form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2012
OR
|
o
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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
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05-0527861
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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4200 Stone Road
Kilgore, Texas 75662
(Address of principal executive offices, zip code)
Registrant’s telephone number, including area code: (903) 983-6200
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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.
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of the registrant’s Common Units outstanding at August 6, 2012, was 23,116.776.
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2
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2
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33
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54
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56
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57
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57
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57
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57
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59
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| SIGNATURE |
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| CERTIFICATIONS |
|
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands)
| |
|
June 30,
2012
(Unaudited)
|
|
|
December 31, 2011
(Audited)
|
|
|
Assets
|
|
|
|
|
|
|
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Cash
|
|
$ |
106 |
|
|
$ |
266 |
|
|
Accounts and other receivables, less allowance for doubtful accounts of $3,093 and $3,021, respectively
|
|
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97,471 |
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|
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126,461 |
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Product exchange receivables
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|
|
8,129 |
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|
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17,646 |
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Inventories
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|
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83,759 |
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|
77,677 |
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Due from affiliates
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|
|
17,199 |
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|
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5,968 |
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Fair value of derivatives
|
|
|
41 |
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|
|
622 |
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Other current assets
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|
|
2,074 |
|
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|
1,978 |
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Assets held for sale
|
|
|
211,588 |
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|
|
212,787 |
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Total current assets
|
|
|
420,367 |
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|
|
443,405 |
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| |
|
|
|
|
|
|
|
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Property, plant and equipment, at cost
|
|
|
678,263 |
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|
|
632,728 |
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Accumulated depreciation
|
|
|
(234,168 |
) |
|
|
(215,272 |
) |
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Property, plant and equipment, net
|
|
|
444,095 |
|
|
|
417,456 |
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|
|
|
|
|
|
|
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Goodwill
|
|
|
8,337 |
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|
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8,337 |
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Investment in unconsolidated entities
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|
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76,411 |
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|
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62,948 |
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Debt issuance costs, net
|
|
|
11,603 |
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|
|
13,330 |
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Other assets, net
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|
|
6,043 |
|
|
|
3,633 |
|
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|
$ |
966,856 |
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$ |
949,109 |
|
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|
|
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|
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Liabilities and Partners’ Capital
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|
|
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|
|
|
|
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Current installments of long-term debt and capital lease obligations
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$ |
206 |
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$ |
1,261 |
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Trade and other accounts payable
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|
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109,429 |
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|
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125,970 |
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Product exchange payables
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15,779 |
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|
|
37,313 |
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Due to affiliates
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|
|
12,316 |
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|
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18,485 |
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Income taxes payable
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|
|
839 |
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|
|
893 |
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Fair value of derivatives
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|
— |
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|
|
362 |
|
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Other accrued liabilities
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|
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9,317 |
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11,022 |
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Liabilities held for sale
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|
|
508 |
|
|
|
501 |
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Total current liabilities
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|
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148,394 |
|
|
|
195,807 |
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| |
|
|
|
|
|
|
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Long-term debt and capital leases, less current maturities
|
|
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452,970 |
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|
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458,941 |
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Deferred income taxes
|
|
|
7,336 |
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|
|
7,657 |
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Other long-term obligations
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|
|
1,061 |
|
|
|
1,088 |
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Total liabilities
|
|
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609,761 |
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|
|
663,493 |
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| |
|
|
|
|
|
|
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Partners’ capital
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|
|
357,032 |
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|
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284,990 |
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Accumulated other comprehensive income
|
|
|
63 |
|
|
|
626 |
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Total partners’ capital
|
|
