10-Q
 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________ 

FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended September 30, 2015

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)
 
(IRS Employer Identification No.)
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. 
Yes  x
 
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 (§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). 
Yes x
 
No o
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.
 Large accelerated filer                   x
Accelerated filer  o
Non-accelerated filer   o (Do not check if a smaller reporting company)
Smaller reporting company  o

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes o
 
No x
 
The number of the registrant’s Common Units outstanding at October 28, 2015, was 35,456,612.
 


 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Cash
$
13

 
$
42

Accounts and other receivables, less allowance for doubtful accounts of $488 and $1,620, respectively
63,881

 
134,173

Product exchange receivables
2,137

 
3,046

Inventories
91,803

 
88,718

Due from affiliates
11,164

 
14,512

Other current assets
6,344

 
6,772

Assets held for sale
—

 
40,488

Total current assets
175,342

 
287,751

 
 
 
 
Property, plant and equipment, at cost
1,382,972

 
1,343,674

Accumulated depreciation
(393,035
)
 
(345,397
)
Property, plant and equipment, net
989,937

 
998,277

 
 
 
 
Goodwill
23,802

 
23,802

Investment in unconsolidated entities
132,458

 
134,506

Note receivable - Martin Energy Trading LLC
15,000

 
15,000

Other assets, net
64,896

 
81,465

Total assets
$
1,401,435

 
$
1,540,801

 
 
 
 
Liabilities and Partners’ Capital
 

 
 

Trade and other accounts payable
$
69,584

 
$
125,332

Product exchange payables
16,756

 
10,396

Due to affiliates
2,937

 
4,872

Income taxes payable
788

 
1,174

Fair value of derivatives
358

 
—

Other accrued liabilities
12,845

 
21,801

Total current liabilities
103,268

 
163,575

 
 
 
 
Long-term debt, net
876,405

 
888,887

Other long-term obligations
2,193

 
2,668

Total liabilities
981,866

 
1,055,130

 
 
 
 
Commitments and contingencies


 


Partners’ capital
419,569

 
485,671

Total liabilities and partners' capital
$
1,401,435

 
$
1,540,801


See accompanying notes to consolidated and condensed financial statements.


2
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and units in thousands, except per unit amounts)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Terminalling and storage  *
$
33,578

 
$
31,880

 
$
100,828

 
$
97,848

Marine transportation  *
18,977

 
24,281

 
59,956

 
69,479

Natural gas services
17,120

 
5,764

 
50,171

 
5,764

Sulfur services
3,090

 
3,037

 
9,270

 
9,112

Product sales: *
 
 
 
 
 
 
 
Natural gas services
86,714

 
217,398

 
330,803

 
771,798

Sulfur services
33,213

 
46,993

 
128,544

 
157,706

Terminalling and storage
33,329

 
47,735

 
102,901

 
153,451

 
153,256

 
312,126

 
562,248

 
1,082,955

Total revenues
226,021

 
377,088

 
782,473

 
1,265,158

 
 
 
 
 
 
 
 
Costs and expenses:
 

 
 

 
 

 
 

Cost of products sold: (excluding depreciation and amortization)
 

 
 

 
 

 
 

Natural gas services *
80,709

 
205,828

 
307,039

 
738,561

Sulfur services *
26,144

 
38,841

 
95,685

 
122,009

Terminalling and storage *
28,237

 
42,239

 
87,977

 
137,074

 
135,090

 
286,908

 
490,701

 
997,644

Expenses:
 

 
 

 
 

 
 

Operating expenses  *
45,310

 
47,283

 
138,399

 
137,294

Selling, general and administrative  *
8,666

 
10,161

 
26,507

 
27,222

Depreciation and amortization
23,335

 
16,457

 
68,737

 
44,277

Total costs and expenses
212,401

 
360,809

 
724,344

 
1,206,437

 
 
 
 
 
 
 
 
Impairment of long-lived assets
—

 
(3,445
)
 
—

 
(3,445
)
Other operating income (loss)
(1,586
)
 
347

 
(1,763
)
 
401

Operating income
12,034

 
13,181

 
56,366

 
55,677

 
 
 
 
 
 
 
 
Other income (expense):
 

 
 

 
 

 
 

Equity in earnings of unconsolidated entities
2,363

 
2,655

 
5,752

 
4,297

Interest expense, net
(11,994
)
 
(11,459
)
 
(32,465
)
 
(34,351
)
Gain on retirement of senior unsecured notes
728

 
—

 
728

 
—

Debt prepayment premium
—

 
—

 
—

 
(7,767
)
Reduction in carrying value of investment in Cardinal due to the purchase of the controlling interest
—

 
(30,102
)
 
—

 
(30,102
)
Other, net
399

 
287

 
757

 
170

Total other expense
(8,504
)
 
(38,619
)
 
(25,228
)
 
(67,753
)
 
 
 
 
 
 
 
 
Net income (loss) before taxes
3,530

 
(25,438
)
 
31,138

 
(12,076
)
Income tax expense
(200
)
 
(300
)
 
(814
)
 
(954
)
Income (loss) from continuing operations
3,330

 
(25,738
)
 
30,324

 
(13,030
)
Income (loss) from discontinued operations, net of income taxes
—

 
(1,167
)
 
1,215

 
(3,048
)
Net income (loss)
3,330

 
(26,905
)
 
31,539

 
(16,078
)
Less general partner's interest in net (income) loss
(3,959
)
 
539

 
(12,310
)
 
322

Less (income) loss allocable to unvested restricted units
(16
)
 
62

 
(127
)
 
33

Limited partners' interest in net income (loss)
$
(645
)
 
$
(26,304
)
 
$
19,102

 
$
(15,723
)
 
See accompanying notes to consolidated and condensed financial statements.

