MARTIN MIDSTREAM PARTNERS LP - 10-Q Quarterly Report

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

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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 SEPTEMBER 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ____________

COMMISSION FILE NUMBER
000-50056

MARTIN MIDSTREAM PARTNERS L.P.
(Exact name of registrant as specified in its charter)

DELAWARE 05-0527861
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

4200 STONE ROAD
KILGORE, TEXAS 75662
(Address of principal executive offices)

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 [ ] No [X]

Indicate by checkmark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The number of the registrant's Common Units outstanding at December 11,
2002 was 2,900,000.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MARTIN MIDSTREAM PARTNERS L.P.
(SUCCESSOR TO MARTIN MIDSTREAM PARTNERS PREDECESSOR - SEE NOTE 1)

COMBINED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

See accompanying notes to combined condensed financial statements.

1

MARTIN MIDSTREAM PARTNERS L.P.
(SUCCESSOR TO MARTIN MIDSTREAM PARTNERS PREDECESSOR - SEE NOTE 1)

COMBINED CONDENSED STATEMENTS OF OPERATIONS AND OWNER'S EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)

See accompanying notes to combined condensed financial statements.

2

MARTIN MIDSTREAM PARTNERS L.P.
(SUCCESSOR TO MARTIN MIDSTREAM PARTNERS PREDECESSOR - SEE NOTE 1)

COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

See accompanying notes to combined condensed financial statements.

3

MARTIN MIDSTREAM PARTNERS L.P.
(SUCCESSOR TO MARTIN MIDSTREAM PARTNERS PREDECESSOR)

NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED)

SEPTEMBER 30, 2002

(UNAUDITED)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Martin Midstream Partners L.P. (the "Partnership") provides marine
transportation, terminalling, distribution and midstream logistical services
for producers and suppliers of hydrocarbon products and by-products, specialty
chemicals and other liquids. The Partnership also manufactures and markets
sulfur-based fertilizers and related products and owns an unconsolidated
non-controlling 49.5% limited partnership interest in CF Martin Sulphur L.P.
("CF Martin Sulphur"), which operates a sulfur storage and transportation
business. The Partnership operates primarily in the Gulf Coast region of the
United States.

At September 30, 2002, the Partnership was an inactive indirect,
wholly-owned subsidiary of Martin Resource Management Corporation ("MRMC"). In
connection with the November 6, 2002 closing of the initial public offering of
common units representing limited partner interests in the Partnership (see Note
3, Subsequent Events) MRMC and certain of its subsidiaries conveyed to the
Partnership certain of their assets, liabilities and operations, in exchange for
the following: (i) a 2% general partnership interest in the Partnership held by
Martin Midstream GP LLC, an indirect wholly-owned subsidiary of MRMC (the
"General Partner"), (ii) incentive distribution rights granted by the
Partnership, and (iii) 4,253,362 subordinated units of the Partnership. The
operations that were contributed to the Partnership relate to four primary lines
of business: (1) marine transportation of hydrocarbon products and hydrocarbon
by-products; (2) terminalling of hydrocarbon products and hydrocarbon
by-products; (3) liquefied petroleum gas ("LPG") distribution; and (4)
fertilizer manufacturing. The combined condensed financial statements and notes
thereto do not give effect to the Partnership's initial public offering
completed on November 6, 2002.

Hydrocarbon products and by-products are produced primarily by major
and independent oil and gas companies who often turn to independent third
parties for the transportation and disposition of these products. In addition to
these major and independent oil and gas companies, the Partnership's primary
customers include independent refiners, large chemical companies, fertilizer
manufacturers and other wholesale purchasers of hydrocarbon products and
by-products.

Following the Partnership's initial public offering, MRMC retained
various assets, liabilities, and operations not related to the four lines of
business noted above as well as certain assets, liabilities and operations
within the LPG distribution and fertilizer manufacturing lines of business.

Prior to November 6, 2002, the date the initial public offering was
completed, financial statements have been referred to as those of the Martin
Midstream Partners Predecessor and presented as combined financial statements.
Subsequent to November 6, 2002, the Partnership's financial statements will be
referred to as those of Martin Midstream Partners L.P. Financial information
related to the Partnership's financial position, results of operations or cash
flows prior to November 6, 2002 have and will exclude the assets and operations
retained by MRMC, except for those assets and operations retained by MRMC
related to the LPG distribution and fertilizer manufacturing lines of business.
Financial information related to the Partnership's financial position, results
of operations or cash flows subsequent to November 6, 2002 will exclude all of
the assets and operations retained by MRMC, thus including only the assets and
operations conveyed to the Partnership. All intercompany transactions within the
applicable reporting entities have been eliminated.

The conveyance of the assets, liabilities and operations described
above will be treated as a reorganization of entities under common control and
will be recorded at historical cost.

The Partnership's unaudited combined condensed financial statements
have been prepared in accordance with the requirements of Form 10-Q and
accounting principles generally accepted in the United States for interim
financial reporting. Accordingly, these financial statements have been condensed
and do not include all of the information and footnotes required by accounting
principles for complete financial statements as are normally made in annual
audited financial statements contained in Form 10-K. In the opinion of the
Partnership's management, all adjustments 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 the three months and nine months ended September 30, 2002
are not necessarily indicative of the results of operations for the full year.

4

These financial statements should be read in conjunction with the
Martin Midstream Partners Predecessor's audited combined financial statements
and notes thereto included in the Partnership's Prospectus (the "Prospectus"),
dated October 31, 2002, included as part of the Partnership's Registration
Statement on Form S-1 (Registration No. 333-91706).

2. SIGNIFICANT ACCOUNTING POLICIES

In addition to matters discussed below in this note, the Partnership's
significant accounting policies are detailed in the audited combined financial
statements and notes thereto in the Prospectus.

EQUITY METHOD INVESTMENTS

The Partnership has a 49.5% non-controlling limited partner interest in
CF Martin Sulphur, which is accounted for by the equity method. This partnership
collects and aggregates, transports, stores and markets molten sulfur supplied
by oil refiners and natural gas processors.

There is a difference in the Partnership's basis in CF Martin Sulphur
and in the Partnership's underlying equity on CF Martin Sulphur's books. Such
difference is being amortized over 20 years as additional equity in earnings
(losses) of unconsolidated entities.

Prior to November 6, 2002, Martin Midstream Partners Predecessor had a
50% interest in a joint venture which manufactures and sells a sulfur fungicide
product. Subsequent to November 6, 2002, the Partnership's only equity method
investment will be its interest in CF Martin Sulphur, as the interest in this
fungicide joint venture was retained by MRMC.

INDIRECT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Indirect selling, general and administrative expenses are incurred by
MRMC and allocated to the Partnership to cover costs of centralized corporate
functions such as accounting, treasury, engineering, information technology,
risk management and other corporate services. Such expenses are based on the
percentage of time spent by MRMC's personnel that provide such centralized
services. Subsequent to November 1, 2002, under an omnibus agreement between the
Partnership and MRMC, the amount the Partnership is required to reimburse MRMC
for indirect general and administrative expenses and corporate overhead
allocated to the Partnership is capped at $1.0 million during the first year of
the agreement. In each of the following four years, this amount may be increased
by no more than the percentage increase in the consumer price index for the
applicable year. In addition, the Partnership's general partner has the right to
agree to further increases in connection with expansions of the Partnership's
operations through the acquisition or construction of new assets or businesses.

INCOME TAXES

Prior to November 6, 2002, the operations of the Partnership have been
included in the consolidated MRMC federal tax return and income taxes have been
calculated based on the combined tax attributes of MRMC's operations. Prior to
November 6, 2002, income taxes have been accounted for under the asset and
liability method. Deferred tax assets and liabilities were recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss and tax credit carry forwards. Deferred
tax assets and liabilities were measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences were
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates was recognized in income in the period that
included the enactment date.

Subsequent to November 6, 2002, the operations of the Partnership will
not be subject to income taxes.

5

3. SUBSEQUENT EVENTS

On November 6, 2002, the Partnership completed an initial public
offering of 2,900,000 common units representing limited partnership interests at
a price of $19.00 per common unit. The common units represent a 39.7% limited
partnership interest in the Partnership. Total proceeds from the sale of the
2,900,000 common units were $55.1 million before the payment of offering costs
and underwriting commissions. Concurrent with the closing of the initial public
offering, the Partnership (i) assumed borrowings of $67.2 million, related
accrued interest of $4.6 million and related prepayment penalties of $1.5
million from MRMC and its subsidiaries, and (ii) entered into a $60.0 million
credit facility with a syndicate of financial institutions led by Royal Bank of
Canada. This credit facility is composed of a $25.0 million term loan and a
$35.0 million revolving line of credit comprised of a $25.0 million working
capital subfacility that will be used for ongoing working capital needs and
general partnership purposes and a $10.0 million subfacility that may be used to
finance permitted acquisitions and capital expenditures. On November 6, 2002,
the Operating Partnership borrowed $25.0 million under the term loan and $12.2
million under the revolving line of credit.

The Partnership's obligations under the credit facility are secured by
substantially all of its assets, including, without limitation, inventory,
accounts receivable, vessels, equipment and fixed assets. The Partnership may
prepay all amounts outstanding under this facility at any time without penalty.

