These terminals were acquired from Martin Resource Management on January 31, 2011.
(10)
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.
(11)
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.
(12)
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.
(13)
This terminal is located on land owned by third parties and leased under multiple leases that expire in April 2019 and February 2020.
(14)
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.
(15)
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.
(16)
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.
(17)
This terminal was converted from full services terminals to fuel and lube terminals during 2013.

10


(18)
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.
(19)
This terminal is located on land owned by third parties and leased under a lease that expires in November 2015 and can be extended by us through November 2025.
(20)
These terminals are currently in caretaker status.
 
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 and other products.

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 the transportation fleet of vehicles owned by Martin Resource Management; and

product management expertise to obtain supplies when needed.


11


The following is a summary description of our owned and leased NGL facilities:
NGL Facility 
 
Location                         
 
Capacity                   
 
Description                           
Wholesale terminals
 
Arcadia, Louisiana
 
2,400,000 barrels
 
Underground storage
 
 
Breaux Bridge, Louisiana (1)
 
503,000 barrels
 
Underground storage
 
 
Hattiesburg, Mississippi (1)
 
115,000 barrels
 
Underground storage
 
 
Mt. Belvieu, Texas (1)
 
95,000 barrels
 
Underground storage
Retail terminals
 
Kilgore, Texas
 
90,000 gallons
 
Retail propane distribution
 
 
Longview, Texas
 
30,000 gallons
 
Retail propane distribution
 
 
Henderson, Texas
 
12,000 gallons
 
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. For the year ended December 31, 2014, we sold approximately 90% of our NGL volume to refiners and industrial processors and approximately 10% of our NGL volume to independent retail propane distributors located in Texas and the southeastern U.S.
 
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. Cardinal is focused on the development, construction, operation and management of natural gas storage facilities across northern Louisiana and Mississippi.  On August 29, 2014, we acquired the remaining outstanding 57.8% interest in Cardinal from ECP. As a result of the acquisition, we own 100% of the outstanding membership interests in Cardinal. Concurrent with the closing of the transaction, we retired all of the project level financing of various Cardinal subsidiaries. This transaction and repayment of the project financings was funded with borrowings under our revolving credit facility. On October 27, 2014, Cardinal merged with and into Redbird, and Redbird subsequently changed its name to Cardinal.

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.

Cardinal facilities are summarized below:
Facility Name / Location
 
Facility Type
 
Storage Capacity
 
Percent of Capacity Contracted
 
Weighted Average Life of Remaining Contract Term
Arcadia Gas Storage, LLC Bienville Parish, Louisiana
 
Salt dome
 
17.5 billion cubic feet (bcf)
 
71%
 
2.2 years
Cadeville Gas Storage, LLC Ouachita Parish, Louisiana
 
Depleted reservoir
 
17.0 bcf
 
100%
 
8.4 years
Perryville Gas Storage, LLC Franklin Parish, Louisiana
 
Salt dome
 
8.7 bcf
 
98%
 
4.0 years
Monroe Gas Storage Company, LLC Monroe County, Mississippi
 
Depleted reservoir
 
7.0 bcf
 
100%
 
< 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.

12



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 3, 2015, we agreed to sell the barges for $41.3 million. The transaction closed on February 12, 2015.

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 the growing NGL production of 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 with the balance used for 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 these nutrients and frequently require fertilizers rich in these essential 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.
 

13


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. In 2006, we completed the construction of a sulfur priller at our Neches facility in Beaumont, Texas with construction of a second priller completed in 2009. Forming capacity was further increased in 2012 with the addition of a granulator. The two Beaumont prillers along with the 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.
 
In September 2007, we completed construction of a sulfuric acid production facility at our Plainview, Texas location.  This facility 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 that was completed in March of 2011.  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 and standard grades, a 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 of these products.

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 Texarkana, 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 56 railcars and lease 105 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:

14


Asset                   
 
Class of Equipment 
 
Capacity/Horsepower
 
Products Transported
Margaret Sue
 
Offshore tank barge
 
10,450 long tons
 
Molten sulfur
M/V Martin Explorer
 
Offshore tugboat
 
7,200 horsepower
 
N/A
M/V Martin Express
 
Inland push boat
 
1,200 horsepower
 
N/A
MGM 101
 
Inland tank barge
 
2,450 long tons
 
Molten sulfur
MGM 102
 
Inland tank barge
 
2,450 long tons
 
Molten sulfur
 
We own the following sulfur forming facilities as part of our sulfur services business: 
Terminal 
 
Location
 
Daily Production Capacity
 
Products Stored
Neches
 
Beaumont, Texas
 
5,500 metric tons per day
 
Molten, prilled and granulated sulfur
Stockton
 
Stockton, California
 
1,000 metric tons per day
 
Molten and prilled sulfur

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
 
Plainview, Texas
 
150,000 tons
 
Fertilizer production
Fertilizer plant
 
Beaumont, Texas
 
110,000 tons
 
Liquid sulfur fertilizer production
Fertilizer plants
 
Odessa, Texas
 
35,000 tons
 
Dry sulfur fertilizer production
Fertilizer plant
 
Seneca, Illinois
 
36,000 tons
 
Dry sulfur fertilizer production
Fertilizer plant
 
Salt Lake City, Utah
 
25,000 tons
 
Blending and packaging
Fertilizer plant
 
Cactus, Texas
 
20,000 tons
 
Dry sulfur fertilizer production
Industrial sulfur plant
 
Texarkana, Texas
 
18,000 tons
 
Emulsified sulfur production
Sulfuric acid plant
 
Plainview, Texas
 
150,000 tons
 
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 products 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 U.S. inland waterway system is a vast and heavily used transportation system. This 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 
 
Description of Products Carried 
Inland tank barges
 
12
 
Under 20,000 barrels
 
Asphalt, crude oil, fuel oil, gasoline and sulfur
Inland tank barges
 
30
 
20,000 - 31,000 barrels
 
Asphalt, crude oil, fuel oil and gasoline
Inland push boats
 
25
 
800 - 3,800 horsepower
 
N/A
Offshore tank barges
 
4
 
45,000 barrels and 95,000 barrels
 
Asphalt, fuel oil and NGLs
Offshore tugboats
 
4
 
2,400 - 7,200 horsepower
 
N/A

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, 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;

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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; 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 $183.2 million , $177.1 million and $157.8 million of direct costs and expenses for the years ended December 31, 2014 , 2013 and 2012 , 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, 2014, 2013, and 2012, the conflicts committee of our general partner (“Conflicts Committee”) approved reimbursement amounts of $12.5 million, $10.6 million and $7.6 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, 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.


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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 7% of our total cost of products sold during for the year ended December 31, 2014 and 8% of our total cost of products sold for the years ended December 31 , 2013 , and 2012 . 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 6% of our total revenues for each of the years ended December 31, 2014 , 2013 and 2012 . 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 $4.0 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 $1.25 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.
 
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

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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 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

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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.” We are not subject to any notification that we may be potentially responsible for cleanup costs under 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 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

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The Federal Water Pollution Control Act, as amended, also known as the Clean Water Act, and analogous state laws impose restrictions and controls on the discharge of pollutants into federal and state waters. Regulations promulgated under these laws require entities that discharge into federal and state waters obtain National Pollutant Discharge Elimination System (“NPDES”) and/or state permits authorizing these discharges. The Clean Water Act and analogous state laws assess penalties for releases of unauthorized pollutants into the water and impose substantial liability for the costs of removing spills from such waters. In addition, the Clean Water Act and analogous state laws require that individual permits or coverage under general permits be obtained by covered facilities for discharges of storm water runoff and that applicable facilities develop and implement plans for the management of storm water runoff (referred to as storm water pollution prevention plans (“SWPPPs”)) as well as for the prevention and control of oil spills (referred to as spill prevention, control and countermeasure (“SPCC”) plans). As part of the regular overall evaluation of our on-going operations, we are reviewing and, as necessary, updating SWPPPs for certain of our facilities, including facilities recently acquired.  In addition, we have reviewed our SPCC plans and, where necessary, amended such plans to comply with applicable regulations adopted by the EPA.  We believe that compliance with the conditions of such permits and plans will not have a material effect on our 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.

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citizens. Foreign-flagged seamen generally receive lower wages and benefits than those received by U.S. citizen seamen. This 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 921 individuals, including 62 employees represented by labor unions, who provide direct support to our operations as of December 31, 2014.

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:

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:

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

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:

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:

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

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:

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

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.

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:

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;

consolidation of oil and gas and oil service companies operating offshore;

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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;

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.

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.


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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:

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.

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.

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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 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

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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;

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

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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. Martin Resource Management elects the directors of our general partner. Although our general partner has a fiduciary duty to manage our partnership in a manner beneficial to us and our unitholders, the directors of our general partner also have a fiduciary duty to manage our general partner in a manner beneficial to Martin Resource Management and its shareholders.

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, 2014, 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 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.


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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;

the conversion of units of equal rank with the common units into common units under some circumstances; or


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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 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

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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, 2014, 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;

Our general partner controls the enforcement of obligations owed to us by Martin Resource Management;


34


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 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

35


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 0.7% 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.

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.

Unitholders may be required to pay taxes on income from us 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.

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 and non-U.S. persons should consult their tax advisor regarding their investment in our common units.


36


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 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. 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 (referred to as the “Qualifying Income Exception”), 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. For example, the Obama administration's budget proposal for fiscal year 2016 recommends that certain publicly traded partnerships earning income from activities related to fossil fuels be taxed as corporations beginning in 2021. 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. 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.


37


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 recently 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 use of this proration method may not be permitted under existing Treasury regulations. The U.S. Department of the Treasury issued proposed Treasury regulations that provide a safe harbor pursuant to which publicly traded partnerships may use a similar monthly convention to allocate tax items among transferor and transferee unitholders. Nonetheless, the proposed Treasury regulations do not specifically authorize the use of the proration method we have adopted. Therefore, the use of this proration method may not be permitted under existing Treasury regulations, and, accordingly, our counsel is unable to opine as to the validity of this method. If the IRS were to challenge this method or new Treasury regulations were issued, 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.

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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 March 2, 2015 there were approximately 292 holders of record and approximately 28,326 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:
 
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
 
 
High
 
Low
 
High
 
Low
 
First Quarter
 
$
44.36

 
$
40.28

 
$
38.52

 
$
31.93

 
Second Quarter
 
$
43.48

 
$
39.22

 
$
46.20

 
$
37.73

 
Third Quarter
 
$
41.64

 
$
35.75

 
$
47.02

 
$
42.28

 
Fourth Quarter
 
$
37.40

 
$
25.80

 
$
48.53

 
$
40.90

 

Cash Distributions

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
 
Date Declared
 
Date Paid
December 31, 2014
 
$
0.8125

 
January 22, 2015
 
February 13, 2015
September 30, 2014
 
$
0.8125

 
October 23, 2014
 
November 14, 2014
June 30, 2014
 
$
0.7925

 
July 24, 2014
 
August 14, 2014
March 31, 2014
 
$
0.7875

 
April 23, 2014
 
May 15, 2014
December 31, 2013
 
$
0.7850

 
January 23, 2014
 
February 14, 2014
September 30, 2013
 
$
0.7825

 
October 24, 2013
 
November 14, 2013
June 30, 2013
 
$
0.7800

 
July 25, 2013
 
August 14, 2013
March 31, 2013
 
$
0.7750

 
April 25, 2013
 
May 15, 2013

Cash Distribution Policy
  
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 March 2, 2015, 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.
 
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 unitholders if the distribution would cause a default or an event of default, or a default or an event of default exists, under our

40


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, 2014 , 2013 , 2012 , 2011 and 2010 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.
 
2014
 
2013
 
2012
 
2011
 
2010
 
(Dollars in thousands, except per unit amounts)
 
 
 
 
 
 
Revenues
$
1,642,141

 
$
1,612,739

 
$
1,490,361

 
$
1,242,490

 
$
880,115

 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(6,367
)
 
$
(14,562
)
 
$
37,122

 
$
13,367

 
$
19,472

Income (loss) from discontinued operations, net of tax
(5,338
)
 
1,208

 
64,865

 
9,392

 
8,061

Net income (loss)
$
(11,705
)
 
$
(13,354
)
 
$
101,987

 
$
22,759

 
$
27,533

Net income (loss) attributable to limited partners
$
(15,176
)
 
$
(13,047
)
 
$
92,617

 
$
17,945

 
$
11,045

 
 
 
 
 
 
 
 
 
 
Net income (loss) per limited partner unit – continuing operations
$
(0.27
)
 
$
(0.54
)
 
$
1.32

 
$
0.57

 
$
0.25

Net income (loss) per limited partner unit – discontinued operations
(0.22
)
 
0.04

 
2.64

 
0.35

 
0.38

Net income (loss) per limited partner unit
$
(0.49
)
 
$
(0.50
)
 
$
3.96

 
$
0.92

 
$
0.63

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,553,919

 
$
1,097,919

 
$
1,012,996

 
$
1,069,108

 
$
864,425

Long-term debt
$
902,005

 
$
658,695

 
$
474,992

 
$
458,941

 
$
372,862

 
 
 
 
 
 
 
 
 
 
Cash dividends per common unit (in dollars)
$
3.18

 
$
3.11

 
$
3.06

 
$
3.05

 
$
3.00




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, 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, 2014, 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

We believe one of the rationales driving investment in master limited partnerships, including us, is the opportunity for distribution growth offered by the partnerships. Such distribution growth is a function of having access to liquidity in the financial markets used for incremental capital investment (development projects and acquisitions) to grow distributable cash flow.
 
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. Over the past year, we have had access to the capital markets and have appropriate levels of liquidity and operating cash flows to adequately fund our growth.


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Recent Acquisitions
    
Cardinal Gas Storage. On August 29, 2014, Redbird Gas Storage LLC (“Redbird”), a wholly owned subsidiary of the Partnership, completed the previously announced purchase of all of the outstanding membership interests of Cardinal Gas Storage Partners LLC ("Cardinal") from Energy Capital Partners I, LP, Energy Capital Partners I-A, LP, Energy Capital Partners I-B IP, LP and Energy Capital Partners I (Cardinal IP), LP (together, “ECP”) for cash of approximately $121.0 million. Prior to the acquisition, we owned an approximate 42.2% interest in the Category A membership interests in Cardinal. As a result of the acquisition, Redbird owns 100% of the outstanding membership interests in Cardinal. Concurrent with the closing of the transaction, we retired all of the project level financing of various Cardinal subsidiaries. This transaction and repayment of the project financings was funded with borrowings under our revolving credit facility. On October 27, 2014, Cardinal merged with and into Redbird, and Redbird subsequently changed its name to Cardinal.

NGL Storage Assets. On May 31, 2014, we acquired certain natural gas liquids ("NGL") storage assets, located in Arcadia, Louisiana, from Martin Resource Management for $7.4 million. This transaction was funded with borrowings under our revolving credit facility.

West Texas LPG Pipeline Limited Partnership. On May 14, 2014, we 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 $133.9 million. Atlas Holdings owned a 19.8% limited partnership interest and a 0.2% general partnership interest in West Texas LPG Pipeline Limited Partnership ("WTLPG"). WTLPG is currently 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 transaction was funded with borrowings under our revolving credit facility.

Financing Activities

Public Offering. On September 29, 2014, we 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 $122.2 million.  Our general partner contributed $2.6 million in cash to us in conjunction with the issuance in order to maintain its 2.0% general partner interest in us.  All of the net proceeds were used to reduce outstanding indebtedness under our revolving credit facility.

Private Placement of Common Units. On August 29, 2014, we closed a private equity sale with Martin Resource Management, under which Martin Resource Management invested $45.0 million in cash in exchange for 1,171,265 common units (per unit value is in dollars, not thousands). The pricing of $38.42 per common unit was based on the 10-day weighted average price of our common units for the 10 trading days ending August 8, 2014. In connection with the issuance of these common units, our general partner contributed $0.9 million in order to maintain its 2.0% general partner interest in us. All of the net proceeds were used to reduce outstanding indebtedness under our revolving credit facility.

Amendment to Revolving Credit Facility. On June 27, 2014, we increased the maximum amount of borrowings and letters of credit available under our revolving credit facility from $637.5 million to $900.0 million. In addition, we amended certain financial covenants that govern our credit facility.

Public Offering. 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 $143.4 million.  Our general partner contributed $3.1 million in cash to us in conjunction with the issuance in order to maintain its 2.0% general partner interest in us.  All of the net proceeds were used to reduce outstanding indebtedness under our revolving credit facility.

Equity Distribution Program. In March 2014, we entered into an equity distribution agreement with multiple underwriters (the “Sales Agents”) for the ongoing distribution of our common units. Pursuant to this program, we offered and sold common unit equity through the Sales Agents for aggregate proceeds of $21.1 million for the year ended December 31, 2014. We paid $0.4 million in compensation to the Sales Agents for the year ended December 31, 2014. Under the the program, we 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. We also received capital contributions from our general partner of $0.4 million during the year ended December 31, 2014 related to these issuances to maintain its 2.0% general partner interest in us. The net proceeds from the common unit issuances were used to pay down outstanding amounts under our revolving credit facility.

43



Issuance of 7.250% Senior Unsecured Notes Due 2021. On April 1, 2014, we completed a private placement add-on of $150.0 million of the 7.250% senior unsecured notes due 2021.  We filed with the SEC a registration statement on Form S-4 to exchange these notes for substantially identical notes that are registered under the Securities Act and commenced an exchange offer on April 28, 2014. The exchange offer was completed during the second quarter of 2014.

Redemption of 8.875% Senior Unsecured Notes Due 2018. On April 1, 2014, we redeemed all $175.0 million of the 8.875% senior unsecured notes due in 2018 from their holders.  In conjunction with the redemption, the Partnership incurred a debt prepayment premium of $7.8 million and a non-cash charge of $3.9 million for the write-off of unamortized debt issuance costs and unamortized debt discount related to the redemption of the senior unsecured notes.

For a more detailed discussion regarding our financing activities, see “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Subsequent Events

Disposition of Floating Storage Assets. On February 12, 2015, we sold six liquefied petroleum gas pressure barges, collectively referred to as 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.         

Quarterly Distribution.   On January 22, 2015, we declared a quarterly cash distribution of $0.8125 per common unit for the fourth quarter of 2014, or $3.25 per common unit on an annualized basis, which was paid on February 13, 2015 to unitholders of record as of February 6, 2015. Additionally, we paid a distribution to our general partner in the amount of $4.4 million. Of this amount, $0.7 million is related to the base general partner distribution and $3.7 million represents incentive distribution rights paid to our general partner.

Common Unit Grants.    On January 5, 2015, we issued 84,750 restricted common units under our long-term incentive plan to the executive officers of our general partner and certain Martin Resource Management employees who provide services to us. These restricted units vest 100% on January 5, 2018.

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, 2014 and 2013:

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.
 
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 $0.2 million.
Depreciation

44


Depreciation expense is computed using the straight-line method over the useful life of the assets.
 
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 $7.2 million, resulting in a corresponding reduction in net income.
Impairment of Long-Lived Assets
We periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of the assets may not be recoverable. These evaluations are based on undiscounted cash flow projections over the remaining useful life of the asset. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows. Any impairment loss is measured as the excess of the asset's carrying value over its fair value.
 
Our impairment analyses require management to use judgment in estimating future cash flows and useful lives, as well as assessing the probability of different outcomes.
 
Applying this impairment review methodology, we recorded an impairment charge of $3.4 million in our Marine Transportation segment in 2014. No impairment was recorded in 2013.

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.
 
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.
 
We completed the most recent review of goodwill as of August 31, 2014 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.
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.
 
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.
 
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.
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.
 
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.
Environmental Liabilities

45


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.
 
Estimating environmental liabilities requires significant management judgment as well as possible use of third party specialists knowledgeable in such matters.
 
Environmental liabilities have not adversely affected our results of operations or financial condition in the past, and we do not anticipate that they will in the future.

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, 2014 , 2013 and 2012 , the conflicts committee of our general partner (“Conflicts Committee”) approved reimbursement amounts of $12.5 million, $10.6 million and $7.6 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

46


of such an entity is generally determined by the unit's yield, which in turn is based on the amount of cash distributions the entity pays to a unitholder.

EBITDA, adjusted EBITDA and distributable cash flow should not be considered alternatives to, or more meaningful than, net income, cash flows from operating activities, or any other measure presented in accordance with U.S. GAAP. Our method of computing these measures may not be the same method used to compute similar measures reported by other entities.

Non-GAAP Financial Measures

The following table reconciles the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the years ended December 31, 2014 , 2013 , and 2012 , 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
 
2012
 
 
 
 
 
 
Net income (loss)
$
(11,705
)
 
$
(13,354
)
 
$
101,987

Less: (Income) loss from discontinued operations, net of income taxes
5,338

 
(1,208
)
 
(64,865
)
Income (loss) from continuing operations
(6,367
)
 
(14,562
)
 
37,122

Adjustments:
 
 
 
 
 
Interest expense
42,203

 
42,495

 
30,665

Income tax expense
1,137

 
753

 
3,557

Depreciation and amortization
68,830

 
50,962

 
42,063

EBITDA
105,803

 
79,648

 
113,407

Adjustments:
 
 
 
 
 
Equity in (income) loss of unconsolidated entities
(5,466
)
 
53,048

 
1,113

(Gain) loss on sale of property, plant and equipment
1,353

 
(217
)
 
795

Gain on sale of equity method investment

 
(750
)
 
(486
)
Gain on involuntary conversion of property, plant and equipment

 
(909
)
 

Impairment of long lived asset
3,445

 

 

Unrealized mark to market on commodity derivatives
818

 

 

Reduction in fair value of investment in Cardinal due to purchase of the controlling interest
30,102

 

 

Debt prepayment premium
7,767

 
272

 
2,470

Distributions from unconsolidated entities
4,323

 
3,476

 
3,961

Mont Belvieu indemnity escrow payment

 

 
(375
)
Unit-based compensation
817

 
911

 
385

Adjusted EBITDA
148,962

 
135,479

 
121,270

Adjustments:
 
 
 
 
 
Interest expense
(42,203
)
 
(42,495
)
 
(30,665
)
Income tax expense
(1,137
)
 
(753
)
 
(3,557
)
Amortization of deferred debt issuance costs
6,263

 
3,700

 
3,290

Amortization of debt discount
1,305

 
306

 
581

Amortization of debt premium
(245
)
 

 

Payments of installment notes payable and capital lease obligations

 
(307
)
 
(279
)
Deferred income taxes

 

 
402

Payments for plant turnaround costs
(3,974
)
 

 
(2,107
)
Maintenance capital expenditures
(14,556
)
 
(11,445
)
 
(8,658
)
Distributable Cash Flow
$
94,415

 
$
84,485

 
$
80,277


Results of Operations


47


The results of operations for the years ended December 31, 2014 , 2013 , and 2012 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, 2014 , 2013 , and 2012 .  
 
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, 2014 and 2013 and the natural gas gathering and processing assets for the year ended December 31, 2012. 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, 2014:
 

 
 

 
 

 
 

 
 

 
 

Terminalling and storage
$
326,654

 
$
(5,191
)
 
$
321,463

 
$
27,007

 
$
(2,014
)
 
$
24,993

Natural gas services
1,013,835

 

 
1,013,835

 
30,610

 
3,964

 
34,574

Sulfur services
215,471

 

 
215,471

 
25,656

 
(6,191
)
 
19,465

Marine transportation
97,049

 
(5,677
)
 
91,372

 
3,310

 
4,241

 
7,551

Indirect selling, general and administrative

 

 

 
(18,712
)
 

 
(18,712
)
Total
$
1,653,009

 
$
(10,868
)
 
$
1,642,141

 
$
67,871

 
$

 
$
67,871

 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2013:
 

 
 

 
 

 
 

 
 

 
 

Terminalling and storage
$
341,966

 
$
(4,756
)
 
$
337,210

 
$
35,282

 
$
(2,427
)
 
$
32,855

Natural gas services
966,909

 

 
966,909

 
28,003

 
2,521

 
30,524

Sulfur services
213,124

 

 
213,124

 
26,002

 
(4,491
)
 
21,511

Marine transportation
99,511

 
(4,015
)
 
95,496

 
9,014

 
4,397

 
13,411

Indirect selling, general and administrative

 

 

 
(16,837
)
 

 
(16,837
)
Total
$
1,621,510

 
$
(8,771
)
 
$
1,612,739

 
$
81,464

 
$

 
$
81,464

 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2012:
 

 
 

 
 

 
 

 
 

 
 

Terminalling and storage
$
322,175

 
$
(4,652
)
 
$
317,523

 
$
27,944

 
$
(2,541
)
 
$
25,403

Natural gas services
825,506

 

 
825,506

 
13,924

 
1,471

 
15,395

Sulfur services
261,584

 

 
261,584

 
37,262

 
4,647

 
41,909

Marine transportation
88,815

 
(3,067
)
 
85,748

 
6,751

 
(3,577
)
 
3,174

Indirect selling, general and administrative

 

 

 
(12,046
)
 

 
(12,046
)
Total
$
1,498,080

 
$
(7,719
)
 
$
1,490,361

 
$
73,835

 
$

 
$
73,835



48


Terminalling and Storage Segment

Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
(In thousands)
 
 
Revenues:
 
 
 
 
 
 
 
Services
$
135,697

 
$
120,717

 
$
14,980

 
12%
Products
190,957

 
221,249

 
(30,292
)
 
(14)%
Total revenues
326,654

 
341,966

 
(15,312
)
 
(4)%
 
 
 
 
 
 
 
 
Cost of products sold
175,246

 
197,974

 
(22,728
)
 
(11)%
Operating expenses
83,504

 
74,441

 
9,063

 
12%
Selling, general and administrative expenses
3,565

 
3,238

 
327

 
10%
Depreciation and amortization
37,622

 
31,823

 
5,799

 
18%
 
26,717

 
34,490

 
(7,773
)
 
(23)%
Other operating income
290

 
792

 
(502
)
 
63%
Operating income
$
27,007

 
$
35,282

 
$
(8,275
)
 
(23)%
 
 
 
 
 
 
 
 
Lubricant sales volumes (gallons)
32,418

 
39,342

 
(6,924
)
 
(18)%
Shore-based throughput volumes (gallons)
253,262

 
270,522

 
(17,260
)
 
(6)%
Smackover refinery throughput volumes (barrels per day)
6,159

 
6,912

 
(753
)
 
(11)%
Corpus Christi crude terminal throughput volumes (barrels per day)
164,223

 
108,652

 
55,571

 
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.

Depreciation and amortization.   The increase in depreciation and amortization is due to the impact of recent capital expenditures.


49


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.

Comparative Results of Operations for the Twelve Months Ended December 31, 2013 and 2012
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2013
 
2012
 
 
 
(In thousands)
 
 
Revenues:
 
 
 
 
 
 
 
Services
$
120,717

 
$
94,895

 
$
25,822

 
27%
Products
221,249

 
227,280

 
(6,031
)
 
(3)%
Total revenues
341,966

 
322,175

 
19,791

 
6%
 
 
 
 
 
 
 
 
Cost of products sold
197,974

 
207,699

 
(9,725
)
 
(5)%
Operating expenses
74,441

 
58,766

 
15,675

 
27%
Selling, general and administrative expenses
3,238

 
4,671

 
(1,433
)
 
(31)%
Depreciation and amortization
31,823

 
22,976

 
8,847

 
39%
 
34,490

 
28,063

 
6,427

 
23%
Other operating income (loss)
792

 
(119
)
 
911

 
766%
Operating income
$
35,282

 
$
27,944

 
$
7,338

 
26%
 
 
 
 
 
 
 
 
Lubricant sales volumes (gallons)
39,342

 
38,107

 
1,235

 
3%
Shore-based throughput volumes (gallons)
270,522

 
218,494

 
52,028

 
24%
Smackover refinery throughput volumes (barrels per day)
6,912

 
5,994

 
918

 
15%
Corpus Christi crude terminal (barrels per day)
108,652

 
55,529

 
53,123

 
96%

Services revenues. Services revenue increased primarily due to $17.7 million attributable to our new crude terminal in Corpus Christi, Texas, which was placed into service in May 2012. In addition, $5.2 million of the increase is due to revenues generated by our Talen's acquisition on December 31, 2012. The remaining increase is primarily due to increased throughput at the Smackover refinery.

Products revenues. An 8% increase in sales volumes at our blending and packaging facilities resulted in a $10.7 million positive impact on product revenues. Product sales volumes from our shore-based terminals decreased 7%, resulting in a $5.6 million reduction in product revenues. The average sales price at our blending and packaging facilities decreased 5%, resulting in a $7.8 million decrease in product revenues. The average sales price at our shore-based terminals decreased 4%, resulting in a $3.3 million decrease in product revenues.
   
Cost of products sold.   An 8% increase in sales volumes at our blending and packaging facilities resulted in a $9.4 million increase in cost of products sold, which was partially offset by a 7% decrease in sales volumes at our shore-based terminals, resulting in a $5.2 million decrease in cost of products sold. Decreased average cost at our blending and packaging facilities of 8% resulted in a decrease of $10.0 million in cost of products sold. Decreased average cost at our shore-based terminals of 5% resulted in a decrease of $3.9 million in cost of products sold.

Operating expenses. Increased expenses at our specialty terminals accounted for $6.9 million of the total increase, primarily attributable to the Corpus Christi crude terminal. Our shore-based terminal expenses increased $1.7 million primarily due to the acquisition of the Talen's terminals. In addition, $7.1 million of the increase is attributable to the Smackover refining assets, primarily as a result of increased utilities and repair and maintenance expense.

Selling, general and administrative expenses.   The decrease in selling, general and administrative expenses is primarily related to decreased advertising expense in our blending and packaging operations.

Depreciation and amortization.   The increase in depreciation and amortization is due to the impact of recent capital expenditures.


50


Other operating income (loss).  Other operating income in 2013 is primarily attributable to a gain on an involuntary conversion of property, plant and equipment.