*Related Party Transactions Shown Below

3
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and units in thousands, except per unit amounts)



*Related Party Transactions Included Above
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:*
 
 
 
 
 
 
 
Terminalling and storage
$
15,091

 
$
19,045

 
$
58,626

 
$
55,798

Marine transportation
6,552

 
6,076

 
19,919

 
18,340

Product Sales
1,731

 
883

 
5,079

 
6,484

Costs and expenses:*
 
 
 
 
 
 
 
Cost of products sold: (excluding depreciation and amortization)
 
 
 
 
 
 
 
Natural gas services
6,470

 
9,908

 
20,198

 
29,169

Sulfur services
3,387

 
4,491

 
10,629

 
13,808

Terminalling and storage
3,227

 
9,174

 
14,261

 
25,571

Expenses:
 
 
 
 
 
 
 
Operating expenses
19,290

 
21,013

 
58,605

 
58,500

Selling, general and administrative
5,922

 
7,230

 
17,765

 
18,103


See accompanying notes to consolidated and condensed financial statements.


4
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars and units in thousands, except per unit amounts)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Allocation of net income (loss) attributable to:
 
 
 
 
 
 
 
Limited partner interest:
 
 
 
 
 
 
 
 Continuing operations
$
(645
)
 
$
(25,162
)
 
$
18,366

 
$
(12,743
)
 Discontinued operations
—

 
(1,142
)
 
736

 
(2,980
)
 
$
(645
)
 
$
(26,304
)
 
$
19,102

 
$
(15,723
)
General partner interest:
 
 
 
 
 
 
 
  Continuing operations
$
3,959

 
$
(515
)
 
$
11,836

 
$
(261
)
  Discontinued operations
—

 
(24
)
 
474

 
(61
)
 
$
3,959

 
$
(539
)
 
$
12,310

 
$
(322
)
 
 
 
 
 
 
 
 
Net income (loss) per unit attributable to limited partners:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
(0.02
)
 
$
(0.78
)
 
$
0.52

 
$
(0.44
)
Discontinued operations
—

 
(0.04
)
 
0.02

 
(0.10
)
 
$
(0.02
)
 
$
(0.82
)
 
$
0.54

 
$
(0.54
)
 
 
 
 
 
 
 
 
Weighted average limited partner units - basic
35,308

 
32,243

 
35,309

 
29,271

 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Continuing operations
$
(0.02
)
 
$
(0.78
)
 
$
0.52

 
$
(0.44
)
Discontinued operations
—

 
(0.04
)
 
0.02

 
(0.10
)
 
$
(0.02
)
 
$
(0.82
)
 
$
0.54

 
$
(0.54
)
 
 
 
 
 
 
 
 
Weighted average limited partner units - diluted
35,308

 
32,243

 
35,369

 
29,271






5
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF CAPITAL
(Unaudited)
(Dollars in thousands)



 
Partners’ Capital
 
 
 
Common Limited
 
General Partner Amount
 
 
 
Units
 
Amount
 
 
Total
Balances - January 1, 2014
26,625,026

 
$
254,028

 
$
6,389

 
$
260,417

Net income
—

 
(15,756
)
 
(322
)
 
(16,078
)
Issuance of common units
8,727,673

 
331,571

 
—

 
331,571

Issuance of restricted units
6,900

 
—

 
—

 
—

Forfeiture of restricted units
(3,500
)
 
—

 
—

 
—

General partner contribution
—

 
—

 
6,995

 
6,995

Cash distributions
—

 
(66,473
)
 
(1,506
)
 
(67,979
)
Excess purchase price over carrying value of acquired assets
—

 
(4,948
)
 
—

 
(4,948
)
Unit-based compensation
—

 
589

 
—

 
589

Purchase of treasury units
(6,400
)
 
(277
)
 
—

 
(277
)
Balances - September 30, 2014
35,349,699

 
$
498,734

 
$
11,556

 
$
510,290

 
 
 
 
 
 
 
 
Balances - January 1, 2015
35,365,912

 
$
470,943

 
$
14,728

 
$
485,671

Net income
—

 
19,229

 
12,310

 
31,539

Issuance of common units, net of issuance related costs
—

 
(330
)
 
—

 
(330
)
Issuance of restricted units
91,950

 
—

 
—

 
—

Forfeiture of restricted units
(1,250
)
 
—

 
—

 
—

General partner contribution
—

 
—

 
55

 
55

Cash distributions
—

 
(86,420
)
 
(13,526
)
 
(99,946
)
Unit-based compensation
—

 
1,080

 
—

 
1,080

Reimbursement of excess purchase price over carrying value of acquired assets
—

 
1,500

 
—

 
1,500

Balances - September 30, 2015
35,456,612

 
$
406,002

 
$
13,567

 
$
419,569

 
See accompanying notes to consolidated and condensed financial statements.





6
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)


 
Nine Months Ended
 
September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
31,539

 
$
(16,078
)
Less: (Income) loss from discontinued operations, net of income taxes
(1,215
)
 
3,048

Net income from continuing operations
30,324

 
(13,030
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
68,737

 
44,277

Amortization of deferred debt issuance costs
4,142

 
5,415

Amortization of debt discount
—

 
1,305

Amortization of premium on notes payable
(246
)
 
(164
)
Loss (gain) on sale of property, plant and equipment
1,751

 
(54
)
Impairment of long-lived assets
—

 
3,445

Gain on retirement of senior unsecured notes
(728
)
 
—

Equity in earnings of unconsolidated entities
(5,752
)
 
(4,297
)
Reduction in carrying value of investment in Cardinal due to purchase of the controlling interest
—

 
30,102

Non-cash mark-to-market on derivatives
358

 
489

Unit-based compensation
1,080

 
589

Preferred dividends on MET investment
—

 
1,498

Return on investment in unconsolidated subsidiary
7,800

 
600

Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
 

 
 

Accounts and other receivables
69,967

 
32,345

Product exchange receivables
909

 
(3,624
)
Inventories
(3,134
)
 
(21,793
)
Due from affiliates
3,348

 
(2,482
)
Other current assets
354

 
1,219

Trade and other accounts payable
(59,124
)
 