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357,095 |
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|
|
285,616 |
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Commitments and contingencies
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|
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|
|
|
|
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$ |
966,856 |
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$ |
949,109 |
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See accompanying notes to consolidated and condensed financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
(Unaudited)
(Dollars in thousands, except per unit amounts)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
|
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Revenues:
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|
|
|
|
|
|
|
|
|
|
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Terminalling and storage *
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$ |
21,046 |
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$ |
19,327 |
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$ |
41,232 |
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$ |
37,450 |
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Marine transportation *
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20,714 |
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17,376 |
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41,576 |
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36,775 |
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Sulfur services
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|
2,925 |
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|
|
2,850 |
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|
|
5,851 |
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|
5,700 |
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Product sales: *
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Natural gas services
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|
164,817 |
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|
127,050 |
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336,928 |
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|
264,205 |
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Sulfur services
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|
|
64,168 |
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|
|
74,083 |
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|
|
135,794 |
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|
130,991 |
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Terminalling and storage
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|
19,208 |
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|
|
19,371 |
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40,881 |
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|
|
37,916 |
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|
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248,193 |
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|
220,504 |
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513,603 |
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|
433,112 |
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Total revenues
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|
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292,878 |
|
|
|
260,057 |
|
|
|
602,262 |
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|
|
513,037 |
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Costs and expenses:
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Cost of products sold: (excluding depreciation and amortization)
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|
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|
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Natural gas services *
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|
163,043 |
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|
|
125,648 |
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|
|
330,242 |
|
|
|
257,926 |
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Sulfur services *
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|
|
47,350 |
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|
|
59,892 |
|
|
|
102,310 |
|
|
|
104,334 |
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Terminalling and storage
|
|
|
17,367 |
|
|
|
17,395 |
|
|
|
37,387 |
|
|
|
33,955 |
|
| |
|
|
227,760 |
|
|
|
202,935 |
|
|
|
469,939 |
|
|
|
396,215 |
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses *
|
|
|
34,442 |
|
|
|
33,372 |
|
|
|
71,454 |
|
|
|
66,322 |
|
|
Selling, general and administrative *
|
|
|
4,603 |
|
|
|
3,751 |
|
|
|
9,007 |
|
|
|
7,477 |
|
|
Depreciation and amortization
|
|
|
9,791 |
|
|
|
9,928 |
|
|
|
19,491 |
|
|
|
19,498 |
|
|
Total costs and expenses
|
|
|
276,596 |
|
|
|
249,986 |
|
|
|
569,891 |
|
|
|
489,512 |
|
|
Other operating income
|
|
|
378 |
|
|
|
98 |
|
|
|
373 |
|
|
|
98 |
|
|
Operating income
|
|
|
16,660 |
|
|
|
10,169 |
|
|
|
32,744 |
|
|
|
23,623 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of unconsolidated entities
|
|
|
(745 |
) |
|
|
153 |
|
|
|
(363 |
) |
|
|
153 |
|
|
Interest expense
|
|
|
(8,265 |
) |
|
|
(4,403 |
) |
|
|
(15,472 |
) |
|
|
(12,805 |
) |
|
Debt prepayment premium
|
|
|
(2,219 |
) |
|
|
— |
|
|
|
(2,470 |
) |
|
|
— |
|
|
Other, net
|
|
|
84 |
|
|
|
44 |
|
|
|
145 |
|
|
|
102 |
|
|
Total other expense
|
|
|
(11,145 |
) |
|
|
(4,206 |
) |
|
|
(18,160 |
) |
|
|
(12,550 |
) |
|
Income from continuing operations before taxes
|
|
|
5,515 |
|
|
|
5,963 |
|
|
|
14,584 |
|
|
|
11,073 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
( 307 |
) |
|
|
( 223 |
) |
|
|
(572 |
) |
|
|
(444 |
) |
|
Income from continuing operations
|
|
|
5,208 |
|
|
|
5,740 |
|
|
|
14,012 |
|
|
|
10,629 |
|
|
Income from discontinued operations, net of income taxes
|
|
|
1,984 |
|
|
|
3,030 |
|
|
|
3,709 |
|
|
|
5,463 |
|
|
Net income
|
|
$ |
7,192 |
|
|
$ |
8,770 |
|
|
$ |
17,721 |
|
|
$ |
16,092 |
|
*Related Party Transactions Included Above
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
|
$ |
14,805 |
|
|
$ |
12,897 |
|
|
$ |
30,080 |
|
|
$ |
25,835 |
|
|
Marine transportation
|
|
|
4,446 |
|
|
|
6,306 |
|
|
|
9,303 |
|
|
|
12,871 |
|
|
Product Sales
|
|
|
1,958 |
|
|
|
1,768 |
|
|
|
4,147 |
|
|
|
5,569 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold: (excluding depreciation and amortization)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas services
|
|
|
7,707 |
|
|
|
1,961 |
|
|
|
12,022 |
|
|
|
4,422 |
|
|
Sulfur services
|
|
|
3,970 |
|
|
|
4,492 |
|
|
|
8,401 |
|
|
|
8,645 |
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
14,392 |
|
|
|
13,477 |
|
|
|
28,208 |
|
|
|
25,265 |
|
|
Selling, general and administrative
|
|
|
2,828 |
|
|
|
1,965 |
|
|
|
5,494 |
|
|
|
3,971 |
|
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and units in thousands, except per unit amounts)
| |
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
Allocation of net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partner interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
4,090 |
|
|
$ |
4,633 |
|
|
$ |
11,517 |
|
|
$ |
8,517 |
|
|
Discontinued operations
|
|
|
1,558 |
|
|
|
2,445 |
|
|
|
3,049 |
|
|
|
4,377 |
|
| |
|
|
5,648 |
|
|
|
7,078 |
|
|
|
14,566 |
|
|
|
12,894 |
|
|
General partner interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
1,118 |
|
|
|
926 |
|
|
|
2,495 |
|
|
|
1,746 |
|
|
Discontinued operations
|
|
|
426 |
|
|
|
489 |
|
|
|
660 |
|
|
|
898 |
|
| |
|
|
1,544 |
|
|
|
1,415 |
|
|
|
3,155 |
|
|
|
2,644 |
|
|
Net income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
5,208 |
|
|
|
5,559 |
|
|
|
14,012 |
|
|
|
10,263 |
|
|
Discontinued operations
|
|
|
1,984 |
|
|
|
2,934 |
|
|
|
3,709 |
|
|
|
5,275 |
|
|
Net income attributable to limited partners:
|
|
$ |
7,192 |
|
|
$ |
8,493 |
|
|
$ |
17,721 |
|
|
$ |
15,538 |
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
0.18 |
|
|
$ |
0.24 |
|
|
$ |
0.51 |
|
|
$ |
0.44 |
|
|
Discontinued operations
|
|
|
0.07 |
|
|
|
0.13 |
|
|
|
0.13 |
|
|
|
0.23 |
|
| |
|
$ |
0.25 |
|
|
$ |
0.37 |
|
|
$ |
0.64 |
|
|
$ |
0.67 |
|
|
Weighted average limited partner units - basic
|
|
|
23,103 |
|
|
|
19,159 |
|
|
|
22,839 |
|
|
|
19,163 |
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
0.18 |
|
|
$ |
0.24 |
|
|
$ |
0.51 |
|
|
$ |
0.44 |
|
|
Discontinued operations
|
|
|
0.07 |
|
|
|
0.13 |
|
|
|
0.13 |
|
|
|
0.23 |
|
| |
|
$ |
0.25 |
|
|
$ |
0.37 |
|
|
$ |
0.64 |
|
|
$ |
0.67 |
|
|
Weighted average limited partner units - diluted
|
|
|
23,104 |
|
|
|
19,159 |
|
|
|
22,842 |
|
|