Natural Gas Services Segment

Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
(In thousands)
 
 
Revenues:
 
 
 
 
 
 
 
Services
$
22,991

 
$

 
$
22,991

 
 
Products
990,844

 
966,909

 
23,935

 
2%
Total revenues
1,013,835

 
966,909

 
46,926

 
5%
 
 
 
 
 
 
 
 
Cost of products sold
950,742

 
930,315

 
20,427

 
2%
Operating expenses
10,797

 
3,918

 
6,879

 
176%
Selling, general and administrative expenses
8,596

 
3,731

 
4,865

 
130%
Depreciation and amortization
13,090

 
962

 
12,128

 
1,261%
 
30,610

 
27,983

 
2,627

 
9%
Other operating income

 
20

 
(20
)
 
(100)%
Operating income
$
30,610

 
$
28,003

 
$
2,607

 
9%
 
 
 
 
 
 
 
 
Distributions from unconsolidated entities
$
4,323

 
$
3,476

 
$
847

 
24%
 
 
 
 
 
 
 
 
NGLs Volumes (barrels)
19,793

 
14,874

 
4,919

 
33%

Revenues. Services revenue for 2014 are attributable to the acquisition of Cardinal on August 29, 2014. NGL sales volumes increased 33%, positively impacting product revenues by $246.2 million.  Our NGL average sales price per barrel decreased $14.95, or 23%, resulting in an offsetting decrease to product revenues of $222.3 million.

Cost of products sold .   Our average cost per barrel decreased $14.51, or 23%.  Our margins decreased by $0.43, or 17.0%, per barrel during the period. The impact of lower prices reduced cost of products sold by $287.2 million while the growth in volumes increased our costs $307.7 million.

Operating expenses .  Operating expenses increased $5.3 million due to the acquisition of Cardinal. In addition, compensation costs and repair and maintenance expenses increased $0.7 million and $0.6 million, respectively, as a result of the acquisition of NGL storage assets from Martin Resource Management.

Selling, general and administrative expenses .  Selling, general and administrative expenses increased $2.7 million due to the acquisition of Cardinal. Also contributing to the increase was compensation expense of $1.0 million and property taxes of $0.5 million.

Depreciation and amortization. Depreciation and amortization increased due to the acquisition of Cardinal.


51


Comparative Results of Operations for the Twelve Months Ended December 31, 2013 and 2012

 
Year Ended December 31,
 
Variance
 
Percent Change
 
2013
 
2012
 
 
 
(In thousands)
 
 
Revenues
$
966,909

 
$
825,506

 
$
141,403

 
17%
Cost of products sold
930,315

 
803,195

 
127,120

 
16%
Operating expenses
3,918

 
3,550

 
368

 
10%
Selling, general and administrative expenses
3,731

 
4,236

 
(505
)
 
(12)%
Depreciation and amortization
962

 
601

 
361

 
60%
 
27,983

 
13,924

 
14,059

 
101%
Other operating income
20

 

 
20

 

Operating income
$
28,003

 
$
13,924

 
$
14,079

 
101%
 
 
 
 
 
 
 
 
Distributions from unconsolidated entities
$
3,476

 
$
3,961

 
$
(485
)
 
(12)%
 
 
 
 
 
 
 
 
NGLs Volumes (barrels)
14,874

 
12,080

 
2,794

 
23%

Revenues. Natural gas services sales volumes increased 23%, positively impacting revenues by $181.6 million, primarily as a result of us entering the Louisiana butane market during April 2012.  Our NGL average sales price per barrel decreased $3.33, or 5%, resulting in an offsetting decrease to revenues of $40.2 million.

Cost of products sold .   Our average cost per barrel decreased $3.94, or 6%.  Our margins increased $0.61, or 33%, per barrel during the period, primarily related to increased margins resulting from our entrance into the Louisiana butane market in April 2012. The impact of lower prices reduced cost of products sold $58.6 million while the growth in volumes increased our costs $185.7 million.

Operating expenses .  Operating expenses increased $0.4 million primarily due to higher property and liability premiums.

Selling, general and administrative expenses .  Selling, general and administrative expenses decreased $0.5 million primarily due to a decrease in bad debt expense of $1.0 million, offset by increased compensation expense of $0.3 million.

Depreciation and amortization. The increase in depreciation and amortization is due to the impact of recent capital expenditures.


52


Sulfur Services Segment

Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
 
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
(In thousands)
 
 
Revenues:
 
 
 
 
 
 
 
Services
$
12,149

 
$
12,004

 
$
145

 
1%
Products
203,322

 
201,120

 
2,202

 
1%
Total revenues
215,471

 
213,124

 
2,347

 
1%
 
 
 
 
 
 
 
 
Cost of products sold
160,144

 
158,085

 
2,059

 
1%
Operating expenses
17,136

 
16,975

 
161

 
1%
Selling, general and administrative expenses
4,359

 
4,083

 
276

 
7%
Depreciation and amortization
8,176

 
7,979

 
197

 
2%
Operating income
$
25,656

 
$
26,002

 
$
(346
)
 
(1)%
 
 
 
 
 
 
 
 
Sulfur (long tons)
847.7

 
836.6

 
11.1

 
1%
Fertilizer (long tons)
306.6

 
273.0

 
33.6

 
12%
Sulfur services volumes (long tons)
1,154.3

 
1,109.6

 
44.7

 
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.



53


Comparative Results of Operations for the Twelve Months Ended December 31, 2013 and 2012
 
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2013
 
2012
 
 
 
(In thousands)
 
 
Revenues:
 
 
 
 
 
 
 
Services
$
12,004

 
$
11,702

 
$
302

 
3%
Products
201,120

 
249,882

 
(48,762
)
 
(20)%
Total revenues
213,124

 
261,584

 
(48,460
)
 
(19)%
 
 
 
 
 
 
 
 
Cost of products sold
158,085

 
195,314

 
(37,229
)
 
(19)%
Operating expenses
16,975

 
17,404

 
(429
)
 
(2)%
Selling, general and administrative expenses
4,083

 
3,975

 
108

 
3%
Depreciation and amortization
7,979

 
7,371

 
608

 
8%
 
26,002

 
37,520

 
(11,518
)
 
(31)%
Other operating loss

 
(258
)
 
258

 
100%
Operating income
$
26,002

 
$
37,262

 
$
(11,260
)
 
(30)%
 
 
 
 
 
 
 
 
Sulfur (long tons)
836.6

 
959.9

 
(123.3
)
 
(13)%
Fertilizer (long tons)
273.0

 
306.1

 
(33.1
)
 
(11)%
Sulfur services volumes (long tons)
1,109.6

 
1,266.0

 
(156.4
)
 
(12)%

Revenues.   The increase in service revenue is attributable to increased contract rates. Product revenue declined $28.3 million as a result of a 12% decrease in sales volumes. The volume reduction was primarily related to the conversion of a buy/sell contract with a major customer to a fee-based handling contract. Additionally, product revenues decreased $20.4 million due to an 8% decline in overall sales prices. The sales price of sulfur and fertilizer products decreased 14% and 3%, respectively.

Cost of products sold.   A 12% decrease in sales volumes reduced cost of products sold by $22.3 million. An 8% decrease in prices reduced our cost by an additional $14.9 million. Margin per ton decreased $4.32, or 10%, resulting in a decline in gross margin of $11.5 million, primarily attributable to the decline in market prices discussed above. Also contributing to the decline in the gross margin of our fertilizer business was significant downtime attributable to plant turnarounds at our Plainview and Neches production facilities. Costs associated with these turnarounds were $1.2 million higher than the same period of 2012.

Operating expenses.   Our operating expenses decreased due to $0.8 million less in outside towing expenses offset by increased compensation expense of $0.6 million.

Selling, general and administrative expenses.   Selling, general and administrative expenses increased as a result of increased compensation expense.

Depreciation and amortization.   The increase in depreciation and amortization is due to the impact of recent capital expenditures.

Other operating loss.   Other operating loss represents losses on the disposal of property, plant and equipment in 2012.


54


Marine Transportation Segment

Comparative Results of Operations for the Twelve Months Ended December 31, 2014 and 2013
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
(In thousands)
 
 
Revenues
$
97,049

 
$
99,511

 
$
(2,462
)
 
(2)%
Operating expenses
77,964

 
79,306

 
(1,342
)
 
(2)%
Selling, general and administrative expenses
1,084

 
1,347

 
(263
)
 
(20)%
Impairment of long lived asset
(3,445
)
 

 
(3,445
)
 

Depreciation and amortization
9,942

 
10,198

 
(256
)
 
(3)%
 
11,504

 
8,660

 
2,844

 
33%
Other operating income (loss)
(1,304
)
 
354

 
(1,658
)
 
(468)%
Operating income
$
10,200

 
$
9,014

 
$
1,186

 
13%

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.

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.

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.

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, 2013 and 2012

 
Year Ended December 31,
 
Variance
 
Percent Change
 
2013
 
2012
 
 
 
(In thousands)
 
 
Revenues
$
99,511

 
$
88,815

 
$
10,696

 
12%
Operating expenses
79,306

 
70,342

 
8,964

 
13%
Selling, general and administrative expenses
1,347

 
566

 
781

 
138%
Depreciation and amortization
10,198

 
11,115

 
(917
)
 
(8)%
 
8,660

 
6,792

 
1,868

 
28%
Other operating income (loss)
354

 
(41
)
 
395

 
963%
Operating income
$
9,014

 
$
6,751

 
$
2,263

 
34%
 

55


Inland Revenues .  An $11.2 million increase in inland revenues is primarily attributable to $8.4 million from the Talen's acquisition and $3.1 million from the Florida Marine Assets.

Offshore Revenues .  Revenue from offshore operations increased $0.4 million due to an increase in utilization. Ancillary revenue, primarily fuel, decreased $1.0 million.
 
Operating expenses .  Operating expenses increased $9.0 million as a result of costs and expenses associated with the acquisitions of the Talen's and Florida Marine Assets.

Selling, general and administrative expenses .  Selling, general and administrative expenses increased primarily as a result of the 2012 period including the recovery of a previously uncollectible customer receivable.

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) increased as a result of gains recognized on the disposal of equipment in 2013.

Equity in Earnings (Loss) of Unconsolidated Entities
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
(In thousands)
 
 
Equity in earnings of WTLPG
$
3,076

 
$

 
3,076

 
 
Equity in earnings (loss) of Cardinal
892

 
(54,226
)
 
55,118

 
102%
Equity in earnings of MET
1,498

 
1,738

 
(240
)
 
14%
Equity in loss of Caliber

 
(560
)
 
560

 
100%
    Equity in loss of unconsolidated entities
$
5,466

 
$
(53,048
)
 
$
58,514

 
110%

The investment in WTLPG was acquired in May 2014.    

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 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.

The investment in Caliber was acquired in June 2012 and sold in November 2013.

 
Year Ended December 31,
 
Variance
 
Percent Change
 
2013
 
2012
 
 
 
(In thousands)
 
 
Equity in loss of Cardinal
$
(54,226
)
 
$
(943
)
 
$
(53,283
)
 
5,650%
Equity in earnings of MET
1,738

 

 
1,738

 

Equity in loss of Caliber
(560
)
 
(190
)
 
(370
)
 
195%
Equity in earnings of Pecos Valley

 
20

 
(20
)
 
(100)%
    Equity in loss of unconsolidated entities
$
(53,048
)
 
$
(1,113
)
 
$
(51,935
)
 
4,666%

Equity in loss of Cardinal in 2013 includes $54.1 million of impairment related to the long-lived assets of Monroe, a subsidiary of Cardinal.


56


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.

Initial equity in earnings (loss) of Caliber and Pecos Valley were recorded in June 2012. The Caliber and Pecos Valley investments were sold in November 2013 and August 2012, respectively.

Interest Expense

Comparative Components of Interest Expense, Net for the Twelve Months Ended December 31, 2014 and 2013     
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
(In thousands)
 
 
Revolving loan facility
$
12,684

 
$
7,683

 
$
5,001

 
65%
8.875 % senior unsecured notes
3,882

 
15,531

 
(11,649
)
 
(75)%
7.250 % senior unsecured notes
26,252

 
16,061

 
10,191

 
63%
Amortization of deferred debt issuance costs
6,263

 
3,700

 
2,563

 
69%
Amortization of debt discount and premium
1,059

 
306

 
753

 
246%
Cash settlements on interest rate swaps
(6,692
)
 

 
(6,692
)
 

Other
944

 
310

 
634

 
205%
Capitalized interest
(1,437
)
 
(1,096
)
 
(341
)
 
(31)%
Interest income
(752
)
 

 
(752
)
 
 
Total interest expense, net
$
42,203

 
$
42,495

 
$
(292
)
 
(1)%
    
Comparative Components of Interest Expense, Net for the Twelve Months Ended December 31, 2013 and 2012
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2013
 
2012
 
 
 
(In thousands)
 
 
Revolving loan facility
$
7,683

 
$
9,644

 
$
(1,961
)
 
(20)%
8.875 % senior unsecured notes
15,531

 
16,413

 
(882
)
 
(5)%
7.250 % senior unsecured notes
16,061

 

 
16,061

 
 
Amortization of deferred debt issuance costs
3,700

 
3,290

 
410

 
12%
Amortization of debt discount
306

 
581

 
(275
)
 
(47)%
Interest costs attributable to the recast financial information of certain blending and packaging assets

 
1,549

 
(1,549
)
 
(100)%
Other
310

 
324

 
(14
)
 
(4)%
Capitalized interest
(1,096
)
 
(1,136
)
 
40

 
4%
Total interest expense, net
$
42,495

 
$
30,665

 
$
11,830

 
39%

Indirect Selling, General and Administrative Expenses

 
Year Ended December 31,
 
Variance
 
Percent Change
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
2013
 
2012
 
 
 
(In thousands)
 
 
 
(In thousands)
 
 
Indirect selling, general and administrative expenses
$
18,712

 
$
16,837

 
$
1,875

 
11%
 
$
16,837

 
$
12,046

 
$
4,791

 
40%


57


The increase in indirect selling, general and administrative expenses for both 2014 and 2013 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 Management personnel that provide such centralized services. GAAP also permits other methods for allocation of these expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these expenses between Martin Resource Management and us is subject to a number of judgments and estimates, regardless of the method used. We can provide no assurances that our method of allocation, in the past or in the future, is or will be the most accurate or appropriate method of allocation for these expenses. Other methods could result in a higher allocation of selling, general and administrative expense to us, which would reduce our net income.

Under the Omnibus Agreement, we are required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. The Conflicts Committee approved the following reimbursement amounts:

 
Year Ended December 31,
 
Variance
 
Percent Change
 
Year Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
2013
 
2012
 
 
 
(In thousands)
 
 
 
(In thousands)
 
 
Conflicts Committee approved reimbursement amount
$
12,535

 
$
10,621

 
$
1,914

 
18%
 
$
10,621

 
$
7,593

 
$
3,028

 
40%

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 are cash flows generated by our operations and access to debt and equity markets, both public and private.  We have recently completed several transactions that have improved our liquidity position, helping fund our acquisitions and organic growth projects.  

As a result of these financing activities, discussed in further detail below, 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. However, it may be necessary to raise additional funds to finance our future capital requirements.

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
 
On June 27, 2014, we increased the maximum amount of borrowings and letters of credit under our revolving credit facility from $637.5 million to $900.0 million utilizing the accordion feature of our revolving credit facility.

In April 2014, we completed a $150.0 million private placement add-on of 7.250% senior unsecured notes due in 2021. We 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.

On April 1, 2014, we redeemed all $175.0 million of the 8.875% senior unsecured notes due in 2018 from their holders. 


58


On February 18, 2014, we increased the maximum amount of borrowings and letters of credit under our revolving credit facility from $600.0 million to $637.5 million utilizing the accordion feature of our revolving credit facility.

Recent Equity Markets Activity

On September 29, 2014, we 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 $122.2 million.  Our general partner contributed $2.6 million in cash to us in conjunction with the issuance in order to maintain its 2.0% general partner interest in us.  The net proceeds from the common unit issuance were used to pay down outstanding amounts under our revolving credit facility.

On August 29, 2014, we closed a private equity sale with Martin Resource Management, under which Martin Resource Management invested $45.0 million 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 our common units for the 10 trading days ending August 8, 2014 (per unit value is in dollars, not thousands). In connection with the issuance of these common units, our general partner contributed $0.9 million in order to maintain its 2.0% general partner interest in us. The proceeds from the common unit issuance were used to pay down outstanding amounts under our revolving credit facility.

On May 12, 2014, we 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 $143.4 million.  Our general partner contributed $3.1 million in cash to us in conjunction with the issuance in order to maintain its 2.0% general partner interest in us.  The net proceeds from the common unit issuance were used to pay down outstanding amounts under our revolving credit facility.
    
In March 2014, we entered into an equity distribution agreement with the Sales Agents for the ongoing distribution of our common units. Pursuant to this program, we offered and sold common unit equity through the Sales Agents for aggregate proceeds of $21.1 million for the year ended December 31, 2014. We paid $0.4 million in compensation to the Sales Agents for the year ended December 31, 2014. Under the program, we 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. We also received capital contributions from our general partner of $0.4 million during the year ended December 31, 2014 related to these issuances to maintain its 2.0% general partner interest in us. The net proceeds from the common unit issuances were used to pay down outstanding amounts under our revolving credit facility.
 
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 2015.

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, 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 :
 
Years Ended December 31,
 
Variance
 
Percent Change
 
2014
 
2013
 
 
 
(In thousands)
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
Operating activities
$
115,580

 
$
112,183

 
$
3,397

 
3%
Investing activities
(324,663
)
 
(186,777
)
 
(137,886
)
 
(74)%
Financing activities
192,583

 
85,974

 
106,609

 
124%
Net increase (decrease) in cash and cash equivalents
$
(16,500
)
 
$
11,380

 
$
(27,880
)
 
(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

59


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.

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 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.

Cash Flows - Twelve Months Ended December 31, 2013 Compared to Twelve Months Ended December 31, 2012

The following table details the cash flow changes between the twelve months ended December 31, 2013 and 2012 :
 
Years Ended December 31,
 
Variance
 
Percent Change
 
2013
 
2012
 
 
 
(In thousands)
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
Operating activities
$
112,183

 
$
32,678

 
$
79,505

 
243%
Investing activities
(186,777
)
 
(15,036
)
 
(171,741
)
 
(1,142)%
Financing activities
85,974

 
(12,746
)
 
98,720

 
775%
Net increase (decrease) in cash and cash equivalents
$
11,380

 
$
4,896

 
$
6,484

 
132%

Net cash provided by operating activities increased for the year ended December 31, 2013 due to a $76.0 million favorable 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.

Net cash used in investing activities increased for the year ended December 31, 2013 due to a $314.2 million increase in cash used by discontinued operations, primarily resulting from the $274.8 million in proceeds from the 2012 sale of the Prism assets. In addition, acquisition expenditures decreased $193.3 million in 2013. Also positively impacting 2012 was $56.0 million of proceeds from the sale of acquired assets.

Net cash provided by (used in) financing activities increased for the year ended December 31, 2013 due to: (i) lower expenditures of $146.0 million related to assets purchased from Martin Resource Management; (ii) $168.0 million increase in net proceeds from long-term debt (borrowings less repayments); (iii) $198.3 million decrease in proceeds from equity offerings; (iv) $8.1 million in increased cash distributions; and (v) an $8.9 million increase 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:

60


 
Three Months Ended December 31,
 
Years Ended December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
 
(In thousands)
Expansion capital expenditures
$
29,465

 
$
26,483

 
$
74,727

 
$
87,601

Maintenance capital expenditures
1,296

 
3,972

 
14,556

 
11,445

Plant turnaround costs
(26
)
 

 
3,974

 

    Total
$
30,735

 
$
30,455

 
$
93,257

 
$
99,046


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 .

Expansion capital expenditures were made primarily in our Terminalling and Storage segment during the three and twelve months ended December 31, 2013. 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. 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, 2013.

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.
 
As of December 31, 2014, we had $902.0 million of outstanding indebtedness, consisting of outstanding borrowings of $402.0 million (including unamortized premium) in senior unsecured notes and $500.0 million under our revolving credit facility.
 
Total Contractual Cash Obligations.   A summary of our total contractual cash obligations as of December 31, 2014, is as follows (dollars in thousands):
 
 
Payments due by period
Type of Obligation
Total
Obligation
 
Less than
One Year
 
1-3
Years
 
3-5
Years
 
Due
Thereafter
Revolving credit facility
$
500,000

 
$

 
$

 
$
500,000

 
$

2021 senior unsecured notes
402,005

 

 

 

 
402,005

Throughput commitment
39,405

 
5,109

 
10,716

 
11,416

 
12,164

Operating leases
38,301

 
11,421

 
16,176

 
5,082

 
5,622

Interest expense: ¹
 

 
 

 
 

 
 

 
 

Revolving credit facility
47,211

 
14,591

 
29,182

 
3,438

 

2021 Senior unsecured notes
178,833

 
29,000

 
58,000

 
58,000

 
33,833

Total contractual cash obligations
$
1,205,755

 
$
60,121

 
$
114,074

 
$
577,936

 
$
453,624


¹Interest commitments are estimated using our current interest rates for the respective credit agreements over their remaining terms.

Letter of Credit .  At December 31, 2014, we had outstanding irrevocable letters of credit in the amount of $8.6 million, which were issued under our revolving credit facility.


61


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' 7.250% 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.  

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, 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

62


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

On November 10, 2005, we entered into a $225.0 million multi-bank credit facility, which was subsequently amended most recently on June 27, 2014 when we increased our maximum amount of borrowings to $900.0 million utilizing the accordion feature of our revolving credit facility.

As of December 31, 2014, we had $500.0 million outstanding under the revolving credit facility and $8.6 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 $391.4 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, 2014, we have the ability to incur approximately $104.2 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, 2014, the level of outstanding draws on our credit facility ranged from a low of $220.0 million to a high of $659.0 million.

The credit facility is guaranteed by substantially all of our subsidiaries. Obligations under the credit facility are secured by first priority liens on substantially all of our assets and those of the guarantors, including, without limitation, inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in our subsidiaries 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
Base Rate Loans
 
Eurodollar
Rate
Loans
 
Letters of Credit
Less than 3.00 to 1.00
0.75
%
 
1.75
%
 
1.75
%
Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00
1.00
%
 
2.00
%
 
2.00
%
Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00
1.25
%
 
2.25
%
 
2.25
%
Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00
1.50
%
 
2.50
%
 
2.50
%
Greater than or equal to 4.50 to 1.00
1.75
%
 
2.75
%
 
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, 2014 is 2.75%.  


63


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 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 March 2, 2015, our outstanding indebtedness includes $493.0 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 Terminalling and Storage and Marine Transportation segments and the molten sulfur business are typically not impacted by seasonal fluctuations. 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 2014, 2013 or 2012.  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

64


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 2014, 2013 or 2012.

65



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.     

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 2.92% as of December 31, 2014.  Based on the amount of unhedged floating rate debt owed by us on December 31, 2014, the impact of a 1% 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 $385.1 million as of December 31, 2014, based on market prices of similar debt at December 31, 2014.   Market risk is estimated as the potential decrease in fair value of our long-term debt resulting from a hypothetical increase of 1% in interest rates. Such an increase in interest rates would result in approximately an $18.1 million decrease in fair value of our long-term debt at December 31, 2014.

66



Item 8.
Financial Statements and Supplementary Data

The following financial statements of Martin Midstream Partners L.P. (Partnership) are listed below:

 
Page
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Capital for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements

67


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, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 2014.  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 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.  An audit also includes 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 consolidated financial position of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2014 and 2013 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Martin Midstream Partners L.P. and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 2, 2015 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
March 2, 2015



68


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, 2014, based on criteria established in Internal Control—Integrated Framework (1992) 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, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 

On August 29, 2014, Martin Midstream Partners L.P. acquired the remaining 57.8% ownership interest in Cardinal Gas Storage Partners LLC (Cardinal) which it did not previously own, and management excluded from its assessment of the effectiveness of Martin Midstream's internal control over financial reporting as of December 31, 2014, Cardinal's internal control over financial reporting associated with total assets of $480,981,387 and total revenues of $22,990,774 included in the consolidated financial statements of Martin Midstream Partners L.P. and subsidiaries as of and for the year ended December 31, 2014. Our audit of internal control also excluded an evaluation of the internal control over financial reporting of Cardinal.     

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, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated March 2, 2015 expressed an unqualified opinion on those consolidated financial statements. 


/s/ KPMG LLP 


Dallas, Texas
March 2, 2015

69



MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
December 31,
 
2014
 
2013
Assets
 
 
 
Cash
$
42

 
$
16,542

Accounts and other receivables, less allowance for doubtful accounts of $1,620 and $2,492, respectively
134,173

 
163,855

Product exchange receivables
3,046

 
2,727

Inventories
88,718

 
94,902

Due from affiliates
14,512

 
12,099

Other current assets
6,772

 
7,353

Assets held for sale
40,488

 

Total current assets
287,751

 
297,478

 
 
 
 
Property, plant and equipment, at cost
1,343,674

 
929,183

Accumulated depreciation
(345,397
)
 
(304,808
)
Property, plant and equipment, net
998,277

 
624,375

 
 
 
 
Goodwill
23,802

 
23,802

Investment in unconsolidated entities
134,506

 
128,662

Debt issuance costs, net
13,118

 
15,659

Notes receivable - Martin Energy Trading LLC
15,000

 

Intangibles and other assets, net
81,465

 
7,943

 
$
1,553,919

 
$
1,097,919

Liabilities and Partners’ Capital
 
 
 
Trade and other accounts payable
$
125,332

 
$
142,951

Product exchange payables
10,396

 
9,595

Due to affiliates
4,872

 
2,596

Income taxes payable
1,174

 
1,204

Other accrued liabilities
21,801

 
20,242

Total current liabilities
163,575

 
176,588

 
 
 
 
Long-term debt
902,005

 
658,695

Other long-term obligations
2,668

 
2,219

Total liabilities
1,068,248

 
837,502

Commitments and contingencies


 


Partners’ capital
485,671

 
260,417

 
$
1,553,919

 
$
1,097,919


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
 
2012
Revenues:
 
 
 
 
 
Terminalling and storage *
$
130,506

 
$
115,965

 
$
90,243

Marine transportation *
91,372

 
95,496

 
85,748

Natural gas storage services
22,991

 

 

Sulfur services
12,149

 
12,004

 
11,702

Product sales: *
 
 
 
 
 
Natural gas services
990,844

 
966,909

 
825,506

Sulfur services
203,322

 
201,120

 
249,882

Terminalling and storage
190,957

 
221,245

 
227,280

 
1,385,123

 
1,389,274

 
1,302,668

Total revenues
1,642,141

 
1,612,739

 
1,490,361

 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
Cost of products sold: (excluding depreciation and amortization)
 
 
 
 
 
Natural gas services *
948,765

 
928,725

 
801,724

Sulfur services *
159,782

 
157,723

 
194,952

Terminalling and storage *
172,069

 
195,640

 
205,588

 
1,280,616

 
1,282,088

 
1,202,264

Expenses:
 
 
 
 
 
Operating expenses *
184,049

 
170,155

 
146,287

Selling, general and administrative *
36,316

 
29,236

 
25,494

Impairment of long lived assets
3,445

 

 

Depreciation and amortization
68,830

 
50,962

 
42,063

Total costs and expenses
1,573,256

 
1,532,441

 
1,416,108

Other operating income (loss)
(1,014
)
 
1,166

 
(418
)
Operating income
67,871

 
81,464

 
73,835

 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
Equity in earnings (loss) of unconsolidated entities
5,466

 
(53,048
)
 
(1,113
)
Debt prepayment premium
(7,767
)
 
(272
)
 
(2,470
)
Interest expense, net
(42,203
)
 
(42,495
)
 
(30,665
)
Reduction in fair value of investment in Cardinal due to the purchase of the controlling interest
(30,102
)
 

 

Other, net
1,505

 
542

 
1,092

Total other income (expense)
(73,101
)
 
(95,273
)
 
(33,156
)
Net income (loss) before taxes
(5,230
)
 
(13,809
)
 
40,679

Income tax expense
(1,137
)
 
(753
)
 
(3,557
)
Income (loss) from continuing operations
(6,367
)
 
(14,562
)
 
37,122

Income (loss) from discontinued operations, net of income taxes
(5,338
)
 
1,208

 
64,865

Net income (loss)
(11,705
)
 
(13,354
)
 
101,987

Less general partner's interest in net (income) loss
(3,503
)
 
267

 
(4,748
)
Less pre-acquisition income allocated to Parent

 

 
(4,622
)
Less loss allocable to unvested restricted units
32

 
40

 

Limited partner's interest in net income (loss)
$
(15,176
)
 
$
(13,047
)
 
$
92,617


*Related Party Transactions Shown Below

See accompanying notes to consolidated financial statements.


71

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


*Related Party Transactions Included Above
 
Year Ended December 31,
 
2014
 
2013
 
2012
Revenues:
 
 
 
 
 
Terminalling and storage
$
74,467

 
$
71,517

 
$
64,669

Marine transportation
24,389

 
24,654

 
17,494

Product sales
7,661

 
4,698

 
7,201

Costs and expenses:
 

 
 

 
 

Cost of products sold: (excluding depreciation and amortization)
 

 
 

 
 

Natural gas services
37,703

 
32,639

 
27,512

Sulfur services
18,390

 
18,161

 
16,968

          Terminalling and storage
36,341

 
48,868

 
48,375

Expenses:
 

 
 

 
 

Operating expenses
79,577

 
70,333

 
58,834

Selling, general and administrative
23,679

 
17,689

 
13,678


See accompanying notes to consolidated financial statements.

72

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



 
Year Ended December 31,
 
2014
 
2013
 
2012
Allocation of net income (loss) attributable to:
 
 
 
 
 
Limited partner interest:
 
 
 
 
 
 Continuing operations
$
(8,255
)
 
$
(14,227
)
 
$
30,915

 Discontinued operations
(6,921
)
 
1,180

 
61,702

 
$
(15,176
)
 
$
(13,047
)
 
$
92,617

General partner interest:
 
 
 
 
 
  Continuing operations
$
1,906

 
$
(291
)
 
$
1,585

  Discontinued operations
1,597

 
24

 
3,163

 
$
3,503

 
$
(267
)
 
$
4,748

 
 
 
 
 
 
Net income (loss) per unit attributable to limited partners:
 
 
 
 
 
Basic:
 
 
 
 
 
Continuing operations
$
(0.27
)
 
$
(0.54
)
 
$
1.32

Discontinued operations
(0.22
)
 
0.04

 
2.64

 
$
(0.49
)
 
$
(0.50
)
 
$
3.96

 
 
 
 
 
 
Weighted average limited partner units - basic
30,785

 
26,558

 
23,362

 
 
 
 
 
 
Diluted:
 
 
 
 
 
Continuing operations
$
(0.27
)
 
$
(0.54
)
 
$
1.32

Discontinued operations
(0.22
)
 
0.04

 
2.64

 
$
(0.49
)
 
$
(0.50
)
 
$
3.96

 
 
 
 
 
 
Weighted average limited partner units - diluted
30,785

 
26,558

 
23,365


See accompanying notes to consolidated financial statements.