(28,426
)
Product exchange payables
6,360

 
9,265

Due to affiliates
(1,935
)
 
9,117

Income taxes payable
(386
)
 
(202
)
Other accrued liabilities
(8,490
)
 
(7,214
)
Change in other non-current assets and liabilities
(999
)
 
1,115

Net cash provided by continuing operating activities
114,336

 
59,495

Net cash used in discontinued operating activities
(1,352
)
 
(6,494
)
Net cash provided by operating activities
112,984

 
53,001

Cash flows from investing activities:
 

 
 

Payments for property, plant and equipment
(40,123
)
 
(58,522
)
Acquisitions, less cash acquired
—

 
(100,046
)
Payments for plant turnaround costs
(1,754
)
 
(4,000
)
Proceeds from sale of property, plant and equipment
1,985

 
702

Proceeds from involuntary conversion of property, plant and equipment
—

 
2,475

Investment in unconsolidated entities
—

 
(134,413
)
Return of investments from unconsolidated entities
—

 
726

Contributions to unconsolidated entities
—

 
(3,386
)
Net cash used in continuing investing activities
(39,892
)
 
(296,464
)
Net cash provided by discontinued investing activities
41,250

 
—

Net cash provided by (used in) investing activities
1,358

 
(296,464
)
Cash flows from financing activities:
 

 
 

Payments of long-term debt
(224,310
)
 
(1,458,096
)
Proceeds from long-term debt
209,000

 
1,426,250

Proceeds from issuance of common units, net of issuance related costs
(330
)
 
331,571

General partner contribution
55

 
6,995

Purchase of treasury units
—

 
(277
)
Payment of debt issuance costs
(340
)
 
(3,589
)
Excess purchase price over carrying value of acquired assets
—

 
(4,948
)
Reimbursement of excess purchase price over carrying value of acquired assets
1,500

 
—

Cash distributions paid
(99,946
)
 
(67,979
)
Net cash provided by (used in) financing activities
(114,371
)
 
229,927

Net decrease in cash
(29
)
 
(13,536
)
Cash at beginning of period
42

 
16,542

Cash at end of period
$
13

 
$
3,006

Non-cash additions to property, plant and equipment
$
4,389

 
$
4,208


See accompanying notes to consolidated and condensed financial statements.

7
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)




(1)
General

Martin Midstream Partners L.P. (the "Partnership") is a publicly traded limited partnership ("MLP") 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 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 ("U.S. GAAP") for interim financial reporting. Accordingly, these financial statements have been condensed and do not include all of the information and footnotes required by U.S. GAAP 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 financial position, results of operations, 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, 2014, filed with the Securities and Exchange Commission (the "SEC") on March 2, 2015, as amended by Amendment No. 1 on Form 10-K/A for the year ended December 31, 2014 filed on March 5, 2015.

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 and condensed financial statements in conformity with U.S. GAAP.  Actual results could differ from those estimates.

(2)
New Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU requires that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The ASU also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The ASU should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued. The Partnership is evaluating the effect that ASU 2015-06 will have on its consolidated and condensed financial statements and related disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method. This includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard will be effective on January 1, 2017. The Partnership is evaluating the effect that ASU 2015-11 will have on its consolidated and condensed financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-06, Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions, which requires an MLP to allocate earnings (losses) of a transferred business entirely to the general partner when computing earnings per unit ("EPU") for periods before the dropdown transaction occurred. The EPU for limited partners that was previously reported would not change as a result of the dropdown

8
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



transaction. The ASU also requires an MLP to disclose the effects of the dropdown transaction on EPU for the periods before and after the dropdown transaction occurred. This ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The ASU requires retrospective application and early adoption is permitted. The Partnership is evaluating the effect that ASU 2015-06 will have on its consolidated and condensed financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest, which simplifies presentation of debt issuance costs. The amended guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Early application is permitted under the retrospective transition method. The Partnership has elected to adopt this guidance effective January 1, 2015. The standard only affects presentation on the Partnership's Consolidated and Condensed Balance Sheets and does not affect any of the Partnership's other financial statements. The amount of debt issuance costs, net of accumulated amortization, from the December 31, 2014 audited balance sheet that were reclassified and shown as a reduction of the related long-term debt balances is $13,118.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Partnership on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Partnership is evaluating the effect that ASU 2014-09 will have on its consolidated and condensed 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.
        
(3)
Acquisitions
 
Cardinal Gas Storage Partners LLC
On August 29, 2014, the Partnership acquired from Energy Capital Partners ("ECP") all of ECP’s approximate 57.8% Category A membership interest in Cardinal Gas Storage Partners LLC ("Cardinal") for cash consideration of approximately $120,973, subject to certain post-closing adjustments. Prior to the acquisition, the Partnership owned an approximate 42.2% Category A membership interest 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 and Condensed Statements of Operations in the third quarter of 2014. Concurrent with the closing of the transaction, the Partnership retired all of the project level financing of various Cardinal subsidiaries. The Partnership funded the acquisition and repayment of the project financings with borrowings under its revolving credit facility and the use of restricted cash acquired.
The total purchase price is as follows:
Cash payment for 57.8% interest in Cardinal
$
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:

9
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



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. At the acquisition date, the weighted average life of these contracts, based upon contracted volumes, was 5.1 years.

The Partnership’s results of operations from the Cardinal acquisition include revenues of $16,287 and net income of $3,142 for the three months ended September 30, 2015 and revenues of $49,030 and net income of $9,232 for the nine months ended September 30, 2015.

Natural Gas Liquids ("NGL") Storage Assets

On May 31, 2014, the Partnership acquired certain NGL storage assets from a subsidiary of Martin Resource Management Corporation ("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 of these assets.

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 and Condensed Balance Sheet through a purchase price allocation. 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 80.0% 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.