Indebtedness under the credit facility will bear interest at either
LIBOR plus an applicable margin or the base prime rate plus an applicable
margin. The Partnership expects that the applicable margin for LIBOR loans will
range from 1.75% to 2.75% and the applicable margin for base prime rate loans
will range from 0.75% to 1.75%. The Partnership will incur a commitment fee on
the unused portions of the revolving line of credit facility.

The credit facility contains certain covenants, which, among other
things, requires the Partnership to maintain specified ratios of: (i) minimum
net worth (as defined therein); (ii) EBITDA (as defined therein) to interest
expense; (iii) total debt to EBITDA; (iv) current assets to current liabilities;
and (v) liquidation value of pledged fixed assets to outstanding borrowings.

The amount the Partnership is able to borrow under the working capital
borrowing base is based on a formula. Under this formula, the Partnership's
borrowing base is calculated based on 75% of eligible accounts receivable plus
60% of eligible inventory. Such borrowing base will be reduced by $375,000 per
quarter during the entire three year term of the revolving credit facility. This
quarterly reduction may decrease the amount the Partnership may borrow under the
working capital subfacility and could result in quarterly mandatory prepayments
to the extent that borrowings under this subfacility exceed the revised
borrowing base.

Other than mandatory prepayments that would be triggered by certain
asset dispositions, the issuance of subordinated indebtedness or as required
under the above noted borrowing base reductions, the credit facility will
require interest only payments on a quarterly basis until maturity. All
outstanding principal and unpaid interest must be paid on November 6, 2005. The
credit facility contains customary events of default, including, without
limitation, payment defaults, cross-defaults to other material indebtedness,
bankruptcy-related defaults, change of control defaults and litigation-related
defaults.

6

A summary of the proceeds received from these transactions and the use
of the proceeds received therefrom is as follows (all amounts are in millions):

PROCEEDS RECEIVED:
Sale of common units $ 55.1
Borrowing under term loan 25.0
Borrowing under revolving line credit 12.2
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Total proceeds received $ 92.3
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USE OF PROCEEDS:
Underwriter's fees $ 3.9
Professional fees and other costs 4.0
Repayment of assumed debt and related costs 73.3
Repayment of debt under promissory note 8.2
Buyout of operating lease for two barges 2.9
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Total use of proceeds $ 92.3
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4. GOODWILL

The following information relates to goodwill balances as of the
periods presented:

The following is a reconciliation of reported net income to the amounts
that would have been reported had the Company been subject to SFAS 142 during
all periods presented:

5. RELATED PARTY TRANSACTIONS

Included in the combined financial statements in this quarterly report
are various related party transactions and balances primarily with MRMC and
affiliates, and CF Martin Sulphur.

For MRMC and affiliates, such transactions consist primarily of (1) LPG
product sales; (2) marine transportation revenues; (3) terminalling revenue and
wharfage fees; (4) fertilizer product sales; (5) LPG product purchases; (6) land
transportation hauling costs; (7) sulfuric acid product purchases; (8) marine
fuel purchases; (9) LPG truck loading costs; (10) overhead allocation expenses;
and (11) interest expense on affiliate balances.

For CF Martin Sulphur, such transactions consist primarily of (1)
marine transportation revenues, (2) fertilizer handling fees, (3) product
purchase settlements, (4) overhead allocation reimbursement, (5) marine crew
charge reimbursement, and (6) a marine tug lease.

Significant transactions with these related parties are reflected in
the combined financial statements as follows:

7

MRMC AND AFFILIATES

CF MARTIN SULPHUR

6. BUSINESS SEGMENTS

The Partnership has four reportable segments: marine transportation,
terminalling, LPG distribution, and fertilizer. The Partnership's reportable
segments are strategic business units that offer different products and
services. The operating income of these segments is reviewed by the chief
operating decision maker to assess performance and make business decisions. Set
forth below is operating revenues and asset information for our four reportable
segments:

A reconciliation of the total of the reportable segments measures of
profit or loss (operating income (loss)) to the total combined income before
income taxes is as follows:

Total assets for each of the Partnership's four reportable segments, are as
follows:

9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

References in this quarterly report to "we," "ours," "us" or like terms
when used in a historical context refer to the assets and operations of MRMC's
business contributed to us in connection with our initial public offering on
November 6, 2002. References in this quarterly report to "MRMC" refers to Martin
Resource Management Corporation and its subsidiaries, unless the context
otherwise requires. We refer to liquefied petroleum gas as "LPG" in this
quarterly report. You should read the following discussion of our financial
condition and results of operations in conjunction with the combined condensed
financial statements and the notes thereto included elsewhere in this quarterly
report and with our discussion of the same and other information included in our
Prospectus, dated October 31, 2002, included as part of our Registration
Statement on Form S-1 (Registration No. 333-91706).

FORWARD-LOOKING STATEMENTS

This report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Statements
included in this quarterly report that are not historical facts (including any
statements concerning plans and objectives of management for future operations
or economic performance, or assumptions or forecasts related thereto),
including, without limitation, the information set forth in "Managements
Discussion and Analysis of Financial Condition and Results of Operation", are
forward-looking statements. These statements can be identified by the use of
forward-looking terminology including "forecast," "may," "believe," "will,"
"expect," "anticipate," "estimate," "continue" or other similar words. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other "forward-looking"
information. We and our representatives may from time to time make other oral or
written statements that are also forward-looking statements.

These forward-looking statements are made based upon management's
current plans, expectations, estimates, assumptions and beliefs concerning
future events impacting us and therefore involve a number of risks and
uncertainties. We caution that forward-looking statements are not guarantees and
that actual results could differ materially from those expressed or implied in
the forward-looking statements.

Because these forward-looking statements involve risks and
uncertainties, actual results could differ materially from those expressed or
implied by these forward-looking statements for a number of important reasons,
including those discussed under "Risks Related to our Business" and elsewhere in
this quarterly report.

OVERVIEW

We are a Delaware limited partnership formed by MRMC to receive the
transfer of substantially all of the assets, liabilities and operations of the
Martin Midstream Partners Predecessor. We provide marine transportation,
terminalling, distribution and midstream logistical services for producers and
suppliers of hydrocarbon products and by-products, specialty chemicals and other
liquids. We also manufacture and market sulfur-based fertilizers and related
products. Hydrocarbon products and by-products are produced primarily by major
and independent oil and gas companies who often turn to independent third
parties, such as us, for the transportation and disposition of these products.
In addition to these major and independent oil and gas companies, our primary
customers include independent refiners, large chemical companies, fertilizer
manufacturers and other wholesale purchasers of hydrocarbon products and
by-products. We operate primarily in the Gulf Coast region of the United States.

At September 30, 2002, the Partnership was an inactive indirect,
wholly-owned subsidiary of MRMC. In connection with the November 6, 2002 closing
of the initial public offering of common units representing limited partner
interests in us, MRMC, and certain of its subsidiaries conveyed to us certain of
their assets, liabilities and operations, in exchange for the following: (i) a
2% general partnership interest held by Martin Midstream GP LLC, an indirect
wholly-owned subsidiary of MRMC, (ii) incentive distribution rights granted by
us, and (iii) 4,253,362 subordinated units in us. The operations that were
contributed to us relate to four primary lines of business: (1) marine
transportation of hydrocarbon products and hydrocarbon by-products; (2)
terminalling of hydrocarbon products and hydrocarbon by-products; (3) LPG
distribution; and (4) fertilizer manufacturing.

10

We analyze and report our results of operations on a segment basis. Our
four operating segments are as follows:

o marine transportation services for hydrocarbon products and
by-products;

o terminalling of hydrocarbon products and by-products;

o distribution of LPGs; and

o manufacturing and marketing fertilizer products, which are primarily
sulfur-based, and other sulfur-related products.

In November 2000, MRMC and CF Industries, Inc. formed CF Martin
Sulphur, L.P., a Delaware limited partnership ("CF Martin Sulphur"). CF Martin
Sulphur collects and aggregates, transports, stores and markets molten sulfur.
Prior to November 2000, MRMC operated this molten sulfur business as part of its
LPG distribution business which was recently contributed to us in connection
with our formation. We have a non-controlling 49.5% limited partner interest in
CF Martin Sulphur. We account for this interest in CF Martin Sulphur using the
equity method since we do not control this entity. As a result, we have not
included any portion of the revenue, operating costs or operating income
attributable to CF Martin Sulphur in our results of operations or in the results
of operations of any of our operating segments. Rather, we have included only
our share of its net income in our statement of operations.

Under the equity method of accounting, we do not include any individual
assets or liabilities of CF Martin Sulphur on our balance sheet; instead, we
carry our book investment as a single amount within the "other assets" caption
on our balance sheet. We have not guaranteed the repayment of any debt of CF
Martin Sulphur and we should not otherwise be required to repay any obligations
of CF Martin Sulphur if it defaults on any such obligations.

Our operations were part of a taxable consolidated group prior to
November 6, 2002. Therefore, during the periods covered by the historical
combined financial statements, and up until November 6, 2002 our financial
statements include the effects of applicable income taxes in order to comply
with generally accepted accounting principles. Subsequent to November 6, 2002,
we do not expect to be subject to federal or state income taxes as a result of
our partnership structure. Therefore, our financial statements subsequent to our
initial public offering will not include the effects of any income taxes.