73

MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)



 
Year Ended December 31,
 
2014
 
2013
 
2012
Net income (loss)
$
(11,705
)
 
$
(13,354
)
 
$
101,987

Other comprehensive income adjustments:
 
 
 
 
 
Changes in fair values of commodity cash flow hedges

 

 
126

Commodity cash flow hedging gains reclassified to earnings

 

 
(752
)
Other comprehensive loss

 

 
(626
)
Comprehensive income (loss)
$
(11,705
)
 
$
(13,354
)
 
$
101,361


See accompanying notes to consolidated financial statements.


74

MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(Dollars in thousands)


 
Partners’ Capital
 
 
 
 
 
Parent Net Investment
 


Common
 

General Partner
 
Accumulated
Comprehensive
Income
 
 
 
 
Units
 
Amount
 
Amount
 
Amount
 
Total
Balances – December 31, 2011
$
51,571

 
20,471,776

 
$
279,562

 
$
5,428

 
$
626

 
$
337,187

 
 
 
 
 
 
 
 
 
 
 
 
Net Income
4,622

 

 
92,617

 
4,748

 

 
101,987

Issuance of common units

 
6,095,000

 
194,170

 

 

 
194,170

Issuance of restricted units

 
6,250

 

 

 

 

General partner contribution

 

 

 
4,145

 

 
4,145

Cash distributions ($3.06 per unit)

 

 
(70,679
)
 
(5,849
)
 

 
(76,528
)
Excess purchase price over carrying value of acquired assets

 

 
(142,075
)
 

 

 
(142,075
)
Excess carrying value of the assets over the purchase price paid by Martin Resource Management

 

 
(4,268
)
 

 

 
(4,268
)
Unit-based compensation

 

 
385

 

 

 
385

Purchase of treasury units

 
(6,250
)
 
(222
)
 

 

 
(222
)
Contributions to parent
(56,193
)
 

 

 

 

 
(56,193
)
Adjustment in fair value of derivatives

 

 

 

 
(626
)
 
(626
)
Balances – December 31, 2012

 
26,566,776

 
349,490

 
8,472

 

 
357,962

 
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 
(13,087
)
 
(267
)
 

 
(13,354
)
Issuance of restricted units

 
64,500

 

 

 

 

Forfeiture of restricted units

 
(250
)
 

 

 

 

General partner contribution

 

 

 
37

 

 
37

Cash distributions ($3.11 per unit)

 

 
(82,735
)
 
(1,853
)
 

 
(84,588
)
Excess purchase price over carrying value of acquired assets

 

 
(301
)
 

 

 
(301
)
Unit-based compensation

 

 
911

 

 

 
911

Purchase of treasury units

 
(6,000
)
 
(250
)
 

 

 
(250
)
Balances – December 31, 2013

 
26,625,026

 
254,028

 
6,389

 

 
260,417

 
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 
(15,208
)
 
3,503

 

 
(11,705
)
Issuance of common units

 
8,743,386

 
331,728

 

 

 
331,728

Issuance of restricted units

 
8,900

 

 

 

 

Forfeiture of restricted units

 
(5,000
)
 

 

 

 

General partner contribution

 

 

 
7,007

 

 
7,007

Purchase of treasury units

 
(6,400
)
 
(277
)
 

 

 
(277
)
Cash distributions ($3.18 per unit)

 

 
(95,197
)
 
(2,171
)
 

 
(97,368
)
Excess purchase price over carrying value of acquired assets

 

 
(4,948
)
 

 

 
(4,948
)
Unit-based compensation

 

 
817

 

 

 
817

Balances – December 31, 2014
$

 
35,365,912

 
$
470,943

 
$
14,728

 
$

 
$
485,671


See accompanying notes to consolidated financial statements.

75

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


 
Year Ended December 31,
 
2014
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
(11,705
)
 
$
(13,354
)
 
$
101,987

Less: (Income) loss from discontinued operations
5,338

 
(1,208
)
 
(64,865
)
Net income (loss) from continuing operations
(6,367
)
 
(14,562
)
 
37,122

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
68,830

 
50,962

 
42,063

Amortization of deferred debt issue costs
6,263

 
3,700

 
3,290

Amortization of discount on notes payable
1,305

 
306

 
581

Amortization of premium on notes payable
(245
)
 

 

Deferred income taxes

 

 
402

(Gain) loss on disposition or sale of property, plant, and equipment
1,353

 
(217
)
 
795

Gain on sale of equity method investment

 
(750
)
 
(486
)
Impairment of long lived assets
3,445

 

 

Equity in (income) loss of unconsolidated entities
(5,466
)
 
53,048

 
1,113

Reduction in fair value of investment in Cardinal due to the purchase of the controlling interest
30,102

 

 

Unrealized mark-to-market on derivatives
818

 

 

Unit-based compensation
817

 
911

 
385

Preferred dividends from Martin Energy Trading
1,498

 
1,738

 

Return on investment
2,600

 

 

Other

 
6

 

Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
 
 
 
 
 
Accounts and other receivables
29,025

 
26,270

 
(56,856
)
Product exchange receivables
(319
)
 
689

 
14,230

Inventories
5,680

 
4,559

 
(2,733
)
Due from affiliates
(2,413
)
 
1,244

 
(20,135
)
Other current assets
4,123

 
(5,432
)
 
3,046

Trade and other accounts payable
(26,349
)
 
(9,978
)
 
17,595

Product exchange payables
801

 
(2,592
)
 
(25,126
)
Due to affiliates
2,276

 
(1,203
)
 
18,976

Income taxes payable
(30
)
 
(357
)
 
367

Other accrued liabilities
1,084

 
10,749

 
(1,463
)
Change in other non-current assets and liabilities
181

 
(1,449
)
 
872

Net cash provided by continuing operating activities
119,012

 
117,642

 
34,038

Net cash used in discontinued operating activities
(3,432
)
 
(5,459
)
 
(1,360
)
Net cash provided by operating activities
115,580

 
112,183

 
32,678

Cash flows from investing activities:
 
 
 
 
 
Payments for property, plant, and equipment
(84,307
)
 
(92,243
)
 
(93,640
)
Acquisitions, net of cash acquired
(102,696
)
 
(31,321
)
 
(224,603
)
Proceeds from sale of acquired assets

 

 
56,000

Payments for plant turnaround costs
(3,974
)
 

 
(2,107
)
Proceeds from sale of property, plant, and equipment
1,030

 
5,576

 
44

Proceeds from sale of equity method investment

 
750

 
531

Proceeds from involuntary conversion of property, plant and equipment
2,475

 
2,200

 

Investments in unconsolidated entities
(134,030
)
 

 
(775
)
Milestone distributions from ECP

 

 
2,208

Return of investments from unconsolidated entities
225

 
1,738

 
5,980

Contributions to unconsolidated entities for operations
(3,386
)
 
(30,877
)
 
(30,279
)
Net cash used in continuing investing activities
(324,663
)
 
(144,177
)
 
(286,641
)
Net cash provided by (used in) discontinued investing activities

 
(42,600
)
 
271,605

Net cash used in investing activities
(324,663
)
 
(186,777
)
 
(15,036
)
Cash flows from financing activities:
 
 
 
 
 
Payments of long-term debt
(1,533,087
)
 
(650,000
)
 
(706,000
)
Payments of notes payable and capital lease obligations

 
(8,809
)
 
(6,556
)
Proceeds from long-term debt
1,493,250

 
839,000

 
727,000

Net proceeds from issuance of common units
331,728

 

 
194,170

General partner contributions
7,007

 
37

 
4,145

Excess purchase price over carrying value of acquired assets
(4,948
)
 
(301
)
 
(142,075
)
Excess carrying value of assets over the purchase price paid by Martin Resource Management

 

 
(4,268
)
Purchase of treasury units
(277
)
 
(250
)
 
(222
)
Decrease in affiliate funding of investments in unconsolidated entities

 

 
(2,208
)
Payments of debt issuance costs
(3,722
)
 
(9,115
)
 
(204
)
Cash distributions paid
(97,368
)
 
(84,588
)
 
(76,528
)
Net cash provided by (used in) financing activities
192,583

 
85,974

 
(12,746
)
 
 
 
 
 
 
Net increase (decrease) in cash
(16,500
)
 
11,380

 
4,896

Cash at beginning of period
16,542

 
5,162

 
266

Cash at end of period
$
42

 
$
16,542

 
$
5,162


See accompanying notes to consolidated financial statements.

76

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, 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, 2014 or 2013.

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 year ended December 31, 2014. 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.

On October 2, 2012, the Partnership, which owned 10.74% of the Class A interests and 100% of the Class B interests, acquired all of the remaining Class A interests in Redbird Gas Storage LLC ("Redbird") from Martin Underground Storage, Inc. (“MUS”), a subsidiary of Martin Resource Management. Redbird was formed by the Partnership and Martin Resource Management in 2011 to invest in Cardinal Gas Storage Partners LLC ("Cardinal").

On October 2, 2012, the Partnership acquired from Cross Oil Refining and Marketing, Inc. (“Cross”), a wholly-owned subsidiary of Martin Resource Management, certain specialty lubricant product blending and packaging assets (“Blending and Packaging Assets”).


77

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

The acquisitions of the Redbird Class A interests and the Blending and Packaging Assets were considered a transfer of net assets between entities under common control. The acquisitions of the Redbird Class A interests and the Blending and Packaging Assets are recorded at amounts based on the historical carrying value of these assets at October 2, 2012, and the Partnership is required to update its historical financial statements to include the activities of the Redbird Class A interests and the Blending and Packaging Assets as of the date of common control. The Partnership’s accompanying historical financial statements have been retrospectively updated to reflect the effects on financial position, cash flows and results of operations attributable to the activities of the Redbird Class A interests and the Blending and Packaging Assets as if the Partnership owned these assets for the periods presented. Net income attributable to the Redbird Class A interests and the activities of the Blending and Packaging Assets for periods prior to the Partnership’s acquisition of the assets is not allocated to the general and limited partners for purposes of calculating net income per limited partner unit. See Note 16. As discussed further in Note 4, on August 29, 2014, the Partnership acquired the remaining outstanding interests in Cardinal from Energy Capital Partners ("ECP").

As discussed in Note 5, on July 31, 2012, the Partnership completed the sale of its East Texas and Northwest Louisiana natural gas gathering and processing assets. These assets, along with additional gathering and processing assets discussed in Note 5 are collectively referred to as the “Prism Assets.” The Partnership has presented the results of operations and cash flows of the Prism Assets as discontinued operations for the year ended December 31, 2012.

(b)         Product Exchanges
 
The Partnership enters into product exchange agreements with third parties, whereby the Partnership agrees to exchange natural gas liquids (“NGLs”) and sulfur with third parties.  The Partnership records the balance of exchange products due to other companies under these agreements at quoted market product prices and the balance of exchange products due from other companies at the lower of cost or market.  Cost is determined using the first-in, first-out (“FIFO”) method.  Product exchanges with the same counterparty are entered into in contemplation of one another and are combined. The net amount related to location differentials is reported in “Product sales” or “Cost of products sold” in the Consolidated Statements of Operations.
 
(c)       Inventories
 
Inventories are stated at the lower of cost or market.  Cost is generally determined by using the FIFO method for all inventories except lubricants and lubricants packaging inventories. Lubricants and lubricants packaging inventories cost is determined using standard cost, which approximates actual cost, computed on a FIFO basis.
 
(d)      Revenue Recognition
 
Terminalling and Storage – Revenue is recognized for storage contracts based on the contracted monthly tank fixed fee.  For throughput contracts, revenue is recognized based on the volume moved through the Partnership’s terminals at the contracted rate.  For the Partnership’s tolling agreement, revenue is recognized based on the contracted monthly reservation fee and throughput volumes moved through the facility.  When lubricants and drilling fluids are sold by truck or rail, revenue is recognized upon delivering product to the customers as title to the product transfers when the customer physically receives the product.
 
Natural Gas Services – NGL distribution revenue is recognized when product is delivered by truck to the Partnership's NGL customers, which occurs when the customer physically receives the product. When product is sold in storage, or by pipeline, the Partnership recognizes NGL distribution revenue when the customer receives the product from either the storage facility or pipeline. 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.
 

78

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

(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 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, 2014, 2013, and 2012. The determination of fair value for 2013 and 2012 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 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 2014 methodology for determining fair value of the natural gas services and sulfur services segments. At August 31, 2014, 2013, and 2012, 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, 2014 or 2013.

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

79

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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 2014, 2013 or 2012.
 
(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.

In connection with the issuance, amendment, expansion and restatement of debt arrangements, the Partnership incurred debt issuance costs of $3,722 , $9,114 and $204 in the years ended December 31, 2014, 2013 and 2012, respectively.

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 , $502 and $0 of the existing debt issuance costs were determined not to have continuing benefit and were expensed during the years ended December 31, 2014, 2013 and 2012, respectively.  Remaining unamortized deferred issuance costs are amortized over the term of the revised debt arrangement.

Amortization of debt issuance costs, which is included in interest expense, totaled $6,263 , $3,700 and $3,290 for the years ended December 31, 2014, 2013 and 2012, respectively.  Accumulated amortization amounted to $5,488 and $5,270 at December 31, 2014 and 2013, respectively.
 
(i)      Impairment of Long-Lived Assets
 
In accordance with ASC 360-10, long-lived assets, such as property, plant and equipment, and intangible assets with definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and would no longer be depreciated.  The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.  

In the 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 2014, 2013 or 2012 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.
 

80

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

Derivative instruments not designated as hedges are marked to market with all market value adjustments being recorded in the Consolidated Statements of Operations.  As of December 31, 2014, the Partnership did not have any hedging instruments outstanding. Fair value changes associated with the Partnership's hedges have been recorded in accumulated other comprehensive income (“AOCI”) as a component of equity during 2012.
 
(l)      Comprehensive Income
 
Comprehensive income includes net income and other comprehensive income.  Other comprehensive income for the Partnership includes unrealized gains and losses on derivative financial instruments.  In accordance with ASC 815-10, the Partnership records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedges as other comprehensive income.

(m)    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.
 
(n)      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, 2014, 2013 and 2012, the conflicts committee of the Partnership's general partner (“Conflicts Committee”) approved reimbursement amounts of   $12,535 , $10,621 and $7,593 , 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.
 
(o)        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.
 
(p)      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.
 
(q)      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.

(r)      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.

(s)      Income Taxes

81

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

 
With respect to the Partnership’s taxable subsidiary (Woodlawn Pipeline Co., Inc.) and the Blending and Packaging Assets prior to the date of acquisition from Cross, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

As discussed further in Note 19, the assets of the Partnership's taxable subsidiary Woodlawn Pipeline Co., Inc were disposed of on July 31, 2012. The entity was dissolved on December 31, 2012.

(3)
Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize the amount of revenue which it expects to be entitled for the transfer of promised goods and services to customers. The ASU will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles ("U.S. GAAP" or "GAAP") when it becomes effective. The new standard is effective on January 1, 2017 and early application is not permitted. 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 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.

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . The ASU changes the requirements for reporting discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business. A disposal of a component of an entity or a group of components of any entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. Examples include a disposal of a geographic area, a major line of business or a major equity method investment. Additionally, the update requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. This update is effective prospectively for the Partnership's fiscal year beginning January 1, 2015 and early adoption is permitted. The standard primarily involves presentation and disclosure and therefore is not expected to have a material impact on the Partnership's financial condition, results of operations or cash flows.

In February 2013, the FASB amended the provisions of ASC 220 related to AOCI, which does not change the current requirements for reporting net income or other comprehensive income in financial statements. The standard requires entities to provide information about the amounts reclassified out of AOCI by component. The entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This amended guidance was adopted by the Partnership effective January 1, 2013. As this new guidance only requires enhanced disclosure, adoption did not impact the Partnership's financial position or results of operations.
        
(4)
Acquisitions

Cardinal Gas Storage Partners LLC

On August 29, 2014, the Partnership acquired from ECP all of ECP’s approximate 57.8% Category A membership interests in 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 the transaction, the Partnership retired all of the project level

82

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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
$
120,973

Fair value of the Partnership's previously owned 42.2% interest in Cardinal
87,613

Total
$
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
$
17,566

Other current assets
9,385

Property, plant and equipment
390,895

Intangible and other assets
80,135

Project level finance debt
(282,087
)
Other current liabilities
(6,713
)
Other non-current liabilities
(595
)
   Total
$
208,586


Intangible assets consist of above-market gas storage customer contracts which are amortized based upon the terms of the individual contracts. The weighted average life of these contracts, based upon contracted volumes, is 5.1 years .

The Partnership’s results of operations from the Cardinal acquisition include revenues of $22,991 and net income of $1,916 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
$
2,453

Current liabilities
(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.


83

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

West Texas LPG Pipeline Limited Partnership

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 the growing NGL production of 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 2013:
 
 
Year Ended December 31,
 
 
2014
 
2013
Revenue:
 
 
 
 
As reported
 
$
1,642,141

 
$
1,612,739

Pro forma
 
$
1,688,629

 
$
1,665,501

Net income (loss) from continuing operations attributable to limited partners:
 
 
 
 
As reported
 
$
(8,255
)
 
$
(14,227
)
Pro forma
 
$
1,676

 
$
(120,785
)
Net income (loss) from discontinued operations attributable to limited partners:
 
 
 
 
As reported
 
$
(6,921
)
 
$
1,180

Pro forma
 
$
(6,921
)
 
$
1,180

Net income (loss) from continuing operations per unit attributable to limited partners - basic
 
 
 
 
As reported
 
$
(0.27
)
 
$
(0.54
)
Pro forma
 
$
0.05

 
$
(4.55
)
Net income (loss) from discontinued operations per unit attributable to limited partners - basic
 
 
 
 
As reported
 
$
(0.22
)
 
$
0.04

Pro forma
 
$
(0.22
)
 
$
0.04

Net income (loss) from continuing operations per unit attributable to limited partners - diluted
 
 
 
 
As reported
 
$
(0.27
)
 
$
(0.54
)
Pro forma
 
$
0.05

 
$
(4.55
)
Net income (loss) from discontinued operations per unit attributable to limited partners - diluted
 
 
 
 
As reported
 
$
(0.22
)
 
$
0.04

Pro forma
 
$
(0.22
)
 
$
0.04


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 2013.

84

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
$
162

Property, plant and equipment
4,000

Current liabilities
(44
)
Total
$
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
$
1,513

Property, plant and equipment
6,136

Other assets
5,113

Other accrued liabilities
(168
)
Other long-term obligations
(446
)
Total
$
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.


85

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 Note 2, on February 12, 2015, the Partnership sold the six LPG pressure barges for $41,250 .

Talen's Marine & Fuel, LLC

On December 31, 2012, the Partnership acquired all of the outstanding membership interests in Talen's Marine & Fuel LLC (“Talen's”) from QEP Marine Fuel Investment, LLC and QEP Marine Fuel Holdings, Inc. (collectively referred to as “Quintana Energy Partners”) for $103,368 , subject to certain post-closing adjustments, including the assumption of a note payable in the amount of $2,971 . The transaction was accounted for under the acquisition method of accounting in accordance with ASC 805 relating to business combinations. Additionally, as required by ASC 805, the Partnership expensed acquisition related costs, of which $58 were recorded in selling, general and administrative expenses for the year ended December 31, 2013. Through this acquisition, the Partnership acquired certain terminalling facilities and other terminalling related assets located along the Texas and Louisiana gulf coast. This transaction was funded by borrowings under the Partnership's revolving credit facility. Simultaneously with the acquisition, the Partnership sold certain working capital-related assets and a customer relationship intangible asset to Martin Energy Services LLC (“MES”), a wholly-owned subsidiary of Martin Resource Management for $56,000 . Due to the Talen's acquisition, MES entered into various service agreements with Talen's pursuant to which the Partnership provides certain terminalling and marine services to MES. The excess carrying value of the assets over the purchase price paid by Martin Resource Management at the sales date was $4,268 and was recorded as an adjustment to partners' capital. The remaining net assets retained by the Partnership were recorded at fair value of $43,100 in the following purchase price allocation:
Purchase price paid to acquire Talen's
$
103,368

Less proceeds received from Martin Resource Management for assets sold (described above)
(56,000
)
Less excess of carrying value of assets sold to Martin Resource Management over the purchase price paid by Martin Resource Management
(4,268
)
Total
$
43,100


Cash
$
5,096

Accounts and other receivables, net
1,932

Other current assets
685

Assets held for sale
3,578

Property, plant and equipment
23,656

Goodwill
15,465

Notes payable
(2,971
)
Current liabilities
(3,872
)
Other long-term obligations
(469
)
Total
$
43,100


Goodwill recognized from the acquisition primarily relates to the expected contributions of the entity to the overall corporate strategy in addition to synergies and acquired workforce, which are not separable from goodwill.

The Partnership's results of operations included revenues of $5,227 and net income of $2,452 for the year ended December 31, 2014 and revenues of $5,226 and net income of $2,432 for the year ended December 31, 2013 related to the Talen's acquisition.

Lubricant Blending and Packaging Assets
    

86

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

On October 2, 2012, the Partnership purchased the Blending and Packaging Assets from Cross. The consideration consisted of $121,767 in cash at closing, plus a final net working capital adjustment of $907 paid in October of 2012. This transaction was funded by borrowings under the Partnership's revolving credit facility. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of the Blending and Packaging Assets was recorded at the historical carrying value of the assets at the acquisition date, which were as follows:
Accounts receivable, net
$
20,599

Inventory
18,730

Other current assets
769

Property, plant and equipment, net
24,692

Current liabilities
(2,424
)
Total
$
62,366


The excess purchase price over the historical carrying value of the assets at the acquisition date was $60,308 and was recorded as an adjustment to partners' capital.
    
Redbird Class A Interests

On October 2, 2012, the Partnership acquired from Martin Resource Management all of the remaining Class A interests in Redbird for $150,000 in cash. The Partnership began making Class A investments in Redbird during the fourth quarter of 2011. Prior to the transaction, the Partnership owned a 10.74% Class A interest and a 100% Class B interest in Redbird. This transaction was funded by borrowings under the Partnership's revolving credit facility. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of these interests was recorded at the historical carrying value of the interests at the acquisition date. The Partnership recorded an investment in consolidated entities of $68,233 and the excess of the purchase price over the carrying value of the Class A interests of $81,767 was recorded as an adjustment to partners' capital.
    
(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 2014 and 2013.

The Floating Storage Assets’ operating results, which are included in income from discontinued operations, were as follows:
 
Year Ended December 31,
 
2014
 
2013
 
 
 
 
 
Total revenues from third parties 1       
$
51,264

 
$
20,771

 
Total costs and expenses and other, net, excluding depreciation and amortization
55,068

 
18,285

 
Depreciation and amortization
1,534

 
1,278

 
Income (loss) from discontinued operations before income taxes
(5,338
)
 
1,208

 
Income tax expense

 

 
Income (loss) from discontinued operations, net of income taxes
$
(5,338
)
 
$
1,208

 

1 Total revenues from third parties excludes intercompany revenues of $5,241 and $945 for the years ended December 31, 2014 and 2013, respectively.

Prism Assets. On July 31, 2012, the Partnership completed the sale of its East Texas and Northwest Louisiana natural gas gathering and processing assets owned by Prism Gas and other natural gas gathering and processing assets also owned by the Partnership to a subsidiary of CenterPoint Energy Inc. (NYSE: CNP) (“CenterPoint”). The Partnership received net cash

87

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

proceeds from the sale of $273,269 .  The asset sale included the Partnership’s 50% operating interest in Waskom Gas Processing Company (“Waskom”).  A subsidiary of CenterPoint owned the other 50% interest.  

Additionally, on September 18, 2012, the Partnership completed the sale of its interest in Matagorda Offshore Gathering System (“Matagorda”) and Panther Interstate Pipeline Energy, LLC (“PIPE”) to a private investor group for $1,530 .  

The Partnership classified the results of operations of the Prism Assets which were previously presented as a component of the Natural Gas Services segment, as discontinued operations in the Consolidated Statements of Operations for all periods presented.

The Prism Assets’ operating results, which are included in income from discontinued operations, were as follows:
 
Year Ended December 31,
 
2012
 
Total revenues from third parties 1       
$
66,876

 
Total costs and expenses and other, net, excluding depreciation and amortization
(64,562
)
 
Depreciation and amortization
(2,320
)
 
Other operating income 2
61,858

 
Equity in earnings of unconsolidated entities 3  
4,611

 
Income from discontinued operations before income taxes
66,463

 
Income tax expense
(1,598
)
 
Income from discontinued operations, net of income taxes
$
64,865

 

1 Total revenues from third parties excludes intercompany revenues of $26,431 .
2 The Partnership recognized a gain on the sale of the Prism Assets of $61,848 in income from discontinued operations.
3  Represents equity in earnings of Waskom, Matagorda, and PIPE.

(6)
Inventories

Components of inventories at December 31, 2014 and 2013 were as follows: 
 
2014
 
2013
Natural gas liquids
$
27,820

 
$
31,859

Sulfur
12,231

 
8,912

Sulfur based products
16,280

 
17,584

Lubricants
29,096

 
33,847

Other
3,291

 
2,700

 
$
88,718

 
$
94,902


(7)
Property, Plant and Equipment

At December 31, 2014 and 2013 , property, plant, and equipment consisted of the following:

88

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

 
 
Depreciable Lives
 
2014
 
2013
Land
 
$
23,595

 
$
21,971

Improvements to land and buildings
10-25 years
 
149,112

 
131,941

Storage equipment
5-50 years
 
171,373

 
104,949

Marine vessels
4-25 years
 
260,588

 
309,147

Operating plant and equipment
3-50 years
 
598,314

 
287,268

Base Gas
 
43,799

 

Furniture, fixtures and other equipment
3-20 years
 
4,224

 
3,742

Transportation equipment
3-7 years
 
2,273

 
1,802

Construction in progress
 
 
90,396

 
68,363

 
 
 
$
1,343,674

 
$
929,183


Depreciation expense for the years ended December 31, 2014 , 2013 and 2012 was $56,309 , $48,596 , and $40,724 , respectively, which includes amortization of fixed assets under capital lease obligations of $0 , $233 and $280 , respectively. All capital lease obligations were retired in November 2013.

Additions to property, plant and equipment included in accounts payable at December 31, 2014 and 2013 were $4,976 and $6,803 , respectively.

(8)     Goodwill

The following table represents the goodwill balance at December 31, 2014 and 2013:
 
December 31,
 
2014
 
2013
Carrying amount of goodwill:
 
 
 
   Terminalling and storage
$
14,229

 
$
14,229

   Natural gas services
79

 
79

   Sulfur services
5,349

 
5,349

   Marine transportation
4,145

 
4,145

        Total goodwill
$
23,802

 
$
23,802


(9)     Leases

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

The Partnership’s future minimum lease obligations as of December 31, 2014 consist of the following:

89

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

Fiscal year
Operating Leases
 
 
2015
$
11,421

2016
10,194

2017
5,982

2018
3,331

2019
1,751

Thereafter
5,622

Total
$
38,301


Rent expense for continuing operating leases for the years ended December 31, 2014 , 2013 and 2012 was $18,724 , $15,629 and $15,801 , respectively. The amount recognized in interest expense for capital leases was $0 , $796 , and $945 for the years ended December 31, 2014 , 2013 and 2012 , 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. At the acquisition date, the carrying value of the combined 20% interest in WTLPG exceeded the Partnership's share of underlying net assets by approximately $96,000 . The Partnership's analysis determined that the entire $96,000 is attributable to property, plant and equipment and will be amortized over approximately 35 years . Such amortization amounted to $1,484 for the year ended December 31, 2014. 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.

The partnership sold its 50% interest in Caliber in 2013 and its 50% interests in Waskom, PIPE, Matagorda and Pecos Valley Producer Services, LLC (“Pecos Valley”) in 2012.    

In December 2013, Cardinal recorded a $129,384 impairment charge related to long-lived assets of Monroe. This amount represents the carrying value of the assets in excess of their fair value. The impairment resulted from the 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 and Pecos Valley. 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. The

90

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

Partnership sold its interest in Pecos Valley during the third quarter of 2012 for $531 , resulting in a gain of $486 recorded in "Other, net" in the Partnership's Consolidated Statement of Operations for the year ended December 31, 2012.

These investments are accounted for by the equity method.

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:
 
December 31, 2014
 
December 31, 2013
WTLPG
$
134,506

 
$

Cardinal

 
113,662

MET

 
15,000

Total investment in unconsolidated entities
$
134,506

 
$
128,662


 
Years Ended December 31,
 
2014
 
2013
 
2012
Equity in earnings of Waskom 1    
$

 
$

 
$
4,172

Equity in loss of PIPE 1    

 

 
(60
)
Equity in earnings of Matagorda 1    

 

 
499

Equity in earnings of discontinued operations

 

 
4,611

 
 
 
 
 
 
Equity in earnings of WTLPG
3,076

 

 

Equity in earnings (loss) of Cardinal
892

 
(54,226
)
 
(943
)
Equity in earnings of MET
1,498

 
1,738

 

Equity in loss of Caliber

 
(560
)
 
(190
)
Equity in earnings of Pecos Valley

 

 
20

Equity in earnings (loss) of unconsolidated entities
5,466

 
(53,048
)
 
(1,113
)
Total equity in earnings (loss) of unconsolidated entities
$
5,466

 
$
(53,048
)
 
$
3,498


1 The financial information for Waskom, Matagorda, and PIPE is included on the Consolidated Statements of Operations and Cash Flows as discontinued operations.