10
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



Pro Forma Financial Information for Cardinal and WTLPG
    
The following pro forma consolidated results of operations for the three and nine months ended September 30, 2014 have been prepared as if the acquisition of Cardinal and WTLPG occurred at the beginning of fiscal 2014:
 
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
Revenue:
 
 
 
As reported
$
377,088

 
$
1,265,158

Pro forma
$
388,233

 
$
1,311,646

Net income (loss) from continuing operations attributable to limited partners:
 
 
 
As reported
$
(25,162
)
 
$
(12,743
)
Pro forma
$
1,124

 
$
(3,093
)
Net loss from discontinued operations attributable to limited partners:
 
 
 
As reported
$
(1,142
)
 
$
(2,980
)
Pro forma
$
(1,142
)
 
$
(2,980
)
Net income (loss) from continuing operations per unit attributable to limited partners - basic:
 
 
 
As reported
$
(0.78
)
 
$
(0.44
)
Pro forma
$
0.03

 
$
(0.11
)
Net loss from discontinued operations per unit attributable to limited partners - basic:
 
 
 
As reported
$
(0.04
)
 
$
(0.10
)
Pro forma
$
(0.04
)
 
$
(0.10
)
Net income (loss) from continuing operations per unit attributable to limited partners - diluted:
 
 
 
As reported
$
(0.78
)
 
$
(0.44
)
Pro forma
$
0.03

 
$
(0.11
)
Net loss from discontinued operations per unit attributable to limited partners - diluted:
 
 
 
As reported
$
(0.04
)
 
$
(0.10
)
Pro forma
$
(0.04
)
 
$
(0.10
)

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 significant effects of the transactions. However, the pro forma results are not necessarily indicative of the results that would have occurred if the transactions had occurred at the beginning of fiscal 2014.

(4)
Discontinued operations and divestitures

Floating Storage Assets. On February 12, 2015, the Partnership sold all six of its 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 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 three and nine months ended September 30, 2015 and 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. The Floating Storage Assets were presented as discontinued operations under the guidance prior to the Partnership's adoption of ASU 2014-08 related to discontinued operations. The adoption of the amended guidance was effective for the Partnership January 1, 2015.


11
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



The Floating Storage Assets’ operating results, which are included in income from discontinued operations, were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Total revenues from third parties1      
$
—

 
$
12,895

 
$
791

 
$
46,070

Total costs and expenses and other, net, excluding depreciation and amortization
—

 
13,776

 
1,038

 
48,066

Depreciation and amortization
—

 
286

 
—

 
1,052

Other operating income2
—

 
—

 
1,462

 
—

Income (loss) from discontinued operations before income taxes
—

 
(1,167
)
 
1,215

 
(3,048
)
Income tax expense
—

 
—

 
—

 
—

Income (loss) from discontinued operations, net of income taxes
$
—

 
$
(1,167
)
 
$
1,215

 
$
(3,048
)

1 All revenues for the three months ended September 30, 2015 and 2014 were from third parties. Total revenues from third parties excludes intercompany revenues of $0 and $5,273 for the nine months ended September 30, 2015 and 2014, respectively.

2 Other operating income represents the gain on the disposition of the Floating Storage Assets.

(5)
Inventories

Components of inventories at September 30, 2015 and December 31, 2014 were as follows: 
 
September 30, 2015
 
December 31, 2014
Natural gas liquids
$
39,383

 
$
27,820

Sulfur
14,675

 
12,231

Sulfur based products
14,110

 
16,280

Lubricants
20,442

 
29,096

Other
3,193

 
3,291

 
$
91,803

 
$
88,718


(6)
Investments in Unconsolidated Entities and Joint Ventures

On August 29, 2014, the Partnership acquired ECP’s approximate 57.8% Category A membership interest in Cardinal. Prior to the acquisition, the Partnership owned an approximate 42.2% Category A membership interest in Cardinal which was accounted for by the equity method. See Note 3 for discussion of the acquisition of the remaining membership 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 partnership interest and a 0.2% general partnership interest in WTLPG. At the time of the purchase, WTLPG was operated by Chevron Pipe Line Company. The 80% interest was subsequently sold to ONEOK Partners, L.P. who assumed operational responsibility. WTLPG owns an approximate 2,300 mile common-carrier pipeline system that transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. The Partnership recognizes its 20% interest in WTLPG as "Investment in unconsolidated entities" on its Consolidated and Condensed Balance Sheets. 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 and Condensed Statements of Operations.


12
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



During 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 on or after September 1, 2016. See Note 12.

The following tables summarize the components of the investment in unconsolidated entities on the Partnership’s Consolidated and Condensed Balance Sheets, the components of equity in earnings of unconsolidated entities included in the Partnership’s Consolidated and Condensed Statements of Operations, and the components of the cash distributions received from unconsolidated entities:
 
September 30, 2015
 
December 31, 2014
WTLPG
$
132,458

 
$
134,506

    Total investment in unconsolidated entities
$
132,458

 
$
134,506


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Equity in earnings of WTLPG
$
2,363

 
$
1,138

 
$
5,752

 
$
1,907

Equity in earnings of Cardinal
—

 
1,135

 
—

 
892

Equity in earnings of MET
—

 
382

 
—

 
1,498

    Equity in earnings of unconsolidated entities
$
2,363

 
$
2,655

 
$
5,752

 
$
4,297


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Distributions from WTLPG
$
3,400

 
$
600

 
$
7,800

 
$
600

Distributions from Cardinal
—

 
—

 
—

 
225

Distributions from MET
—

 
382

 
—

 
1,498

Distributions from unconsolidated entities
$
3,400

 
$
982

 
$
7,800

 
$
2,323


Selected financial information for significant unconsolidated equity-method investees is as follows:
 
As of September 30,
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Total
Assets
 
Members' Equity
 
Revenues
 
Net Income
 
Revenues
 
Net Income (Loss)
2015
 
 
 
 
 
 
 
 
 
 
 
WTLPG
$
833,299

 
$
819,080

 
$
26,094

 
$
11,815

 
$
70,010

 
$
28,760

 
As of December 31,
 
 

 
 

 
 
 
 
2014
 

 
 

 
 

 
 

 
 
 
 
WTLPG
$
827,697

 
$
818,546

 
$
23,884

 
$
7,403

 
$
71,798

 
$
28,004

Cardinal1
$
—

 
$
—

 
$
11,145

 
$
3,211

 
$
46,488

 
$
2,606


    
1Financial 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.