We do not have any off-balance sheet financing arrangements and we do
not engage in commodity contract trading or hedging activities.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of
operations are based on the historical combined condensed financial statements
included elsewhere herein. We prepared these financial statements in conformity
with generally accepted accounting principles. The preparation of these
financial statements required us to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. We based our estimates on historical experience and on
various other assumptions we believe to be reasonable under the circumstances.
Our results may differ from these estimates. Currently, we believe that our
accounting policies do not require us to make estimates using assumptions about
matters that are highly uncertain. However, we have described below the critical
accounting policies that we believe could impact our combined condensed
financial statements most significantly.

You should also read Note 2, "Summary of Significant Accounting
Policies" in Notes to Combined Condensed Financial Statements contained in this
quarterly report in conjunction with this Management's Discussion and Analysis
of Financial Condition and Results of Operations. Some of the more significant
estimates in these financial statements include the amount of the allowance for
doubtful accounts receivable and the benefit

11

period for the amortization of goodwill and other intangibles. One of our more
significant estimates is the determination of the fair value of our reporting
units under SFAS No. 142. Please read "Recent Accounting Pronouncements"
included elsewhere herein.

Product Exchanges. We enter into product exchange agreements with third
parties whereby we agree to exchange LPGs with third parties. We record the
balance of LPGs due to other companies under these agreements at quoted market
product prices and the balance of LPGs due from other companies at the lower of
cost or market. Cost is determined using the first-in, first-out ("FIFO")
method.

Revenue Recognition. For our marine transportation segment, we
recognize revenue for contracted trips upon completion of the trips. For time
charters, we recognize revenue based on the daily rate. For our terminalling
segment, we recognize revenue monthly for storage contracts based on the
contracted monthly tank fixed fee. For throughput contracts, we recognize
revenue based on the volume moved through our terminals at the contracted rate.
For our LPG distribution segment, we recognize revenue for product delivered by
truck upon the delivery of LPGs to our customers, which occurs when the customer
physically receives the product. When product is sold in storage, or by
pipeline, we recognize revenue when the customer receives the product from
either the storage facility or pipeline. For our fertilizer segment, we
recognize revenue when the customer takes title to the product, either at our
plant or the customer's facility.

Equity Method Investment. We use the equity method of accounting for
our interest in CF Martin Sulphur because we only own a non-controlling 49.5%
limited partner interest in this entity. In accordance with EITF Issue 89-7,
Exchange of Assets or Interest in a Subsidiary for a Non-Controlling Equity
Interest in a New Entity, we did not recognize a gain when we contributed our
molten sulfur business to CF Martin Sulphur because we concluded we had an
implied commitment to support the operations of this entity as a result of our
role as a supplier of product to CF Martin Sulphur and our relationship to MRMC,
which guarantees the debt of this entity.

As a result of the non-recognition of this gain, the amount we
initially recorded as an investment in CF Martin Sulphur on our balance sheet is
less than the amount of our underlying equity in this entity as recorded on the
books of CF Martin Sulphur. We are amortizing such excess amount over 20 years,
the expected life of the net assets contributed to this entity, as additional
equity in earnings of CF Martin Sulphur in our statements of operations.

Environmental Liabilities. We have historically not experienced
circumstances requiring us to account for environmental remediation obligations.
If such circumstances arise, we would estimate remediation obligations utilizing
a remediation feasibility study and any other related environmental studies that
we may elect to perform. We would record changes to our estimated environmental
liability as circumstances change or events occur, such as the issuance of
revised orders by governmental bodies or court or other judicial orders and our
evaluation of the likelihood and amount of the related eventual liability.

OUR RELATIONSHIP WITH MRMC

We are both an important supplier to and customer of MRMC. We provide
marine transportation and terminalling services to MRMC under the following
agreements. Each agreement has a three-year term, that began on November 1,
2002, and will automatically renew 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.

o We provide marine transportation services to MRMC under an
agreement on a spot-contract basis. We charge fees to MRMC
under this agreement based on applicable market rates.
Additionally, MRMC will, for a three year period under this
agreement, use four of our vessels in a manner such that we
receive at least $5.6 million annually for the use of these
vessels by MRMC and third parties.

o MRMC leases one of our tanks at our Tampa terminal under a
terminal services agreement. The tank lease fee is fixed for
the first year of the agreement and will be adjusted annually
thereafter based on a price index.

12

We purchase land transportation services, underground storage services,
sulfuric acid and marine fuel from MRMC. We also have exclusive access to and
use of a truck loading and unloading terminal and pipeline distribution system
owned by MRMC at Mont Belvieu, Texas. We purchase these products and services
under the following agreements. Each agreement has a three-year term and will
automatically renew 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.

o MRMC transports LPG shipments and other liquid products under
a motor carrier agreement. Our shipping rates are fixed for
the first year of the agreement, subject to certain cost
adjustments. After the first year, shipping rates may be
adjusted as we and MRMC mutually agree or in accordance with a
price index.

o We lease 120 million gallons of underground storage capacity
in Arcadia, Louisiana from MRMC under an underground storage
agreement. Our per-unit cost under this agreement is fixed for
the first year of the agreement and will be adjusted annually
thereafter based on a price index.

o We purchase sulfuric acid and marine fuel on a spot-contract
basis at a set margin over MRMC's cost under product supply
agreements.

o We use MRMC's Mont Belvieu truck loading and unloading
terminal and pipeline distribution system under a throughput
agreement. Our throughput fees are fixed for the first year of
the agreement and then will be adjusted on an annual basis
thereafter in accordance with a price index.

With the exception of marine transportation services, which we provide
to MRMC at applicable market rates, the pricing and rates of all of these
agreements were based the same prices and rates in place prior to our initial
public offering.

MRMC directs our business operations through its ownership and control
of our general partner and under an omnibus agreement, which was entered into on
November 1, 2002. We are required to reimburse MRMC for all direct and indirect
expenses it incurs or payments it makes on our behalf or in connection with the
operation of our business. Under the omnibus agreement, the amount we are
required to reimburse MRMC for indirect general and administrative expenses and
corporate overhead allocated to us is capped at $1.0 million during the first
year of the agreement. In each of the following four years, this amount may be
increased by no more than the percentage increase in the consumer price index
for the applicable year. In addition, our general partner has the right to agree
to further increases in connection with expansions of our operations through the
acquisition or construction of new assets or businesses.

OUR RELATIONSHIP WITH CF MARTIN SULPHUR, LP.

We are both an important supplier to and customer of CF Martin Sulphur.
We have chartered one of our offshore tug/barge tanker units to CF Martin
Sulphur for a guaranteed daily rate, subject to certain adjustments. This
charter has an unlimited term but may be cancelled by CF Martin Sulphur upon 90
days notice. CF Martin Sulphur paid to have this tug/barge tanker unit
reconfigured to carry molten sulfur. In the event CF Martin Sulphur terminates
this charter agreement, we are obligated to reimburse CF Martin Sulphur for a
portion of such reconfiguration costs. As of September 30, 2002, our aggregate
reimbursement liability would have been approximately $2.4 million. This amount
decreases by approximately $300,000 annually based on an amortization rate.

We did not have significant revenues from CF Martin Sulphur prior to
2002.

In addition, we purchase all our sulfur from CF Martin Sulphur at its
cost under a sulfur supply contract. This agreement has an annual term, which is
renewable for subsequent one-year periods.

13

We only own a non-controlling 49.5% limited partner interest in CF
Martin Sulphur. CF Martin Sulphur is managed by its general partner which is
jointly owned and controlled by CF Industries and MRMC. MRMC also conducts the
day-to-day operations of CF Martin Sulphur under a long-term services agreement.

RESULTS OF OPERATIONS

We evaluate segment performance on the basis of operating income, which
is derived by subtracting cost of products sold, operating expenses, selling,
general and administrative expenses, and depreciation and amortization expense
from revenues. The following table sets forth our operating income by segment,
and equity in earnings of unconsolidated entities, for the three months ended
September 30, 2002 and 2001 and the nine months ended September 30, 2002 and
2001. The results of operations for the first nine months of the year are not
necessarily indicative of the results of operations which might be expected for
the entire year.

Our results of operations are discussed on a comparative basis below.
We discuss items we do not allocate on a segment basis, such as equity in
earnings of unconsolidated entities, interest expense, income tax expense, and
indirect selling, general and administrative expenses, after the comparative
discussion of our results within each segment.

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2001

Our total revenues were $33.0 million for the three months ended
September 30, 2002 compared to $31.3 million for the three months ended
September 30, 2001, an increase of $1.7 million, or 5%. Our cost of products
sold was $24.2 million for the three months ended September 30, 2002 compared to
$22.1 million for the three months ended September 30, 2001, an increase of $2.1
million, or 9%. Our total operating expenses were $4.7 million for the three
months ended September 30, 2002 compared to $4.4 million for the three months
ended September 30, 2001, an increase of $0.3 million, or 6%.

Our total selling, general and administrative expenses were $1.6
million for the three months ended September 30, 2002 compared to $1.8 million
for the three months ended September 30, 2001, a decrease of $0.2 million, or
11%. Total depreciation and amortization was $1.1 million for both three month
periods. Our operating income was $1.4 million for the three months ended
September 30, 2002 compared to $1.9 million for the three months ended September
30, 2001, a decrease of $0.5 million, or 27%.

The results of operations are described in greater detail on a segment
basis below.

14

Marine Transportation Business

The following table summarizes our results of operations in our marine
transportation segment.