Selected financial information for significant unconsolidated equity method investees is as follows:

 

As of December 31,
 
Years ended December 31,
 
Total Assets
 
Long-Term Debt
 
Members’ Equity/Partners' Capital
 
Revenues
 
Net Income (Loss)
2014
 
 
 
 
 
 
 
 
 
WTLPG
$
827,697

 
$

 
$
818,546

 
$
95,315

 
$
38,698

 
 
 
 
 
 
 
 
 
 
Cardinal 2
$

 
$

 
$

 
$
46,488

 
$
1,911

2013
 
 
 
 
 
 
 
 
 
Cardinal
$
661,816

 
$
295,261

 
$
346,584

 
$
52,762

 
$
(128,283
)
2012
 
 
 
 
 
 
 
 
 
Cardinal
$
694,767

 
$
210,079

 
$
457,297

 
$
31,999

 
$
(5,951
)
 
 
 
 
 
 
 
 
 
 
Waskom
$

 
$

 
$

 
$
66,662

 
$
8,986

 
 
 
 
 
 
 
 
 
 

2 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.


91

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

As of December 31, 2014 and 2013, the Partnership’s interest in cash of the unconsolidated equity method investees was $10 and $3,703 , 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.

The following items are measured at fair value on a recurring and non-recurring basis at December 31, 2014 and 2013:
 
Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable
Inputs
Description
December 31, 2014
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets
 
 
 
 
 
 
 
Note receivable - MET
$
15,852

 
$

 
$

 
$
15,852

Total assets
$
15,852

 
$

 
$

 
$
15,852

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

2021 Senior unsecured notes
$
385,077

 
$

 
$
385,077

 
$

Total liabilities
$
385,077

 
$

 
$
385,077

 
$


 
Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable
Inputs
Description
December 31, 2013
 
(Level 1)
 
(Level 2)
 
(Level 3)
Liabilities
 

 
 

 
 

 
 

2018 Senior unsecured notes
$
185,816

 
$

 
$
185,816

 
$

2021 Senior unsecured notes
258,004

 
 
 
258,004

 
 
Total liabilities
$
443,820

 
$

 
$
443,820

 
$


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. The estimated fair value of the note receivable from MET was determined by calculating the net present value of the

92

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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.

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 estimated fair value of the senior unsecured notes is based on market prices of similar debt.

(12)    Derivative Instruments and Hedging Activities

The Partnership’s results of operations are materially impacted by changes in crude oil, natural gas and NGL prices and interest rates. In an effort to manage its exposure to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate hedges.

(a)    Commodity Derivative Instruments

The Partnership has from time to time used derivatives to manage the risk of commodity price fluctuation. The Partnership has established a hedging policy and monitors and manages the commodity market risk associated with potential commodity risk exposure.  These hedging arrangements have been in the form of swaps for crude oil, natural gas and natural gasoline. 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.

Due to the sale of the Prism Assets during 2012, the Partnership terminated and settled all of its commodity derivative instruments during the second quarter of 2012.  For the year ended December 31, 2012, changes in the fair value of the Partnership’s derivative contracts were recorded in both earnings (income from discontinued operations) and in AOCI as a component of partners’ capital.  

Due to the acquisition of the remaining interests of Cardinal, 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 currently leased with Credit Suisse 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.  

As of December 31, 2014, the Partnership did not have any commodity derivative instruments outstanding.

(b)    Impact of Commodity Cash Flow Hedges

Crude Oil. For the year ended December 31, 2012, net gains and losses on swap hedge contracts increased crude revenue (included in income from discontinued operations) by $496 .

Natural Gas. For the year ended December 31, 2012, net gains and losses on swap hedge contracts increased gas revenue (included in income from discontinued operations) by $813 .

Natural Gas Liquids. For the year ended December 31, 2012, net gains and losses on swap hedge contracts increased liquids revenue (included in income from discontinued operations) by $1,066 .

For information regarding fair value amounts and gains and losses on commodity derivative instruments and related hedged items, see “Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items” within this Note.

(c)    Impact of 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

93

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate credit facility and it's senior unsecured notes. All derivatives and hedging instruments are included on the balance sheet as an asset or a liability measured at fair value and changes in fair value are recognized currently in earnings.

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 $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.


94

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

Tabular Presentation of Gains and Losses on Derivative Instruments and Related Hedged Items

Effect of Derivative Instruments on the Consolidated Statements of Operations For the Years Ended December 31, 2014, 2013, and 2012
 
 
 
 
 
 
 
Effective Portion
 
Ineffective Portion and Amount Excluded from Effectiveness Testing
 
 
 
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
 
 
 
Location of Gain or (Loss) Recognized in Income on Derivatives
 
 
2014
 
2013
 
2012
 
 
2014
 
2013
 
2012
 
 
2014
 
2013
 
2012
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$

 
$

 
$
126

 
Income from discontinued operations
 
$

 
 
 
$
748

 
Income from discontinued operations
 
$

 
$

 
$
4

Total derivatives designated as hedging instruments
$

 
$

 
$
126

 
 
 
$

 
$

 
$
748

 
 
 
$

 
$

 
$
4


 
Location of Gain or (Loss) Recognized in Income on Derivatives
Amount of Gain or (Loss) Recognized in Income on Derivatives
 
 
2014
 
2013
 
2012
Derivatives not designated as hedging instruments:
 
 
 
 
Interest rate contracts
Interest expense
$
6,692

 
$

 
$

Commodity contracts
Other income
(818
)
 

 

Commodity contracts
Income from discontinued operations

 

 
1,623

Total derivatives not designated as hedging instruments
$
5,874

 
$

 
$
1,623


(13)    Related Party Transactions

As of December 31, 2014 , 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 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, 2014 , 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:

95

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)


providing terminalling and storage services for petroleum products and by-products including the refining, blending and packaging of finished lubricants;

providing 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;

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

96

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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, 2015, through December 31, 2015, the Conflicts Committee approved an annual reimbursement amount for indirect expenses of $13,679 .  The Partnership reimbursed Martin Resource Management for $12,535 , $10,621 , and $7,593 of indirect expenses for the years ended December 31, 2014, 2013, and 2012, 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.

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

97

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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, 2015, 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 October 27, 2004 and consolidated it with the (i) terminalling services agreement entered into in connection with the acquisition of Talen's Marine & Fuel, LLC and (ii) terminalling services agreement entered into in connection with the acquisition of L&L Holdings LLC into a single agreement. The minimum throughput requirements of the three superseded agreements were aggregated in the new agreement. The per gallon throughput fee the Partnership charges under this agreement 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 dated October 28, 2014 under which the Partnership processes crude oil into finished products, including naphthenic lubricants, distillates, asphalt and other intermediate cuts for Cross.  The tolling agreement expires November 25, 2031.  Under this tolling agreement, Cross agreed to process a minimum of 6,500 barrels per day of crude oil at the facility at a fixed price per barrel.  Any additional barrels are processed at a modified price per barrel.  In addition, Cross agreed to pay a monthly reservation fee and a periodic fuel surcharge fee based on certain parameters specified in the tolling agreement.  All of these fees (other than the fuel surcharge) are subject to escalation annually based upon the greater of 3% or the increase in the Consumer Price Index for a specified annual period.  In addition, on the third, sixth and ninth anniversaries of the agreement, the parties can negotiate an upward or downward adjustment in the fees subject to their mutual agreement.

Sulfuric Acid Sales Agency Agreement . The Partnership 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.

98

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)


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:
2014
 
2013
 
2012
Terminalling and storage
$
74,467

 
$
71,517

 
$
64,669

Marine transportation
24,389

 
24,654

 
17,494

Product sales:
 
 
 
 
 
Natural gas services
3,064

 
10

 
113

Sulfur services
3,921

 
3,890

 
6,022

Terminalling and storage
676

 
798

 
1,066

 
7,661

 
4,698

 
7,201

 
$
106,517

 
$
100,869

 
$
89,364


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
$
37,703

 
$
32,639

 
$
27,512

Sulfur services
18,390

 
18,161

 
16,968

Terminalling and storage
36,341

 
48,868

 
48,375

 
$
92,434

 
$
99,668

 
$
92,855


The impact of related party operating expenses is reflected in the Consolidated Statements of Operations as follows:
Operating expenses:
 
 
 
 
 
Marine transportation
$
37,703

 
$
38,373

 
$
28,495

Natural gas services
4,870

 
1,971

 
1,855

Sulfur services
7,479

 
8,223

 
6,646

Terminalling and storage
29,525

 
21,766

 
21,838

 
$
79,577

 
$
70,333

 
$
58,834


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
$
30

 
$
50

 
$
60

Natural gas services
6,039

 
2,671

 
2,498

Sulfur services
3,201

 
3,081

 
2,964

Terminalling and storage
1,874

 
1,266

 
563

Indirect overhead allocation, net of reimbursement
12,535

 
10,621

 
7,593

 
$
23,679

 
$
17,689

 
$
13,678


Other Related Party Transactions

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

99

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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 year ended December 31, 2014 was $752 and is included in "Interest expense, net" in the Consolidated Statements of Operations.

(14)
Supplemental Balance Sheet Information

Components of "Intangible and other assets, net" at December 31, 2014 and 2013 were as follows:
 
2014
 
2013
Customer contracts
$
72,171

 
$

Other intangible assets
2,215

 
2,696

Other
7,079

 
5,247

 
$
81,465

 
$
7,943


Customers 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 $9,772 , $1,153 , and $140 , for the years ended December 31, 2014 , 2013 and 2012 , respectively, and accumulated amortization amounted to $12,125 and $2,353 at December 31, 2014 and 2013 , respectively.

Estimated amortization expense for customer contract and relationships and other intangible assets for the years subsequent to December 31, 2014 are as follows: 2015 - $22,115 ; 2016 - $14,961 ; 2017 - $11,122 ; 2018 - $7,148 ; 2019 - $4,305 ; subsequent years - $14,735 .

Components of "Other accrued liabilities" at December 31, 2014 and 2013 were as follows:
 
2014
 
2013
Accrued interest
$
10,996

 
$
11,038

Property and other taxes payable
7,524

 
6,785

Accrued payroll
3,125

 
2,186

Other
156

 
233

 
$
21,801

 
$
20,242


(15)    Long-Term Debt

At December 31, 2014 and 2013 , long-term debt consisted of the following:
 
2014
 
2013
$900,000 3  Revolving loan facility at variable interest rate (2.92% 1  weighted average at December 31, 2014), 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
$
500,000

 
$
235,000

$200,000 2,4  Senior notes, 8.875% interest, net of unamortized discount of $0 and $1,305, respectively, issued March 2010 and due April 2018, unsecured

 
173,695

$400,000 Senior notes, 7.250% interest, including unamortized premium of $2,005 and $0, respectively, issued February 2013 and April 2014 and due February 2021, unsecured 2,4
402,005

 
250,000

Total long-term debt
$
902,005

 
$
658,695



100

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

      1 Interest rate fluctuates based on the LIBOR rate plus an applicable margin set on the date of each advance. The margin above LIBOR is set every three months. Indebtedness under the credit facility bears interest at LIBOR plus an applicable margin or the base prime rate plus an applicable margin. 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, 2014 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.

2 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.

3 On June 27, 2014, the Partnership increased the maximum amount of borrowings and letters of credit available under the Credit Facility from $637,500 to $900,000 and amended certain financial covenants governing the credit facility.

4 The 2018 and 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 in the amount of $37,112 , $33,038 , and $29,239 for the years ended December 31, 2014, 2013 and 2012, respectively. Capitalized interest was $1,437 , $1,096 , and $1,136 for the years ended December 31, 2014, 2013 and 2012, respectively.

(16)     Partners' Capital

As of December 31, 2014, partners’ capital consisted of  35,365,912  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.


101

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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 $21,121 for the year ended December 31, 2014. The Partnership paid $413 in compensation to the Sales Agents for the year ended December 31, 2014. 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.

On November 26, 2012, the Partnership completed a public offering of 3,450,000 common units at a price of $31.16 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 $102,809 .  The Partnership's general partner contributed $2,194 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 reduce outstanding indebtedness of the Partnership.

On January 25, 2012, the Partnership completed a public offering of 2,645,000 common units at a price of $36.15 per common unit, before the payment of underwriters’ discounts, commissions and offering expenses (per unit value is in dollars, not thousands).  Total proceeds from the sale of the 2,645,000 common units, net of underwriters’ discounts, commissions and offering expenses, were $91,361 .  The Partnership’s general partner contributed $1,951 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 reduce outstanding indebtedness of the Partnership.

Incentive Distribution Rights

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 our 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, 2014, the amount of incentive distributions the general partner has foregone is $ 20,845 , resulting in an amount remaining of $ 155 .
 
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

102

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

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, 2014, 2013 and 2012, the general partner received $0 , $0 , and $2,857 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:
 
Years Ended December 31,
 
2014
 
2013
 
2012
Continuing operations:
 
 
 
 
 
Net income (loss) attributable to Martin Midstream Partners L.P.
$
(6,367
)
 
$
(14,562
)
 
$
37,122

Less pre-acquisition income allocated to Parent

 

 
4,622

Less general partner’s interest in net income:
 
 
 
 
 
Distributions payable on behalf of IDRs
2,033

 

 
954

Distributions payable on behalf of general partner interest
1,181

 
2,021

 
522

General partner interest in undistributed earnings
(1,308
)
 
(2,312
)
 
109

Less loss allocable to unvested restricted units
(18
)
 
(44
)
 

Limited partners’ interest in net income (loss)
$
(8,255
)
 
$
(14,227
)
 
$
30,915


103

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

 
Years Ended December 31,
 
2014
 
2013
 
2012
Discontinued operations:
 
 
 
 
 
Net income attributable to Martin Midstream Partners L.P.
$
(5,338
)
 
$
1,208

 
$
64,865

Less general partner’s interest in net income:
 
 
 
 
 
Distributions payable on behalf of IDRs
1,704

 

 
1,903

Distributions payable on behalf of general partner interest
990

 
(168
)
 
1,040

General partner interest in undistributed earnings
(1,097
)
 
192

 
220

Less income (loss) allocable to unvested restricted units
(14
)
 
4

 

Limited partners’ interest in net income (loss)
$
(6,921
)
 
$
1,180

 
$
61,702


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 30,785,035 , 26,557,829 and 23,361,551 for the years ended December 31, 2014, 2013 and 2012, 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. 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. For diluted net income per unit, the weighted average units outstanding were increased by 3,018 for the year ended December 31, 2012, due to the dilutive effect of restricted units granted under the Partnership’s long-term incentive plan.

(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:
 
For the Year Ended December 31,
 
2014
 
2013
 
2012
Employees
$
537

 
$
668

 
$
178

Non-employee directors
280

 
243

 
207

   Total unit-based compensation expense
$
817

 
$
911

 
$
385


Long-Term Incentive Plans
    
           The Partnership's general partner has a long term incentive plan for employees and directors of the general partner and its affiliates who perform services for the Partnership.
  
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

104



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, 2014 is provided below:
 
Number of Units
 
Weighted Average Grant-Date Fair Value Per Unit
Non-vested, beginning of period
72,998

 
$
31.75

   Granted
8,900

 
$
29.47

   Vested
(13,074
)
 
$
32.14

   Forfeited
(5,000
)
 
$
31.06

Non-Vested, end of period
63,824

 
$
31.40

 
 
 
 
Aggregate intrinsic value, end of period
$
1,662

 
 
  
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, 2014, 2013 and 2012 is provided below:
 
For the Year Ended
December 31,
 
2014
 
2013
 
2012
Aggregate intrinsic value of units vested
$
514

 
$
153

 
$
465

Fair value of units vested
$
450

 
$
157

 
$
495


As of December 31, 2014, there was $779 of unrecognized compensation cost related to non-vested restricted units. That cost is expected to be recognized over a weighted-average period of 1.3  years.

Unit Options.   The plan currently permits the grant of options covering common units. As of March 2, 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.

(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.  
 

105

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

Insurance proceeds received as a result of the this 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, except as discussed below.

The activities of the Blending and Packaging Assets prior to the acquisition by the Partnership were subject to federal and state income taxes. Accordingly, income taxes have been included in the Blending and Packaging Assets' operating results from January 1, 2010 through October 2, 2012. Related payables/receivables are included in “Due to affiliates” and “Other current assets”, respectively, in the Consolidated Balance Sheet.

Woodlawn, a subsidiary of the Partnership, was subject to income taxes due to its corporate structure. The assets of Woodlawn were sold July 31, 2012 and the corporation was liquidated December 31, 2012 . Income tax expense related to Woodlawn is recorded in discontinued operations. A current federal income tax expense of $0 , $0 and $8,681 , related to the operation of the subsidiary, was recorded for the years ended December 31, 2014 , 2013 and 2012 , respectively.

The Partnership established deferred income taxes of $8,964 associated with book and tax basis differences of the acquired Woodlawn assets and liabilities at the date of acquisition. The basis differences related primarily to property, plant and equipment. A deferred tax benefit of $0 , $0 and $7,657 related to the Woodlawn basis differences was recorded for the years ended December 31, 2014 , 2013 and 2012 , respectively. A deferred tax expense of $0 , $0 , and $402 related to the Blending and Packaging Assets' basis differences was recorded for the years ended December 31, 2014 , 2013 and 2012 . No deferred tax liability related to these basis differences existed at December 31, 2014 and 2013 , respectively. The deferred tax liability related to the Prism Assets was reversed upon the sale of those assets as discussed further in Note 5.

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 $1,137 , $753 and $1,575 were recorded in income tax expense for the years ended December 31, 2014 , 2013 and 2012 , respectively.

A current income tax liability of $1,174 , and $1,204 existed at December 31, 2014 and 2013 , respectively.

The components of income tax expense from operations recorded for the years ended December 31, 2014 , 2013 and 2012 are as follows:

 
2014
 
2013
 
2012
Current:
 
 
 
 
 
Federal
$

 
$

 
$
10,516

State
1,137

 
753

 
1,894

 
1,137

 
753

 
12,410

Deferred:
 
 
 
 
 
Federal

 

 
(7,255
)
Total income tax expense
$
1,137

 
$
753

 
$
5,155


Total income tax expense was allocated to continuing and discontinued operations as follows:

Income tax expense from continuing operations:

106

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

 
2014
 
2013
 
2012
Current:
 
 
 
 
 
Federal
$

 
$

 
$
1,835

State
1,137

 
753

 
1,320

 
1,137

 
753

 
3,155

Deferred:
 
 
 
 
 
Federal

 

 
402

Total income tax expense from continuing operations
$
1,137

 
$
753

 
$
3,557


Income tax expense (benefit) from discontinued operations:

 
2014
 
2013
 
2012
Current:
 
 
 
 
 
Federal
$

 
$

 
$
8,681

State

 

 
574

 

 

 
9,255

Deferred:
 
 
 
 
 
Federal

 

 
(7,657
)
Total income tax expense from discontinued operations
$

 
$

 
$
1,598


Cash paid for income taxes was $1,167 , $9,789 , and $1,007 for the years ended December 31, 2014, 2013, and 2012, respectively.     

(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.

The Natural Gas Services segment information below excludes the discontinued operations of the Floating Storage Assets for 2014 and 2013 and the Prism Assets for 2012. See Note 5.


107

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

 
Operating Revenues
 
Intersegment Eliminations
 
Operating Revenues After Eliminations
 
Depreciation and Amortization
 
Operating Income (Loss) after Eliminations
 
Capital Expenditures
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
Terminalling and storage
$
326,654

 
$
(5,191
)
 
$
321,463

 
$
37,622

 
$
24,993

 
$
49,476

Natural gas services
1,013,835

 

 
1,013,835

 
13,090

 
34,574

 
24,194

Sulfur services
215,471

 

 
215,471

 
8,176

 
19,465

 
4,115

Marine transportation
97,049

 
(5,677
)
 
91,372

 
9,942

 
7,551

 
11,498

Indirect selling, general, and administrative

 

 

 

 
(18,712
)
 

Total
$
1,653,009

 
$
(10,868
)
 
$
1,642,141

 
$
68,830

 
$
67,871

 
$
89,283

 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
Terminalling and storage
$
341,966

 
$
(4,756
)
 
$
337,210

 
$
31,823

 
$
32,855

 
$
84,582

Natural gas services
966,909

 

 
966,909

 
962

 
30,524

 
4,080

Sulfur services
213,124

 

 
213,124

 
7,979

 
21,511

 
3,867

Marine transportation
99,511

 
(4,015
)
 
95,496

 
10,198

 
13,411

 
6,517

Indirect selling, general, and administrative

 

 

 

 
(16,837
)
 

Total
$
1,621,510

 
$
(8,771
)
 
$
1,612,739

 
$
50,962

 
$
81,464

 
$
99,046

 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2012:
 
 
 
 
 
 
 
 
 
 
 
Terminalling and storage
$
322,175

 
$
(4,652
)
 
$
317,523

 
$
22,976

 
$
25,403

 
$
72,877

Natural gas services
825,506

 

 
825,506

 
601

 
15,395

 
434

Sulfur services
261,584

 

 
261,584

 
7,371

 
41,909

 
11,477

Marine transportation
88,815

 
(3,067
)
 
85,748

 
11,115

 
3,174

 
8,852

Indirect selling, general, and administrative

 

 

 

 
(12,046
)
 

Total
$
1,498,080

 
$
(7,719
)
 
$
1,490,361

 
$
42,063

 
$
73,835

 
$
93,640


Revenues from two customers in the Natural Gas Services segment were $265,434 , $285,566 and $294,897 for the years ended December 31, 2014 , 2013 and 2012 , respectively.

The Partnership's assets by reportable segment as of December 31, 2014 and 2013 , are as follows:

 
2014
 
2013
Total assets:
 
 
 
Terminalling and storage
$
450,112

 
$
461,160

Natural gas services
802,234

 
320,631

Sulfur services
147,094

 
151,982

Marine transportation
154,479

 
164,146

Total assets
$
1,553,919

 
$
1,097,919



108

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
 
 
(Unaudited)
 
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth
Quarter
 
 
 
(Dollar in thousands, except per unit amounts)
 
2014
 
 
 
 
 
 
 
 
 
Revenues
$
484,809

 
$
403,261

 
$
377,088

 
$
376,983

 
Operating income
24,499

 
17,997

 
13,181

 
12,194

 
Equity in earnings (loss) of unconsolidated entities
(297
)
 
1,939

 
2,655

 
1,169

 
Income (loss) from continuing operations
12,384

 
324

 
(25,739
)
(A)
6,664

 
Loss from discontinued operations
(589
)
 
(1,292
)
 
(1,167
)
 
(2,290
)
 
Net income (loss)
$
11,795

 
$
(968
)
 
$
(26,906
)
 
$
4,374

 
Limited partners' interest in net income (loss) per limited partner unit
$
0.43

 
$
(0.03
)
 
$
(0.82
)
 
$
(0.07
)
 
 
 
 
 
 
 
 
 
 
 
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth
Quarter
 
 
 
(Dollar in thousands, except per unit amounts)
 
2013
 
 
 
 
 
 
 
 
 
Revenues
$
433,356

 
$
356,673

 
$
355,578

 
$
467,132

 
Operating income
26,189

 
19,166

 
12,680

 
23,429

 
Equity in earnings (loss) of unconsolidated entities
(374
)
 
72

 
(577
)
 
(52,169
)
(B)
Income (loss) from continuing operations
16,440

 
7,985

 
628

 
(39,615
)
 
Income (loss) from discontinued operations
196

 
1,093

 
(437
)
 
356

 
Net income (loss)
$
16,636

 
$
9,078

 
$
191

 
$
(39,259
)
 
Limited partners' interest in net income (loss) per limited partner unit
$
0.61

 
$
0.33

 
$
0.01

 
$
(1.44
)
 

(A) As discussed in Note 4, this amount includes the Partnership's reduction in the carrying value of its existing investment in Cardinal at the acquisition date of $30,102 .

(B) As discussed in Note 10, this amount includes the Partnership's share of an impairment charge related to long-lived assets of Monroe in the amount of $54,053 .

(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.

(23)    Condensed Consolidating Financial Information

Martin Operating Partnership L.P. (the “Operating Partnership”), the Partnership’s wholly-owned subsidiary, has issued in the past, and may issue in the future, unconditional guarantees of senior or subordinated debt securities of the Partnership in the event that the Partnership issues such securities from time to time. The guarantees that have been issued are full, irrevocable and unconditional. 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.

The Partnership maintains as subsidiary guarantors the following entities: MOP Midstream Holdings LLC, Martin Midstream NGL Holdings, LLC and Martin Midstream NGL Holdings II, LLC, Cardinal Gas Storage Partners LLC, Perryville Gas Storage LLC, Arcadia Gas Storage, LLC, Cadeville Gas Storage LLC, and Monroe Gas Storage Company, LLC as subsidiary guarantors to its outstanding senior unsecured notes and has transferred substantially all of Talen's assets to certain of

109

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)

the Partnership's other subsidiary guarantors. Therefore, the Partnership no longer presents condensed consolidating financial information for any non-subsidiary guarantors.

(24)    Subsequent Events
    
Disposition of Floating Storage Assets. On February 12, 2015, the Partnership sold the Floating Storage Assets for $41,250 . The Partnership expects to record a gain on the disposition of approximately $1,500 in the first quarter of 2015. The proceeds from the disposition were used to reduce outstanding indebtedness under the Partnership's revolving credit facility.     
    
Quarterly Distribution.   On January 22, 2015, The Partnership declared a quarterly cash distribution of $0.8125 per common unit for the fourth quarter of 2014, or $3.25 per common unit on an annualized basis, which was paid on February 13, 2015 to unitholders of record as of February 6, 2015. Additionally, the Partnership paid a distribution to its general partner in the amount of $4,405 . Of this amount, $667 is related to the base general partner distribution and $3,737 represents incentive distribution rights paid to the Partnership's general partner.

Common Unit Grants.    On January 5, 2015, the Partnership issued  84,750  restricted common units under the Partnership's long-term incentive plan to the executive officers of the general partner and certain Martin Resource Management employees who provide services to the Partnership. These restricted units vest 100% on January 5, 2018.


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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, 2014.  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, 2014.
 
(b)        Management’s Report on Internal Control Over Financial Reporting .   Management is responsible for establishing and maintaining adequate internal control over financial reporting. 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 the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  On August 29, 2014, we acquired the remaining 57.8% ownership interest in Cardinal Gas Storage Partners LLC ("Cardinal") which we did not previously own. We excluded Cardinal from the scope of our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2014. Cardinal constituted revenues of $22,990,774 for the year ended December 31, 2014 and $480,981,387 of our assets as of December 31, 2014.

Based on its evaluation under the framework in Internal Control — Integrated Framework (1992), our management concluded that our internal control over financial reporting was effective as of December 31, 2014.  The effectiveness of our internal control over financial reporting as of December 31, 2014 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.”
 
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.
 
Item 9B.
Other Information

None


111



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; provided, however that a director with a family member who is a partner with a foreign affiliate in the international cooperative of our registered independent public accounting firm shall be deemed to meet such independence standards if such director meets all other independence standards of NASDAQ and the board of our general partner affirmatively determines that such family relationship will not impair such director's independent judgment as a member of the Conflicts Committee.   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.


112



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
 
Age
 
Position with the General Partner
Ruben S. Martin
 
63
 
President, Chief Executive Officer and Director
Robert D. Bondurant
 
56
 
Executive Vice President and Chief Financial Officer and Director
Randall L. Tauscher
 
49
 
Executive Vice President and Chief Operating Officer
Chris H. Booth
 
45
 
Executive Vice President, General Counsel and Secretary
C. Scott Massey
 
62
 
Director
James M. Collingsworth
 
60
 
Director
Byron R. Kelley
 
67
 
Director
Alexander W.F. Black
 
47
 
Director
Sean P. Dolan
 
41
 
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, 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.

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 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 mid-stream 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

113



Pipeline Company, Seminole Pipeline Company and the Petrochemical Feedstock Association of America. 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. Mr. Collingsworth was appointed to the board of directors effective October 29, 2014.
 
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.

Alexander W.F. Black serves as a member of the board of directors of our general partner. Mr. Black has served as a Director since September 2013. Mr. Black is a partner at Alinda Capital Partners, which he joined in 2008. Prior to joining Alinda, he was a senior director of Kroll Zolfo Cooper, LLC, a consulting firm based in New York. Mr. Black has been CEO, CFO or head of operations at several businesses in the United States and United Kingdom. Prior to that, he was an audit supervisor at Touche Ross & Co. He is a Chartered Engineer, Chartered Insolvency and Restructuring Advisor, and a Chartered Accountant. He has a BSc (Hons) degree from Exeter University, United Kingdom. Mr. Black 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, business and operational 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 September 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.

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
 
F rom January 1, 2014 to December 31, 2014, the board of directors of our general partner held 18 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 June 23, 2014 and July 29, 2014, and Sean Dolan, who was not in attendance at the meeting of the board of directors on the date of October 23, 2014. Additionally, the board of directors undertook action two times during 2014 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

114



current members of the committees, the number of meetings held by each committee from January 1, 2014 to December 31, 2014, 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. Prior to their resignation on October 29, 2014, Messrs. Averett and Still were members of the Conflicts Committee. All of the members of the Conflicts Committee attended all meetings of the committee for the period noted above with the exception of Hank Still, who was not in attendance at the meeting of the Conflicts Committee on the date of August 10, 2014. 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; provided, however that a director with a family member who is a partner with a foreign affiliate in the international cooperative of our registered independent public accounting firm shall be deemed to meet such independence standards if such director meets all other independence standards of NASDAQ and the board of our general partner affirmatively determines that such family relationship will not impair such director's independent judgment as a member of the Conflicts Committee.  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), Collingsworth and Kelley. Prior to his resignation on October 29, 2014, Messr. Still was a member of the Audit Committee. All of the members attended all meetings of the Audit Committee for the period noted above. 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 (4 meetings).  The members of the Compensation Committee are Messrs. Collingsworth (chairman), Massey, and Kelley.  Prior to their resignation on October 29, 2014, Messrs. Averett and Still were members of the Compensation Committee. All of the members attended all meetings 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 (2 meetings).  The members of the Nominating Committee are Messrs. Collingsworth (chairman), Massey, and Kelley.  Prior to their resignation on October 29, 2014, Messrs. Still and Averett were members of the Nominating Committee. All of the members attended all meetings 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.