|
19,164 |
|
See accompanying notes to consolidated and condensed financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
(Unaudited)
(Dollars in thousands)
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
7,192 |
|
|
$ |
8,770 |
|
|
$ |
17,721 |
|
|
$ |
16,092 |
|
|
Other comprehensive income adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair values of commodity cash flow hedges
|
|
|
— |
|
|
|
843 |
|
|
|
126 |
|
|
|
(65 |
) |
|
Commodity cash flow hedging gains (losses) reclassified to earnings
|
|
|
(499 |
) |
|
|
(318 |
) |
|
|
(689 |
) |
|
|
(752 |
) |
|
Interest rate cash flow hedging losses reclassified to earnings
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
Other comprehensive income
|
|
|
(499 |
) |
|
|
525 |
|
|
|
(563 |
) |
|
|
(799 |
) |
|
Comprehensive income
|
|
$ |
6,693 |
|
|
$ |
9,295 |
|
|
$ |
17,158 |
|
|
$ |
15,293 |
|
See accompanying notes to consolidated and condensed financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
(Unaudited)
(Dollars in thousands)
| |
|
Partners’ Capital |
|
|
|
|
| |
|
Common Limited |
|
|
Subordinated Limited |
|
|
General Partner |
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
|
|
| |
|
Units |
|
|
Amount |
|
|
Units |
|
|
Amount |
|
|
Amount |
|
|
(Loss) |
|
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances – January 1, 2011
|
|
|
17,707,832 |
|
|
$ |
250,785 |
|
|
|
889,444 |
|
|
$ |
17,721 |
|
|
$ |
4,881 |
|
|
$ |
1,419 |
|
|
$ |
274,806 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
13,448 |
|
|
|
— |
|
|
|
— |
|
|
|
2,644 |
|
|
|
— |
|
|
|
16,092 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of beneficial conversion feature
|
|
|
— |
|
|
|
(554 |
) |
|
|
— |
|
|
|
554 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Follow-on public offering
|
|
|
1,874,500 |
|
|
|
70,330 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
70,330 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner contribution
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,505 |
|
|
|
— |
|
|
|
1,505 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
|
|
— |
|
|
|
(28,390 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,025 |
) |
|
|
— |
|
|
|
(31,415 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess purchase price over carrying value of acquired assets
|
|
|
— |
|
|
|
(19,685 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,685 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
|
|
15,350 |
|
|
|
96 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
96 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury units
|
|
|
(14,850 |
) |
|
|
(582 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(582 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation grant forfeitures
|
|
|
(500 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment in fair value of derivatives
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(799 |
) |
|
|
(799 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances – June 30, 2011
|
|
|
19,582,332 |
|
|
$ |
285,448 |
|
|
|
889,444 |
|
|
$ |
18,275 |
|
|
$ |
6,005 |
|
|
$ |
620 |
|
|
$ |
310,348 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances – January 1, 2012
|
|
|
20,471,776 |
|
|
$ |
279,562 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
5,428 |
|
|
$ |
626 |
|
|
$ |
285,616 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
14,566 |
|
|
|
— |
|
|
|
|
|
|
|
3,155 |
|
|
|
— |
|
|
|
17,721 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Follow-on public offering
|
|
|
2,645,000 |
|
|
|
91,361 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
91,361 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner contribution
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,951 |
|
|
|
— |
|
|
|
1,951 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
|
|
— |
|
|
|
(35,253 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,635 |
) |
|
|
— |
|
|
|
(38,888 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
|
|
6,250 |
|
|
|
118 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
118 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury units
|
|
|
(6,250 |
) |
|
|
(221 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(221 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment in fair value of derivatives
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(563 |
) |
|
|
(563 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances – June 30, 2012
|
|
|
23,116,776 |
|
|
$ |
350,133 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
6,899 |
|
|
$ |
63 |
|
|
$ |
357,095 |
|
See accompanying notes to consolidated and condensed financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
(Unaudited)
(Dollars in thousands)
| |
|
Six Months Ended
|
|
| |
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income
|
|
$ |
17,721 |
|
|
$ |
16,092 |
|
|
Less: Income from discontinued operations
|
|
|
(3,709 |
) |
|
|
(5,463 |
) |
|
Net income from continuing operations
|
|
|
14,012 |
|
|
|
10,629 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,491 |
|
|
|
19,498 |
|
|
Amortization of deferred debt issuance costs
|
|
|
1,931 |
|
|
|
2,390 |
|
|
Amortization of debt discount
|
|
|
427 |
|
|
|
175 |
|
|
Deferred taxes
|
|
|
(321 |
) |
|
|
(32 |
) |
|
Loss on sale of property, plant and equipment
|
|
|
3 |
|
|
|
714 |
|
|
Equity in earnings (loss) of unconsolidated entities
|
|
|
363 |
|
|
|
(153 |
) |
|
Non-cash mark-to-market on derivatives
|
|
|
(344 |
) |
|
|
(2,346 |
) |
|
Other
|
|
|
118 |
|
|
|
96 |
|
|
Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
Accounts and other receivables
|
|
|
28,990 |
|
|
|
(3,843 |
) |
|
Product exchange receivables
|
|
|
9,517 |
|
|
|
(7,542 |
) |
|
Inventories
|
|
|
(6,082 |
) |
|
|
(10,344 |
) |
|
Due from affiliates
|
|
|
(11,231 |
) |
|
|
(12,685 |
) |
|
Other current assets
|
|
|
(96 |
) |
|
|
1,176 |
|
|
Trade and other accounts payable
|
|
|
(16,541 |
) |
|
|
7,848 |
|
|
Product exchange payables
|
|
|
(21,534 |
) |
|
|
5,257 |
|
|
Due to affiliates
|
|
|
(6,169 |
) |
|
|
10,270 |
|
|
Income taxes payable
|
|
|
(54 |
) |
|
|
(210 |
) |
|
Other accrued liabilities
|
|
|
(1,705 |
) |
|
|
(365 |
) |
|
Change in other non-current assets and liabilities
|
|
|
(574 |
) |
|
|
(92 |
) |
|
Net cash provided by continuing operating activities
|
|
|
10,201 |
|
|
|
20,441 |
|
|
Net cash provided by discontinued operating activities
|
|
|
6,918 |
|
|
|
9,634 |
|
|
Net cash provided by operating activities
|
|
|
17,119 |
|
|
|
30,075 |
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
(45,616 |
) |
|
|
(29,473 |
) |
|
Acquisitions
|
|
|
— |
|
|
|
(16,815 |
) |
|
Payments for plant turnaround costs
|
|
|
(2,403 |
) |
|
|
(2,044 |
) |
|
Proceeds from sale of property, plant and equipment
|
|
|
23 |
|
|
|
— |
|
|
Investment in unconsolidated subsidiaries
|
|
|
(775 |
) |
|
|
(59,319 |
) |
|
Return of investments from unconsolidated entities
|
|
|
4,297 |
|
|
|
— |
|
|
Distributions from (contributions to) unconsolidated entities for operations
|
|
|
(17,348 |
) |
|
|
— |
|
|
Net cash used in continuing investing activities
|
|
|
(61,822 |
) |
|
|
(107,651 |
) |
|
Net cash used in discontinued investing activities
|
|
|
(2,003 |
) |
|
|
(5,923 |
) |
|
Net cash used in investing activities
|
|
|
(63,825 |
) |
|
|
(113,574 |
) |
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(217,000 |
) |
|
|
(301,500 |
) |
|
Payments of notes payable and capital lease obligations
|
|
|
(6,453 |
) |
|
|
(543 |
) |
|
Proceeds from long-term debt
|
|
|
216,000 |
|
|
|
357,500 |
|
|
Net proceeds from follow on offering
|
|
|
91,361 |
|
|
|
70,330 |
|
|
General partner contribution
|
|
|
1,951 |
|
|
|
1,505 |
|
|
Treasury units purchased
|
|
|
(221 |
) |
|
|
(582 |
) |
|
Payment of debt issuance costs
|
|
|
(204 |
) |
|
|
(3,424 |
) |
|
Excess purchase price over carrying value of acquired assets
|
|
|
— |
|
|
|
(19,685 |
) |
|
Cash distributions paid
|
|
|
(38,888 |
) |
|
|
(31,415 |
) |
|
Net cash provided by financing activities
|
|
|
46,546 |
|
|
|
72,186 |
|
|
Net decrease in cash
|
|
|
(160 |
) |
|
|
(11,313 |
) |
|
Cash at beginning of period
|
|
|
266 |
|
|
|
11,380 |
|
|
Cash at end of period
|
|
$ |
106 |
|
|
$ |
67 |
|
See accompanying notes to consolidated and condensed financial statements.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
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 Gulf Coast region. Its four primary business lines include: terminalling and storage services for petroleum products and by-products, natural gas services, sulfur and sulfur-based products processing, manufacturing, marketing and distribution, and marine transportation services for petroleum products and by-products.