Revenues. Our marine transportation revenues increased $0.1 million, or
1%, for the three months ended September 30, 2002 compared to the three months
ended September 30, 2001. This slight increase was due to certain offsetting
factors. Revenues increased by approximately $0.9 million due to a certain
offshore barge unit that was in sulfur service in the third quarter of 2002, as
this unit was fully utilized under a term contract with CF Martin Sulphur. This
unit was in fuel oil service and was down for maintenance most of the third
quarter of 2001. Revenues increased by approximately $0.4 million due to an
inland asphalt barge and its associated tug that were in service in the third
quarter of 2002, but were out of service in the third quarter of 2001. The barge
was out of service in the third quarter of 2001 as it was in the shipyard being
upgraded to asphalt service from gasoline service. The tug was also in the
shipyard having its horsepower upgraded. This increase in revenues was offset by
a decrease of approximately $1.2 million as a result of a reduction of inland
asphalt and fuel oil barging demand.

Operating expenses. Operating expenses increased $0.3 million, or 7%,
for the three months ended September 30, 2002 compared to the three months ended
September 30, 2001. This increase was due primarily to having the additional tug
and asphalt barge in service in the third quarter of 2002 as compared to the
third quarter of 2001, when they were both out of service and in the shipyard.

Selling, general, and administrative expenses. Selling, general and
administrative expenses increased $0.1 million, or 64%, for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001.

Depreciation and Amortization. Depreciation and amortization increased
$0.1 million, or 9%, for the three months ended September 30, 2002 compared to
the three months ended September 30, 2001. This increase was due primarily to
depreciation of maintenance capital expenditures made during 2001.

In summary, our marine transportation operating income decreased $0.3
million, or 22%, for the three months ended September 30, 2002 compared to the
three months ended September 30, 2001.

Terminalling Business.

The following table summarizes our results of operations in our
terminalling segment.

15

Revenues. Our terminalling revenues increased $0.4 million, or 36%, for
the three months ended September 30, 2002 compared to the three months ended
September 30, 2001. This increase was the result of two factors. We generated
$0.3 million of additional revenue from our two newly constructed asphalt tanks,
which we put into service in May 2002. Additionally, our rail unloading facility
had an increase in revenue of $0.1 million. These increases were partially
offset by one of our tanks at our Tampa terminal being out of service for
repairs for 45 days during the third quarter of 2002 which resulted in a
decrease of $0.1 million in revenue.

Operating expenses. Our operating expenses were approximately the same
for both three month periods.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $0.3 million for both three month periods.

Depreciation and amortization. Depreciation and amortization was $0.1
million for both three month periods.

In summary, our terminalling operating income increased $0.3 million,
or 82%, for the three months ended September 30, 2002 compared to the three
months ended September 30, 2001.

LPG Distribution Business

The following table summarized our results of operations in our LPG
distribution segment.

Revenues. Our LPG distribution revenue increased $2.0 million, or 10%,
for the three months ended September 30, 2002 compared to the three months ended
September 30, 2001. This increase was primarily due to an increase in LPG sales
volume. Our volume for the quarter ended September 30, 2002 was 9% greater than
the quarter ended September 30, 2001. This increase was primarily due to a new
supply contract.

Cost of product sold. Our cost of products sold increased $2.2 million,
or 13%, for the three months ended September 30, 2002 compared to the three
months ended September 30, 2001, which approximated our increase in sales. As
previously mentioned, this increase was primarily due to a 9% increase in sales
volume for the quarter ended September 30, 2002 as compared to the quarter ended
September 30, 2001.

Operating expenses. Our operating expenses were $0.3 million for both
the three month periods.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 29%, for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001.

Depreciation and amortization. Depreciation and amortization was $0.1
million for both three month periods.

In summary, our LPG distribution operating income decreased $0.1
million, or 28%, for the three months ended September 30, 2002 compared to the
three months ended September 30, 2001.

16

Fertilizer Business

The following table summarizes our results of operations in our
fertilizer segment.

Revenues. Our fertilizer business revenues decreased $0.7 million, or
13%, for the three months ended September 30, 2002 compared to the three months
ended September 30, 2001. Our sales volume declined 12% for the quarter ended
September 30, 2002 as compared to the quarter ended September 30, 2001. This was
primarily due to a decline in agricultural fertilizer sales in the Texas
panhandle because of adverse weather conditions that impacted the pre-plant
fertilization of the winter wheat crop. Additionally, our average selling price
per ton fell 4% for the third quarter of 2002 as compared to the third quarter
of 2001. This was a primarily a result of a drop in sales of our premium, higher
priced products.

Cost of products sold and operating expenses. Our cost of products sold
and operating expenses decreased $0.2 million, or 4%, for the three months ended
September 30, 2002 compared to the three months ended September 30, 2001. As
mentioned earlier, this reduction was primarily due to a 12% volume decline for
the third quarter of 2002 as compared to the third quarter of 2001.
Additionally, plant operating expenses increased 25% for the third quarter of
2002 because we improved existing fertilizer production processes and incurred
start up costs for a new premium, higher-priced product line.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 16%, for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001.

Depreciation and amortization. Depreciation and amortization was $0.2
million for both three month periods.

In summary, our fertilizer operating loss increased $0.4 million, or
300%, for the three months ended September 30, 2002 compared to the three months
ended September 30, 2001.

Statement of Operations Items as a Percentage of Revenues

In the aggregate, our cost of products sold, operating expenses,
selling, general and administrative expenses, and depreciation and amortization
have remained relatively constant as a percentage of revenues for the three
months ended September 30, 2002 and September 30, 2001. The following table
summarizes, on a comparative basis, these items of our statement of operations
as a percentage of our revenues.

17

Equity in Earnings of Unconsolidated Entities

Prior to November 6, 2002, equity in earnings of unconsolidated
entities primarily relates to our 49.5% non-controlling limited partner interest
in CF Martin Sulphur but also included a 50% interest in a sulfur fungicide
joint venture. Subsequent to November 6, 2002, this line item will include the
CF Martin Sulphur investment only as the interest in the fungicide joint venture
was retained by MRMC.

Equity in earnings of unconsolidated entities for the three months
ended September 30, 2002 increased by $0.5 million, or 191%, over the same
period in 2001. CF Martin Sulphur's average margin of products sold for the
third quarter of 2002 increased approximately 80% when compared to its average
margin for the same period in 2001. Additionally, CF Martin Sulphur sold 10%
more tons of sulfur during the third quarter of 2002 as compared to the same
period in 2001. For both three month periods, we received no cash distributions
from CF Martin Sulphur.

Equity in earnings of CF Martin Sulphur includes amortization of the
difference between our book investment in the partnership and our related
underlying equity balance. Such amortization amounted to $0.1 million for both
three month periods.

Interest Expense

Our interest expense for all operations was $0.9 million for the three
months ended September 30, 2002 compared to $1.2 million for the three months
ended September 30, 2001, a decrease of $0.3 million, or 21%. This decrease was
primarily due to lower interest rates on our variable rate debt in the third
quarter of 2002 compared to the third quarter of 2001.

Income Tax Expense

Our effective income tax rates for the three months ended September 30,
2002 and September 30, 2001 were 39% and 37% respectively. Our effective income
tax rates differed from the federal tax rate of 34% primarily as a result of
state income taxes and the non-deductibility of certain goodwill amortization
for book purposes.

Prior to November 6, 2002, our financial statements reflected our
operations as being subject to income taxes. Subsequent to November 6, 2002, we
should not be subject to income taxes due to our partnership structure.

Indirect Selling, General, and Administrative Expenses

Indirect selling, general, and administrative expenses were $0.2
million for both three month periods.

MRMC allocates to us a portion of its indirect selling, general and
administrative expenses for services such as accounting, engineering,
information technology and risk management. This allocation is based on the
percentage of time spent by MRMC personnel that provide such centralized
services. Generally accepted accounting principles also permit other methods for
allocating these expenses, such as basing the allocation on the percentage of
revenues contributed by a segment. The allocation of these expenses between MRMC
and us is subject to a number of judgments and estimates, regardless of the
method used. We can provide no assurances that our method of allocation, in the
past or in the future, is or will be the most accurate or appropriate method of
allocating these expenses. Other methods could result in a higher allocation of
selling, general and administrative

18

expenses to us, which would reduce our net income. Subsequent to November 1,
2002, under an omnibus agreement between us and MRMC, the amount we are required
to reimburse MRMC for indirect general and administrative expenses and corporate
overhead allocated to us is capped at $1.0 million during the first year of the
agreement. In each of the following four years, this amount may be increased by
no more than the percentage increase in the consumer price index for the
applicable year. In addition, our general partner has the right to agree to
further increases in connection with expansions of our operations through the
acquisition or construction of new assets or businesses.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001

Our total revenues were $101.3 million for the nine months ended
September 30, 2002 compared to $129.9 million for the nine months ended
September 30, 2001, a decrease of $28.5 million, or 22%. Our cost of products
sold was $72.7 million for the nine months ended September 30, 2002 compared to
$95.7 million for the nine months ended September 30, 2001, a decrease of $23.0
million, or 24%. Our total operating expenses were $14.7 million for the nine
months ended September 30, 2002 compared to $15.9 million for the nine months
ended September 30, 2001, a decrease of $1.2 million, or 7%.