13
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



As of September 30, 2015 and December 31, 2014, the Partnership’s interest in cash of the unconsolidated equity-method investee was $3,360 and $10, respectively.

(7)
Derivative Instruments and Hedging Activities

The Partnership’s revenues and cost of products sold are materially impacted by changes in NGL prices. Additionally, the Partnership's results of operations are materially impacted by changes in interest rates. In an effort to manage its exposure to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate hedges. The Partnership is required to recognize all derivative instruments as either assets or liabilities at fair value on the Partnership’s Consolidated and Condensed Balance Sheets and to recognize certain changes in the fair value of derivative instruments on the Partnership’s Consolidated and Condensed Statements of Operations as they were not designated as hedges for accounting purposes for any of the periods presented.

(a)    Commodity Derivative Instruments

The Partnership from time to time has used derivatives to manage the risk of commodity price fluctuation. Commodity risk is the adverse effect on the value of a liability or future purchase that results from a change in commodity price.  The Partnership has established a hedging policy and monitors and manages the commodity market risk associated with potential commodity risk exposure.  In addition, the Partnership has focused on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction. The Partnership has entered into hedging transactions through March 31, 2016 to protect a portion of its commodity price risk exposure. These hedging arrangements are in the form of swaps for NGLs. The Partnership has instruments totaling a notional quantity of 320 barrels settling during the period from October 31, 2015 through March 31, 2016. These instruments settle against OPIS Mont Belvieu (non-TET) monthly average price. MET serves as the counterparty for all positions outstanding at September 30, 2015. These instruments are recorded on the Partnership's Consolidated and Condensed Balance Sheets at September 30, 2015 in "Fair value of derivatives" as a current liability of $358.

As of September 30, 2014, the Partnership had a notional quantity of 3,631,740 MMBtu of natural gas call options with a strike price of $4.50 per MMBtu.  These options were in place to manage 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 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.  These options were settled on December 31, 2014.

(b)    Interest Rate Derivative Instruments

The Partnership is exposed to market risks associated with interest rates. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We minimize this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Partnership enters into interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate credit facility and its fixed rate 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.

During the nine months ended September 30, 2015, the Partnership entered into contracts which provided the counterparty the option to enter into swap contracts to hedge the Partnership's exposure to changes in the fair value of its senior unsecured notes ("interest rate swaptions") through September 30, 2015. In connection with the interest rate swaption contracts, the Partnership received premiums of $750 and $2,495, which represented their fair value on the date the transactions were initiated and were initially recorded as derivative liabilities on the Partnership's Consolidated and Condensed Balance Sheet, during the three and nine months ended September 30, 2015, respectively. Each of the interest rate swaptions was fully amortized as of September 30, 2015. Interest rate swaption contract premiums received are amortized over the period from initiation of the contract through their termination date. For the three and nine months ended September 30, 2015, the Partnership recognized $750 and $2,495, respectively, of premium in "Interest expense, net" on the Partnership's Consolidated and Condensed Statement of Operations related to the interest rate swaption contracts.

As of September 30, 2014, we had a combined notional principal amount of $250,000 of fixed-to-variable interest rate swap agreements, effectively converting the interest expense associated with a portion of the Partnership's 2021 senior

14
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



unsecured notes from fixed rates to variable rates based on an interest rate of LIBOR plus a spread. Each of the Partnership's swap agreements have a termination date that corresponds to the maturity date of the 2021 senior unsecured notes. As of September 30, 2014, the maximum length of time over which the Partnership has hedged a portion of its exposure to the variability in the value of this debt due to interest rate risk is through February of 2021.

For information regarding gains and losses on interest rate derivative instruments, see "Tabular Presentation of Gains and Losses on Derivative Instruments" below.

(c)    Tabular Presentation of Gains and Losses on Derivative Instruments

The following table summarizes the fair values and classification of the Partnership’s derivative instruments in its Consolidated and Condensed Balance Sheet:
 
Fair Values of Derivative Instruments in the Consolidated Balance Sheet
 
Derivative Assets
Derivative Liabilities
 
 
Fair Values
 
Fair Values
 
 Balance Sheet Location
September 30, 2015
 
December 31, 2014
 Balance Sheet Location
September 30, 2015
 
December 31, 2014
Derivatives not designated as hedging instruments:
Current:
 
 
 
 
 
 
 
Commodity contracts
Fair value of derivatives
$
—

 
$
—

Fair value of derivatives
$
358

 
$
—

Total derivatives not designated as hedging instruments
 
$
—

 
$
—

 
$
358

 
$
—


Effect of Derivative Instruments on the Consolidated and Condensed Statement of Operations
For the Three Months Ended September 30, 2015 and 2014
 
Location of Gain (Loss)
Recognized in Income on
 Derivatives
Amount of Gain (Loss) Recognized in
Income on Derivatives
 
 
2015
 
2014
Derivatives not designated as hedging instruments:
 
 
Interest rate swaption contracts
Interest expense
$
750

 
$
—

Interest rate contracts
Interest expense
—

 
63

Commodity contracts
Other income
—

 
21

Commodity contracts
Cost of products sold
(358
)
 
—

Total derivatives not designated as hedging instruments
$
392

 
$
84



15
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



Effect of Derivative Instruments on the Consolidated and Condensed Statement of Operations
For the Nine Months Ended September 30, 2015 and 2014
 
Location of Gain (Loss)
Recognized in Income on
 Derivatives
Amount of Gain (Loss) Recognized in
Income on Derivatives
 
 
2015
 
2014
Derivatives not designated as hedging instruments:
 
 
Interest rate swaption contracts
Interest expense
$
2,495

 
$
—

Interest rate contracts
Interest expense
—

 
(2,864
)
Commodity contracts
Other income
 
 
21

Commodity contracts
Cost of products sold
(358
)
 
—

Total derivatives not designated as hedging instruments
$
2,137

 
$
(2,843
)

(8)
Fair Value Measurements

The Partnership follows the provisions of ASC 820 related to fair value measurements and disclosures, which established a framework for measuring fair value and expanded disclosures about fair value measurements. The adoption of this guidance had no impact on the Partnership’s financial position or results of operations.