The Partnership’s unaudited consolidated and condensed financial statements have been prepared in accordance with the requirements of Form 10-Q and United States generally accepted accounting principles for interim financial reporting. Accordingly, these financial statements have been condensed and do not include all of the information and footnotes required by generally accepted accounting principles for annual audited financial statements of the type contained in the Partnership’s annual reports on Form 10-K. In the opinion of the management of the Partnership’s general partner, all adjustments and elimination of significant intercompany balances necessary for a fair presentation of the Partnership’s results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. Results for such interim periods are not necessarily indicative of the results of operations for the full year. These financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2012.
As discussed in Notes 4 and 16, 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 4 are collectively referred to as the "Prism Assets". The Partnership has classified the Prism Assets, including related liabilities as held for sale at June 30, 2012 and December 31, 2011, and has presented the results of operations and cash flows as discontinued operations for the periods ended June 30, 2012 and 2011, respectively. The Partnership has retrospectively adjusted its prior period consolidated financial statements to comparably classify the amounts related to the net assets and operations and cash flows of the Prism Assets as assets held for sale and discontinued operations, respectively.
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 United States. Actual results could differ from those estimates.
In May 2012, the Partnership issued 6,250 restricted common units to certain Martin Resource Management employees under its long-term incentive plan from 6,250 treasury units purchased by the Partnership in the open market for $221. These units vest in 25% increments beginning in January 2013 and will be fully vested in January 2016.
In May 2011, the Partnership issued 6,250 restricted common units to certain Martin Resource Management employees under its long-term incentive plan from 5,750 treasury units purchased by the Partnership in the open market for $235 and 500 treasury units from forfeitures. These units vest in 25% increments beginning in January 2012 and will be fully vested in January 2015.
In February 2011, the Partnership issued 9,100 restricted common units to certain Martin Resource Management employees under its long-term incentive plan from 9,100 treasury units purchased by the Partnership in the open market for $347. These units vest in 25% increments beginning in February 2012 and will be fully vested in February 2015.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
The cost resulting from share-based payment transactions was $62 and $59 for the three months ended June 30, 2012 and 2011, respectively, and $118 and $96 for the six months ended June 30, 2012 and 2011, respectively.
|
|
(c)
|
Incentive Distribution Rights
|
The Partnership’s general partner, Martin Midstream GP LLC, holds a 2% general partner interest and certain incentive distribution rights (“IDRs”) in the Partnership. IDRs are a separate class of non-voting limited partner interest that may be transferred or sold by the general partner under the terms of the partnership agreement of the Partnership (the “Partnership Agreement”), and represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution and any cumulative arrearages on common units once certain target distribution levels have been achieved. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the Partnership Agreement.
The target distribution levels entitle the general partner to receive 2% of quarterly cash distributions up to $0.55 per unit, 15% of quarterly cash distributions in excess of $0.55 per unit until all unitholders have received $0.625 per unit, 25% of quarterly cash distributions in excess of $0.625 per unit until all unitholders have received $0.75 per unit and 50% of quarterly cash distributions in excess of $0.75 per unit.
For the three months ended June 30, 2012 and 2011, the general partner received $1,429 and $1,265, respectively, in incentive distributions. For the six months ended June 30, 2012 and 2011, the general partner received $2,857 and $2,370, respectively, in incentive distributions.
The Partnership follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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. To the extent the Partnership Agreement does not explicitly limit distributions to the general partner, any earnings in excess of distributions are to be allocated to the general partner and limited partners utilizing the distribution formula for available cash specified in the Partnership Agreement. 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.
The provisions of ASC 260-10 did not impact the Partnership’s computation of earnings per limited partner unit as cash distributions exceeded earnings for the three months and six months ended June 30, 2012 and 2011, respectively, and the IDRs do not share in losses under the Partnership Agreement. In the event the Partnership’s earnings exceed cash distributions, ASC 260-10 will have an impact on the computation of the Partnership’s earnings per limited partner unit. For the three and six months ended June 30, 2012 and 2011, the general partner’s interest in net income, including the IDRs, represents distributions declared after period-end on behalf of the general partner interest and IDRs less the allocated excess of distributions over earnings for the periods.
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 beneficial conversion feature is added back to net income available to common limited partners, 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.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
The following is a reconciliation of net income from continuing operations and net income from discontinued operations allocated to the general partner and limited partners for purposes of calculating net income attributable to limited partners per unit:
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Martin Midstream Partners L.P.
|
|
$ |
5,208 |
|
|
$ |
5,740 |
|
|
$ |
14,012 |
|
|
$ |
10,629 |
|
|
Less general partner’s interest in net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions payable on behalf of IDRs
|
|
|
1,034 |
|
|
|
828 |
|
|
|
2,259 |
|
|
|
1,565 |
|
|
Distributions payable on behalf of general partner interest
|
|
|
282 |
|
|
|
226 |
|
|
|
615 |
|
|
|
433 |
|
|
Distributions payable to the general partner interest in excess of earnings allocable to the general partner interest
|
|
|
(198 |
) |
|
|
(128 |
) |
|
|
(380 |
) |
|
|
(252 |
) |
|
Less beneficial conversion feature
|
|
|
— |
|
|
|
181 |
|
|
|
— |
|
|
|
366 |
|
|
Limited partners’ interest in net income
|
|
$ |
4,090 |
|
|
$ |
4,633 |
|
|
$ |
11,518 |
|
|
$ |
8,517 |
|
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Martin Midstream Partners L.P.
|
|
$ |
1,984 |
|
|
$ |
3,030 |
|
|
$ |
3,709 |
|
|
$ |
5,463 |
|
|
Less general partner’s interest in net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions payable on behalf of IDRs
|
|
|
394 |
|
|
|
437 |
|
|
|
598 |
|
|
|
805 |
|
|
Distributions payable on behalf of general partner interest
|
|
|
107 |
|
|
|
119 |
|
|
|
163 |
|
|
|
222 |
|
|
Distributions payable to the general partner interest in excess of earnings allocable to the general partner interest
|
|
|
(75 |
) |
|
|
(67 |
) |
|
|
(100 |
) |
|
|
(129 |
) |
|
Less beneficial conversion feature
|
|
|
— |
|
|
|
96 |
|
|
|
— |
|
|
|
188 |
|
|
Limited partners’ interest in net income
|
|
$ |
1,558 |
|
|
$ |
2,445 |
|
|
$ |
3,048 |
|
|
$ |
4,377 |
|
The weighted average units outstanding for basic net income per unit were 23,102,534 and 22,839,470 for the three months and six months ended June 30, 2012, respectively, and 19,158,507 and 19,162,963 for the three months and six months ended June 30, 2011, respectively. For diluted net income per unit, the weighted average units outstanding were increased by 1,562 and 2,688 for the three and six months ended June 30, 2012, respectively, and 394 and 997 for the three and six months ended June 30, 2011, respectively, due to the dilutive effect of restricted units granted under the Partnership’s long-term incentive plan.