Our total selling, general and administrative expenses were $5.0
million for the nine months ended September 30, 2002 compared to $5.8 million
for the nine months ended September 30, 2001, a decrease of $0.8 million, or
14%. Total depreciation and amortization was $3.4 million for nine months ended
September 30, 2002 compared to $3.1 million for the nine months ended September
30, 2001, an increase of $0.3 million, or 10%. Our operating income was $5.6
million for the nine months ended September 30, 2002 compared to $9.5 million
for the nine months ended September 30, 2001, a decrease of $3.9 million, or
41%.

The results of operations are described in greater detail on a segment
basis below.

Marine Transportation Business

The following table summarizes our results of operations in our marine
transportation segment.

Revenues. Our marine transportation revenues decreased $4.6 million, or
21%, for the nine months ended September 30, 2002 compared to the nine months
ended September 30, 2001. This decrease was primarily due to lower rates we
charged for our services, lower demand for our services and the temporary
non-use of two of our offshore barge units. The decrease in demand for our
services, as well as the decrease in our rates, was due primarily to an
industry-wide decrease in the transportation of fuel oil. In the first nine
months of 2001, higher natural gas prices created additional demand for fuel oil
as a substitute for natural gas. When natural gas prices declined by the end of
the second quarter of 2001, the demand for and price of fuel oil returned to
normal levels. Additionally, we placed one of our offshore barge units in a
shipyard for 56 days during the first quarter of 2002. This unit historically
carried fuel oil and was placed in the shipyard in order to modify it to carry
molten sulfur. We placed another of our offshore barge units in a shipyard for
30 days for repairs and maintenance. The unavailability of these two barge units
resulted in a decrease in revenues during the first nine months of 2002. These
vessels are both currently in operation and under term contracts.

19

Operating expenses. Operating expenses decreased $1.1 million, or 8%,
for the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001. This decrease was due primarily to lower expenses incurred
while two of our barge units were in a shipyard for the conversion and
maintenance discussed above.

Selling, general, and administrative expenses. Selling, general and
administrative expenses was $0.4 million for both nine month periods.

Depreciation and Amortization. Depreciation and amortization increased
$0.2 million, or 13%, for the nine months ended September 30, 2002 compared to
the nine months ended September 30, 2001. This increase was due primarily to
depreciation of maintenance capital expenditures made during 2001.

In summary, our marine transportation operating income decreased $3.8
million, or 60%, for the nine months ended September 30, 2002 compared to the
nine months ended September 30, 2001.

Terminalling Business.

The following table summarizes our results of operations in our
terminalling segment.

Revenues. Our terminalling revenues increased $0.4 million, or 13%, for
the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001. We received approximately $0.5 million of increased revenue
from two newly constructed asphalt tanks we put into service in May 2002. This
increase in revenue was partially offset by one of our tanks at our Tampa
terminal being out of service for repairs for 207 days during the first nine
months of 2002 which resulted in a decrease of $0.2 million. This tank was
placed back in service in the third quarter of 2002.

Operating expenses. Our operating expenses were $0.9 million for both
nine month periods.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 11%, for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001.

Depreciation and amortization. Depreciation and amortization was
approximately the same for both nine month periods.

In summary, our terminalling operating income increased $0.5 million,
or 45%, for the nine months ended September 30, 2002 compared to the nine months
ended September 30, 2001.

20

LPG Distribution Business

The following table summarized our results of operations in our LPG
distribution segment.

Revenues. Our LPG distribution revenues decreased $20.7 million, or
26%, for the nine months ended September 30, 2002 compared to the nine months
ended September 30, 2001. This decrease was primarily due to decreases in LPG
sales prices. Our average LPG sales price, on a per gallon basis, during the
first nine months of 2002 was 27% lower than our average price during the first
nine months of 2001. This decrease in price primarily resulted from an
industry-wide decrease in the demand for LPGs during the winter of 2001/2002
compared to the winter of 2000/2001 because of colder than normal temperatures
during the first quarter of 2001. Our LPG sales volume increased 2% during the
first nine months of 2002 when compared to the same nine month period in 2001.

Cost of product sold. Our cost of products sold decreased $19.7
million, or 26%, for the nine months ended September 30, 2002 compared to the
nine months ended September 30, 2001. This decrease approximated our decrease in
sales and was a result of a 27% decrease in the average price per gallon for
product for the first nine months of 2002 as compared to the first nine months
of 2001.

Operating expenses. Operating expenses decreased $0.1 million, or 11%,
for the nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.3 million, or 24%, for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001.
This decrease was primarily due to a lower amount of incentive compensation in
the first quarter of 2002 as compared to the first quarter of 2001. We paid a
bonus in the first quarter of 2001 because of extraordinary operating results
occurring in such quarter. This was a one-time bonus payment and was not part of
an annual or other incentive compensation program.

Depreciation and amortization. Depreciation and amortization was
approximately the same for both nine month periods.

In summary, our LPG distribution operating income decreased $0.6
million, or 32%, for the nine months ended September 30, 2002 compared to the
nine months ended September 30, 2001.

21

Fertilizer Business

The following table summarizes our results of operations in our
fertilizer segment.

Revenues. Our fertilizer business revenues decreased $3.6 million, or
15%, for the first nine months ended September 30, 2002 compared to the nine
months ended September 30, 2001. Our sales volume declined 17% for the nine
months ended September 30, 2002 compared to nine months ended September 30,
2001. This volume reduction was primarily the result of our elimination of
certain low margin customers in our wholesale lawn and garden division.
Additionally, we had a decrease in sales of our premium, higher priced products
as our average selling price per ton fell 13% for the nine months ended
September 30, 2002 compared to the same nine month periods in 2001.

Cost of products sold and operating expenses. Our cost of products sold
and operating expenses decreased $3.3 million, or 16%, for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001. As
mentioned, our sales volume decreased 17% and we also sold a higher proportion
of lower-priced products in the first nine months of 2002 as compared to the
first nine months of 2001. Consequently, we purchased less higher-priced raw
materials for our premium products in 2002. Therefore, our average raw material
cost, on a per ton basis, was lower during the first nine months of 2002 when
compared to the first nine months of 2001.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.4 million, or 15%, for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001.

Depreciation and amortization. Depreciation and amortization was $0.7
million for both nine month periods.

In summary, our fertilizer operating income was approximately $0.8
million for both nine month periods.

Statement of Operations Items as a Percentage of Revenues

In the aggregate, our cost of products sold, operating expenses,
selling, general and administrative expenses, and depreciation and amortization
have remained relatively constant as a percentage of revenues for the nine
months ended September 30, 2002 and September 30, 2001. The following table
summarizes, on a comparative basis, these items of our statement of operations
as a percentage of our revenues.

22

Equity in Earnings of Unconsolidated Entities

Prior to November 6, 2002, equity in earnings of unconsolidated
entities primarily relates to our 49.5% non-controlling limited partner interest
in CF Martin Sulphur but also included a 50% interest in a sulfur fungicide
joint venture. Subsequent to November 6, 2002, this line item will include the
CF Martin Sulphur investment only as the interest in the fungicide joint venture
was retained by MRMC.

Equity in earnings of unconsolidated entities for the nine months ended
September 30, 2002 increased $1.3 million, or 137%, compared to the nine months
ended September 30, 2001, due to the improved operating results of CF Martin
Sulphur. CF Martin Sulphur's average margin of products sold during the first
nine months of 2002 increased approximately 48% when compared to its average
margin during the first nine months of 2001. Additionally, CF Martin Sulphur
sold 17% more tons of sulfur during the first nine months of 2002 when compared
to the first nine months 2001. This increase was primarily due to the new
tug/barge tanker unit we chartered to CF Martin Sulphur which was put into
service in February 2002. However, for the nine months ended September 30, 2002,
we received no cash distribution from CF Martin Sulphur. For the same period in
2001, we received a cash distributions of $0.4 million from CF Martin Sulphur.

Equity in earnings of CF Martin Sulphur includes amortization of the
difference between our book investment in the partnership and our related
underlying equity balance. Such amortization amounted to $0.4 million for both
nine month periods.

Interest Expense

Our interest expense for all operations was $3.0 million for the nine
months ended September 30, 2002 compared to $4.1 million for the nine months
ended September 30, 2001, a decrease of $1.1 million, or 27%. This decrease was
primarily due to lower interest rates on our variable rate debt in 2002 compared
to 2001.

Income Tax Expense

Our effective income tax rates for the nine months ended September 30,
2002 and September 30, 2001 were 37% and 35%, respectively. Our effective income
tax rates differed from the federal tax rate of 34% primarily as a result of
state income taxes and the non-deductibility of certain goodwill amortization
for book purposes.

Prior to November 6, 2002, our financial statements reflected our
operations as being subject to income taxes. Subsequent to November 6, 2002, we
should not be subject to income taxes due to our partnership structure.

Indirect Selling, General, and Administrative Expenses

Indirect selling, general, and administrative expense was $0.5 million
for both nine month periods.