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

115



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, 2014, with the exception of a Form 4 for James M. Collingsworth related to a restricted stock award which was filed two days late.
 
Reimbursement of Expenses of our General Partner
 
Our general partner does not receive a management fee or other compensation for its management of our partnership.  However, our general partner and its affiliates are reimbursed for expenses incurred on our behalf.  All direct general and administrative expenses are charged to us as incurred.  For the years ended December 31, 2014, 2013 and 2012, we reimbursed Martin Resource Management $183.2 million , $177.1 million , and $157.8 million , respectively, for direct costs and expenses. There is no monetary limitation on the amount we are required to reimburse Martin Resource Management for direct expenses.

Indirect general and administrative and corporate overhead costs relate to centralized corporate functions that we share with Martin Resource Management, including certain accounting, treasury, engineering, information technology, insurance, administration of employee benefit plans and other corporate services.  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, 2014, 2013 and 2012, the Conflicts Committee approved reimbursement amounts of $12.5 million, $10.6 million and $7.6 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.

Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in any reasonable manner determined by our general partner in its sole discretion.  Please read “Item 13.  Certain Relationships and Related Transactions, and Director Independence — Agreements — Omnibus Agreement.”
 

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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, 2014, 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, 2014, 2013 and 2012, the conflicts committee of our general partner (“Conflicts Committee”) approved reimbursement amounts of $12.5 million, $10.6 million and $7.6 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 2014, 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 are determined by the Compensation Committee of Martin Resource Management following an individual performance review of each Named Executive Officer. Further, Martin Resource Management, with the approval of Mr. Ruben Martin, the Chief Executive Officer of Martin Resource Management, normally reviews market data and relevant compensation surveys when setting base compensation and, when appropriate, engages compensation consultants.  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 Martin Resource Management’s Compensation Committee for distribution to key employees of Martin Resource Management. Upon such allocation, Mr. Martin with input from appropriate business leaders determines the allocation and distribution of the bonus pool among such employees, including the Named Executive Officers. With respect to employee benefit plan awards, Mr. Martin makes a recommendation to the Compensation Committee of Martin Resource Management as to whether such awards should be awarded to any employees. Any such employee plan awards are then approved by the Compensation Committee and distributed to the employees, including Named Executive Officers, accordingly.

Any awards granted under our long-term incentive plan, which to date have consisted of the grant of restricted common units to the independent directors and employees of our general partner, are approved by the Compensation Committee.

The Named Executive Officers who serve on the compensation committee of Martin Resource Management play a role in setting the compensation as base salaries, discretionary annual cash awards and employee benefit awards are set by that committee.  Current members of the Martin Resource Management compensation committee are Mr. Ruben Martin, Chief Executive Officer, Mr. Robert Bondurant, Chief Financial Officer, Mr. Randall Tauscher, Chief Operating Officer, Mrs. Melanie Mathews, Vice President-Human Resources, and, until his retirement on July 8, 2014, Mr. Wesley Skelton, Chief Administrative Officer and Controller. Further, as is explained above, Mr. Martin, as Chief Executive Officer, also has significant authority in setting base salaries, discretionary annual cash award allocations and amounts and employee benefit award distributions.


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Determination of 2014 Compensation Amounts
 
During 2014, 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 53.2% of the aggregate annual base salaries paid to the Named Executive Officers by Martin Resource Management during 2014.  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 45% to 67%. 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. Wesley Skelton, an Executive Vice President, Controller and Chief Administrative Officer of our general partner (Wesley Skelton retired effective July 8, 2014), Mr. Randall Tauscher, an Executive Vice President and Chief Operating Officer of our general partner and Mr. Chris Booth, the Executive Vice President, General Counsel and Secretary of our general partner.  Aggregate annual base salaries of the Named Executive Officers were increased during 2014 by Martin Resource Management by 5.3%.

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 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

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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, 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.

On April 30, 2012, we issued 1,250 restricted common units to each of our four independent directors under our LTIP.  These restricted common units vest in equal installments of 312.5 units on January 24, 2013, 2014, 2015, and 2016.

Unit Options.   The LTIP currently permits the grant of options covering common units. As of March 2, 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.

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

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(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 profit sharing 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, 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 Employees' Stock Profit Sharing Plan.   Martin Resource Management maintains an employee profit sharing 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 Employees' Stock Profit Sharing 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 Employees’ Stock Profit Sharing 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, 2014.

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, 2014.

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.
 
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, 2014, 2013 and 2012.

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Name and Principal Position
 
Year
 
Salary
 
Bonus
 
Stock Awards(2)
 
Total Compensation
Ruben S. Martin, President and Chief Executive Officer
 
2014
 
$
412,500

 
$

 
$

 
$
412,500

 
2013
 
$
375,000

 
$

 
$
310,600

 
$
685,600

 
2012
 
$
283,593

 
$

 
$

 
$
283,593

Robert D. Bondurant, Executive Vice President and Chief Financial Officer
 
2014
 
$
230,000

 
$

 
$

 
$
230,000

 
2013
 
$
200,000

 
$

 
$
62,120

 
$
262,120

 
2012
 
$
151,307

 
$

 
$

 
$
151,307

Randall L. Tauscher, Executive Vice President and Chief Operating Officer
 
2014
 
$
308,200

 
$

 
$

 
$
308,200

 
2013
 
$
268,000

 
$

 
$
62,120

 
$
330,120

 
2012
 
$
224,502

 
$

 
$

 
$
224,502

Wesley M. Skelton, Executive Vice President, Controller and Chief Administrative Officer
 
2014 (1)
 
$
71,250

 
$

 
$

 
$
71,250

 
2013
 
$
136,800

 
$

 
$
7,765

 
$
144,595

 
2012
 
$
133,380

 
$

 
$

 
$
133,380

Chris H. Booth, Executive Vice President, General Counsel and Secretary
 
2014
 
$
165,240

 
$

 
$

 
$
165,240

 
2013
 
$
102,000

 
$

 
$
62,120

 
$
164,120

 
2012
 
$
94,755

 
$

 
$

 
$
94,755


(1) Represents salary earned through date of retirement on July 8, 2014.
(2) The amounts shown represent the grant date fair value of awards computed in accordance with FASB ASC 718. 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, 2014 through December 31, 2014.
 
 
Name
 
Fees Earned Paid in
Cash
 
Stock
Awards
 
 
Total
Ruben S. Martin
 
$

 
$

 
$

Robert D. Bondurant (2)
 
$

 
$

 
$

C. Scott Massey (1)
 
$
65,000

 
$
68,800

 
$
133,800

Joe N. Averett, Jr. (1) (2)
 
$
65,000

 
$
68,800

 
$
133,800

Charles H. “Hank” Still (1) (2)
 
$
65,000

 
$
68,800

 
$
133,800

Byron R. Kelley (1)
 
$
65,000

 
$
68,800

 
$
133,800

James M. Collingsworth (2)
 
$
16,250

 
$
72,520

 
$
88,770

Alexander W.F Black
 
$

 
$

 
$

Sean P. Dolan
 
$

 
$

 
$


(1) On February 25, 2014, the Partnership issued 1,600 restricted common units to each of four independent directors, C. Scott Massey, Joe N. Averett, Jr., Charles H. “Hank” Still, and Byron R. Kelley, under our LTIP.  These restricted common units vest in equal installments of 400 units on February 25, 2015, 2016, 2017 and 2018, respectively.  On October 29, 2014, the Partnership issued 2,000 restricted common units to the Partnership's newly appointed independent director, James M.

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Collingsworth. These restricted common units vest in equal installments of 500 units on October 29, 2015, 2016, 2017 and 2018, 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.

(2) On October 29, 2014, Charles H. Still and Joe N. Averett, Jr. resigned from their positions as members of the board of directors of our general partner. Additionally, on October 29, 2014, James M. Collingsworth and Chief Financial Officer, Robert D. Bondurant, were appointed to the board of directors of our general partner.

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.
 


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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 March 2, 2015 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)
 
Common Units
Beneficially
 Owned
 
Percentage of
 Common Units
 Beneficially
Owned(2)
MRMC ESOP Trust(3)
 
6,264,532

 
17.7%
Martin Resource Management Corporation(4)
 
6,264,532

 
17.7%
Martin Resource, LLC(4)
 
4,203,823

 
11.9%
Martin Product Sales LLC(4)
 
1,171,265

 
3.3%
Cross Oil Refining & Marketing Inc.(4)
 
889,444

 
2.5%
Ruben S. Martin(5)
 
6,355,318

 
17.9%
Robert D. Bondurant
 
25,013

 
—%
Randall Tauscher
 
16,588

 
—%
Chris Booth
 
6,850

 
—%
Alexander W.F. Black
 

 
—%
Sean Dolan
 

 
—%
C. Scott Massey(6)(7)(8)
 
22,150

 
—%
Byron R. Kelley(7)(8)
 
8,000

 
—%
James M. Collingsworth(7)(8)
 
5,400

 
—%
All directors and executive officers as a group (11 persons)(8)
 
6,439,319

 
18.2%
  
(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 percent of class shown is less than one percent unless otherwise noted.

(3)
By virtue of its ownership of 82.36% 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.

(4)
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.

(5)
Includes 90,786 common units owned directly by Mr. Martin, 38,000 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.

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(6)
Mr. Massey may be deemed to be the beneficial owner of 1,250 common units held by his wife.

(7)
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 October 2014, we issued 2,000 restricted common units to a newly appointed independent director under our long-term incentive plan. These restricted common units vest in equal installments of 500 units on October 28, 2015, 2016, 2017 and 2018.

In February 2014, we issued 6,400 restricted common units to independent directors under our long-term incentive plan.  These restricted common units vest in equal installments of 400 units on January 24, 2015, 2016, 2017 and 2018.

In April 2013, we issued 6,000 restricted common units to independent directors under our long-term incentive plan.  These restricted common units vest in equal installments of 375 units on January 24, 2014, 2015, 2016 and 2017.

In January 2013, we issued 16,250 restricted common units to our five executive officer under our long-term incentive plan.  These units vest will vest in January 2016.

On April 30, 2012, we issued 1,250 restricted common units to each of five independent directors under our long-term incentive plan.  These restricted common units vest in equal installments of 312.5 units on January 24, 2013, 2014 2015, and 2016.
    
(8)
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 March 2, 2015.  The table below sets forth information as of March 2, 2015 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.
 
 
Beneficial Ownership of
Voting Common Stock
Name of Beneficial Owner(1)
 
Number of
Shares
 
Percent of
Outstanding Voting Stock
MRMC ESOP Trust (2)
 
183,815.55

 
82.57
%
Martin ESOP Trust (3)
 
38,799.94

 
17.43
%
Robert D. Bondurant (3)
 
38,799.94

 
17.43
%
Randall Tauscher (3)
 
38,799.94

 
17.43
%

(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 183,815.55 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, 95,194 shares of common stock are allocated to participant accounts, and 88,622 shares of common stock are unallocated.


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(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 38,800 shares owned by such trust.  The Co-Trustees disclaim beneficial ownership of these 38,800 shares.

The following table sets forth information regarding securities authorized for issuance under our equity compensation plans as of December 31, 2014:
 
Equity Compensation Plan Information
 
Number of
 securities to be
 issued upon exercise
of outstanding
 options, Warrants
and rights
 
Weighted-average
 exercise price of
 outstanding options,
warrants and rights
 
Number of securities
 remaining available for
 future issuance under equity compensation
plans (excluding
 securities reflected in
 column (a))
Plan Category
(a)
 
(b)
 
(c)
Equity compensation plans approved by security holders
N/A

 
N/A

 
N/A

Equity compensation plans not approved by security holders (1)

 
$

 
617,250

Total

 
$

 
617,250

      
(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 October 2014, we issued 2,000 restricted common units to a newly appointed independent director under our long-term incentive plan.  These restricted common units vest in equal installments of 500 units on October 28, 2015, 2016, 2017 and 2018, respectively.

In May 2014, we issued 500 restricted common units to a certain Martin Resource Management employee under its long-term incentive plan.  These units vest will vest in May 2017.

In February 2014, we issued 6,400 restricted common units to independent directors under our long-term incentive plan purchased by us in the open market for $277.  These restricted common units vest in equal installments of 400 units on January 24, 2015, 2016, 2017 and 2018, respectively.

In October 2013, we issued 750 restricted common units to a certain Martin Resource Management employee under its long-term incentive plan.  These units vest in October 2016.

In April 2013, we issued 6,000 restricted common units to independent directors under our long-term incentive plan purchased by us in the open market for $250.  These restricted common units vest in equal installments of 375 units on January 24, 2014, 2015, 2016 and 2017, respectively.

In January 2013, we issued 57,750 restricted common units to certain Martin Resource Management employees under its long-term incentive plan.  These units vest in January 2016.

In April 2012, we issued 6,250 restricted common units to independent directors under our long-term incentive plan purchased by us in the open market for $222.  These restricted common units vest in equal installments of 312.5 units on January 24, 2013, 2014, 2015 and 2016, respectively.



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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 March 2, 2015.  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
Ÿ     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)
 
Ÿ     2.0% general partner interest; and
Ÿ     the incentive distribution rights.
Operational Stage
 
Distributions of available cash to our general partner
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.
Payments to our general partner and its affiliates
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.
Withdrawal or removal of our general partner
 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

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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, 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

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$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, 2014, 2013 and 2012, the Conflicts Committee approved and we reimbursed Martin Resource Management of $12.5 million, $10.6 million and $7.6 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.


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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, 2015, 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 October 27, 2004 and consolidated it with the (i) terminalling services agreement entered into in connection with the Talen’s Marine & Fuel, LLC acquisition and (ii) terminalling services agreement entered into in connection with the acquisition of L&L Holdings LLC into a single agreement. The minimum throughput requirements of the three superseded agreements were aggregated in the new agreement. The per gallon throughput fee we charge under this agreement 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.

Other Related Party Transactions

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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 year ended December 31, 2014 was $0.8 million.

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.

Talen's Marine & Fuel, LLC. On December 31, 2012, we acquired all of the outstanding membership interests in Talen's from Quintana Energy Partners, L.P. for $103.4 million, subject to certain post-closing adjustments. Simultaneous with the acquisition, we sold certain working capital-related assets and a customer relationship intangible asset to Martin Energy Services LLC for $56.0 million. The excess carrying value of the assets over the purchase price paid by Martin Resource Management at the sales date was $4.3 million and was recorded as an adjustment to partners' capital.

Lubricant Product Blending and Packaging Assets. On October 2, 2012, we acquired from Cross, certain specialty lubricant product blending and packaging assets, including working capital, for total consideration of $121.8 million in cash at closing, plus a final net working capital adjustment of $0.9 million paid in October of 2012. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of these blending and packaging assets was recorded at the historical carrying value of the assets at the acquisition date, which totaled $62.4 million. The excess purchase price over the historical carrying value of the assets at the acquisition date was $60.3 million and was recorded as an adjustment to partners' capital.
    
Redbird Class A Interests. On October 2, 2012, we acquired from Martin Resource Management all of the remaining Class A interests in Redbird for $150.0 million in cash. The acquisition of these interests was recorded at the historical carrying value of the interests at the acquisition date. We recorded an investment in consolidated entities of $68.2 million and the excess of the purchase price over the carrying value of the Class A interests of $81.8 million 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

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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.


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Item 14.
Principal Accounting Fees and Services
 
KPMG, LLP served as our independent auditors for the fiscal years ended December 31, 2014 and 2013.  The following fees were paid to KPMG, LLP for services rendered during our last two fiscal years:
 
 
2014
 
2013
 
Audit fees
 
$
1,612,141

(1)
$
961,000

(1)
Audit related fees
 

 

 
Audit and audit related fees
 
1,612,141

 
961,000

 
Tax fees
 
218,110

(2)
147,325

(2)
All other fees
 

 

 
Total fees
 
$
1,830,251

 
$
1,108,325

 

(1)
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. 2013 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, 2014 and December 31, 2013 were approved in advance by the Audit Committee.


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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, 2014 and 2013
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Changes in Capital for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
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 years ended December 31, 2013 and 2012, an affiliate accounted for by the equity method, which constituted a significant subsidiary.

(b)      Exhibits
Reference is made to the Index to Exhibits beginning on page 137  for a list of all exhibits filed as part of this report.

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SIGNATURES
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.
Martin Midstream Partners L.P.
(Registrant)
By:    Martin Midstream GP LLC
It's General Partner
Date: March 2, 2015                    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 2nd day of March, 2015.


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Signature
 
Title
 
 
 
/s/ Ruben S. Martin
 
President, Chief Executive Officer and Director of Martin Midstream GP LLC (Principal Executive Officer)
Ruben S. Martin
 
 
 
 
 
/s/ Robert D. Bondurant
 
Executive Vice President, Director, and Chief Financial Officer of Martin Midstream GP LLC (Principal Financial Officer, Principal Accounting Officer)
Robert D. Bondurant
 
 
 
 
 
/s/ Alexander W.F. Black
 
Director of Martin Midstream GP LLC
Alexander W.F. Black
 
 
 
 
 
/s/ James M. Collingsworth
 
Director of Martin Midstream GP LLC
James M. Collingsworth
 
 
 
 
 
/s/ Sean P. Dolan
 
Director of Martin Midstream GP LLC
Sean P. Dolan
 
 
 
 
 
/s/ Byron R. Kelley
 
Director of Martin Midstream GP LLC
Byron R. Kelley
 
 
 
 
 
/s/ C. Scott Massey
 
Director of Martin Midstream GP LLC
C. Scott Massey
 
 


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INDEX TO EXHIBITS
Exhibit
Number
Exhibit Name
 
 
3.1
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).
3.2
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).
3.3
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).
3.4
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).
3.5
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).
3.6
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).
3.7
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).
3.8
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).
3.9
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).
3.10
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).
3.11
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).
3.12
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).
3.13
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).
3.14
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).
3.15
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).
3.16
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).
3.17
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).
3.18
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).

137



3.19
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).
3.20
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).
3.21
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).
3.22
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).
3.23
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).
3.24
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).
3.25
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).
3.26
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).
3.27*
Certificate of Formation of Redbird Gas Storage LLC, dated May 24, 2011.
3.28
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).
3.29
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).
4.1
Specimen Unit Certificate for Common Units (contained in Exhibit 3.2).
4.2
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).
4.3
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).
4.4
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).
4.5
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).
10.1
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).
10.2
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).
10.3
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)

138



10.4
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).

10.5
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).
10.6
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).
10.7
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).
10.8
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).
10.9
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).
10.10
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).
10.11
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).
10.12
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).
10.13
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).
10.14†
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).
10.15†
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).
10.16
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).
10.17
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).
10.18
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).
10.19(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).
10.20
Martin Resource Management Corporation Purchase Plan for Units of the Partnership, effective July 1, 2006, (filed as Exhibit 10.1 to the Partnership's registration statement on Form S-8 (SEC File No. 333-140152), filed January 23, 2007, and incorporated herein by reference).
10.21
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).
10.22
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).

139



10.23
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).
10.24
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).
10.25
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).
10.26*
Lubricants Terminalling Services Agreement, dated January 1, 2015, by and between the Operating Partnership and Martin Energy Services LLC.
10.27*
Fuel Terminalling Services Agreement, dated January 1, 2015, by and between the Operating Partnership and Martin Energy Services LLC.
21.1*
List of Subsidiaries.
23.1*
Consent of KPMG LLP.
23.2*
Consent of PricewaterhouseCoopers LLP.
31.1*
Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
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.”
32.2*
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.”
101
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, 2013, 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; (5) the Consolidated Statements of Other Comprehensive Income; and (6) the Notes to Consolidated Financial Statements, tagged as blocks of text.
*
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.

140



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 years ended December 31, 2013 and 2012




1

Cardinal Gas Storage Partners, LLC and Subsidiaries
Table of Contents
August 29, 2014, December 31, 2013 and 2012


 
Page
Independent Auditor's Report     
 
 
Consolidated Financial Statements
 
Statements of Financial Position
Statements of Operations
Statements of Members' Capital
Statements of Cash Flows
Notes to Financial Statements


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 financial position as of December 31, 2013 and 2012, and the related consolidated statements of operations, of members’ capital and of cash flows for each of the three years in 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 audits. We conducted our audits 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 financial position of Cardinal Gas Storage Partners LLC and its subsidiaries at December 31, 2013 and 2012, and the results of their operations, their comprehensive income, and their cash flows for each of the three years in the period ended December 31, 2013 in accordance with accounting principles generally accepted in the United States of America.


/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 Statements of Financial Position
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands)


 
2014
 
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
3,178

 
$
7,260

Restricted cash
17,566

 
14,892

Accounts receivable, net
3,901

 
4,193

Value of derivative instruments, current
809

 

Prepaid expenses and other current assets
1,496

 
1,384

Total current assets
26,950

 
27,729

Property, plant and equipment, net
611,769

 
622,794

Debt issuance costs, net
6,735

 
8,003

Value of derivative instruments
17

 
1,562

Intangible assets, net
783

 
1,420

Other assets
118

 
308

Total assets
$
646,372

 
$
661,816

Liabilities and Members' Capital
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
6,714

 
$
6,372

Current portion of long term debt
12,420

 
12,420

Total current liabilities
19,134

 
18,792

Long term debt
269,666

 
295,261

Other long term liabilities
595

 
1,179

Total liabilities
289,395

 
315,232

Commitments and contingencies (Note 4)
 
 
 
Members' capital
356,977

 
346,584

Total liabilities and members' capital
$
646,372

 
$
661,816


The accompanying notes are an integral part of these consolidated financial statements.


4

Cardinal Gas Storage Partners, LLC and Subsidiaries
Consolidated Statements of Operations
Period Ended August 29, 2014 (unaudited) and Years Ended December 31, 2013 and 2012
(Dollars in thousands)


 
2014
 
2013
 
2012
Revenues
 
 
 
 
 
Firm capacity revenues
$
41,290

 
$
47,427

 
$
29,962

Hub services revenues
3,117

 
2,449

 
905

Fuel charges
2,081

 
2,659

 
628

Professional service fees

 
227

 
504

Total revenues
46,488

 
52,762

 
31,999

Expenses
 
 
 
 
 
Operating expenses
18,267

 
14,285

 
8,701

Depreciation and amortization
12,038

 
18,752

 
14,346

General and administrative
3,109

 
7,998

 
3,634

Impairment losses

 
129,384

 
580

Loss on abandoned project

 

 
1,259

Loss (gain) on sale/disposal of assets
2,274

 
921

 
(1
)
Loss (gain) on natural gas sold
111

 
20

 
(211
)
Total expenses
35,799

 
171,360

 
28,308

Income (loss) from operations
10,689

 
(118,598
)
 
3,691

Other income (expense)
 
 
 
 
 
Gain (loss) on derivative instruments
(745
)
 
110

 
(4,735
)
Royalty income
9

 

 

Interest income
1

 
3

 
3

Interest expense
(8,043
)
 
(9,798
)
 
(4,910
)
Total other expense
(8,778
)
 
(9,685
)
 
(9,642
)
Net income (loss)
$
1,911

 
$
(128,283
)
 
$
(5,951
)

The accompanying notes are an integral part of these consolidated financial statements.

5

Cardinal Gas Storage Partners, LLC and Subsidiaries
Consolidated Statements of Members' Capital
Period Ended August 29, 2014 (unaudited) and Years Ended December 31, 2013 and 2012
(Dollars in thousands)


 
ECP
 
Redbird
 
Total
 
 
 
 
 
 
Members' capital at December 31, 2011
$
336,403

 
$
86,532

 
$
422,935

Contributions
27,299

 
30,280

 
57,579

Distributions
(9,076
)
 
(8,190
)
 
(17,266
)
Net loss
(2,820
)
 
(3,131
)
 
(5,951
)
Members' capital at December 31, 2012
351,806

 
105,491

 
457,297

Contributions
5,887

 
15,878

 
21,765

Distributions
(2,456
)
 
(1,739
)
 
(4,195
)
Net loss
(74,089
)
 
(54,194
)
 
(128,283
)
Members' capital at December 31, 2013
281,148

 
65,436

 
346,584

Contributions
5,635

 
3,385

 
9,020

Distributions
(313
)
 
(225
)
 
(538
)
Net income
1,009

 
902

 
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 Years Ended December 31, 2013 and 2012
(Dollars in thousands)


 
2014
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
1,911

 
$
(128,283
)
 
$
(5,951
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
 
(Gain) loss on derivative instruments
745

 
(110
)
 
4,735

Depreciation and amortization expense
12,038

 
18,752

 
14,346

Amortization of debt issuance cost
1,268

 
1,901

 
1,639

Impairment losses

 
129,384

 
580

Loss on abandoned project

 

 
1,259

Loss on disposal of assets
2,274

 
921

 

Provision for (recovery of) doubtful accounts

 
2

 
(16
)
Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
292

 
(2,744
)
 
5,532

Prepaid expenses and other current assets
(112
)
 
(1,057
)
 
76

Other noncurrent assets
190

 
(308
)
 

Accounts payable and accrued liabilities
1,286

 
2,052

 
(6,106
)
Deferred revenue

 

 
(17
)
Other noncurrent liabilities
(585
)
 
1,179

 

Net cash provided by operating activities
19,307

 
21,689

 
16,077

Cash flows from investing activities:
 
 
 
 
 
Settlement of derivative instrument

 
160

 
(2,459
)
Derivative instrument
(8
)
 

 
(3,591
)
Acquisition of a business and related adjustments

 

 
316

Capital expenditures
(3,981
)
 
(131,857
)
 
(131,873
)
Proceeds from sale of fixed asset
385

 
4,897

 

Restricted cash
(2,674
)
 
(2,128
)
 
(2,026
)
Net cash used in investing activities
(6,278
)
 
(128,928
)
 
(139,633
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from long term debt

 
118,117

 
102,695

Repayment of debt
(25,593
)
 
(25,316
)
 
(11,729
)
Cash paid for financing costs

 

 
(5,071
)
Contributions from members
9,020

 
21,765

 
57,579

Distributions to members
(538
)
 
(4,195
)
 
(17,266
)
Net cash provided by (used in) financing activities
(17,111
)
 
110,371

 
126,208

Net increase (decrease) in cash and cash equivalents
(4,082
)
 
3,132

 
2,652

Beginning of year
7,260

 
4,128

 
1,476

End of year
$
3,178

 
$
7,260

 
$
4,128

Supplemental disclosure:
 
 
 
 
 
Cash paid for interest, net of capitalized interest
$
5,834

 
$
7,086

 
$
3,976

Noncash investing activities:
 
 
 
 
 
Change in capital expenditures included in accounts payable and accrued liabilities
(945
)
 
(17,567
)
 
14,389


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
August 29, 2014 (unaudited) and December 31, 2013
(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
August 29, 2014 (unaudited) and December 31, 2013
(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. At December 31, 2013, the Company held $14.9 million in restricted cash of which $11.5 million of this balance was restricted under the terms of a loan agreement for the primary purpose of making future principal reduction payments, $2.7 million was restricted for the purpose of funding development costs, and $0.7 million was restricted for distributions to members under the terms of the partnership agreement. The 2013 distribution was made to Redbird on January 31, 2014. The ECP distribution was held to offset future contributions and is reflected within accrued liabilities as of December 31, 2013.

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 and December 31, 2013, 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 and December 31, 2013 is reflected within other current assets on the statements 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

9

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

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.

Depreciation of property and equipment is provided over the estimated useful lives of the property as follows:
 
Straight Line
Storage, surface and pipeline facilities
20 to 50-year
Office equipment
5 to 7-year
Automobiles
5-year
Impairment of Long-lived Assets

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 years ended December 31, 2013 and 2012 was approximately $1.9 million and $1.6 million, of which approximately $0.6 million and $1.1 million were capitalized during the period of construction, respectively. 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 years ended December 31, 2013 and 2012 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.


10

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

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 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 and $1.6 million at August 29, 2014 and December 31, 2013, respectively, 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.


11

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

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 expires 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.

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 and $3.5 million during the years ended December 31, 2013 and 2012, respectively. 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 and December 31, 2013 is as follows:
 
2014
 
2013
Operating plant
$
604,030

 
$
609,699

Construction in progress
25,421

 
19,536

Base gas
32,457

 
32,457

Land
3,315

 
3,315

Office equipment
910

 
861

Automobiles
673

 
620

 
666,806

 
666,488

Accumulated depreciation
(55,037
)
 
(43,694
)
 
$
611,769

 
$
622,794

Depreciation expense for the period ended August 29, 2014 and years ended December 31, 2013 and 2012 was $11.4 million, $16.9 million and $11.1 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.

12

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)


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 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 each of the years ended December 31, 2013 and 2012 was $0.5 million.
Future minimum noncancelable lease payments by year as of August 29, 2014, are as follows:
2014
$
171

2015
227

2016
55

2017
28

2018
29

Thereafter
50

Total commitments
$
560

    
Litigation

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 and December 31, 2013 is as follows:
 
 Estimated Lives
 
2014
 
2013
Pad Gas Lease
4 years
 
$
3,388

 
$
3,388

Ad Valorem Tax Contract
8 years
 
1,611

 
1,611

Gas Storage Contracts
1 to 2 years
 
4,351

 
4,351

FERC Permit
50 years
 
500

 
500

 
 
 
9,850

 
9,850

Accumulated amortization
 
 
(9,067
)
 
(8,430
)
 
 
 
$
783

 
$
1,420


Amortization expense for intangible assets was $0.6 million, $1.8 million and $3.2 million for the period ended August 29, 2014, and years ended December 31, 2013 and 2012, respectively. The estimated future aggregate amortization

13

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

expense of intangible assets as of August 29, 2014, is set forth below:
2014
$
319

2015
10

2016
10

2017
10

2018
10

Thereafter
424

 
$
783

6. Concentrations

Concentration of Credit Risk

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 and December 31, 2013, the value of gas storage inventory held for others was approximately $110.8 million and $192.9 million, respectively. This balance represents the volume of stored natural gas valued at August 29, 2104 and December 31, 2013, respectively, 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. At December 31, 2013, four customers accounted for approximately 41%, 14%, 11% and 11% of the Company’s accounts receivable. For the year ended December 31, 2012, four customers accounted for approximately 24%, 16%, 15%, and 12% of the Company’s total revenues.