With respect to the Partnership’s taxable subsidiary, Woodlawn Pipeline Co., Inc. (“Woodlawn”), 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.
|
(2)
|
New Accounting Pronouncements
|
In September 2011, the FASB amended the provisions of ASC 350 related to testing goodwill for impairment. This update simplifies the goodwill impairment assessment by allowing a company to first review qualitative factors to determine the likelihood of whether the fair value of a reporting unit is less than its carrying amount before applying the two-step goodwill impairment test. If it is determined that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, the company would not be required to perform the two-step goodwill impairment test for that reporting unit. This update is effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. This amended guidance was adopted by the Partnership effective January 1, 2012.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
In June 2011, the FASB amended the provisions of ASC 220 related to other comprehensive income. This newly issued guidance: (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this guidance do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. This guidance is required to be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011. This amended guidance was adopted by the Partnership effective January 1, 2012. As this new guidance only requires enhanced disclosure, adoption did not impact the Partnership’s financial position or results of operations.
Redbird Gas Storage
On May 31, 2011, the Partnership acquired all of the Class B equity interests in Redbird Gas Storage LLC (“Redbird”) for approximately $59,319. This amount was recorded as an investment in an unconsolidated entity. Redbird, a subsidiary of Martin Resource Management, is a natural gas storage joint venture formed to invest in Cardinal Gas Storage Partners, LLC (“Cardinal”). Cardinal is a joint venture between Redbird and Energy Capital Partners that is focused on the development, construction, operation and management of natural gas storage facilities across North America. Redbird owns an unconsolidated 40.81% interest in Cardinal. Concurrent with the closing of this transaction, Cardinal acquired all of the outstanding equity interests in Monroe Gas Storage Company, LLC (“Monroe”) as well as an option on development rights to an adjacent depleted reservoir facility. This acquisition was funded by borrowings under the Partnership’s revolving credit facility. In addition to owning all of the Class B equity interests of Redbird, the Partnership also owns 9.13% of the Class A equity interests of Redbird at June 30, 2012.
Terminalling Facilities
On January 31, 2011, the Partnership acquired 13 shore-based marine terminalling facilities, one specialty terminalling facility and certain terminalling related assets from Martin Resource Management for $36,500. These assets are located across the Louisiana Gulf Coast. This acquisition was funded by borrowings under the Partnership’s revolving credit facility.
These terminalling assets were acquired by Martin Resource Management in its acquisition of L&L Holdings LLC (“L&L”) on January 31, 2011. During the second quarter of 2011, Martin Resource Management finalized the purchase price allocation for the acquisition of L&L, including the final determination of the fair value of the terminalling assets acquired by the Partnership. The Partnership recorded an adjustment in the amount of $19,685 to reduce property, plant and equipment and partners’ capital for the difference between the purchase price and the fair value of the terminalling assets acquired based on Martin Resource Management’s final purchase price allocation.
|
(4)
|
Discontinued operations and divestitures
|
On June 18, 2012, the Partnership and a subsidiary of CenterPoint Energy Inc. (NYSE: CNP), (“CenterPoint”) entered into a definitive agreement under which CenterPoint would acquire the Partnership’s East Texas and Northwest Louisiana natural gas gathering and processing assets owned by Prism Gas Systems 1, L.P. (“Prism Gas”), a wholly-owned subsidiary of the Partnership, and other natural gas gathering and processing assets also owned by the Partnership, for cash in a transaction valued at approximately $275,000 excluding any transaction costs and purchase price adjustments. The asset sale includes the Partnership’s 50% operating interest in Waskom Gas Processing Company (“Waskom”). A subsidiary of CenterPoint currently owns the other 50% percent interest. As discussed in Note 16, the sale was completed on July 31, 2012.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
Additionally, the Partnership has reached agreement with a private investor group to sell its interest in Matagorda Offshore Gathering System (“Matagorda”) and Panther Interstate Pipeline Energy LLC (“PIPE”) for $2,000. These assets, along with the assets sold to CenterPoint are collectively referred to as the “Prism Gas Business”. This sale is expected to be completed in the third quarter of 2012.
The assets described above collectively are referred to herein as the Prism Assets.
As of June 30, 2012, the Partnership classified the results of operations of the Prism Gas Assets which were previously presented as a component of the Natural Gas Services segment, as discontinued operations in the consolidated and condensed statements of operations for all periods presented. The assets and liabilities to be sold met the accounting criteria to be classified as held for sale and have been aggregated and reported on separate lines in the consolidated and condensed balance sheets for all periods presented.
The assets and liabilities held for sale as of June 30, 2012 and December 31, 2011 were as follows:
| |
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
978 |
|
|
$ |
486 |
|
|
Property, plant and equipment
|
|
|
79,274 |
|
|
|
78,324 |
|
|
Accumulated depreciation
|
|
|
(20,273 |
) |
|
|
(18,438 |
) |
|
Goodwill
|
|
|
28,931 |
|
|
|
28,931 |
|
|
Investment in unconsolidated entities
|
|
|
107,198 |
|
|
|
107,549 |
|
|
Other assets, net
|
|
|
15,480 |
|
|
|
15,935 |
|
|
Assets held for sale
|
|
$ |
211,588 |
|
|
$ |
212,787 |
|
| |
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Other long-term obligations
|
|
|
508 |
|
|
|
501 |
|
|
Liabilities held for sale
|
|
$ |
508 |
|
|
$ |
501 |
|
The Prism Gas Assets’ operating results, which are included within income from discontinued operations, were as follows:
| |
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from third parties1
|
|
$ |
28,672 |
|
|
$ |
32,149 |
|
|
$ |
57,574 |
|
|
$ |
62,204 |
|
|
Total costs and expenses and other, net, excluding depreciation and amortization2
|
|
|
(27,677 |
) |
|
|
(30,369 |
) |
|
|
(56,101 |
) |
|
|
(58,994 |
) |
|
Depreciation and amortization
|
|
|
(925 |
) |
|
|
(1,382 |
) |
|
|
(2,320 |
) |
|
|
(2,753 |
) |
|
Other operating income
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
Equity in earnings of Waskom, Matagorda, and PIPE
|
|
|
1,769 |
|
|
|
2,639 |
|
|
|
4,234 |
|
|
|
5,015 |
|
|
Income from discontinued operations before income taxes
|
|
|
1,839 |
|
|
|
3,037 |
|
|
|
3,397 |
|
|
|
5,472 |
|
|
Income tax expense (benefit)
|
|
|
(145 |
) |
|
|
7 |
|
|
|
(312 |
) |
|
|
9 |
|
|
Income from discontinued operations, net of income taxes
|
|
$ |
1,984 |
|
|
$ |
3,030 |
|
|
$ |
3,709 |
|
|
$ |
5,463 |
|
1Total revenues from third parties excludes intercompany revenues of $9,713, $17,193, $23,146, and $31,703 for the three months ended June 30, 2012 and 2011, and six months ended June 30, 2012 amd 2011, respectively.