MRMC allocates to us a portion of its indirect selling, general and
administrative expenses for services such as accounting, engineering,
information technology and risk management. This allocation is based on the
percentage of time spent by MRMC personnel that provide such centralized
services. Generally accepted accounting principles also permit other methods for
allocating these expenses, such as basing the allocation on the percentage of
revenues contributed by a segment. The allocation of these expenses between MRMC
and us is subject to a number of judgments and estimates, regardless of the
method used. We can provide no assurances that our method of allocation, in the
past or in the future, is or will be the most accurate or appropriate method of
allocating these expenses. Other methods could result in a higher allocation of
selling, general and administrative expenses to us, which would reduce our net
income. Subsequent to November 1, 2002, under an omnibus agreement between us
and MRMC, the amount we are required to reimburse MRMC for indirect general and
administrative expenses and corporate overhead allocated to us is capped at $1.0
million during the first year of the agreement. In each of the following four
years, this amount may be increased by no more than the percentage increase in
the consumer price index for the applicable year. In addition, our general
partner has the right to agree to further increases in connection with
expansions of our operations through the acquisition or construction of new
assets or businesses.

23

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS AND CAPITAL EXPENDITURES

For the nine months ended September 30, 2002, cash increased $0.1
million as a result of $4.6 million provided by operating activities, $1.9
million used in investing activities and $2.6 million used in financing
activities. For the nine months ended September 30, 2001, cash decreased $0.1
million as a result of $7.2 million provided by operating activities, $2.5
million used in investing activities and $4.8 million used in financing
activities.

For the periods presented, our investing activities consisted primarily
of capital expenditures. Generally, our capital expenditure requirements have
consisted, and we expect that our capital requirements will continue to consist,
of:

o maintenance capital expenditures, which are capital
expenditures made to replace assets to maintain our existing
operations and to extend the useful lives of our assets; and

o expansion capital expenditures, which are capital expenditures
made to grow our business, to expand and upgrade our existing
marine transportation, terminalling, storage and manufacturing
facilities, and to construct new plants, storage facilities,
terminalling facilities and new marine transportation assets.

For the nine months ended September 30, 2002 and 2001, our capital
expenditures for property and equipment were $2.2 million and $2.0 million,
respectively.

As to each period:

o For the nine months ended September 30, 2002, we spent $1.9
million for expansion and $0.3 million for maintenance.

o For the nine months ended September 30, 2001, we spent $0.9
million for expansion and $1.1 million for maintenance.

For all periods presented, financing activities consisted of payments
of long term debt to financial lenders and payments to affiliates pursuant to
intercompany loans. For the nine months ended September 30, 2002, our net
payments were $2.6 million and for the nine months ended September 30, 2001, our
net payments were $4.8 million.

CAPITAL RESOURCES

Historically, we have generally satisfied our working capital
requirements and funded our capital expenditures with cash generated from
operations and borrowings. We expect our primary sources of funds for short-term
liquidity needs will be cash flows from operations, borrowings under our
revolving line of credit and cash distributions received from CF Martin Sulphur.

In connection with our initial public offering, on November 6, 2002 we
assumed certain debt of MRMC with an aggregate outstanding balance of
approximately $67.2 million. We used the proceeds of the offering and borrowings
under our $60.0 million combined term and revolving credit facility to repay all
of this assumed debt. We also used a portion of these proceeds to complete the
purchase of two asphalt barges under an assumed lease-buy back arrangement with
a third party for $2.9 million, which we accounted for as a growth capital
expenditure. After the closing of the offering, we had approximately $37.2
million of outstanding indebtedness, consisting of outstanding borrowings of
$25.0 million under our new term loan and approximately $12.2 million under our
$35.0 million revolving line of credit.

We believe that cash generated from operations and our borrowing
capacity under our revolving line of credit, as well as cash distributed to us
from CF Martin Sulphur, will be sufficient to meet our working capital
requirements, anticipated capital expenditures and scheduled debt payments for
the 12-month period following this

24

quarterly report. However, our ability to satisfy our working capital
requirements, fund planned capital expenditures and satisfy our debt service
obligations will depend upon our future operating performance, which is subject
to certain risks. Please read "Risks Relating to Our Business" for a discussion
of such risks.

Total Contractual Cash Obligations. A summary of our total contractual
cash obligations, as of November 6, 2002, is as follows (amounts in thousands):

We have no commercial commitments such as lines of credit or guarantees
that might result from a contingent event that would require our performance
pursuant to a funding commitment.

DESCRIPTION OF OUR CREDIT FACILITY

In connection with the closing of our initial public offering on
November 6, 2002, we entered into a new syndicated $35.0 million revolving line
of credit and $25.0 million term loan led by Royal Bank of Canada, as
administrative agent, lead arranger and book runner. The $35.0 million revolving
credit facility comprised of (i) a $25.0 million working capital subfacility
that will be used for ongoing working capital needs and general partnership
purposes and (ii) a $10.0 million subfacility that may be used to finance
permitted acquisitions and capital expenditures. In addition to the $25.0
million term loan, we also borrowed $12.2 million under our revolving line of
credit at the closing of our initial public offering.

Our obligations under the credit facility are secured by substantially
all of its assets, including, without limitation, inventory, accounts
receivable, vessels, equipment and fixed assets. We may prepay all amounts
outstanding under this facility at any time without penalty.

Indebtedness under the credit facility will bear interest at either
LIBOR plus an applicable margin or the base prime rate plus an applicable
margin. We expect that the applicable margin for LIBOR loans will range from
1.75% to 2.75% and the applicable margin for base prime rate loans will range
from 0.75% to 1.75%. We will incur a commitment fee on the unused portions of
the revolving line of credit facility.

In addition, the credit facility contains various covenants, which,
among other things, will limit our ability to: (i) incur indebtedness; (ii)
grant certain liens; (iii) merge or consolidate unless we are the survivor; (iv)
sell all or substantially all of our assets; (v) make acquisitions; (vi) make
certain investments; (vii) make capital expenditures; (viii) make distributions
other than from available cash; (ix) create obligations for some lease payments;
(x) engage in transactions with affiliates; or (xi) engage in other types of
business.

The credit facility also contains covenants, which, among other things,
requires us to maintain specified ratios of: (i) minimum net worth (as defined
in the credit facility) of $35.0 million; (ii) EBITDA (as defined in the credit
facility) to interest expense of not less than 3.0 to 1.0; (iii) total debt to
EBITDA, pro forma for any asset acquisition, of not more than 3.5 to 1.0; (iv)
current assets to current liabilities of not less than 1.1 to 1.0; and (v) an
orderly liquidation value of pledged fixed assets to the aggregate outstanding
principal amount of our term indebtedness and our revolving acquisition
subfacility of not less than 2.0 to 1.0.

The amount we are able to borrow under the working capital borrowing
base is based on a formula. Under this formula, the Partnership's borrowing base
is calculated based on 75% of eligible accounts receivable plus 60% of eligible
inventory. Such borrowing base will be reduced by $375,000 per quarter during
the entire three year term of our revolving credit facility. This quarterly
reduction may decrease the amount we may borrow under the

25

working capital subfacility and could result in quarterly mandatory prepayments
to the extent that borrowings under this subfacility exceed the revised
borrowing base.

Other than mandatory prepayments that would be triggered by certain
asset dispositions, the issuance of subordinated indebtedness or as required
under the above noted borrowing base reductions, the credit facility will
require interest only payments on a quarterly basis until maturity. All
outstanding principal and unpaid interest must be paid by November 6, 2005. The
credit facility contains customary events of default, including, without
limitation, payment defaults, cross-defaults to other material indebtedness,
bankruptcy-related defaults, change of control defaults and litigation-related
defaults.

SEASONALITY

A substantial portion of our revenues are dependent on sales prices of
products, particularly LPGs and fertilizers, which fluctuate in part based on
winter and spring weather conditions. The demand for LPGs is strongest during
the winter heating season. The demand for fertilizers is strongest during the
early spring planting season. However, our marine transportation and
terminalling businesses, and the molten sulfur business of CF Martin Sulphur,
are typically not impacted by seasonal fluctuations. We expect to derive a
majority of our net income from these lines of business and our non-controlling
interest in CF Martin Sulphur. Therefore, we do not expect that our overall net
income will be impacted by seasonality factors.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 discontinues goodwill amortization over its
estimated useful life; rather, goodwill will be subject to a fair-value based
impairment test in the year of adoption and on an annual basis. Similarly,
goodwill associated with equity-method investments will no longer be amortized.
With regard to intangible assets, SFAS No. 142 states that an acquired
intangible asset should be recognized separately if the benefit of the
intangible asset is obtained through contractual rights or if the intangible
asset can be sold, transferred, licensed, rented or exchanged, without regard to
the acquirer's intent. Net goodwill of $2.9 million as of December 31, 2001 will
no longer be amortized subsequent to the adoption of SFAS No. 142, effective
January 1, 2002, but will be subject to fair-value based impairment test
initially and one on an annual basis. We completed the initial test in the
second quarter of 2002 and the annual test in the third quarter of 2002 with no
indication of impairment.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligation." SFAS No. 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred, with the associated asset retirement costs being capitalized as a part
of the carrying amount of the long-lived asset. SFAS No. 143 also includes
disclosure requirements that provide a description of asset retirement
obligations and reconciliation of changes in the components of those
obligations. We are evaluating the future financial effects of adopting SFAS No.
143 and expect to adopt the standard effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," and APB Opinion No. 30, "Reporting the Results of
Operation-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The
objective of SFAS No. 144 is to establish one accounting model for long-lived
assets to be disposed of by sale as well as resolve implementation issues
related to SFAS No. 121. The adoption of SFAS No. 144, effective January 1,
2002, did not have a material impact on our financial condition or results of
operations.