14

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

8. Long Term Debt

A summary of long term debt at August 29, 2014 and December 31, 2013 is as follows:
 
2014
 
2013
Construction loan - Arcadia
$
63,816

 
$
69,641

Base gas revolver - Arcadia
13,747

 
13,747

Construction loan - Perryville
90,360

 
100,079

Base gas revolver - Perryville
15,575

 
15,575

Construction loan - Cadeville
98,588

 
108,639

 
282,086

 
307,681

Less: Current portion
(12,420
)
 
(12,420
)
 
$
269,666

 
$
295,261


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
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

Maturities of long term debt are as follows as of August 29, 2014 :
2014
$
6,210

2015
12,420

2016
80,734

2017
8,721

2018
174,001

Thereafter

 
$
282,086

9. Derivative Instruments

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 years ended December 31, 2013 and 2012 are as follows:
 
2014
 
2013
 
2012
Interest rate
$
(47
)
 
$
691

 
$
(245
)
Natural gas
(698
)
 
(581
)
 
(4,490
)
Gain (loss) on derivative instruments
$
(745
)
 
$
110

 
$
(4,735
)

A summary of derivative instruments at August 29, 2014 and December 31, 2013 is as follows:
Transaction Type
 
Settlement Date
 
Pricing Terms
 
Quantity
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
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
 
$
809

 
$

 
 
 
 
 
 
 
 
 
 
 
          Current assets fair value of derivatives
 
 
 
 
 
809

 

 
 
 
 
 
 
 
 
 
 
 
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
 

 
1,507

 
 
 
 
 
 
 
 
 
 
 
Interest rate cap
 
$115 million on December 31, 2015
 
Fixed rate of 2.00% settled against LIBOR, quarterly LIBOR resets
 
$115 million
 
17

 
52

 
 
 
 
 
 
 
 
 
 
 
Interest rate cap
 
$125 million on December 31, 2015
 
Cap rate of 4.00% settled monthly through 2014, and Cap rate of 6.00% for 2015
 
$125 million
 

 
3

 
 
 
 
 
 
 
 
 
 
 
           Non-current assets fair value of derivatives
 
 
 
 
 
17

 
1,562

 
 
 
 
 
 
 
 
 
 
 
         Net fair value of derivatives
 
 
 
 
 
$
826

 
$
1,562

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,

16

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

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.
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 and December 31, 2013 is reflected in short term and long term assets, respectively, on the consolidated statements 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.
9. 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 each of the years ending December 31, 2013 and 2012 was $0.2 million.

17

Cardinal Gas Storage Partners, LLC and Subsidiaries
Notes to Consolidated Financial Statements
August 29, 2014 (unaudited) and December 31, 2013
(Dollars in thousands, except where otherwise indicated)

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, $13.2 million and $10.3 million to MRMC under the Master Services Agreement for the period ended August 29, 2014 and years ending December 31, 2013 and 2012, 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.
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.

10. 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


Exhibit 3.27

State of Delaware
Secretary of State
Division of Corporations
Delivered 02:32 PM 05/24/2011
FILED 02:32 PM 05/24/2011
SRV 110608766 - 4982228 FILE

CERTIFICATE OF FORMATION

OF

REDBIRD GAS STORAGE LLC

This Certificate of Formation of Redbird Gas Storage LLC is being duly executed and filed, to form a limited liability company under the Delaware Limited Liability Company Act.

FIRST: The name of the limited liability company to be formed hereby (the " LLC ") is Redbird Gas Storage LLC.

SECOND: The address of the registered office of the LLC in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801.

THIRD: The name of the Registered Agent for service of process at such address is The Corporation Trust Company.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation on this the 24th day of May, 2011.


By: /s/ Carol Glendenning                 
Carol Glendenning, Authorized Person





Exhibit 10.26

TERMINALLING SERVICES AGREEMENT

This Terminalling Services Agreement (“Agreement”) is made by and between MARTIN OPERATING PARTNERSHIP L.P. , a Delaware limited partnership (“Operator”), and MARTIN ENERGY sERVICES LLC , an Alabama limited liability company (“Customer”), sometimes referred to individually as a “Party” and collectively as the “Parties.”

WHEREAS, Operator and Customer are parties to that certain Terminalling Services Agreement dated April 1, 2009 and later amended (the “TSA 1”);

WHEREAS, Operator and L&L Oil and Gas Services, L.L.C. (“L&L”) (now known as Martin Energy Services LLC) are parties to that certain Terminalling Services Agreement dated January 31, 2011 (“TSA 2”);

WHEREAS, Talen’s Marine & Fuel, LLC (“Talens”) and Customer are parties to that certain Terminalling Services Agreement dated December 31, 2012 (“TSA 3” and TSA 1, TSA 2, and TSA 3 collectively the “Terminal Services Agreements”) and effective August 8, 2013, Talens transferred its terminal assets to Operator;

WHEREAS, the Terminal Service Agreements have been terminated effective as of even date herewith and Customer and Operator desire to replace the Terminal Service Agreements with this Agreement;

WHEREAS, Operator operates several marine terminal facilities and Customer is in the petroleum-based lubricants and other petroleum products distribution business; and

WHEREAS, it is the desire of Operator and Customer that Customer's product be throughput at the terminals and that Operator provide unloading, handling, storage, out-loading and other terminal services with respect to Customer's product at the terminals, all on the terms and conditions hereinafter provided.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Operator and Customer agree that Operator shall provide the hereinafter described terminal storage and throughput services with respect to the Customer's product at the terminals, on the terms and conditions provided herein:

Section 1.      Definitions.      In this Agreement, unless the context requires otherwise, the following terms will have the meanings indicated below:

“Deep Draft Throughput Fee” means $0.21490 per gallon per month for deep draft lubricants delivered from the Theodore, AL location.
    
“Effective Date” means January 1, 2015.

“Force Majeure" means (i) strikes, lockouts or other industrial disputes or disturbances, (ii) acts of the public enemy or of belligerents, hostilities or other disorders, wars (declared or undeclared), blockades, insurrections, riots, civil disturbances, sabotage (iii) acts of nature, landslides, severe lightning, earthquakes, fires, tornadoes, hurricanes, storms, and warnings for any of the foregoing which may necessitate the precautionary shut-down of wells, plants, pipelines, gathering systems, loading facilities or the Terminal or other related facilities, floods, washouts, freezing of machinery, equipment, wells or lines of pipe, inclement weather that necessitates extraordinary measures and expense to construct facilities or maintain operations,





tidal waves, perils of the sea or other water and other adverse weather conditions and unusual or abnormal conditions of the sea or other water (iv) arrests and restraints of or other interference or restrictions imposed by governments (either federal, state, civil or military and whether legal or de facto or purporting to act under some constitutions, decree, law or otherwise), necessity for compliance with any court order, or any law, statute, ordinance, regulation or order promulgated by a governmental authority having or asserting jurisdiction, embargoes or export or import restrictions, expropriation, requisition, confiscation or nationalization (v) epidemics or quarantine, explosions, breakage or accidents to equipment, machinery, plants, facilities or lines of pipe, the making of repairs or alterations to lines of pipe or plants, inability to secure labor or materials to do so, partial or entire failure of wells or gas supply, electric power shortages, accidents of navigation or breakdown or injury of vessels (vi) or any other causes, whether of the kind enumerated above or otherwise, which were not reasonably foreseeable, and which are not within the control of the Party claiming suspension and which by the exercise of due diligence such Party is unable to prevent or overcome. Such term will likewise include, (i) in those instances where either Party is required to obtain servitudes, rights-of-way, grants, permits or licenses to enable such Party to fulfill its obligations under this Agreement, the inability of such Party to acquire, or delays on the part of such Party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits or licenses, and in those instances where either Party is required to furnish materials and supplies for the purpose of constructing or maintaining facilities to enable such Party to fulfill its obligations under this Agreement, the inability of such Party to acquire, or delays on the part of such Party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such materials and supplies and (ii) any event of Force Majeure occurring with respect to the facilities or services of either Party’s suppliers or customers providing a service or providing any equipment, goods, supplies or other items necessary to the performance of such Party’s obligations, and will also include curtailment or interruption of deliveries or services by such third-party suppliers or customers as a result of an event defined as Force Majeure.

“Gallon” means a U.S. gallon of 231 cubic inches corrected to 60 degrees Fahrenheit in accordance with the latest supplement or amendment to the appropriate ASTM Petroleum Measurement Tables.

“Month” means a calendar month.

“Throughput Fee” means $0.59098 per gallon per Month for all Terminals plus the Deep Draft Throughput Fee for the Theodore, Alabama Terminal only.

“Product” means lubricants and other petroleum based products.

“Handling Infrastructure” means all lubricants and other petroleum based products handling infrastructure located at Terminal(s).

“Term” means one (1) year commencing on the Effective Date and thereafter continuing on a month to month basis, unless terminated by either party with at least sixty (60) days written notice prior to the end of any term.

“Terminal” means the Operator’s terminals located as defined in Attachment “A” .

Section 2.      Service, Statements, Invoices, Documents and Records.

2.1      During the Term, Operator will provide services related to the receipt, storage, throughput, and delivery of Customer’s Product to and from Customer or on behalf of Customer into and out of the Handling Infrastructure at the Terminal and provide the facilities reasonably necessary to perform such services and provide such additional services as may be provided under this Agreement and its attachments,





for the fees, rates and charges contained in this Agreement. Those services will be performed in a manner consistent with Operator’s current practices at the Terminal and in compliance with applicable laws, rules, regulations and ordinances.

2.2      Operator will transmit to Customer a statement of receipts, deliveries and ending inventory on a monthly basis. This statement will be transmitted to Customer by facsimile or other electronic means to ensure delivery.

2.3      Operator will provide to Customer copies of individual tank gauging documents, tank truck loading rack bills of lading and scale tickets for receipts or deliveries, or other such related documents, as requested by Customer.

2.4      Within twenty-five 25 days following the end of each Month during the Term of this Agreement, Operator will submit to Customer an invoice for the actual Throughput Fee for the preceding Month covering all gallons of Product delivered from the Terminal.

2.5      Each Party will maintain a true and correct set of records pertaining to its performance of this Agreement and all transactions related to such performance and will retain copies of all such records for a period of not less than one year following termination or cancellation of this Agreement. Upon reasonable prior notice, a Party or its authorized representative may, during the Term of this Agreement and for the aforesaid one-year period, audit such records of the other Party during normal business hours at the other Party’s place of business to verify the accuracy of any statement, charge, computation, or demand made under or pursuant to this Agreement. Each Party agrees to keep records and books of account in accordance with generally accepted accounting principles in the industry. Any statement shall be deemed accurate and final as to both Parties unless questioned within one year after payment thereof has been made.

Section 3.      Fees, Charges and Taxes.

3.1      Customer will pay Operator for services provided under this Agreement. The Throughput Fee and Deep Draft Throughput Fee are subject to any applicable escalation set forth in Section 3.3 below.

3.2      All fees and charges reflected in Operator’s invoices are due and payable within thirty (30) days of the date of Operator’s invoice.

3.3      The Throughput Fee and Deep Draft Throughput Fee shall remain as stated above until December 31, 2015. Thereafter, the Throughput Fee and Deep Draft Fee shall be adjusted annually (both upward and downward as hereinafter provided) by a factor equal to the increase or decrease, as the case may be, in the Consumer Price Index (as defined below). For example, if the contract year for which the escalated fees are being calculated commences on January 1, 2016, the bases months for determining the escalation would be October 2015 and October 2014. The adjustment shall be calculated as follows: the Throughput Fee in effect shall be multiplied by a factor equal to the amount of the increase or decrease, as the case may be, in the Consumer Price Index for the month of October 2015, over the Consumer Price Index for October 2014. For purposes hereof, the term “Consumer Price Index” shall mean the “Consumer Price Index for Urban Wage Earners and Clerical Workers (1967=100)” specified for “All Items. United States” compiled by the Bureau of Labor Statistics of the United States Department of Labor (the “Index”). In event the Index shall be converted to a different standard reference base or otherwise revised, the determination of the percentage change shall be made with the use of such conversion factor, formula or table for converting the Index as may be published by the Bureau of Labor Statistics or, if said Bureau shall not publish the same, then as shall be reasonably determined by the parties.






Section 4.      Operations, Receipts and Deliveries.

4.1      Customer’s Product will be delivered to the Terminal via transport truck by Customer or on its behalf free of any charge to Operator. Customer must provide the Terminal with and maintain updated forecasts of scheduled arrivals of Customer’s Product at the Terminal.

4.2      Receipts of Product will be handled within the normal business hours of the Terminal, as may be established from time to time. Operator will not be responsible for the payment of any demurrage or costs incurred by Customer or its transportation carrier for any delay in receiving or delivering the Product, unless caused by the gross negligence or willful misconduct of Operator.

4.3      Operator shall provide all delivery services necessary to cause the transfer of Customer’s Product from the Handling Infrastructure to Customer or Customer’s customer.

4.4      Operator will notify Customer of changes to the normal business hours of the Terminal, in advance or as soon after implementation as is practicable. Operator will provide Customer advance notice of the exact date of each holiday and any other day(s) during which the Terminal will be closed because of an extraordinary event or maintenance.

4.5      Operator shall provide and perform the Services specified herein in accordance with all applicable federal, state and local laws, rules, regulations, ordinances, decrees, orders, permits, licenses or other requirements having the force of law.

4.6      Customer must arrange for and pay all third party costs of the transportation of all Product including all third party costs related to the receipt or delivery of Customer’s Product to and from the Terminal. Operator is responsible only to receive or deliver, as the case may be, the Product at its Terminal. Customer must notify Operator of tentative Product arrival dates reasonably in advance and of any revision of those dates as soon as known. Tentative arrival dates for all transport trucks used by the Customer to the Terminal must be communicated approximately 24 hours in advance. At the time of said notice, Customer must furnish Operator with necessary shipping instructions. Upon receipt of such confirmation, Operator will immediately advise Customer of Terminal availability. If the Terminal will not be available to receive or deliver Customer’s Product on the communicated arrival date, Operator will advise as to the earliest time when Customer’s Product may be received or delivered. With respect to marine receipts or deliveries of Product, Operator will advise Customer concerning the vessel that may be berthed, including its maximum size, draw, draft and length, the docks and associated positions to be used for each Product movement, as well as the minimum pumping rates. Operator may change vessel size, dock designation, and pumping rates from time to time.

4.7      Operator will deliver to Customer, or to such third parties as Customer may direct the Product held by Operator at the Terminal for the account of Customer. Customer will be responsible for providing to Operator documentation required to authorize deliveries for or on its behalf from the Terminal. Where Product is to be delivered from the Terminal, such deliveries will be made only upon the authorization of Customer.

4.8      Within ten (10) days following termination of this Agreement, Operator, at Customer’s sole cost and expense, will remove and properly dispose of, or cause to be removed and properly disposed of all Product, residue, scale, non-merchantable bottoms, and any other accumulation from the Handling Infrastructure and clean the Handling Infrastructure’ interior/exterior to a condition suitable for the storage of refined petroleum products or other such Products, as Operator may deem necessary. In connection with the foregoing, Customer will reimburse Operator for all cost and expense reasonably incurred in taking such





action, plus a 15% handling fee. Operator is authorized to charge Customer for the cost of storage and handling of said Product at a rate of $0.03 per gallon per day storage in addition to any other fees and rates payable to Operator by Customer under this Agreement.

4.9      Operator will not be required to make any improvements, alterations or additions to the Terminal. If any federal, state or local governmental body requires installation of any improvement, alteration or addition to the Handling Infrastructure at the Terminal for purposes of compliance with applicable law or regulation, Operator will notify Customer of (i) the cost of making any such improvement, alteration or addition, and (ii) when such improvement, alteration or addition must be completed. In the event such costs are $50,000 or less, Operator shall proceed to make such required improvements, alterations or additions. In the event such costs exceed $50,000, Operator and Customer agree to renegotiate the terms of this Agreement in good faith to effect appropriate compensation to Operator in connection with the incurrence of such additional costs. Should the Parties fail to reach mutual agreement with respect to the sharing of such costs, then either Party may terminate this Agreement by giving the other Party notice of its intention no later than 30 days after Customer’s receipt of notice of such costs, such termination to be effective as of the date upon which such improvements, alterations or additions are required to be completed.

Section 5.      Product Quality Standards and Requirements.

5.1      Operator will not be obligated to receive into the Terminal any Product that is contaminated.

5.2      Operator may sample any Product tendered to Operator for Customer’s account for the purpose of conducting an analysis of such Product. The cost of such analysis will be borne by Operator.

5.3      Operator will deliver to Customer the Product that is stored in the segregated Handling Infrastructure provided for in this Agreement. At the time of each receipt from Customer, a certificate setting forth quality, grade and other specifications must be delivered to Operator. Each Party may at all reasonable times make appropriate tests to determine whether Product stored or delivered meets those specifications.

5.4      Operator will be liable to Customer and any of Customer’s purchasers by reason of contamination of Product that fails to meet Customer’s specifications only to the extent such contamination is caused by Operator’s negligence.

Section 6.      Title, Custody and Loss of Product.

6.1      Title to Customer’s Product will remain with Customer at all times, subject to any lien in favor of Operator created pursuant to the terms of this Agreement or under law. Operator will assume custody of the Product at the time such Product passes into the Handling Infrastructure of Operator’s receiving facilities. Operator’s delivery of Customer’s Products will be deemed completed and its custody of them will cease when the Products pass out of the Handling Infrastructure .

6.2.      Except for any (i) loss of Customer’s Product associated with Customer approved Product flushings to eliminate residual particles or other contaminants from pipelines, Handling Infrastructure, valves or pumps, and (ii) loss caused by any Force Majeure event, Operator is responsible for any Product lost while in its custody because of failure to exercise reasonable care. Upon delivery of Customer’s Product, as provided above, Operator shall have no further responsibility for any loss, damage or injury to persons or property (including the Products) arising out of possession or use of the Product, except to the extent that such loss, damage or injury is directly caused by the negligence of Operator.

Section 7.      Limitation of Liability and Damages.






Notwithstanding any other provision of this Agreement, Operator is not responsible for any lost or contaminated Product unless a written claim is delivered to Operator by Customer within 120 days after Operator reports the alleged loss to Customer or Customer otherwise learns of such loss or contamination. The maximum liability of Operator for contaminated Product under Section 5 or lost Product under Section 6 will not exceed, and is strictly limited to, the value of the Product when lost and for contaminated Product, immediately prior to its contamination, plus the costs and expenses actually, reasonably and necessarily incurred by Customer and Customer’s immediate purchaser in damage to equipment, cleaning and repairing tank trucks, and facilities, into which such Product was delivered at the Terminal, plus any fines and penalties actually levied against Customer or Customer’s immediate purchaser by reason of such fault on Operator’s part. Operator may, in lieu of payment for Product, replace such Product with product of like grade and quality. Regardless of fault, Operator is not liable under any circumstances for special, incidental, consequential or indirect damages, loss of profits or loss of new business, resulting breach of contract in favor of any purchaser of Customer, or for damages to equipment beyond that specified above.

Section 8.      Product Measurement.

8.1      Quantities of Product received into and delivered from the Terminal will be determined for the applicable mode of receipt and delivery of Product by either (i) tank gauge reading taken before and after each receipt or delivery, or (ii) other appropriate quantity measuring devices, as determined by Operator. Absent obvious error, the quantities of Products in storage at any time will be determined from Terminal inventory records of receipts and deliveries. Inventory records of Product will be verified against the sum of the material in the Handling Infrastructure as well as line charge. Gauging of Product received, delivered and in storage will be taken jointly by representatives of the Parties; provided, that if Customer does not have representatives present for gauging, Operator’s gauging will be conclusive. Customer may use certified public inspectors at its own expense.

8.2      Unless indicated otherwise, quantity determinations will be based on a gallon of Product.

8.3      Operator certifies to Customer the accuracy of all gauging and Terminal records as to quantities, and grants Customer and its authorized representatives access during Operator’s normal business hours and upon reasonable prior notice for purposes of examination, testing and audit of Terminal records pertaining to the receipt, handling, storage and delivery of Customer’s Product.

Section 9.      Force Majeure.

9.1      If either Party is rendered unable to perform or delayed in performing, wholly or in part, its obligations under this Agreement, other than the obligation to pay funds when due, as a result of a Force Majeure event, that Party may seek to be excused from such performance by giving the other Party prompt written notice of the Force Majeure event with reasonably full particulars of such event. The obligations of the Party giving notice, so far as they are affected by the Force Majeure event, will be suspended during, but not longer than, the continuance of the Force Majeure event. The affected Party must act with commercially reasonable diligence to resume performance and notify the other Party that the Force Majeure event no longer affects its ability to perform under the Agreement.

9.2      The requirement that any Force Majeure event be remedied with all reasonable dispatch will not require the settlement of strikes, lockouts, or other labor difficulty by the Party claiming excuse due to a Force Majeure event contrary to its wishes.






9.3      If either Party is rendered unable to perform by reason of Force Majeure for a period in excess of 120 days, then the other Party may terminate this Agreement upon written notice to the Party claiming excuse due to a Force Majeure event.
    
Section 10.      Inspection of and Access to Terminal.

10.1      Customer’s right and that of its authorized representatives to enter the Terminal in order to observe and verify Operator’s performance of its services will be exercised by Customer in a way that will not interfere with or diminish Operator’s control over or its operation of the Terminal and will be subject to reasonable rules and regulations from time to time promulgated by Operator or that may be applicable under Federal, State or local regulations or laws.

10.2      Customer acknowledges that any grant of the right of access to the Terminal under this Agreement or under any document related to this Agreement is a grant of merely a license and conveys no interest in or to the Terminal or any part of it, and may be withdrawn by Operator at its discretion at any time.

Section 11.      Assignment.

This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their permitted successors and assigns. Neither Party may assign this Agreement, directly or indirectly, without the express prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed. For purposes of this Section, “assign” will be considered to include any change in the majority ownership or control of a Party if a Party is a partnership or privately held corporation, or an assignment by operation of law in connection with a merger, consolidation, reorganization, receivership, bankruptcy or similar event, by asset sale, or by the sale of the stock, partnership or other equity interests of either Party to this Agreement to a third party, who becomes after the date hereof, a controlling person with respect to such Party. In the event the non-assigning Party, upon request by the assigning Party, consents to such assignment, the rights of obligations of the assigning Party shall be binding upon the permitted assignees. The consent by a Party to any assignment, subletting, hypothecation, pledge, encumbrance, mortgage of this Agreement will not constitute a waiver of such Party’s right to withhold its consent to any other or further assignment, subletting, hypothecation, pledge, encumbrance, mortgage of the Agreement. The absolute and unconditional prohibitions contained in this Section are material inducements by the Parties to enter into this Agreement and any breach thereof by a Party will constitute a material default by such Party under this Agreement permitting the non-breaching Party to exercise all remedies provided for in this Agreement or by law.

Section 12.      Notice.

Any notice required under this Agreement must be in writing and will be deemed received when actually received and delivered by (i) United States mail, certified or registered, return receipt requested, (ii) confirmed overnight courier service, or (iii) confirmed facsimile transmission properly addressed or transmitted to the address of the Party indicated below or to such other address or facsimile number as a Party will provide to the other Party in accordance with this provision:






If to Customer:

MARTIN ENERGY SERVICES LLC
Attn: Damon King
Three Riverway Suite 400
Houston, Texas 77056

If to Operator:

MARTIN OPERATING PARTNERSHIP L.P.
Attn: Randall L. Tauscher
P. O. Box 191
Kilgore, Texas 75663

Section 13.      Compliance with Law and Safety.

13.1.      Customer warrants that the Products tendered by it are produced, transported, and handled and Operator warrants that the services provided by it under this Agreement, are in full compliance with all statutes, ordinances, rules, regulations, orders and directives of federal, state, or local authority (“laws”), including those applicable to environmental pollution, and all presidential proclamations that apply to either Party. Each Party also warrants that it may lawfully receive and handle such Products, and it will furnish to the other Party any evidence required to provide compliance with such laws and to file with governmental agencies reports evidencing such compliance with those laws.

13.2.      Customer certifies, on behalf of itself, its employees, agents, and contractors that all vehicles and vessels used in connection with this Agreement will comply with all applicable federal, state, and local laws and that they will comply with Operator’s safety rules. Customer will furnish Operator with information (including Material Safety Data Sheet) concerning the safety and health aspects of Products stored under this Agreement. Operator will communicate such information to all persons who may be exposed to or may handle such Products, including without limitation, Operator’s employees, agents and contractors.

Section 14.      Default, Waiver and Remedies.

A material breach of any of the terms and conditions of this Agreement by either Party will constitute a default. Upon default, the non-defaulting Party shall, within thirty (30) calendar days of knowledge of such default, notify the defaulting Party of the particulars of such default and the defaulting Party has thirty (30) calendar days thereafter to cure such default. Upon the defaulting Party’s failure to cure the default within the 30-day grace period, any and all obligations, including payments of fees due under this Agreement, will, at the option of the non-defaulting Party, become immediately due and payable and the non-defaulting Party may terminate this Agreement upon written notice to the defaulting Party. The waiver by the non-defaulting Party of any right under this Agreement will not operate to waive any other such right nor operate as waiver of that right at any future date upon another default by either Party under this Agreement and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise of that right, power, or privilege or the exercise of any other right, power, or privilege. Nothing in this Section is intended in any way to limit or prejudice any other rights or remedies the non-defaulting Party may have under this Agreement or the law. The remedies of Operator provided in this Agreement are not exclusive and, except as otherwise expressly limited by this Agreement, are in addition to all other remedies of Operator at law or in equity. Acceptance by Operator of any payment from Customer for any charge or service after termination of this Agreement shall not be deemed a renewal of this Agreement under any circumstances, nor a waiver of any rights Operator may have under this Agreement or otherwise.






Section 15.      Insurance.

15.1.      Coverage by Customer .

(A) Customer will procure and maintain, at its sole expense, with solvent underwriters acceptable to Operator, policies of insurance in favor of Operator, its subsidiaries, affiliated and related companies and the agents, directors, officers, and employees of any one or more of the above described parties (“Operator Group”) in the minimum amounts outlined below:

(1) Commercial General Liability (Occurrence Form) for bodily injury and property damage, including the following coverage: premises/operations, independent contractors, blanket contractual liability, explosion, broad form property damage, products/completed operations, sudden and accidental pollution liability and, where appropriate, stop-gap coverage with total limits to all insureds for not less than $1 million for each occurrence and $2 million aggregate for each annual period;

(2) Excess Liability of $5 million in excess of the limits for all of the above insurance policy types to include a “drop down” provision in the event the underlying limits are exhausted;

(3) Pollution Legal Liability applicable to bodily injury, property damage, including loss of use of damaged property or loss of property that has not been physically injured or destroyed, cleanup costs and defense, including costs and expenses incurred in the investigation, defense or settlement of claims, and all such coverage to apply to sudden and non-sudden pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids, or gases, waste materials, or other irritants, contaminants or pollutants, in an amount of $1 million per loss, with an annual aggregate of $2 million; and

(B) It is expressly understood that the insurance provision of this Agreement, including the minimum required limits outlined above are intended to assure that certain minimum standards of insurance protection are afforded by Customer and the specifications in this Agreement of any amount will be construed to support but not in any way limit the amount or scope of liabilities and indemnity obligations (express or implied) of Customer. The minimum limits required in this Agreement for any particular type of insurance may be satisfied by a combination of the specific type of insurance and umbrella or excess liability insurance. The above minimum insurance requirements are subject to change at the discretion of Operator. All deductibles applicable to the minimum required coverage outlined in this Agreement, with or without the consent of Operator, will be for the sole account of the Customer.

(C) Coverage under all insurance required to be carried by Customer will be primary and exclusive of any other existing, valid and collectible insurance and each policy, whether or not required by the other provisions of this Agreement, will (i) provide an endorsement that will make Operator Group an additional insured, and (ii) otherwise provide a blanket waiver of subrogation against the Operator Group and its underwriters that guarantees that Customer’s underwriters similarly waive such rights of subrogation. All liability policies will also provide severability of interests and cross-liability coverage and a requirement that Operator be provided thirty (30) days prior written notice of cancellation, material change or non-renewal. None of Customer’s obligations under this Section may be met through the means of any self-insurance coverage or program.

15.2.      Coverage by Operator .

(A) Operator will procure and maintain, at its sole expense, with solvent underwriters acceptable to Customer, policies of insurance in favor of Customer, its subsidiaries, affiliated and related companies and





the agents, directors, officers, and employees of any one or more of the above described parties (“Customer Group”) in the minimum amounts outlined below:

(1) Workers’ Compensation complying with the laws and statutory minimum coverage of the state or states where performance under this Agreement takes place, whether or not such coverage its required by law, including, coverage for voluntary compensation and alternate employer and an “other states coverage” endorsement and coverage under the Federal Longshoremen and Harbor’s Act, the Jones Act and the Federal Death on the High Seas Act, if receipt or delivery of Product involves a vessel;

(2) Employer’s Liability with limits of $1 million (combined single limit) for each accident, including occupational disease coverage with a limit of $100,000 for each employee and a $1 million policy limit, including coverage under the Federal Longshoremen and Harbor Workers’ Act, the Jones Act, the Federal Death on the High Seas Act and general maritime remedies of seamen including transportation, wages, maintenance and cure whether the action is in rem or in personam;

(3) Commercial General Liability (Occurrence Form) for bodily injury and property damage, including the following coverage: premises/operations, independent contractors, blanket contractual liability, explosion, collapse and underground, broad form property damage, products/completed operations, sudden and accidental pollution liability and, where appropriate, stop-gap coverage with total limits to all insureds for not less than $1 million for each occurrence and $2 million aggregate for each annual period;

(4) Excess Liability of $5 million in excess of the limits for all of the above insurance policy types to include a “drop down” provision in the event the underlying limits are exhausted;

(5) Pollution Legal Liability applicable to bodily injury, property damage, including loss of use of damaged property or loss of property that has not been physically injured or destroyed, cleanup costs and defense, including costs and expenses incurred in the investigation, defense or settlement of claims, and all such coverage to apply to sudden and non-sudden pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids, or gases, waste materials, or other irritants, contaminants or pollutants, in an amount of $1 million per loss, with an annual aggregate of $2 million; and

(B) It is expressly understood that the insurance provision of this Agreement, including the minimum required limits outlined above are intended to assure that certain minimum standards of insurance protection are afforded by Operator and the specifications in this Agreement of any amount will be construed to support but not in any way limit the amount or scope of liabilities and indemnity obligations (express or implied) of Operator. The minimum limits required in this Agreement for any particular type of insurance may be satisfied by a combination of the specific type of insurance and umbrella or excess liability insurance. The above minimum insurance requirements are subject to change at the discretion of Customer. All deductibles applicable to the minimum required coverage outlined in this Agreement, with or without the consent of Customer, will be for the sole account of the Operator.