2Total costs and expenses and other, net, excluding depreciation and amortization includes $841 of transaction costs related to the disposition of the Prism Assets. These costs are recorded in discontinued operations for the three and six months ended June 30, 2012 and 2011, respectively, presented above.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
Components of inventories at June 30, 2012 and December 31, 2011 were as follows:
| |
|
|
|
|
|
|
|
Natural gas liquids
|
|
$ |
43,752 |
|
|
$ |
25,178 |
|
|
Sulfur
|
|
|
14,793 |
|
|
|
24,335 |
|
|
Sulfur based products
|
|
|
12,140 |
|
|
|
14,857 |
|
|
Lubricants
|
|
|
10,839 |
|
|
|
11,012 |
|
|
Other
|
|
|
2,235 |
|
|
|
2,295 |
|
| |
|
$ |
83,759 |
|
|
$ |
77,677 |
|
|
(6)
|
Investments in Unconsolidated Entities and Joint Ventures
|
At June 30, 2012, Prism Gas owned an unconsolidated 50% interest in Waskom, Matagorda, and PIPE.
As discussed in detail in note 4, the Partnership’s investment in Waskom, Matagorda, and PIPE are included in assets held for sale at June 30, 2012. Additionally, the equity in earnings associated with these investments is recorded in income from discontinued operations for the three and six months ending June 30, 2012 and 2011, respectively.
In accounting for the acquisition of the interests in Waskom, Matagorda and PIPE, the carrying amount of these investments exceeded the underlying net assets by approximately $46,176. The difference was attributable to property and equipment of $11,872 and equity-method goodwill of $34,304. The excess investment relating to property and equipment is being amortized over an average life of 20 years, which approximates the useful life of the underlying assets. Such amortization amounted to $148 and $297 for the three and six months ended June 30, 2012 and 2011, respectively, and has been recorded as a reduction of equity in earnings of unconsolidated entities in income from discontinued operations. The remaining unamortized excess investment relating to property and equipment was $8,013 and $8,310 at June 30, 2012 and December 31, 2011, respectively. The equity-method goodwill is not amortized; however, it is analyzed for impairment annually or when changes in circumstance indicate that a potential impairment exists. No impairment was recognized for the six months ended June 30, 2012 or 2011.
As a partner in Waskom, the Partnership receives distributions in kind of natural gas liquids (“NGLs”) that are retained according to Waskom’s contracts with certain producers. The NGLs are valued at prevailing market prices. In addition, cash distributions are received and cash contributions are made to fund operating and capital requirements of Waskom.
The Partnership and Martin Resource Management formed Redbird, a natural gas storage joint venture formed to invest in Cardinal. The Partnership owns 9.13% of the Class A equity interests and all the Class B equity interests in Redbird. Redbird owns an unconsolidated 40.81% interest in Cardinal. Redbird utilized the investments by the Partnership to invest in Cardinal to fund projects for natural gas storage facilities.
During the second quarter of 2012, the Partnership acquired an unconsolidated 50% interest in Caliber Gathering System, LLC (“Caliber”) and Pecos Valley Producer Services LLC (“Pecos Valley”).
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 and condensed balance sheets and the components of equity in earnings of unconsolidated entities included in the Partnership’s consolidated and condensed statements of operations:
| |
|
|
|
|
|
|
|
Investment in Waskom1
|
|
$ |
102,490 |
|
|
$ |
102,896 |
|
|
Investment in PIPE1
|
|
|
1,222 |
|
|
|
1,291 |
|
|
Investment in Matagorda1
|
|
|
3,486 |
|
|
|
3,362 |
|
|
Investment in unconsolidated entities classified as assets held for sale
|
|
|
107,198 |
|
|
|
107,549 |
|
|
Investment in Redbird
|
|
|
75,669 |
|
|
|
62,948 |
|
|
Investment in Caliber
|
|
|
729 |
|
|
|
— |
|
|
Investment in Pecos Valley
|
|
|
13 |
|
|
|
— |
|
|
Investment in unconsolidated entities
|
|
|
76,411 |
|
|
|
62,948 |
|
|
Total Investment in unconsolidated entities
|
|
$ |
183,609 |
|
|
$ |
170,497 |
|
1 For all periods presented, the financial information for Waskom, Matagorda, and PIPE is included in the consolidated and condensed balance sheet as assets held for sale, and on the consolidated and condensed statement of operations and cash flows as discontinued operations.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of Waskom1
|
|
$ |
1,559 |
|
|
$ |
2,662 |
|
|
$ |
3,884 |
|
|
$ |
5,012 |
|
|
Equity in earnings of PIPE1
|
|
|
(21 |
) |
|
|
(11 |
) |
|
|
(69 |
) |
|
|
(29 |
) |
|
Equity in earnings of Matagorda1
|
|
|
231 |
|
|
|
(11 |
) |
|
|
419 |
|
|
|
33 |
|
|
Equity in earnings of discontinued operations
|
|
|
1,769 |
|
|
|
2,640 |
|
|
|
4,234 |
|
|
|
5,016 |
|
|
Equity in earnings of Redbird
|
|
|
(712 |
) |
|
|
153 |
|
|
|
(330 |
) |
|
|
153 |
|
|
Equity in earnings of Caliber
|
|
|
(21 |
) |
|
|
— |
|
|
|
(21 |
) |
|
|
— |
|
|
Equity in earnings of Pecos Valley
|
|
|
(12 |
) |
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
Equity in earnings of unconsolidated entities
|
|
|
(745 |
) |
|
|
153 |
|
|
|
(363 |
) |
|
|
153 |
|
|
Total equity in earnings of unconsolidated entities
|
|
$ |
1,024 |
|
|
$ |
2,793 |
|
|
$ |
3,871 |
|
|
$ |
5,169 |
|
1 For all periods presented, the financial information for Waskom, Matagorda, and PIPE is included in the consolidated and condensed balance sheet as assets held for sale, and on the consolidated and condensed statement of operations and cash flows as discontinued operations.