RISKS RELATED TO OUR BUSINESS

Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to, the risks set forth
below. The risks described below should not be considered to be comprehensive
and all-inclusive. Additional risks that we do not yet know of or that we
currently think are immaterial may also impair our business operations,
financial condition and results of operations. If any events occur that give
rise to the following risks, our business, financial condition, or results of
operations could be materially and adversely affected,

26

and as a result, the trading price of our common units could be materially and
adversely impacted. These risk factors should be read in conjunction with other
information set forth in this quarterly report, including our combined condensed
financial statements and the related notes. Many of such factors are beyond our
ability to control or predict. Investors are cautioned not to put undue reliance
on forward-looking statements.

WE MAY NOT HAVE SUFFICIENT CASH AFTER THE ESTABLISHMENT OF CASH
RESERVES AND PAYMENT OF OUR GENERAL PARTNER'S EXPENSES TO ENABLE US TO PAY THE
MINIMUM QUARTERLY DISTRIBUTION EACH QUARTER. Our available cash from operating
surplus would have been insufficient in 2001 to pay the minimum quarterly
distribution on all our units. We may not have sufficient available cash each
quarter in the future to pay the minimum quarterly distribution on all our
units. Under the terms of our partnership agreement, we must pay our general
partner's expenses and set aside any cash reserve amounts before making a
distribution to our unitholders. The amount of cash we can distribute on our
common units principally depends upon the amount of net cash generated from our
operations, which will fluctuate from quarter to quarter based on, among other
things:

o the costs of acquisitions, if any;

o the prices of hydrocarbon products and by-products;

o fluctuations in our working capital;

o the level of capital expenditures we make;

o restrictions contained in our debt instruments and our debt
service requirements;

o our ability to make working capital borrowings under our
revolving credit facility; and

o the amount, if any, of cash reserves established by our
general partner in its discretion.

You should also be aware that the amount of cash we have available for
distribution depends primarily on our cash flow, including cash flow from
working capital borrowings, and not solely on profitability, which will be
affected by non-cash items. In addition, our general partner determines the
amount and timing of asset purchases and sales, capital expenditures,
borrowings, issuances of additional partnership securities and the establishment
of reserves, each of which can affect the amount of cash that is distributed to
our unitholders. As a result, we may make cash distributions during periods when
we record losses and may not make cash distributions during periods when we
record net income.

ADVERSE WEATHER CONDITIONS COULD REDUCE OUR RESULTS OF OPERATIONS AND
ABILITY TO MAKE DISTRIBUTIONS TO OUR UNITHOLDERS. Our distribution network and
operations are primarily concentrated in the Gulf Coast region and along the
Mississippi River inland waterway. Weather in these regions is often severe and
can be a major factor in our day-to-day operations. Our marine transportation
operations can be significantly delayed, impaired or postponed by adverse
weather conditions, such as fog in the winter and spring months, and certain
river conditions. Additionally, our marine transportation operations and our
assets in the Gulf of Mexico, including our barges, pushboats, tugboats and
terminals, can be adversely impacted or damaged by hurricanes, tropical storms,
tidal waves or other related events.

National weather conditions have a substantial impact on the demand for
our products. Unusually warm weather during the winter months can cause a
significant decrease in the demand for LPG products, fuel oil and gasoline.
Likewise, extreme weather conditions (either wet or dry) can decrease the demand
for fertilizer. For example, an unusually wet spring can delay planting of
seeds, which can leave insufficient time to apply fertilizer at the planting
stage. Conversely, drought conditions can kill or severely stunt the growth of
crops, thus eliminating the need to nurture plants with fertilizer. Any of these
or similar conditions could result in a decline in our net income and cash flow,
which would reduce our ability to make distributions to our unitholders.

27

WE EXPECT TO RECEIVE A MATERIAL PORTION OF OUR NET INCOME AND CASH
AVAILABLE FOR DISTRIBUTION FROM OUR NON-CONTROLLING 49.5% LIMITED PARTNER
INTEREST IN CF MARTIN SULPHUR. We expect to receive a material portion of our
net income and cash available for distribution from our non-controlling 49.5%
limited partner interest in CF Martin Sulphur. CF Industries owns the remaining
49.5% limited partner interest. We have virtually no rights or control over the
operations or management of cash generated by this entity. CF Martin Sulphur is
managed by its general partner, which is owned equally by CF Industries and
MRMC. Deadlocks between CF Industries and MRMC over issues relating to the
operation of CF Martin Sulphur could have an adverse impact on its results of
operations and, consequently, the amount and timing of cash generated by its
operations that is available for distribution to its partners, including us as a
limited partner.

Additionally, the partnership agreement for CF Martin Sulphur requires
this entity to make cash distributions to its limited partners subject to the
discretion of its general partner, other than in limited circumstances. As a
result, we will be substantially dependent upon the discretion of the general
partner with respect to the amount and timing of cash distributions from this
entity. If the general partner of this entity does not distribute the cash
generated by its operations to its limited partners, as a result of a deadlock
between CF Industries and MRMC or for any other reason, our cash flow and
quarterly distributions would be reduced significantly.

WE MAY HAVE TO SELL OUR INTEREST OR BUY THE OTHER PARTNERSHIP INTERESTS
IN CF MARTIN SULPHUR AT A TIME WHEN IT MAY NOT BE IN OUR BEST INTEREST TO DO SO.
The CF Martin Sulphur partnership agreement contains a buy-sell mechanism that
could be implemented by a partner under certain circumstances. As a result of
this buy-sell mechanism, we could be forced to either sell our limited partner
interest or buy the limited and general partner interests of CF Industries in CF
Martin Sulphur at a time when it would not be in our best interest. In addition,
we may not have sufficient cash or available borrowing capacity under our
revolving credit facility to allow us to elect to purchase the limited and
general partner interest of CF Industries, in which case we may be forced to
sell our limited partner interest as a result of this buy-sell mechanism when we
would otherwise prefer to keep this interest. Further, if CF Industries
implements this buy-sell mechanism and we decide to use cash from operations or
obtain financing to purchase CF Industries' interest in this partnership, this
transaction could adversely impact our ability to make distributions to our
unitholders. Conversely, if we are required to sell our interest in this
partnership and thereby lose our share of distributable income from its
operations, our ability to make subsequent distributions to our unitholders
could be adversely affected.

IF CF MARTIN SULPHUR ISSUES ADDITIONAL INTERESTS, OUR OWNERSHIP
INTEREST IN THIS PARTNERSHIP WOULD BE DILUTED. CONSEQUENTLY, OUR SHARE OF CF
MARTIN SULPHUR'S DISTRIBUTABLE CASH WOULD BE REDUCED, WHICH COULD ADVERSELY
AFFECT OUR ABILITY TO MAKE DISTRIBUTIONS TO OUR UNITHOLDERS. CF Martin Sulphur
has the ability under its partnership agreement to issue additional general and
limited partner interests. If CF Martin Sulphur issues additional interests, our
ownership percentage in CF Martin Sulphur, and our share of CF Martin Sulphur's
distributable cash, will decrease. This decrease in our ownership interest could
reduce the amount of cash distributions we receive from CF Martin Sulphur and
could adversely affect our ability to make distributions to our unitholders.

IF WE INCUR MATERIAL LIABILITIES THAT ARE NOT FULLY COVERED BY
INSURANCE, SUCH AS LIABILITIES RESULTING FROM ACCIDENTS ON RIVERS OR AT SEA,
SPILLS, FIRES OR EXPLOSIONS, OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE
DISTRIBUTIONS TO OUR UNITHOLDERS COULD BE ADVERSELY AFFECTED. Our operations are
subject to the operating hazards and risks incidental to marine transportation,
terminalling and the distribution of hydrocarbon products and by-products and
other industrial products. These hazards and risks include:

o accidents on rivers or at sea and other hazards that could
result in releases, spills and other environmental damages,
personal injuries, loss of life and suspension of operations;

o leakage of LPGs and other hydrocarbon by-products;

o fires and explosions;

o damage to transportation, terminalling and storage facilities,
and surrounding properties caused by natural disasters; and

o terrorist attacks or sabotage.

28

As a result, we may be a defendant in various legal proceedings and litigation.
Although we maintain insurance, such insurance may not be adequate to protect us
from all material expenses related to potential future claims for personal and
property damage. If we incur material liabilities that are not covered by
insurance, our operating results, cash flow and ability to make distributions to
our unitholders could be adversely affected.

Changes in the insurance markets attributable to the September 11, 2001
terrorist attacks may make some types of insurance more difficult or expensive
for us to obtain. As a result of the September 11 attacks and the risk of future
terrorist attacks, we may be unable to secure the levels and types of insurance
we would otherwise have secured prior to September 11. Moreover, the insurance
that may be available to us may be significantly more expensive than our
existing insurance coverage.

THE PRICE VOLATILITY OF HYDROCARBON PRODUCTS AND BY-PRODUCTS CAN REDUCE
OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO OUR UNITHOLDERS.
We and our affiliates purchase hydrocarbon products and by-products such as
molten sulfur, sulfur derivatives, fuel oil, LPGs, asphalt and other bulk
liquids and sell these products to wholesale and bulk customers and to other end
users. We also generate revenues through the terminalling of certain products
for third parties. The price and market value of hydrocarbon products and
by-products can be volatile. On occasion, our revenues have been adversely
affected by this volatility during periods of decreasing prices that resulted in
a reduction in the value and resale price of our inventory. Future price
volatility could have an adverse impact on our results of operations, cash flow
and ability to make distributions to our unitholders.