ASC 820 applies to all assets and liabilities that are being measured and reported on a fair value basis. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value of each asset and liability carried at fair value into one of the following categories:

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 are not corroborated by market data.

The fair value of the following items are required to be disclosed on a recurring basis subject to the requirements of ASC 820 at September 30, 2015 and December 31, 2014:
 
Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant
Unobservable
Inputs
Description
September 30, 2015
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets
 
 
 
 
 
 
 
Note receivable - Martin Energy Trading
$
15,834

 
$
—

 
$
—

 
$
15,834

Total assets
$
15,834

 
$
—

 
$
—

 
$
15,834

 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

2021 Senior unsecured notes
$
360,980

 
$
—

 
$
360,980

 
$
—

Commodity derivative contracts
358

 
 
 
358

 
—

Total liabilities
$
361,338

 
$
—

 
$
361,338

 
$
—

            

16
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



 
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 - Martin Energy Trading
$
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

 
$
—


FASB ASC 825-10-65, Disclosures about Fair Value of Financial Instruments, requires that the Partnership disclose estimated fair values for its financial instruments. Fair value estimates are set forth below for the Partnership’s 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-term maturity and highly liquid nature of these instruments, and as such these have been excluded from the table above. There is negligible credit risk associated with these instruments.

•
Note receivable and long-term debt including current portion: The carrying amount of the revolving credit facility approximates fair value due to the debt having a variable interest rate and is in Level 2.  The Partnership has not had any indicators which represent a change in the market spread associated with its variable interest rate debt. The estimated fair value of the senior unsecured notes is based on market prices of similar debt. The estimated fair value of the note receivable from Martin Energy Trading was determined by calculating the net present value of the interest payments over the life of the note. The note is considered Level 3 due to the lack of observable inputs for similar transactions between related parties.

(9)
Supplemental Balance Sheet Information

Components of "Other assets, net" were as follows:
 
September 30, 2015
 
December 31, 2014
Customer contracts and relationships, net
$
55,831

 
$
72,171

Other intangible assets
1,914

 
2,215

Other
7,151

 
7,079

 
$
64,896

 
$
81,465


Accumulated amortization of intangible assets was $29,558 and $12,125 at September 30, 2015 and December 31, 2014, respectively.
    
Components of "Other accrued liabilities" were as follows:

17
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



 
September 30, 2015
 
December 31, 2014
Accrued interest
$
3,775

 
$
10,996

Property and other taxes payable
6,496

 
7,524

Accrued payroll
2,447

 
3,125

Other
127

 
156

 
$
12,845

 
$
21,801


(10)
Long-Term Debt

At September 30, 2015 and December 31, 2014, long-term debt consisted of the following:
 
September 30,
2015
 
December 31,
2014
$700,0001 Revolving credit facility at variable interest rate (2.95%2 weighted average at September 30, 2015), due March 2018 secured by substantially all of the Partnership’s assets, including, without limitation, inventory, accounts receivable, vessels, equipment, fixed assets and the interests in the Partnership’s operating subsidiaries and equity method investees, net of unamortized debt issuance costs of $5,400 and $8,656, respectively4
$
494,600

 
$
491,344

$400,0003 Senior notes, 7.25% interest, net of unamortized debt issuance costs of $3,758 and $4,462, respectively, including unamortized premium of $1,688 and $2,005, respectively, issued $250,000 February 2013 and $150,000 April 2014, due February 2021, unsecured4
381,805

 
397,543

Total long-term debt, net
876,405

 
888,887

Less current installments
—

 
—

Long-term debt, net of current installments
$
876,405

 
$
888,887


1 On August 14, 2015, the Partnership reduced its borrowing capacity under the revolving credit facility from $900,000 to $700,000. The facility can be expanded up to $1,000,000 at any time under the accordion feature of the facility. The reduction in capacity resulted in the write-off of $1,625 of deferred debt costs.
     
2 Interest rate fluctuates based on the LIBOR rate plus an applicable margin set on the date of each advance. The margin above LIBOR is set every three months. Indebtedness under the credit facility bears interest at LIBOR plus an applicable margin or the base prime rate plus an applicable margin. All amounts outstanding at September 30, 2015 and December 31, 2014 were at LIBOR 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 existing LIBOR borrowings at September 30, 2015 is 2.75%. The credit facility contains various covenants which limit the Partnership’s ability to make certain investments and acquisitions; enter into certain agreements; incur indebtedness; sell assets; and make certain amendments to the Partnership's omnibus agreement with Martin Resource Management (the "Omnibus Agreement"). The Partnership is permitted to make quarterly distributions so long as no event of default exists.

3 In September 2015, the Partnership repurchased on the open market an aggregate $16,125 of 7.25% senior unsecured notes. These transactions resulted in a gain on retirement of $728, including the write-off of applicable pro-rata portion of deferred debt costs and premium.