(C) Coverage under all insurance required to be carried by Operator will be primary and exclusive of any other existing, valid and collectible insurance and each policy, whether or not required by the other provisions of this Agreement, will (i) provide an endorsement that will make Customer Group an additional insured, and (ii) otherwise provide a blanket waiver of subrogation against the Customer Group and its underwriters that guarantees that Operator’s underwriters similarly waive such rights of subrogation. All liability policies will also provide severability of interests and cross-liability coverage and a requirement that Customer be provided thirty (30) days prior written notice of cancellation, material change or non-renewal.






15.3.      Failure to Secure . Failure to secure the insurance coverage, or failure to comply fully with any of the insurance provisions of this Agreement, or the failure to secure such endorsements on the policies as may be necessary to carry out the terms and conditions of this Agreement will in no way relieve each Party from the obligations of this Agreement, any provision of this Agreement to the contrary notwithstanding. If liability for loss or damage is denied by the insured Party’s underwriters, in whole or in part, or substantially reduced because of breach of such insurance requirements by the insured Party or for any other reason, or if a Party fails to maintain any of the insurance required by this Agreement, (i) to the extent permitted by law, such denied, breaching or failing Party (the “non-insured Party”) will indemnify the other Party and its underwriters against all claims, demands, costs and expenses, including reasonable attorney fees, which would otherwise be covered by said insurance, (ii) such breach or failure to maintain will be deemed a material breach of this Agreement, and (iii) non-breaching Party may procure the same and non-insured Party will reimburse the other Party for the cost of such policies or coverage.

15.4.      Certificates of Insurance . Prior to either Party commencing any performance under this Agreement and as a condition of exercising any rights under this Agreement, each Party will furnish to the other, certificates of insurance, evidencing that proper insurance has been secured in accordance with the specific terms of this Agreement. Failure of either Party to require such certificate or to object to any such certificate it receives or to commence performance without first providing a conforming certificate or request copies of any policy will not be a waiver of such Party’s obligation to meet its insurance obligations under this Section, including, without limitation, its obligation to provide conforming certificates.

15.5.      Reports of Accidents . Customer will immediately provide written notice to Operator of all accidents or occurrences resulting in injuries to Customer employees or third parties, or damage to property arising out of or during the course of the performance of Customer or of any subcontractor of Customer under this Agreement and, as soon as practical, will furnish Operator with a copy of all reports made by Customer or Customer’s underwriter or reports to others of such accidents or occurrences.

Section 16.      Indemnity.

16.1.      To the extent permitted by law and except as otherwise specifically provided in this Agreement, Customer will defend and indemnify Operator Group from and against any liability, loss, damage, claim, suit, penalty, fine, judgment, cost or expense (including reasonable attorney fees and other costs of litigation) resulting from, associated with or arising out of (i) Customer’s failure to comply with applicable governmental or quasi-governmental laws, regulations or rules, (ii) bodily injury or death of any person, including, without limitation, Customer’s and Operator’s employees, agents and representatives, (iii) damage to natural resources or to property of any nature, including, without limitation, that involving the Products and other property of Customer and the Terminal and other property of Operator, or (iv) discharges, spills, or leaks of products, to the extent caused by the negligent or willful acts or omissions of Customer, its employees, agents, representatives or contractors in the exercise of any of the rights granted under this Agreement or in the operation, loading, or unloading of any motor vehicle, or any vessel owned or hired by Customer, its agents or contractors, except to the extent any such loss, damage, claim, suit, liability, penalty, fine, judgment or expense is (a) finally determined to have resulted from the negligent or willful misconduct of Operator, or (b) covered by the following indemnity.

16.2.      To the extent permitted by law and as otherwise specifically provided in this Agreement, Operator will defend and indemnify Customer Group from and against any loss, damage, claim, suit, liability, penalty, fine, judgment or expense (including reasonable attorney fees and other costs of litigation) resulting from, associated with or arising out of (i) Operator’s failure to comply with applicable governmental or quasi-governmental laws, regulations or rules, (ii) bodily injury or death of any person, including, without limitation, Customer’s and Operator’s employees, agents or representatives, (iii) damage to natural resources or to





property of any nature, including, without limitation, that involving Customer’s Products or other property and the Terminal or other property of Operator, or (iv) discharges, spills, or leaks of products, to the extent caused by the negligent or willful acts or omissions of Operator, its employees, agents, representatives or contractors in the exercise of any of the rights granted under this Agreement or in the operation, loading, or unloading of any vessel owned or hired by Operator, its agents or contractors, except to the extent any such loss, damage, claim, suit liability, penalty, fine, judgment or expense is (a) finally determined to have resulted from negligent or willful misconduct of Customer, or (b) covered by the preceding indemnity.

16.3      Under the foregoing indemnities, where the personal injury to or death of any person, or loss of or damage to property is the result of the joint or concurrent negligence or willful acts or omissions of Operator and Customer, each Party’s duty of indemnification will be in proportion to its share of such joint or concurrent negligence, or willful misconduct.

16.4      To receive the foregoing indemnities, the Party seeking indemnification must notify the other in writing of a claim or suit promptly and provide reasonable cooperation (at the indemnifying Party’s expense) and full authority to defend or settle the claim or suit. Neither Party shall have any obligation to indemnify the other under any settlement made without its written consent.

16.5      In addition to and separate and apart from other insurance obligations that Customer may assume under the terms of this Agreement, insurance covering this indemnity agreement must be provided by Customer to the extent permitted by law. Further, by requiring insurance in this Agreement, Operator does not represent that the required insurance coverage and minimum limits will necessarily be adequate to protect Operator, and such insurance coverage and limits will not be deemed as a limitation on Customer’s liability under the indemnities granted to Operator in this Agreement.

Section 17.      Construction of Agreement.

17.1      Headings . The headings of the sections and subsections of this Agreement are for convenience only and will not be used in the interpretation of this Agreement.

17.2      Amendment or Waiver . This Agreement may not be amended, modified or waived except by written instrument executed by officers or duly authorized representatives of the respective Parties.

17.3      Severability of Provisions . If any provision of this Agreement is held to be unenforceable, this Agreement shall be considered divisible and such provision shall be deemed inoperative to the extent it is deemed unenforceable, and in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made enforceable by limitation or modification thereof, then such provision shall be deemed to be so limited or modified and shall be enforceable to the maximum extent provided by applicable law.

17.4      Entire Agreement . This Agreement (including the attachments) contains the entire and exclusive agreement between the Parties with respect to the subject matter hereof and supersedes and renders void all previous agreements, negotiations and representations between the Parties, whether written or oral. The terms of this Agreement may not be amended, contradicted, explained or supplanted by any usage of trade, course of dealing or course of performance.

Section 18.      Law.
This Agreement will be construed and governed by the laws of the State of Texas without regard to principles of conflict of laws.






Section 19.      Alternative Dispute Resolution.

19.1. Covered Disputes. Any dispute, controversy or claim (whether sounding in contract, tort or otherwise) arising out of or relating to this Agreement, including without limitation the meaning of its provisions, or the proper performance of any of its terms by either Party, its breach, termination or invalidity (“Dispute”) will be resolved in accordance with the procedures specified in this Section, which will be the sole and exclusive procedure for the resolution of any such Dispute, except that a Party, without prejudice to the following procedures, may file a complaint to seek preliminary injunctive or other provisional judicial relief, if in its sole judgment, that action is necessary to avoid irreparable damage or to preserve the status quo. Despite that action the Parties will continue, subject to Section 19.6, to participate in good faith in the procedures specified in this Section.
19.2 Initiation of Procedures. Either Party wishing to initiate the dispute resolution procedures set forth in this Section with respect to a Dispute not resolved in the ordinary course of business must give written notice of the Dispute to the other Party (“Dispute Notice”). The Dispute Notice will include (i) a statement of that Party’s position and a summary of arguments supporting that position, and (ii) the name and title of the executive who will represent that Party, and of any other person who will accompany the executive, in the negotiations under next subsection.
19.3 Negotiation Between Executives. If one Party has given a Dispute Notice under the preceding subsection, the Parties will attempt in good faith to resolve the Dispute within forty-five (45) calendar days of the notice by negotiation between executives who have authority to settle the Dispute and who are at a higher level of management than the persons with direct responsibility for administration of this Agreement or the matter in Dispute. Within fifteen (15) calendar days after delivery of the Dispute Notice, the receiving Party will submit to the other a written response. The response will include (i) a statement of that Party’s position and a summary of arguments supporting that position, and (ii) the name and title of the executive who will represent that Party and of any other person who will accompany the executive. Within forty-five (45) calendar days after delivery of the Dispute Notice, the executives of both Parties will meet at a mutually acceptable time and place, and thereafter, as often as they reasonably deem necessary, to attempt to resolve the Dispute.
19.4 Mediation. If the Dispute has not been resolved by negotiation under the preceding subsection within forty-five (45) calendar days of the Dispute Notice, and only in such event, either Party may initiate the mediation procedure of this subsection by giving written notice to the other Party (“Mediation Notice”). The Parties will endeavor to settle the Dispute by mediation within ninety (90) calendar days of the Mediation Notice.
19.5 Arbitration. If the Dispute has not been resolved by mediation under the preceding subparagraph within ninety (90) calendar days of the Mediation Notice, and only in such event, either Party may initiate the arbitration procedure of this subsection by giving written notice to the other Party (“Arbitration Notice”). The Dispute will be finally resolved by binding arbitration in accordance with the then current Arbitration Rules of the American Arbitration Association (“AAA”) by a single arbitrator, chosen by mutual agreement of both Parties. If the Parties cannot select an arbitrator within thirty (30) calendar days of the Arbitration Notice, the AAA will select the arbitrator. The United States Arbitration Act, 9 U.S.C. Sec. 1-16 as amended (“the Act”), will govern the arbitration. Judgment upon the award rendered by the arbitrator may be entered by any court of any state having jurisdiction. Subject to Section 19.6, the statute of limitations of the State of Texas for the commencement of a lawsuit will apply to the commencement of an arbitration under this Agreement, except that no defenses will be available based upon the passage of time during any negotiation or mediation called for by this Section. Each Party will assume its own costs of legal representation and expert witnesses and the Parties will share equally the other costs of the arbitration. The arbitrator will award





pre-judgment interest in accordance with the law of Texas; however, the arbitrator may not award punitive damages. The arbitration will take place in Houston, Texas

19.6 Tolling and Performance. All applicable statutes of limitation and defenses based upon the passage of time will be tolled while the procedures specified in this Section are pending. The Parties will take any action required to effectuate that tolling. Each Party is required to continue to perform its obligations under this Agreement pending final resolution of any Dispute, unless to do so would be impossible or impracticable under the circumstances.

This Agreement has been executed by the authorized representatives of each Party as indicated below effective as of the Effective Date.


MARTIN OPERATING PARTNERSHIP L.P.
By: Martin Operating GP LLC, its general partner
By: Martin Midstream Partners L.P., its sole member
By: Martin Midstream Partners L.P., its general partner
 
                    
By: /s/Robert D. Bondurant                      
Robert D. Bondurant, Executive Vice President


MARTIN ENERGY SERVICES LLC


By: /s/Damon King                          
Damon King, Senior Vice President





Attachment “A”
Terminals



193 DOCK
2254 S. Talen's Landing Rd.
Gueydan, La 70542
FRESHWATER CITY
41937 Hwy. 3147
Kaplan, LA 70548
PASCAGOULA
5320 Ingalls Ave.
Pascagoula, MS 39581
AMELIA 2
141 Offshore Lane
Amelia, LA 70340
GALVESTON - PELICAN ISLAND
1300 Coastwide Drive
Galveston, TX 77553
PORT ARTHUR
2420 Dowling Rd.
Port Arthur, TX 77640
BERWICK
100 Spirit Lane
Berwick, LA 70342
GALVESTON DOCK
200 Pennzoil Rd.
Galveston, TX 77554
PORT FOURCHON
Highway 3090
Port Fourchon, LA 70357
CHANNELVIEW
15755 Jacintoport Blvd.
Houston, TX 77015
HARBOR ISLAND
Hwy 361 S., South of Aransas Pass
Aransas Pass, TX 78336
PORT FOURCHON DOCK
300 Adam Ted Gisclair Rd.
Golden Meadow, LA 70357
CAMERON - EAST
199 Wakefield Rd.
Cameron, LA 70631
INTRACOASTAL CITY
25305 LA Highway 333
Intracoastal, LA 70510
PORT FOURCHON 16
118 N. Doucet Drive
Fourchon, LA 70357
CAMERON - WEST
189 Gulf Beach Highway
Cameron, LA 70631
INTRACOASTAL CITY 2
24823 LA Hwy 333
Intracoastal City, LA 70510
PORT FOURCHON 17
1 N. Doucet Drive
Fourchon, LA 70357
CAMERON 7
332 Davis Rd.
Cameron, LA 70631
JENNINGS BULK PLANT
1707 Evangeline Hwy.
Jennings, LA 70546
PORT O’CONNOR
Highway 185 at Intracoastal Canal,
Port O’Connor, TX 77982
CAMERON 8
521 Gulf Beach Hwy
Cameron, LA 70631
LAKE CHARLES
307 Bunker Rd.
Lake Charles, LA 70615
RIVER RIDGE
100B Florida Street
Harahan, LA 70123
DULAC
9576 Grand Caillou Rd.
Dulac, LA 70353
LAKE CHARLES DOCK
821 Henry Pugh Blvd.
Lake Charles, LA 70606
SABINE PASS
7680 South First Avenue,
Sabine Pass, TX 77655
FOURCHON 15
191 A.J Estay Rd.
Fourchon, LA 70357
MORGAN CITY 31
3205 Youngs Rd.
Morgan City, LA 70380
THEODORE
7778 Dauphin Island Parkway
Theodore, AL 36582
FREEPORT
1122 Marlin Lane
Freeport, TX 77542
VENICE 2
485 Jump Basin Rd.
Venice, LA 70091
 


    








Exhibit 10.27


TERMINALLING SERVICES AGREEMENT

This Terminalling Services Agreement (“Agreement”) is made by and between MARTIN OPERATING PARTNERSHIP L.P. , a Delaware limited partnership (“Operator”), and MARTIN ENERGY SERVICES LLC , an Alabama limited liability company (“Customer”), sometimes referred to individually as a “Party” and collectively as the “Parties”.

WHEREAS, Operator and Customer are parties to that certain Terminal Services Agreement dated December 23, 2003 and later amended (the “TSA 1”);

WHEREAS, Operator and L&L Oil and Gas Services, L.L.C. (“L&L”) (now known as Martin Energy Services LLC) are parties to that certain Terminal Services Agreement dated January 31, 2011 (“TSA 2”);

WHEREAS, Talen’s Marine & Fuel, LLC (“Talens”) and Customer are parties to that certain Terminal Services Agreement dated December 31, 2012 (“TSA 3” and TSA 1, TSA 2, and TSA 3 collectively the “Terminal Services Agreements”) and effective August 8, 2013, Talens has transferred its terminal assets to Operator;

WHEREAS, the Terminal Service Agreements have been terminated effective as of even date herewith and Customer and Operator desire to replace the Terminal Service Agreements with this Agreement;

WHEREAS, Operator operates several marine terminal facilities and Customer is in the petroleum-based fuel distribution business; and

WHEREAS, it is the desire of Operator and Customer that Customer's product be throughput at the terminals and that Operator provide unloading, handling, storage, out-loading and other terminal services with respect to Customer's product at the terminals, all on the terms and conditions hereinafter provided.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Operator and Customer agree that Operator shall provide the hereinafter described terminal storage and throughput services with respect to the Customer's product at the terminals, on the terms and conditions provided herein:

Section 1.      Definitions.      In this Agreement, unless the context requires otherwise, the following terms will have the meanings indicated below:
    
“Additional Fee” means $0.005 per gallon of Product Operator must load, handle, and transfer from a Terminal to a different location.

“Effective Date” means January 1, 2015.

“Force Majeure" means (i) strikes, lockouts or other industrial disputes or disturbances, (ii) acts of the public enemy or of belligerents, hostilities or other disorders, wars (declared or undeclared), blockades, insurrections, riots, civil disturbances, sabotage (iii) acts of nature, landslides, severe lightning, earthquakes, fires, tornadoes, hurricanes, storms, and warnings for any of the foregoing which may necessitate the precautionary shut-down of wells, plants, pipelines, gathering systems, loading facilities or the Terminal or other related facilities, floods, washouts, freezing of machinery, equipment, wells or lines of pipe, inclement weather that necessitates extraordinary measures and expense to construct facilities or maintain operations, tidal waves, perils of the sea or other water and other adverse weather conditions and unusual or abnormal





conditions of the sea or other water (iv) arrests and restraints of or other interference or restrictions imposed by governments (either federal, state, civil or military and whether legal or de facto or purporting to act under some constitutions, decree, law or otherwise), necessity for compliance with any court order, or any law, statute, ordinance, regulation or order promulgated by a governmental authority having or asserting jurisdiction, embargoes or export or import restrictions, expropriation, requisition, confiscation or nationalization (v) epidemics or quarantine, explosions, breakage or accidents to equipment, machinery, plants, facilities or lines of pipe, the making of repairs or alterations to lines of pipe or plants, inability to secure labor or materials to do so, partial or entire failure of wells or gas supply, electric power shortages, accidents of navigation or breakdown or injury of vessels (vi) or any other causes, whether of the kind enumerated above or otherwise, which were not reasonably foreseeable, and which are not within the control of the Party claiming suspension and which by the exercise of due diligence such Party is unable to prevent or overcome. Such term will likewise include, (i) in those instances where either Party is required to obtain servitudes, rights-of-way, grants, permits or licenses to enable such Party to fulfill its obligations under this Agreement, the inability of such Party to acquire, or delays on the part of such Party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits or licenses, and in those instances where either Party is required to furnish materials and supplies for the purpose of constructing or maintaining facilities to enable such Party to fulfill its obligations under this Agreement, the inability of such Party to acquire, or delays on the part of such Party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such materials and supplies and (ii) any event of Force Majeure occurring with respect to the facilities or services of either Party’s suppliers or customers providing a service or providing any equipment, goods, supplies or other items necessary to the performance of such Party’s obligations, and will also include curtailment or interruption of deliveries or services by such third-party suppliers or customers as a result of an event defined as Force Majeure.

“Gallon” means a U.S. gallon of 231 cubic inches corrected to 60 degrees Fahrenheit in accordance with the latest supplement or amendment to the appropriate ASTM Petroleum Measurement Tables.

“Minimum Annual Total Throughput” means 275,000,000 gallons of Product for which Customer shall pay Operator per year.

“Miscellaneous Fees” means any and all taxes, dockage or wharfage fees, product testing charges, barge or tug charges, or any other charges which may be levied against Operator having to do with handling and or custody of Customer's Product.

“Month” means a calendar month.
“Throughput Fee” means $0.066 per gallon for Product out-loaded from the Terminal per Month.

“Product” means petroleum based fuel and other petroleum based products.

“Handling Infrastructure” means all fuel and other petroleum based products handling infrastructure located at Terminal(s).
“Term” means one (1) year commencing on the Effective Date and thereafter continuing on a month to month basis, unless terminated by either party with at least sixty (60) days written notice prior to the end of any term.

“Terminal” means the Operator’s terminals located as defined in Attachment “A” .

Section 2.      Service, Statements, Invoices, Documents and Records.






2.1      During the Term, Operator will provide services related to the receipt, storage, throughput, and delivery of Customer’s Product to and from Customer or on behalf of Customer into and out of the Handling Infrastructure at the Terminal and provide the facilities reasonably necessary to perform such services and provide such additional services as may be provided under this Agreement and its attachments, for the fees, rates and charges contained in this Agreement. Those services will be performed in a manner consistent with Operator’s current practices at the Terminal and in compliance with applicable laws, rules, regulations and ordinances.

2.2      Operator will transmit to Customer a statement of receipts, deliveries and ending inventory on a daily basis. This statement will be transmitted to Customer by facsimile or other electronic means to ensure delivery.

2.3      Operator will provide to Customer copies of individual tank gauging documents, tank truck loading rack bills of lading and scale tickets for receipts or deliveries, or other such related documents, as requested by Customer.

2.4      Within twenty-five()25 days following the end of each Month during the Term of this Agreement, Operator will submit to Customer an invoice for the actual Throughput Fee for the preceding Month covering all gallons of Product delivered from the Terminal.

2.5      Each Party will maintain a true and correct set of records pertaining to its performance of this Agreement and all transactions related to such performance and will retain copies of all such records for a period of not less than one year following termination or cancellation of this Agreement. Upon reasonable prior notice, a Party or its authorized representative may, during the Term of this Agreement and for the aforesaid one-year period, audit such records of the other Party during normal business hours at the other Party’s place of business to verify the accuracy of any statement, charge, computation, or demand made under or pursuant to this Agreement. Each Party agrees to keep records and books of account in accordance with generally accepted accounting principles in the industry. Any statement shall be deemed accurate and final as to both Parties unless questioned within one year after payment thereof has been made.

Section 3.      Fees, Charges and Taxes.

3.1      Customer will pay Operator for services provided under this Agreement, including the Throughput Fees, Additional Fee, and Miscellaneous Fees. The Throughput Fee is subject to any applicable escalation set forth in Section 3.3 below.

3.2      All fees and charges reflected in Operator’s invoices are due and payable within thirty (30) days of the date of Operator’s invoice.

3.3      The Throughput Fee shall remain as stated above until December 31, 2015. Thereafter, the Throughput Fee shall be adjusted annually (both upward and downward as hereinafter provided) by a factor equal to the increase or decrease, as the case may be, in the Consumer Price Index (as defined below). For example, if the contract year for which the escalated fees are being calculated commences on January 1, 2016, the bases months for determining the escalation would be October 2015 and October 2014. The adjustment shall be calculated as follows: the Throughput Fee in effect shall be multiplied by a factor equal to the amount of the increase or decrease, as the case may be, in the Consumer Price Index for the month of October 2015, over the Consumer Price Index for October 2014. For purposes hereof, the term “Consumer Price Index” shall mean the “Consumer Price Index for Urban Wage Earners and Clerical Workers (1967=100)” specified for “All Items. United States” compiled by the Bureau of Labor Statistics of the United States Department of Labor (the “Index”). In event the Index shall be converted to a different standard





reference base or otherwise revised, the determination of the percentage change shall be made with the use of such conversion factor, formula or table for converting the Index as may be published by the Bureau of Labor Statistics or, if said Bureau shall not publish the same, then as shall be reasonably determined by the parties.

3.4      Should Customer not meet or exceed the Minimum Annual Total Throughput (other than due to Operator’s failure to perform services required hereunder except as a result of a Force Majeure event) then Customer shall compensate Operator for this shortfall at the same Throughput Fee. The invoicing for the Minimum Annual Total Throughput shortfall (if required) will occur on the first invoice generated immediately following each calendar year. Should this Agreement be terminated prior to the end of any calendar year, then the Minimum Annual Total Throughput shortfall, if any, shall be determined based on a prorated allocation of the Minimum Annual Total Throughput.

Section 4.      Operations, Receipts and Deliveries.

4.1      Customer’s Product will be delivered to the Terminal via marine transport by Customer or on its behalf free of any charge to Operator. Customer must provide the Terminal with and maintain updated forecasts of scheduled arrivals of Customer’s Product at the Terminal.

4.2      Receipts of Product will be handled within the normal business hours of the Terminal, as may be established from time to time. Operator will not be responsible for the payment of any demurrage or costs incurred by Customer or its chartered vessel for any delay in receiving or delivering the Product, unless caused by the gross negligence or willful misconduct of Operator.

4.3      Operator shall provide all delivery services necessary to cause the transfer of Customer’s Product from the Handling Infrastructure to Customer or Customer’s customer.

4.4      Operator will notify Customer of changes to the normal business hours of the Terminal, in advance or as soon after implementation as is practicable. Operator will provide Customer advance notice of the exact date of each holiday and any other day(s) during which the Terminal will be closed because of an extraordinary event or maintenance.

4.5      Operator shall provide and perform the services specified herein in accordance with all applicable federal, state and local laws, rules, regulations, ordinances, decrees, orders, permits, licenses or other requirements having the force of law.

4.6      Customer must arrange for and pay all third party costs of the transportation of all Product including all third party costs related to the receipt or delivery of Customer’s Product to and from the Terminal. Operator is responsible only to receive or deliver, as the case may be, the Product at its Terminal. Customer must notify Operator of tentative Product arrival dates reasonably in advance and of any revision of those dates as soon as known. Tentative arrival dates for all transport trucks used by the Customer to the Terminal must be communicated approximately 24 hours in advance. At the time of said notice, Customer must furnish Operator with necessary shipping instructions. Upon receipt of such confirmation, Operator will immediately advise Customer of Terminal availability. If the Terminal will not be available to receive or deliver Customer’s Product on the communicated arrival date, Operator will advise as to the earliest time when Customer’s Product may be received or delivered. With respect to marine receipts or deliveries of Product, Operator will advise Customer concerning the vessel that may be berthed, including its maximum size, draw, draft and length, the docks and associated positions to be used for each Product movement, as well as the minimum pumping rates. Operator may change vessel size, dock designation, and pumping rates from time to time.






4.7      Operator will deliver to Customer, or to such third parties as Customer may direct the Product held by Operator at the Terminal for the account of Customer. Customer will be responsible for providing to Operator documentation required to authorize deliveries for or on its behalf from the Terminal. Where Product is to be delivered from the Terminal, such deliveries will be made only upon the authorization of Customer.

4.8      Within ten (10) days following termination of this Agreement, Operator, at Customer’s sole cost and expense, will remove and properly dispose of, or cause to be removed and properly disposed of all Product, residue, scale, non-merchantable bottoms, and any other accumulation from the Handling Infrastructure and clean the Handling Infrastructure interior/exterior to a condition suitable for the storage of refined petroleum products or other such Products, as Operator may deem necessary. In connection with the foregoing, Customer will reimburse Operator for all cost and expense reasonably incurred in taking such action, plus a 15% handling fee. Operator is authorized to charge Customer for the cost of storage and handling of said Product at a rate of $0.01 per gallon per day storage in addition to any other fees and rates payable to Operator by Customer under this Agreement.

4.9      Operator will not be required to make any improvements, alterations or additions to the Terminal. If any federal, state or local governmental body requires installation of any improvement, alteration or addition to the Handling Infrastructure at the Terminal for purposes of compliance with applicable law or regulation, Operator will notify Customer of (i) the cost of making any such improvement, alteration or addition, and (ii) when such improvement, alteration or addition must be completed. In the event such costs are $50,000 or less, Operator shall proceed to make such required improvements, alterations or additions. In the event such costs exceed $50,000, Operator and Customer agree to renegotiate the terms of this Agreement in good faith to effect appropriate compensation to Operator in connection with the incurrence of such additional costs. Should the Parties fail to reach mutual agreement with respect to the sharing of such costs, then either Party may terminate this Agreement by giving the other Party notice of its intention no later than 30 days after Customer’s receipt of notice of such costs, such termination to be effective as of the date upon which such improvements, alterations or additions are required to be completed.

Section 5.      Product Quality Standards and Requirements.

5.1      Operator will not be obligated to receive into the Terminal any Product that is contaminated.

5.2      Operator may sample any Product tendered to Operator for Customer’s account for the purpose of conducting an analysis of such Product. The cost of such analysis will be borne by Operator.

5.3      Operator will deliver to Customer the Product that is stored in the segregated Handling Infrastructure provided for in this Agreement. At the time of each receipt from Customer, a certificate setting forth quality, grade and other specifications must be delivered to Operator. Each Party may at all reasonable times make appropriate tests to determine whether Product stored or delivered meets those specifications.

5.4      Operator will be liable to Customer and any of Customer’s purchasers by reason of contamination of Product that fails to meet Customer’s specifications only to the extent such contamination is caused by Operator’s negligence.

Section 6.      Title, Custody and Loss of Product.

6.1      Title to Customer’s Product will remain with Customer at all times, subject to any lien in favor of Operator created pursuant to the terms of this Agreement or under law. Operator will assume custody





of the Product at the time such Product passes into the Handling Infrastructure of Operator’s receiving facilities. Operator’s delivery of Customer’s Products will be deemed completed and its custody of them will cease when the Products pass out of the Handling Infrastructure.

6.2.      Except for any (i) loss of Customer’s Product associated with Customer approved Product flushings to eliminate residual particles or other contaminants from pipelines, Handling Infrastructure, valves or pumps, and (ii) loss caused by any Force Majeure event, Operator is responsible for any Product lost while in its custody because of failure to exercise reasonable care. Upon delivery of Customer’s Product, as provided above, Operator shall have no further responsibility for any loss, damage or injury to persons or property (including the Products) arising out of possession or use of the Product, except to the extent that such loss, damage or injury is directly caused by the negligence of Operator.

Section 7.      Limitation of Liability and Damages.

Notwithstanding any other provision of this Agreement, Operator is not responsible for any lost or contaminated Product unless a written claim is delivered to Operator by Customer within 120 days after Operator reports the alleged loss to Customer or Customer otherwise learns of such loss or contamination. The maximum liability of Operator for contaminated Product under Section 5 or lost Product under Section 6 will not exceed, and is strictly limited to, the value of the Product when lost and for contaminated Product, immediately prior to its contamination, plus the costs and expenses actually, reasonably and necessarily incurred by Customer and Customer’s immediate purchaser in damage to equipment, cleaning and repairing tank trucks, and facilities, into which such Product was delivered at the Terminal, plus any fines and penalties actually levied against Customer or Customer’s immediate purchaser by reason of such fault on Operator’s part. Operator may, in lieu of payment for Product, replace such Product with product of like grade and quality. Regardless of fault, Operator is not liable under any circumstances for special, incidental, consequential or indirect damages, loss of profits or loss of new business, resulting breach of contract in favor of any purchaser of Customer, or for damages to equipment beyond that specified above.