Selected financial information for significant unconsolidated equity-method investees is as follows:
| |
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waskom
|
|
$ |
143,634 |
|
|
$ |
126,601 |
|
|
$ |
27,207 |
|
|
$ |
3,394 |
|
|
$ |
58,491 |
|
|
$ |
8,318 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waskom
|
|
$ |
146,655 |
|
|
$ |
126,863 |
|
|
$ |
34,072 |
|
|
$ |
5,672 |
|
|
$ |
65,578 |
|
|
$ |
10,574 |
|
As of June 30, 2012 and December 31, 2011 the amount of the Partnership’s consolidated retained earnings that represents undistributed earnings related to the unconsolidated equity-method investees is $46,568 and $47,152, respectively. There are no material restrictions to transfer funds in the form of dividends, loans or advances related to the equity-method investees.
As of June 30, 2012 and December 31, 2011, the Partnership’s interest in cash of the unconsolidated equity-method investees was $1,804 and $565, respectively.
|
(7)
|
Derivative Instruments and Hedging Activities
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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. The Partnership is required to recognize all derivative instruments as either assets or liabilities at fair value on the Partnership’s Consolidated Balance Sheets and to recognize certain changes in the fair value of derivative instruments on the Partnership’s Consolidated Statements of Operations.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
The Partnership performs, at least quarterly, a retrospective assessment of the effectiveness of its hedge contracts, including assessing the possibility of counterparty default. If the Partnership determines that a derivative is no longer expected to be highly effective, the Partnership discontinues hedge accounting prospectively and recognizes subsequent changes in the fair value of the hedge in earnings.
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 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 accumulated other comprehensive income (“AOCI”) until such time as the hedged item is recognized in earnings. The Partnership is exposed to the risk that periodic changes in the fair value of derivatives qualifying for hedge accounting will not be effective, as defined, or that derivatives will no longer qualify for hedge accounting. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to earnings. Likewise, if a hedge ceases to qualify for hedge accounting, any change in the fair value of derivative instruments since the last period is recorded to earnings; however, any amounts previously recorded to AOCI would remain there until such time as the original forecasted transaction occurs, then would be reclassified to earnings or if it is determined that continued reporting of losses in AOCI would lead to recognizing a net loss on the combination of the hedging instrument and the hedge transaction in future periods, then the losses would be immediately reclassified to earnings. If a forecasted hedge transaction is no longer probable of occurring, any gain or loss in AOCI is reclassified to earnings.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period during which the hedged transaction affects earnings. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized in earnings.
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(a)
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Commodity Derivative Instruments
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The Partnership is exposed to market risks associated with commodity prices and uses 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 its commodity risk exposure. These hedging arrangements are in the form of swaps for crude oil, natural gas and natural gasoline. In addition, the Partnership is focused on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction.
Due to the volatility in commodity markets, the Partnership is unable to predict the amount of ineffectiveness each period, including the loss of hedge accounting, which is determined on a derivative by derivative basis. This may result, and has resulted, in increased volatility in the Partnership’s financial results. Factors that have and may continue to lead to ineffectiveness and unrealized gains and losses on derivative contracts include: a substantial fluctuation in energy prices, the number of derivatives the Partnership holds and significant weather events that have affected energy production. Instances in which the Partnership has discontinued hedge accounting for specific hedges is primarily due to those reasons. However, even though these derivatives may not qualify for hedge accounting, the Partnership continues to hold the instruments as it believes they continue to afford the Partnership opportunities to manage commodity risk exposure.
As of June 30, 2011, the Partnership has both derivative instruments qualifying for hedge accounting with fair value changes being recorded in AOCI as a component of partners’ capital and derivative instruments not designated as hedges being marked to market with all market value adjustments being recorded in earnings. Due to the sale of the Prism Assets that was completed on July 31, 2012, as of June 30, 2012, the Partnership was in the process of terminating and settling its commodity derivative instruments and only has derivative instruments not designated as hedges that are marked to market.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
Set forth below is the summarized notional amount and terms of all instruments held for price risk management purposes at June 30, 2012 (all gas quantities are expressed in British Thermal Units, crude oil and natural gas liquids are expressed in barrels). As of June 30, 2012, the remaining term of the contracts extend no later than July 31, 2012. For the three and six months ended June 30, 2012 and 2011, changes in the fair value of the Partnership’s derivative contracts were recorded in both earnings and in AOCI as a component of partners’ capital.
| Transaction
Type
|
Total
Volume
Per Month
|
Pricing Terms |
Remaining Terms
of Contracts
|
|
Fair Value |
|
| Mark to Market Derivatives:: |
|
|
|
|
| |
|
|
|
|
|
|
|
Crude Oil Swap
|
2,000 BBL
|
Fixed price of $88.63/bbl settled against WTI NYMEX average monthly closings
|
July 2012
|
|
$ |
7 |
|
| |
|
|
|
|
|
|
|
|
Natural Gasoline Swap
|
1,000 BBL
|
Fixed price of $90.20/bbl settled against WTI NYMEX average monthly closings
|
July 2012
|
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
Natural Gasoline Swap
|
1,000 BBL
|
Fixed price of $2.34/gal settled against Mont Belvieu Non-TET OPIS Average
|
July 2012
|
|
|
29 |
|
| |
|
|
|
|
|
|
|
|
Total fair value of commodity derivative instruments
|
|
|
$ |
41 |
|
The Partnership’s credit exposure related to commodity cash flow hedges is represented by the positive fair value of contracts to the Partnership at June 30, 2012. These outstanding contracts expose the Partnership to credit loss in the event of nonperformance by the counterparties to the agreements. The Partnership has incurred no losses associated with counterparty nonperformance on derivative contracts.
On all transactions where the Partnership is exposed to counterparty risk, the Partnership analyzes the counterparty’s financial condition prior to entering into an agreement; establishes a maximum credit limit threshold pursuant to its hedging policy; and monitors the appropriateness of these limits on an ongoing basis. The Partnership has an agreement with one counterparty containing collateral provisions. Based on those current agreements, cash deposits are required to be posted whenever the net fair value of derivatives associated with the individual counterparty exceed a specific threshold. If this threshold is exceeded, cash is posted by the Partnership if the value of derivatives is a liability to the Partnership. As of June 30, 2012, the Partnership has no cash collateral deposits posted with counterparties.
Substantially all of the Partnership’s natural gas and NGL sales are made at market-based prices. The Partnership’s standard gas and NGL sales contracts contain adequate assurance provisions, which allows for the suspension of deliveries, cancellation of agreements or discontinuance of deliveries to the buyer unless the buyer provides security for payment in a form satisfactory to the Partnership.