4 The Partnership is in compliance with all debt covenants as of September 30, 2015.

The Partnership paid cash interest, net of proceeds received from interest rate swaptions, in the amount of $18,017 and $17,346 for the three months ended September 30, 2015 and 2014, respectively.  The Partnership paid cash interest, net of proceeds received from interest rate swaptions, in the amount of $39,121 and $35,770 for the nine months ended September 30, 2015 and 2014, respectively.  Capitalized interest was $427 and $234 for the three months ended September 30, 2015 and 2014, respectively. Capitalized interest was $1,522 and $957 for the nine months ended September 30, 2015 and 2014, respectively.


18
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



(11)
Partners' Capital

As of September 30, 2015, Partners’ capital consisted of 35,456,612 common limited partner units, representing a 98% partnership interest and a 2% general partner interest. Martin Resource Management, through subsidiaries, owned 6,264,532 of the Partnership's common limited partner units representing approximately 17.7% of the Partnership's outstanding common limited partner units. Martin Midstream GP LLC ("MMGP"), the Partnership's general partner, owns the 2% general partnership interest. Martin Resource Management controls the Partnership's general partner, by virtue of its 51% voting interest in MMGP Holdings, LLC ("Holdings"), the sole member of the Partnership's general partner.

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 $122,587. The Partnership's general partner contributed $2,599 in cash to the Partnership in conjunction with the issuance in order to maintain its 2% general partner interest in the Partnership. All of the net proceeds were used to pay down outstanding amounts under the Partnership's revolving credit facility.

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% general partner interest in the Partnership. The proceeds from the common unit issuances 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% 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 proceeds of $0 and $21,336 during the nine months ended September 30, 2015 and 2014, respectively. The Partnership paid $287 and $382 in equity issuance related costs for the nine months ended September 30, 2015 and 2014, respectively. Under the program, the Partnership issued 0 and 506,408 common units during the nine months ended September 30, 2015 and 2014, respectively. Common units issued were at market prices prevailing at the time of the sale. Under the program, the Partnership also received capital contributions from the general partner of $0 and $356 during the nine months ended September 30, 2015 and 2014, respectively, to maintain its 2% general partner interest in the Partnership. The net proceeds from the common unit issuances were used to pay down outstanding amounts under the Partnership's revolving credit facility.

Incentive Distribution Rights

MMGP holds a 2% general partner interest and certain incentive distribution rights ("IDRs") in the Partnership. IDRs are a separate class of non-voting limited partner interest that may be transferred or sold by the general partner under the terms of the Partnership Agreement, and represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution and any cumulative arrearages on common units once certain target distribution levels have been achieved. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the Partnership Agreement. On October 2, 2012, the Partnership Agreement was amended to provide that the general partner would forego the next $18,000 in incentive distributions that it would otherwise be entitled to receive. Additionally, on May 5, 2014,

19
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



the owner of our general partner agreed to forego an additional $3,000 in incentive distributions. As of March 31, 2015, all incentive distributions the general partner agreed to forego were satisfied. The general partner received $3,893 and $11,524 in incentive distributions during the three and nine months ended September 30, 2015. No incentive distributions were paid to the general partner during the three and nine months ended September 30, 2014.
 
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.
 
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 income and 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 allocated to the general partner and limited partners for purposes of calculating net income attributable to limited partners per unit:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Continuing operations:
2015
 
2014
 
2015
 
2014
Income (loss) from continuing operations
$
3,330

 
$
(25,738
)
 
$
30,324

 
$
(13,030
)
Less general partner’s interest in net income:
 
 
 
 
 
 
 
Distributions payable on behalf of IDRs
3,893

 
—

 
11,230

 
—

Distributions payable on behalf of general partner interest
667

 
101

 
1,925

 
1,221

General partner interest in undistributed loss
(601
)
 
(616
)
 
(1,319
)
 
(1,481
)
Less income allocable to unvested restricted units
16

 
(61
)
 
122

 
(27
)
Limited partners’ interest in income (loss) from continuing operations
$
(645
)
 
$
(25,162
)
 
$
18,366

 
$
(12,743
)


20
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Discontinued operations:
2015
 
2014
 
2015
 
2014
Income (loss) from discontinued operations
$
—

 
$
(1,167
)
 
$
1,215

 
$
(3,048
)
Less general partner’s interest in net income:
 
 
 
 
 
 
 
Distributions payable on behalf of IDRs
—

 
—

 
450

 
—

Distributions payable on behalf of general partner interest
—

 
451

 
77

 
285

General partner interest in undistributed loss
—

 
(475
)
 
(53
)
 
(347
)
Less income allocable to unvested restricted units
—

 
(1
)
 
5

 
(6
)
Limited partners’ interest in income (loss) from discontinued operations
$
—

 
$
(1,142
)
 
$
736

 
$
(2,980
)

The weighted average units outstanding for basic net income per unit were 35,307,583 and 35,308,990 for the three and nine months ended September 30, 2015, respectively. The weighted average units outstanding for basic net income per unit were 32,242,571 and 29,271,205 for the three and nine months ended September 30, 2014, respectively. All outstanding units were included in the computation of diluted earnings per unit and weighted based on the number of days such units were outstanding during the period presented. For diluted net income per unit, the weighted average units outstanding were increased by 59,976 for the nine months ended September 30, 2015, due to the dilutive effect of restricted units granted under the Partnership’s long-term incentive plan. All common unit equivalents were antidilutive for the three months ended September 30, 2015 because the limited partners were allocated a net loss in this period. All common unit equivalents were antidilutive for the three and nine months ended September 30, 2014 because the limited partners were allocated a net loss in these periods.

(12)
Related Party Transactions

As of September 30, 2015, Martin Resource Management owned 6,264,532 of the Partnership’s common units representing approximately 17.7% of the Partnership’s outstanding limited partner 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 IDRs.  The Partnership’s general partner’s ability, as general partner, to manage and operate the Partnership, and Martin Resource Management’s ownership as of September 30, 2015, of approximately 17.7% of the Partnership’s outstanding limited partner 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 and transactions:
 
Omnibus Agreement
 
      Omnibus Agreement.  The Partnership and its general partner are parties to the Omnibus Agreement dated November 1, 2002, with Martin Resource Management that governs, among other things, potential competition and indemnification obligations among the parties to the agreement, related party transactions, the provision of general administration and support services by Martin Resource Management and the Partnership’s use of certain Martin Resource Management trade names and trademarks. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into finished products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management.