Section 8.      Product Measurement.

8.1      Quantities of Product received into and delivered from the Terminal will be determined for the applicable mode of receipt and delivery of Product by either (i) tank gauge reading taken before and after each receipt or delivery, or (ii) other appropriate quantity measuring devices, as determined by Operator. Absent obvious error, the quantities of Products in storage at any time will be determined from Terminal inventory records of receipts and deliveries. Inventory records of Product will be verified against the sum of the material in the Handling Infrastructure as well as line charge. Gauging of Product received, delivered and in storage will be taken jointly by representatives of the Parties; provided, that if Customer does not have representatives present for gauging, Operator’s gauging will be conclusive. Customer may use certified public inspectors at its own expense.

8.2      Unless indicated otherwise, quantity determinations will be based on a gallon of Product.

8.3      Operator certifies to Customer the accuracy of all gauging and Terminal records as to quantities, and grants Customer and its authorized representatives access during Operator’s normal business hours and upon reasonable prior notice for purposes of examination, testing and audit of Terminal records pertaining to the receipt, handling, storage and delivery of Customer’s Product.

Section 9.      Force Majeure.






9.1      If either Party is rendered unable to perform or delayed in performing, wholly or in part, its obligations under this Agreement, other than the obligation to pay funds when due, as a result of a Force Majeure event, that Party may seek to be excused from such performance by giving the other Party prompt written notice of the Force Majeure event with reasonably full particulars of such event. The obligations of the Party giving notice, so far as they are affected by the Force Majeure event, will be suspended during, but not longer than, the continuance of the Force Majeure event. The affected Party must act with commercially reasonable diligence to resume performance and notify the other Party that the Force Majeure event no longer affects its ability to perform under the Agreement.

9.2      The requirement that any Force Majeure event be remedied with all reasonable dispatch will not require the settlement of strikes, lockouts, or other labor difficulty by the Party claiming excuse due to a Force Majeure event contrary to its wishes.

9.3      If either Party is rendered unable to perform by reason of Force Majeure for a period in excess of 120 days, then the other Party may terminate this Agreement upon written notice to the Party claiming excuse due to a Force Majeure event.
    
Section 10.      Inspection of and Access to Terminal.

10.1      Customer’s right and that of its authorized representatives to enter the Terminal in order to observe and verify Operator’s performance of its services will be exercised by Customer in a way that will not interfere with or diminish Operator’s control over or its operation of the Terminal and will be subject to reasonable rules and regulations from time to time promulgated by Operator or that may be applicable under Federal, State or local regulations or laws.

10.2      Customer acknowledges that any grant of the right of access to the Terminal under this Agreement or under any document related to this Agreement is a grant of merely a license and conveys no interest in or to the Terminal or any part of it, and may be withdrawn by Operator at its discretion at any time.

Section 11.      Assignment.

This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their permitted successors and assigns. Neither Party may assign this Agreement, directly or indirectly, without the express prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed. For purposes of this Section, “assign” will be considered to include any change in the majority ownership or control of a Party if a Party is a partnership or privately held corporation, or an assignment by operation of law in connection with a merger, consolidation, reorganization, receivership, bankruptcy or similar event, by asset sale, or by the sale of the stock, partnership or other equity interests of either Party to this Agreement to a third party, who becomes after the date hereof, a controlling person with respect to such Party. In the event the non-assigning Party, upon request by the assigning Party, consents to such assignment, the rights of obligations of the assigning Party shall be binding upon the permitted assignees. The consent by a Party to any assignment, subletting, hypothecation, pledge, encumbrance, mortgage of this Agreement will not constitute a waiver of such Party’s right to withhold its consent to any other or further assignment, subletting, hypothecation, pledge, encumbrance, mortgage of the Agreement. The absolute and unconditional prohibitions contained in this Section are material inducements by the Parties to enter into this Agreement and any breach thereof by a Party will constitute a material default by such Party under this Agreement permitting the non-breaching Party to exercise all remedies provided for in this Agreement or by law.






Section 12.      Notice.

Any notice required under this Agreement must be in writing and will be deemed received when actually received and delivered by (i) United States mail, certified or registered, return receipt requested, (ii) confirmed overnight courier service, or (iii) confirmed facsimile transmission properly addressed or transmitted to the address of the Party indicated below or to such other address or facsimile number as a Party will provide to the other Party in accordance with this provision:

If to Customer:

MARTIN ENERGY SERVICES LLC
Attn: Damon King
Three Riverway Suite 400
Houston, Texas 77056

If to Operator:

MARTIN OPERATING PARTNERSHIP L.P.
Attn: Randall L. Tauscher
P. O. Box 191
Kilgore, Texas 75663

Section 13.      Compliance with Law and Safety.

13.1.      Customer warrants that the Products tendered by it are produced, transported, and handled and Operator warrants that the services provided by it under this Agreement, are in full compliance with all statutes, ordinances, rules, regulations, orders and directives of federal, state, or local authority (“laws”), including those applicable to environmental pollution, and all presidential proclamations that apply to either Party. Each Party also warrants that it may lawfully receive and handle such Products, and it will furnish to the other Party any evidence required to provide compliance with such laws and to file with governmental agencies reports evidencing such compliance with those laws.

13.2.          Customer certifies, on behalf of itself, its employees, agents, and contractors that all vehicles and vessels used in connection with this Agreement will comply with all applicable federal, state, and local laws and that they will comply with Operator’s safety rules. Customer will furnish Operator with information (including Material Safety Data Sheet) concerning the safety and health aspects of Products stored under this Agreement. Operator will communicate such information to all persons who may be exposed to or may handle such Products, including without limitation, Operator’s employees, agents and contractors.

Section 14.      Default, Waiver and Remedies.

A material breach of any of the terms and conditions of this Agreement by either Party will constitute a default. Upon default, the non-defaulting Party shall, within thirty (30) calendar days of knowledge of such default, notify the defaulting Party of the particulars of such default and the defaulting Party has thirty (30) calendar days thereafter to cure such default. Upon the defaulting Party’s failure to cure the default within the 30-day grace period, any and all obligations, including payments of fees due under this Agreement, will, at the option of the non-defaulting Party, become immediately due and payable and the non-defaulting Party may terminate this Agreement upon written notice to the defaulting Party. The waiver by the non-defaulting Party of any right under this Agreement will not operate to waive any other such right nor operate as waiver of that right at any future date upon another default by either Party under this Agreement and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent





or further exercise of that right, power, or privilege or the exercise of any other right, power, or privilege. Nothing in this Section is intended in any way to limit or prejudice any other rights or remedies the non-defaulting Party may have under this Agreement or the law. The remedies of Operator provided in this Agreement are not exclusive and, except as otherwise expressly limited by this Agreement, are in addition to all other remedies of Operator at law or in equity. Acceptance by Operator of any payment from Customer for any charge or service after termination of this Agreement shall not be deemed a renewal of this Agreement under any circumstances, nor a waiver of any rights Operator may have under this Agreement or otherwise.

Section 15.      Insurance.

15.1.      Coverage by Customer .

(A) Customer will procure and maintain, at its sole expense, with solvent underwriters acceptable to Operator, policies of insurance in favor of Operator, its subsidiaries, affiliated and related companies and the agents, directors, officers, and employees of any one or more of the above described parties (“Operator Group”) in the minimum amounts outlined below:

(1) Commercial General Liability (Occurrence Form) for bodily injury and property damage, including the following coverage: premises/operations, independent contractors, blanket contractual liability, explosion, broad form property damage, products/completed operations, sudden and accidental pollution liability and, where appropriate, stop-gap coverage with total limits to all insureds for not less than $1 million for each occurrence and $2 million aggregate for each annual period;

(2) Excess Liability of $5 million in excess of the limits for all of the above insurance policy types to include a “drop down” provision in the event the underlying limits are exhausted;

(3) Pollution Legal Liability applicable to bodily injury, property damage, including loss of use of damaged property or loss of property that has not been physically injured or destroyed, cleanup costs and defense, including costs and expenses incurred in the investigation, defense or settlement of claims, and all such coverage to apply to sudden and non-sudden pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids, or gases, waste materials, or other irritants, contaminants or pollutants, in an amount of $1 million per loss, with an annual aggregate of $2 million; and

(B) It is expressly understood that the insurance provision of this Agreement, including the minimum required limits outlined above are intended to assure that certain minimum standards of insurance protection are afforded by Customer and the specifications in this Agreement of any amount will be construed to support but not in any way limit the amount or scope of liabilities and indemnity obligations (express or implied) of Customer. The minimum limits required in this Agreement for any particular type of insurance may be satisfied by a combination of the specific type of insurance and umbrella or excess liability insurance. The above minimum insurance requirements are subject to change at the discretion of Operator. All deductibles applicable to the minimum required coverage outlined in this Agreement, with or without the consent of Operator, will be for the sole account of the Customer.

(C) Coverage under all insurance required to be carried by Customer will be primary and exclusive of any other existing, valid and collectible insurance and each policy, whether or not required by the other provisions of this Agreement, will (i) provide an endorsement that will make Operator Group an additional insured, and (ii) otherwise provide a blanket waiver of subrogation against the Operator Group and its underwriters that guarantees that Customer’s underwriters similarly waive such rights of subrogation. All liability policies will also provide severability of interests and cross-liability coverage and a requirement that Operator be provided thirty (30) days prior written notice of cancellation, material change or non-renewal.





None of Customer’s obligations under this Section may be met through the means of any self-insurance coverage or program.

15.2.      Coverage by Operator .

(A) Operator will procure and maintain, at its sole expense, with solvent underwriters acceptable to Customer, policies of insurance in favor of Customer, its subsidiaries, affiliated and related companies and the agents, directors, officers, and employees of any one or more of the above described parties (“Customer Group”) in the minimum amounts outlined below:

(1) Workers’ Compensation complying with the laws and statutory minimum coverage of the state or states where performance under this Agreement takes place, whether or not such coverage its required by law, including, coverage for voluntary compensation and alternate employer and an “other states coverage” endorsement and coverage under the Federal Longshoremen and Harbor’s Act, the Jones Act and the Federal Death on the High Seas Act, if receipt or delivery of Product involves a vessel;

(2) Employer’s Liability with limits of $1 million (combined single limit) for each accident, including occupational disease coverage with a limit of $100,000 for each employee and a $1 million policy limit, including coverage under the Federal Longshoremen and Harbor Workers’ Act, the Jones Act, the Federal Death on the High Seas Act and general maritime remedies of seamen including transportation, wages, maintenance and cure whether the action is in rem or in personam;

(3) Commercial General Liability (Occurrence Form) for bodily injury and property damage, including the following coverage: premises/operations, independent contractors, blanket contractual liability, explosion, collapse and underground, broad form property damage, products/completed operations, sudden and accidental pollution liability and, where appropriate, stop-gap coverage with total limits to all insureds for not less than $1 million for each occurrence and $2 million aggregate for each annual period;

(4) Excess Liability of $5 million in excess of the limits for all of the above insurance policy types to include a “drop down” provision in the event the underlying limits are exhausted;

(5) Pollution Legal Liability applicable to bodily injury, property damage, including loss of use of damaged property or loss of property that has not been physically injured or destroyed, cleanup costs and defense, including costs and expenses incurred in the investigation, defense or settlement of claims, and all such coverage to apply to sudden and non-sudden pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids, or gases, waste materials, or other irritants, contaminants or pollutants, in an amount of $1 million per loss, with an annual aggregate of $2 million; and

(B) It is expressly understood that the insurance provision of this Agreement, including the minimum required limits outlined above are intended to assure that certain minimum standards of insurance protection are afforded by Operator and the specifications in this Agreement of any amount will be construed to support but not in any way limit the amount or scope of liabilities and indemnity obligations (express or implied) of Operator. The minimum limits required in this Agreement for any particular type of insurance may be satisfied by a combination of the specific type of insurance and umbrella or excess liability insurance. The above minimum insurance requirements are subject to change at the discretion of Customer. All deductibles applicable to the minimum required coverage outlined in this Agreement, with or without the consent of Customer, will be for the sole account of the Operator.

(C) Coverage under all insurance required to be carried by Operator will be primary and exclusive of any other existing, valid and collectible insurance and each policy, whether or not required by the other





provisions of this Agreement, will (i) provide an endorsement that will make Customer Group an additional insured, and (ii) otherwise provide a blanket waiver of subrogation against the Customer Group and its underwriters that guarantees that Operator’s underwriters similarly waive such rights of subrogation. All liability policies will also provide severability of interests and cross-liability coverage and a requirement that Customer be provided thirty (30) days prior written notice of cancellation, material change or non-renewal.

15.3.      Failure to Secure . Failure to secure the insurance coverage, or failure to comply fully with any of the insurance provisions of this Agreement, or the failure to secure such endorsements on the policies as may be necessary to carry out the terms and conditions of this Agreement will in no way relieve each Party from the obligations of this Agreement, any provision of this Agreement to the contrary notwithstanding. If liability for loss or damage is denied by the insured Party’s underwriters, in whole or in part, or substantially reduced because of breach of such insurance requirements by the insured Party or for any other reason, or if a Party fails to maintain any of the insurance required by this Agreement, (i) to the extent permitted by law, such denied, breaching or failing Party (the “non-insured Party”) will indemnify the other Party and its underwriters against all claims, demands, costs and expenses, including reasonable attorney fees, which would otherwise be covered by said insurance, (ii) such breach or failure to maintain will be deemed a material breach of this Agreement, and (iii) non-breaching Party may procure the same and non-insured Party will reimburse the other Party for the cost of such policies or coverage.

15.4.      Certificates of Insurance . Prior to either Party commencing any performance under this Agreement and as a condition of exercising any rights under this Agreement, each Party will furnish to the other, certificates of insurance, evidencing that proper insurance has been secured in accordance with the specific terms of this Agreement. Failure of either Party to require such certificate or to object to any such certificate it receives or to commence performance without first providing a conforming certificate or request copies of any policy will not be a waiver of such Party’s obligation to meet its insurance obligations under this Section, including, without limitation, its obligation to provide conforming certificates.

15.5.      Reports of Accidents . Customer will immediately provide written notice to Operator of all accidents or occurrences resulting in injuries to Customer employees or third parties, or damage to property arising out of or during the course of the performance of Customer or of any subcontractor of Customer under this Agreement and, as soon as practical, will furnish Operator with a copy of all reports made by Customer or Customer’s underwriter or reports to others of such accidents or occurrences.

Section 16.      Indemnity.

16.1.      To the extent permitted by law and except as otherwise specifically provided in this Agreement, Customer will defend and indemnify Operator Group from and against any liability, loss, damage, claim, suit, penalty, fine, judgment, cost or expense (including reasonable attorney fees and other costs of litigation) resulting from, associated with or arising out of (i) Customer’s failure to comply with applicable governmental or quasi-governmental laws, regulations or rules, (ii) bodily injury or death of any person, including, without limitation, Customer’s and Operator’s employees, agents and representatives, (iii) damage to natural resources or to property of any nature, including, without limitation, that involving the Products and other property of Customer and the Terminal and other property of Operator, or (iv) discharges, spills, or leaks of products, to the extent caused by the negligent or willful acts or omissions of Customer, its employees, agents, representatives or contractors in the exercise of any of the rights granted under this Agreement or in the operation, loading, or unloading of any motor vehicle, or any vessel owned or hired by Customer, its agents or contractors, except to the extent any such loss, damage, claim, suit, liability, penalty, fine, judgment or expense is (a) finally determined to have resulted from the negligent or willful misconduct of Operator, or (b) covered by the following indemnity.






16.2.      To the extent permitted by law and as otherwise specifically provided in this Agreement, Operator will defend and indemnify Customer Group from and against any loss, damage, claim, suit, liability, penalty, fine, judgment or expense (including reasonable attorney fees and other costs of litigation) resulting from, associated with or arising out of (i) Operator’s failure to comply with applicable governmental or quasi-governmental laws, regulations or rules, (ii) bodily injury or death of any person, including, without limitation, Customer’s and Operator’s employees, agents or representatives, (iii) damage to natural resources or to property of any nature, including, without limitation, that involving Customer’s Products or other property and the Terminal or other property of Operator, or (iv) discharges, spills, or leaks of products, to the extent caused by the negligent or willful acts or omissions of Operator, its employees, agents, representatives or contractors in the exercise of any of the rights granted under this Agreement or in the operation, loading, or unloading of any vessel owned or hired by Operator, its agents or contractors, except to the extent any such loss, damage, claim, suit liability, penalty, fine, judgment or expense is (a) finally determined to have resulted from negligent or willful misconduct of Customer, or (b) covered by the preceding indemnity.

16.3      Under the foregoing indemnities, where the personal injury to or death of any person, or loss of or damage to property is the result of the joint or concurrent negligence or willful acts or omissions of Operator and Customer, each Party’s duty of indemnification will be in proportion to its share of such joint or concurrent negligence, or willful misconduct.

16.4      To receive the foregoing indemnities, the Party seeking indemnification must notify the other in writing of a claim or suit promptly and provide reasonable cooperation (at the indemnifying Party’s expense) and full authority to defend or settle the claim or suit. Neither Party shall have any obligation to indemnify the other under any settlement made without its written consent.

16.5      In addition to and separate and apart from other insurance obligations that Customer may assume under the terms of this Agreement, insurance covering this indemnity agreement must be provided by Customer to the extent permitted by law. Further, by requiring insurance in this Agreement, Operator does not represent that the required insurance coverage and minimum limits will necessarily be adequate to protect Operator, and such insurance coverage and limits will not be deemed as a limitation on Customer’s liability under the indemnities granted to Operator in this Agreement.

Section 17.      Construction of Agreement.

17.1      Headings . The headings of the sections and subsections of this Agreement are for convenience only and will not be used in the interpretation of this Agreement.

17.2      Amendment or Waiver . This Agreement may not be amended, modified or waived except by written instrument executed by officers or duly authorized representatives of the respective Parties.

17.3      Severability of Provisions . If any provision of this Agreement is held to be unenforceable, this Agreement shall be considered divisible and such provision shall be deemed inoperative to the extent it is deemed unenforceable, and in all other respects this Agreement shall remain in full force and effect; provided, however, that if any such provision may be made enforceable by limitation or modification thereof, then such provision shall be deemed to be so limited or modified and shall be enforceable to the maximum extent provided by applicable law.

17.4      Entire Agreement . This Agreement (including the attachments) contains the entire and exclusive agreement between the Parties with respect to the subject matter hereof and supersedes and renders void all previous agreements, negotiations and representations between the Parties, whether written or oral.





The terms of this Agreement may not be amended, contradicted, explained or supplanted by any usage of trade, course of dealing or course of performance.

Section 18.      Law.
This Agreement will be construed and governed by the laws of the State of Texas without regard to principles of conflict of laws.

Section 19.      Alternative Dispute Resolution.

19.1. Covered Disputes. Any dispute, controversy or claim (whether sounding in contract, tort or otherwise) arising out of or relating to this Agreement, including without limitation the meaning of its provisions, or the proper performance of any of its terms by either Party, its breach, termination or invalidity (“Dispute”) will be resolved in accordance with the procedures specified in this Section, which will be the sole and exclusive procedure for the resolution of any such Dispute, except that a Party, without prejudice to the following procedures, may file a complaint to seek preliminary injunctive or other provisional judicial relief, if in its sole judgment, that action is necessary to avoid irreparable damage or to preserve the status quo. Despite that action the Parties will continue, subject to Section 19.6, to participate in good faith in the procedures specified in this Section.
19.2 Initiation of Procedures. Either Party wishing to initiate the dispute resolution procedures set forth in this Section with respect to a Dispute not resolved in the ordinary course of business must give written notice of the Dispute to the other Party (“Dispute Notice”). The Dispute Notice will include (i) a statement of that Party’s position and a summary of arguments supporting that position, and (ii) the name and title of the executive who will represent that Party, and of any other person who will accompany the executive, in the negotiations under next subsection.
19.3 Negotiation Between Executives. If one Party has given a Dispute Notice under the preceding subsection, the Parties will attempt in good faith to resolve the Dispute within forty-five (45) calendar days of the notice by negotiation between executives who have authority to settle the Dispute and who are at a higher level of management than the persons with direct responsibility for administration of this Agreement or the matter in Dispute. Within fifteen (15) calendar days after delivery of the Dispute Notice, the receiving Party will submit to the other a written response. The response will include (i) a statement of that Party’s position and a summary of arguments supporting that position, and (ii) the name and title of the executive who will represent that Party and of any other person who will accompany the executive. Within forty-five (45) calendar days after delivery of the Dispute Notice, the executives of both Parties will meet at a mutually acceptable time and place, and thereafter, as often as they reasonably deem necessary, to attempt to resolve the Dispute.
19.4 Mediation. If the Dispute has not been resolved by negotiation under the preceding subsection within forty-five (45) calendar days of the Dispute Notice, and only in such event, either Party may initiate the mediation procedure of this subsection by giving written notice to the other Party (“Mediation Notice”). The Parties will endeavor to settle the Dispute by mediation within ninety (90) calendar days of the Mediation Notice.
19.5 Arbitration. If the Dispute has not been resolved by mediation under the preceding subparagraph within ninety (90) calendar days of the Mediation Notice, and only in such event, either Party may initiate the arbitration procedure of this subsection by giving written notice to the other Party (“Arbitration Notice”). The Dispute will be finally resolved by binding arbitration in accordance with the then current Arbitration Rules of the American Arbitration Association (“AAA”) by a single arbitrator, chosen by mutual agreement of both Parties. If the Parties cannot select an arbitrator within thirty (30) calendar days of the Arbitration Notice, the AAA will select the arbitrator. The United States Arbitration Act, 9 U.S.C. Sec. 1-16 as amended





(“the Act”), will govern the arbitration. Judgment upon the award rendered by the arbitrator may be entered by any court of any state having jurisdiction. Subject to Section 19.6, the statute of limitations of the State of Texas for the commencement of a lawsuit will apply to the commencement of an arbitration under this Agreement, except that no defenses will be available based upon the passage of time during any negotiation or mediation called for by this Section. Each Party will assume its own costs of legal representation and expert witnesses and the Parties will share equally the other costs of the arbitration. The arbitrator will award pre-judgment interest in accordance with the law of Texas; however, the arbitrator may not award punitive damages. The arbitration will take place in Houston, Texas

19.6 Tolling and Performance. All applicable statutes of limitation and defenses based upon the passage of time will be tolled while the procedures specified in this Section 19 are pending. The Parties will take any action required to effectuate that tolling. Each Party is required to continue to perform its obligations under this Agreement pending final resolution of any Dispute, unless to do so would be impossible or impracticable under the circumstances.
    
This Agreement has been executed by the authorized representatives of each Party as indicated below effective as of the Effective Date.


MARTIN OPERATING PARTNERSHIP L.P.
By: Martin Operating GP LLC, its general partner
By: Martin Midstream Partners L.P., its sole member
By: Martin Midstream Partners L.P., its general partner
 
                    
By: /s/Robert D. Bondurant                         
Robert D. Bondurant, Executive Vice President


MARTIN ENERGY SERVICES LLC


By: /s/Damon King                         
Damon King, Senior Vice President





Attachment “A”
Terminals


  193 DOCK
2254 S. Talen's Landing Rd.
Gueydan, La 70542
FRESHWATER CITY
41937 Hwy. 3147
Kaplan, LA 70548
PASCAGOULA
5320 Ingalls Ave.
Pascagoula, MS 39581
AMELIA 2
141 Offshore Lane
Amelia, LA 70340
GALVESTON - PELICAN ISLAND
1300 Coastwide Drive
Galveston, TX 77553
PORT ARTHUR
2420 Dowling Rd.
Port Arthur, TX 77640
BERWICK
100 Spirit Lane
Berwick, LA 70342
GALVESTON DOCK
200 Pennzoil Rd.
Galveston, TX 77554
PORT FOURCHON
Highway 3090
Port Fourchon, LA 70357
CHANNELVIEW
15755 Jacintoport Blvd.
Houston, TX 77015
HARBOR ISLAND
Hwy 361 S., South of Aransas Pass
Aransas Pass, TX 78336
PORT FOURCHON DOCK
300 Adam Ted Gisclair Rd.
Golden Meadow, LA 70357
CAMERON - EAST
199 Wakefield Rd.
Cameron, LA 70631
INTRACOASTAL CITY
25305 LA Highway 333
Intracoastal, LA 70510
PORT FOURCHON 16
118 N. Doucet Drive
Fourchon, LA 70357
CAMERON - WEST
189 Gulf Beach Highway
Cameron, LA 70631
INTRACOASTAL CITY 2
24823 LA Hwy 333
Intracoastal City, LA 70510
PORT FOURCHON 17
1 N. Doucet Drive
Fourchon, LA 70357
CAMERON 7
332 Davis Rd.
Cameron, LA 70631
JENNINGS BULK PLANT
1707 Evangeline Hwy.
Jennings, LA 70546
PORT O’CONNOR
Highway 185 at Intracoastal Canal,
Port O’Connor, TX 77982
CAMERON 8
521 Gulf Beach Hwy
Cameron, LA 70631
LAKE CHARLES
307 Bunker Rd.
Lake Charles, LA 70615
RIVER RIDGE
100B Florida Street
Harahan, LA 70123
DULAC
9576 Grand Caillou Rd.
Dulac, LA 70353
LAKE CHARLES DOCK
821 Henry Pugh Blvd.
Lake Charles, LA 70606
SABINE PASS
7680 South First Avenue,
Sabine Pass, TX 77655
FOURCHON 15
191 A.J Estay Rd.
Fourchon, LA 70357
MORGAN CITY 31
3205 Youngs Rd.
Morgan City, LA 70380
THEODORE
7778 Dauphin Island Parkway
Theodore, AL 36582
FREEPORT
1122 Marlin Lane
Freeport, TX 77542
VENICE 2
485 Jump Basin Rd.
Venice, LA 70091
 








Exhibit 21.1
 
SUBSIDIARIES OF
MARTIN MIDSTREAM PARTNERS L.P.
 
Subsidiary
 
Jurisdiction of Organization
 
 
 
Martin Operating GP LLC
 
Delaware
 
 
 
Martin Operating Partnership L.P.
 
Delaware
 
 
 
Martin Midstream Finance Corp
 
Delaware
 
 
 
MOP Midstream Holdings LLC
 
Delaware
 
 
 
Cardinal Gas Storage Partners LLC
 
Delaware
 
 
 
Monroe Gas Storage Company LLC
 
Delaware
 
 
 
Arcadia Gas Storage, LLC
 
Texas
 
 
 
Cadeville Gas Storage, LLC
 
Delaware
 
 
 
Perryville Gas Storage, LLC
 
Delaware
 
 
 
International Gas Consulting LLC
 
Delaware
 
 
 
Talen's Marine & Fuel LLC
 
Louisiana
 
 
 
Martin Midstream NGL Holdings, LLC
 
Delaware
 
 
 
Martin Midstream NGL Holdings II, LLC
 
Delaware
 
 










Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Martin Midstream GP LLC:

We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-193715 and No. 333-183481) and on Form S-8 (No. 333-140152) of Martin Midstream Partners L.P. of our reports dated March 2, 2015, with respect to the consolidated balance sheets of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in capital, and cash flows for each of the years in the three-year period ended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 annual report on Form 10-K of Martin Midstream Partners L.P.


/s/ KPMG LLP

Dallas, Texas
March 2, 2015
 
 










Exhibit 23.2

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-193715 and No. 333-183481) and on Form S-8 (No. 333-140152) of Martin Midstream Partners L.P. of our report dated March 28, 2014 relating to the financial statements of Cardinal Gas Storage Partners LLC, which appears in this Form 10-K.


/s/PricewaterhouseCoopers LLP

Houston, Texas
March 2, 2015










Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to 17 CFR 240.13a-14(a)/15d-14(a)
(Section 302 of the Sarbanes-Oxley Act of 2002)
 
I, Ruben S. Martin, certify that:
 
1.  I have reviewed this annual report on Form 10-K of Martin Midstream Partners L.P.;
 
2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
c.  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     March 2, 2015
 
 
 
/s/ Ruben S. Martin
 
Ruben S. Martin, President and
 
Chief Executive Officer of
 
Martin Midstream GP LLC,
 
the General Partner of Martin Midstream Partners L.P.
 




Exhibit 31.2
 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to 17 CFR 240.13a-14(a)/15d-14(a)
(Section 302 of the Sarbanes-Oxley Act of 2002)

I, Robert D. Bondurant, certify that:
 
1.  I have reviewed this annual report on Form 10-K of Martin Midstream Partners L.P.;
 
2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b.  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
c.  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d.  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b.  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:     March 2, 2015
 
 
 
/s/ Robert D. Bondurant
 
Robert D. Bondurant, Executive Vice President and
 
Chief Financial Officer of
 
Martin Midstream GP LLC,
 
the General Partner of Martin Midstream Partners L.P.
 




Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C.  SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

In connection with the Annual Report of Martin Midstream Partners L.P., a Delaware limited partnership (the “Partnership”), on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Ruben S. Martin, Chief Executive Officer of Martin Midstream GP LLC, the general partner of the Partnership, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to my knowledge:

(1)          the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)          the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
 
 
/s/ Ruben S. Martin
 
 
Ruben S. Martin,
 
Chief Executive Officer of Martin Midstream GP LLC,
 
General Partner of Martin Midstream Partners L.P.
 
 
 
March 2, 2015

*A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.




Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C.  SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

In connection with the Annual Report of Martin Midstream Partners L.P., a Delaware limited partnership (the “Partnership”), on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Robert D. Bondurant, Chief Financial Officer of Martin Midstream GP LLC, the general partner of the Partnership, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that to my knowledge:

(1)          the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)          the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

 
 
/s/ Robert D. Bondurant
 
 
Robert D. Bondurant,
 
Chief Financial Officer
 
of Martin Midstream GP LLC,
 
General Partner of Martin Midstream Partners L.P.
 
 
 
March 2, 2015

*A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.