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(b)
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Impact of Commodity Cash Flow Hedges
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Crude Oil. For the three months ended June 30, 2012 and 2011, net gains and losses on swap hedge contracts increased crude revenue (included in income from discontinued operations) by $618 and $357, respectively. For the six months ended June 30, 2012 and 2011, net gains and losses on swap hedge contracts increased crude revenue (included in income from discontinued operations) by $533 and $297, respectively. As of June 30, 2012, an unrealized derivative fair value loss of $30, related to current and terminated cash flow hedges of crude oil price risk, was recorded in AOCI. This fair value loss will be reclassified into earnings in the third quarter of 2012. The actual reclassification to earnings for contracts remaining in effect will be based on the contract price at the contract settlement date or for those terminated contracts based on the recorded values at June 30, 2012, adjusted for any impairment, along with the realization of the gain or loss on the related physical volume, which is not reflected above.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
Natural Gas. For the three months ended June 30, 2012 and 2011, net gains and losses on swap hedge contracts increased gas revenue (included in income from discontinued operations) by $533 and $68, respectively. For the six months ended June 30, 2012 and 2011, net gains and losses on swap hedge contracts increased gas revenue (included in income from discontinued operations) by $736 and $143, respectively. As of June 30, 2012, an unrealized derivative fair value gain of $76 related to current and terminated cash flow hedges of natural gas was recorded in AOCI. This fair value gain will be reclassified into earnings in July 2012. The actual reclassification to earnings for contracts remaining in effect will be based on contract prices at the contract settlement date or for those terminated contracts based on the recorded values at June 30, 2012, adjusted for any impairment, along with the realization of the gain or loss on the related physical volume, which is not reflected above.
Natural Gas Liquids. For the three months ended June 30, 2012 and 2011, net gains and losses on swap hedge contracts increased liquids revenue (included in income from discontinued operations) by $1,116 and $60, respectively. For the six months ended June 30, 2012 and 2011, net gains and losses on swap hedge contracts increased liquids revenue (included in income from discontinued operations) by $1,061 and $222, respectively. As of June 30, 2012, an unrealized derivative fair value gain of $17 related to current and terminated cash flow hedges of NGLs price risk was recorded in AOCI. This fair value gain will be reclassified into earnings in July 2012. The actual reclassification to earnings for contracts remaining in effect will be based on contract prices at the contract settlement date or for those terminated contracts based on the recorded values at June 30, 2012, adjusted for any impairment, along with the realization of the gain or loss on the related physical volume, which is not reflected above.
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.
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(c)
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Impact of Interest Rate Derivative Instruments
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The Partnership is exposed to market risks associated with interest rates. The Partnership enters into interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate debt credit facility and its’ senior 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 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 AOCI until such time as the hedged item is recognized in earnings.
In August 2011, the Partnership terminated all of its existing interest swap agreements with an aggregate notional amount of $100,000, which it had entered to hedge its exposure to changes in the fair value of Senior Notes as described in Note 11. These interest rate swap contracts were not designated as fair value hedges and therefore, did not receive hedge accounting but were marked to market through earnings. Termination fees of $2,800 were received on the early extinguishment of the interest rate swap agreements in August 2011.
The Partnership was not party to interest rate derivatives during the six months ended June 30, 2012. The Partnership recognized increases in interest expense of $3,167 and $2,535 for the three and six months ended June 30, 2011, respectively, related to the difference between the fixed rate and the floating rate of interest on the interest rate swap and net cash settlement of interest rate swaps and hedges.
For information regarding fair value amounts and gains and losses on interest rate derivative instruments and related hedged items, see “Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items” below.
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
|
|
(d)
|
Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items
|
The following table summarizes the fair values and classification of the Partnership’s derivative instruments in its Consolidated Balance Sheet:
| |
Fair Values of Derivative Instruments in the Consolidated Balance Sheet
|
| |
|
|
|
| |
Derivative Assets
|
|
Derivative Liabilities |
| |
|
|
Fair Values
|
|
|
|
Fair Values
|
| |
Balance Sheet
Location
|
|
June 30,
2012
|
|
|
December 31, 2011
|
|
Balance Sheet
Location
|
|
June 30,
2012
|
|
|
|
Derivatives designated as hedging instruments
|
Current:
|
|
|
|
|
|
|
Current:
|
|
|
|
Commodity contracts
|
Fair value of derivatives
|
|
|
$ |
— |
|
|
$ |
622 |
|
Fair value of derivatives
|
|
|
$ |
— |
|
|
|
$ |
245 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$ |
— |
|
|
$ |
622 |
|
|
|
|
$ |
— |
|
|
|
$ |
245 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current: |
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
Fair value of derivatives
|
|
|
$ |
41 |
|
|
$ |
— |
|
Fair value of derivatives
|
|
|
$ |
— |
|
|
|
$ |
117 |
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
$ |
41 |
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
|
$ |
117 |
|
| |
|
Effect of Derivative Instruments on the Consolidated Statement of Operations
For the Three Months Ended June 30, 2012 and 2011
|
| |
|
|
| |
|
|
|
Ineffective Portion and Amount
Excluded from Effectiveness Testing
|
| |
|
Amount of Gain or
(Loss) Recognized in
OCI on Derivatives
|
|
Location of Gain or (Loss) Reclassified from Accumulated OCI into Income
|
|
Amount of Gain or (Loss)
Reclassified from
Accumulated OCI into
Income
|
|
Location of Gain or
(Loss) Recognized
in Income
on
Derivatives
|
Amount of Gain or
(Loss) Recognized in
Income on
Derivatives
|
| |
|
2012
|
|
|
2011
|
|
|
|
2012
|
|
|
2011
|
|
|
|
2012
|
|
|
2011
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$ |
— |
|
|
$ |
843 |
|
Income from discontinued operations
|
|
$ |
499 |
|
|
$ |
329 |
|
Income from discontinued operations
|
|
$ |
— |
|
|
$ |
(11 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
$ |
— |
|
|
$ |
843 |
|
|
|
$ |
499 |
|
|
$ |
329 |
|
|
|
$ |
— |
|
|
$ |
(11 |
) |
| |
Location of Gain or (Loss)
Recognized in Income on
Derivatives
|
|
Amount of Gain or
(Loss) Recognized in
Income on Derivatives
|
|
| |
|
|
2012
|
|
|
2011
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
|
$ |
— |
|
|
$ |
3,167 |
|
|
Commodity contracts
|
Income from discontinued operations
|
|
|
1,768 |
|
|
|
167 |
|
|
Total derivatives not designated as hedging instruments
|
|
|
$ |
1,768 |
|
|
$ |
3,334 |
|
MARTIN MIDSTREAM PARTNERS L.P.
(Dollars in thousands, except where otherwise indicated)
June 30, 2012
(Unaudited)
Effect of Derivative Instruments on the Consolidated Statement of Operations
For the Six Months Ended June 30, 2012 and 2011
| |
|
Effective Portion
|
|
Ineffective Portion and Amount
Excluded from Effectiveness Testing
|
|
| |
|
Amount of Gain or
(Loss) Recognized in
OCI on Derivatives
|
|
Location of Gain
|