Non-Competition Provisions. Martin Resource Management has agreed for so long as it controls the general partner of the Partnership, not to engage in the business of:

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

•providing marine transportation of petroleum products and by-products;

21
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)




•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, ammonia, asphalt, sulfuric acid, marine fuel and other liquids;

◦
providing marine bunkering and other shore-based marine services in Alabama, Florida, Louisiana, Mississippi and Texas;

◦
operating a crude oil gathering business in Stephens, Arkansas;

◦
providing crude oil gathering, refining, and marketing services of base oils, asphalt, and distillate products in Smackover, Arkansas;

◦
providing crude oil marketing and transportation 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 of the board of directors of the general partner of the Partnership (the "Conflicts Committee"); and

•
any business that Martin Resource Management acquires or constructs where a portion of such business includes a restricted business and the fair market value of the restricted business is $5,000 or more and represents less than 20% of the aggregate value of the entire business to be acquired or constructed; provided that, following completion of the acquisition or construction, the Partnership will be provided the opportunity to purchase the restricted business.
    
Services.  Under the Omnibus Agreement, Martin Resource Management provides the Partnership with corporate staff, support services, and administrative services necessary to operate the Partnership’s business. The Omnibus Agreement requires the Partnership to reimburse Martin Resource Management for all direct expenses it incurs or payments it makes on the Partnership’s behalf or in connection with the operation of the Partnership’s business. There is no monetary limitation on the amount the Partnership is required to reimburse Martin Resource Management for direct expenses.  In addition to the direct expenses, under the Omnibus Agreement, the Partnership is required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses.

22
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)




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 $3,420 and $3,134 of indirect expenses for the three months ended September 30, 2015 and 2014, respectively.  The Partnership reimbursed Martin Resource Management for $10,259 and $9,401 of indirect expenses for the nine months ended September 30, 2015 and 2014, 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 the then-applicable agreed upon reimbursable amount of indirect general and administrative expenses. Please read "Services" above.

License Provisions. Under the Omnibus Agreement, Martin Resource Management 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. These rates are subject to any adjustments which are mutually agreed upon 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, Inc. has indemnified the Partnership against all claims arising out of the negligence or willful misconduct of Martin Transport, Inc. and its officers, employees, agents, representatives and subcontractors. The Partnership indemnified Martin Transport, Inc. against all claims arising out of the negligence or willful misconduct of the Partnership and its officers, employees, agents, representatives and subcontractors. In the event a claim is the result of the joint negligence or misconduct of Martin Transport, Inc. and the Partnership, indemnification obligations will be shared in proportion to each party’s allocable share of such joint negligence or misconduct.

23
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)




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 ("Talen's") and (ii) terminalling services agreement entered into in connection with the acquisition of L&L Holdings LLC ("L&L") 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 a party to several terminal services agreements and from time to time the Partnership may enter into other terminal service agreements for the purpose of providing terminal services to related parties. Individually, each of these agreements is immaterial but when considered in the aggregate they could be deemed material. These agreements are throughput based with a minimum volume commitment. Generally, the fees due under these agreements are adjusted annually based on a price index.

Other Agreements

 Cross Tolling Agreement. The Partnership is a party to an amended and restated tolling agreement with Cross Oil Refining and Marketing, Inc. ("Cross") dated October 28, 2014, under which the Partnership processes crude oil into finished products, including naphthenic lubricants, distillates, asphalt and other intermediate cuts for Cross.  The tolling agreement expires November 25, 2031.  Under this tolling agreement, Cross agreed to process a minimum of 6,500 barrels per day of 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.

24
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)




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 and Condensed 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 captions of the consolidated and condensed financial statements 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 and condensed financial statements as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Terminalling and storage
$
15,091

 
$
19,045

 
$
58,626

 
$
55,798

Marine transportation
6,552

 
6,076

 
19,919

 
18,340

Product sales:
 
 
 
 
 
 
 
Natural gas services
479

 
—

 
779

 
3,046

Sulfur services
864

 
708

 
2,908

 
2,931

Terminalling and storage
388

 
175

 
1,392

 
507

 
1,731

 
883

 
5,079

 
6,484

 
$
23,374

 
$
26,004

 
$
83,624

 
$
80,622


The impact of related party cost of products sold is reflected in the consolidated and condensed financial statements as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Cost of products sold:
 
 
 
 
 
 
 
Natural gas services
$
6,470

 
$
9,908

 
$
20,198

 
$
29,169

Sulfur services
3,387

 
4,491

 
10,629

 
13,808

Terminalling and storage
3,227

 
9,174

 
14,261

 
25,571

 
$
13,084

 
$
23,573

 
$
45,088

 
$
68,548


The impact of related party operating expenses is reflected in the consolidated and condensed financial statements as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Operating expenses:
 
 
 
 
 
 
 
Marine transportation
$
8,055

 
$
10,198

 
$
24,653

 
$
28,685

Natural gas services
2,218

 
1,510

 
6,373

 
2,914

Sulfur services
1,649

 
2,121

 
5,348

 
5,641

Terminalling and storage
7,368

 
7,184

 
22,231

 
21,260

 
$
19,290

 
$
21,013

 
$
58,605

 
$
58,500


The impact of related party selling, general and administrative expenses is reflected in the consolidated and condensed financial statements as follows:

25
MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
September 30, 2015
(Unaudited)



 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Selling, general and administrative:
 
 
 
 
 
 
 
Marine transportation
$
6

 
$
8

 
$
22

 
$
23

Natural gas services
1,263

 
2,647

 
3,664

 
4,751

Sulfur services
661

 
840

 
2,099

 
2,503

Terminalling and storage
572

 
317