RESTRICTIONS IN OUR DEBT AGREEMENTS MAY PREVENT US FROM MAKING
DISTRIBUTIONS TO OUR UNITHOLDERS. We have approximately $37.2 million of
indebtedness, composed of approximately $12.2 million of debt under our
revolving line of credit and $25 million of term debt. Our payment of principal
and interest on our debt will reduce the cash available for distribution to our
unitholders. In addition, we are prohibited by our revolving credit facility
from making cash distributions during an event of default or if the payment of a
distribution would cause an event of default under any of our debt agreements.
Our leverage and various limitations in our revolving credit facility may reduce
our ability to incur additional debt, engage in some transactions and capitalize
on acquisition or other business opportunities that could increase cash flows
and distributions to our unitholders.

IF WE DO NOT HAVE SUFFICIENT CAPITAL RESOURCES FOR ACQUISITIONS OR
OPPORTUNITIES FOR EXPANSION, OUR GROWTH WILL BE LIMITED. We intend to explore
acquisition opportunities in order to expand our operations and increase our
profitability. We may finance acquisitions through public and private equity
financing, or we may use our limited partnership interests for all or a portion
of the consideration to be paid in acquisitions. Distributions of cash with
respect to these equity securities or limited partner interests may reduce the
amount of cash distributions that would otherwise be made on the common units.
In addition, in the event our limited partnership interests do not maintain a
sufficient valuation, or potential acquisition candidates are unwilling to
accept our limited partnership interests as all or part of the consideration, we
may be required to use our cash resources, if available, or rely on other
financing arrangements to pursue acquisitions. If we use funds from operations,
other cash resources or increased borrowings for an acquisition, the acquisition
could adversely impact our ability to make our minimum quarterly distributions
to our unitholders. Additionally, if we do not have sufficient capital
resources, or are not able to obtain financing on terms acceptable to us, for
acquisitions, our ability to implement our growth strategies may be adversely
impacted.

FUTURE ACQUISITIONS AND EXPANSIONS MAY NOT BE SUCCESSFUL, MAY
SUBSTANTIALLY INCREASE OUR INDEBTEDNESS AND CONTINGENT LIABILITIES, AND MAY
CREATE INTEGRATION DIFFICULTIES. As part of our business strategy, we intend to
acquire businesses or assets we believe complement our operations. These
acquisitions may require substantial capital and the incurrence of additional
indebtedness. If we make acquisitions, our capitalization and results of
operations may change significantly. You will not have the opportunity to
evaluate the economic, financial and other relevant information that we will
consider in determining the application of these funds and other resources.
Further, any acquisition could result in:

o the discovery of material undisclosed liabilities of the
acquired business or assets;

o the unexpected loss of key employees or customers from the
acquired businesses;

29

o difficulties resulting from our integration of the operations,
systems and management of the acquired business; and

o an unexpected diversion of our management's attention from
other operations.

If any of our future acquisitions are unsuccessful or result in unanticipated
events, such acquisitions could adversely affect our results of operations, cash
flow and ability to make distributions to our unitholders.

SEGMENTS OF OUR BUSINESS ARE SEASONAL AND COULD CAUSE OUR REVENUES TO
VARY. The demand for LPGs is highest in the winter. Therefore, revenues from our
LPG distribution business is higher in the winter than in other seasons. Our
fertilizer business experiences an increase in demand during the spring, which
increases the revenue generated by this business line in this period compared to
other periods. The seasonality of the revenue from these business lines may
cause our results of operations to vary on a quarter to quarter basis and thus
could cause our cash available for quarterly distributions to fluctuate from
period to period.

THE HIGHLY COMPETITIVE NATURE OF OUR INDUSTRY COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO OUR UNITHOLDERS.
We operate in a highly competitive marketplace in each of our primary business
segments. Most of our competitors in each segment are larger companies with
greater financial and other resources than we possess. We may lose customers and
future business opportunities to our competitors and any such losses could
adversely affect our results of operations and ability to make distributions to
our unitholders.

OUR BUSINESS IS SUBJECT TO FEDERAL, STATE AND LOCAL LAWS AND
REGULATIONS RELATING TO ENVIRONMENTAL, SAFETY AND OTHER REGULATORY MATTERS. THE
VIOLATION OF, OR THE COST OF COMPLIANCE WITH, THESE LAWS AND REGULATIONS COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO
OUR UNITHOLDERS. Our business is subject to a wide range of environmental,
safety and other regulatory laws and regulations. For example, our operations
are subject to permit requirements and increasingly stringent regulations under
numerous environmental laws, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, and similar state and local laws. Our
costs could increase due to more strict pollution control requirements or
liabilities resulting from compliance with future required operating or other
regulatory permits. New environmental regulations might adversely impact our
results of operations and ability to pay distributions to our unitholders.
Federal and state agencies also could impose additional safety requirements, any
of which could adversely affect our results of operations and ability to make
distributions to our unitholders.

THE LOSS OR INSUFFICIENT ATTENTION OF KEY PERSONNEL COULD NEGATIVELY
IMPACT OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO OUR
UNITHOLDERS. ADDITIONALLY, IF NEITHER RUBEN MARTIN NOR SCOTT MARTIN IS THE CHIEF
EXECUTIVE OFFICER OF OUR GENERAL PARTNER, AMOUNTS WE OWE UNDER OUR CREDIT
FACILITY MAY BECOME IMMEDIATELY DUE AND PAYABLE. Our success is largely
dependent upon the continued services of members of the senior management team
of MRMC. Those senior executive officers have significant experience in our
businesses and have developed strong relationships with a broad range of
industry participants. The loss of any of these executives could have a material
adverse effect on our relationships with these industry participants, our
results of operations and our ability to make distributions to our unitholders.
Additionally, if neither Ruben Martin nor Scott Martin is the chief executive
officer of our general partner, the lender under our credit facility could
declare amounts outstanding thereunder immediately due and payable. If such
event occurs, we may be required to refinance our debt on unfavorable terms,
which could negatively impact our results of operations and our ability to make
distribution to our unitholders.

We do not have employees. We rely solely on officers and employees of
MRMC to operate and manage our business. MRMC conducts businesses and activities
of its own in which we have no economic interest. There could be competition for
the time and effort of the officers and employees who provide services to our
general partner. If these officers and employees do not or cannot devote
sufficient attention to the management and operation of our business, our
results of operation and ability to make distributions to our unitholders may be
reduced.

OUR LOSS OF SIGNIFICANT COMMERCIAL RELATIONSHIPS WITH MRMC COULD
ADVERSELY IMPACT OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO
OUR UNITHOLDERS. MRMC provides us with various services and products pursuant to
various commercial contracts. The loss of any of these services provided by MRMC
could

30

have a material adverse impact on our results of operations, cash flow and
ability to make distributions to our unitholders. Additionally, we provide
marine transportation and terminalling services to MRMC to support its retained
businesses under various commercial contracts. The loss of MRMC as a customer
could have material adverse impact on our results of operations, cash flow and
ability to make distributions to our unitholders.

OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF OPERATIONS AT OUR
TRANSPORTATION, TERMINALLING AND DISTRIBUTION FACILITIES WERE INTERRUPTED. OUR
BUSINESS WOULD ALSO BE ADVERSELY AFFECTED IF THE OPERATIONS OF OUR CUSTOMERS AND
SUPPLIERS WERE INTERRUPTED. Our operations are dependent upon our terminalling
and storage facilities and various means of transportation. We are also
dependent upon the uninterrupted operations of certain facilities owned or
operated by our suppliers and customers. Any significant interruption at these
facilities or inability to transport products to or from these facilities or to
or from our customers for any reason would adversely affect our results of
operations, cash flow and ability to make distributions to our unitholders.
Operations at our facilities and at the facilities owned or operated by our
suppliers and customers could be partially or completely shut down, temporarily
or permanently, as the result of any number of circumstances that are not within
our control, such as:

o catastrophic events;

o environmental remediations;

o labor difficulties; and

o disruptions in the supply of our products to our facilities or
means of transportation.

Additionally, terrorist attacks and acts of sabotage could target oil and gas
production facilities, refineries, processing plants and other infrastructure
facilities. Any interruptions at our facilities, facilities owned or operated by
our suppliers or customers, or in the oil and gas industry as a whole caused by
such attacks or acts could have a material adverse affect on our results of
operations, cash flow and ability to make distributions to our unitholders.

OUR MARINE TRANSPORTATION BUSINESS WOULD BE ADVERSELY AFFECTED IF WE DO
NOT SATISFY THE REQUIREMENTS OF THE JONES ACT OR IF THE JONES ACT WERE MODIFIED
OR ELIMINATED. The Jones Act is a federal law that restricts domestic marine
transportation in the United States to vessels built and registered in the
United States. Furthermore, the Jones Act requires that the vessels be manned
and owned by United States citizens. If we fail to comply with these
requirements, our vessels lose their eligibility to engage in coastwise trade
within United States domestic waters.

The requirements that our vessels be United States built and manned by
United States citizens, the crewing requirements and material requirements of
the Coast Guard and the application of United States labor and tax laws
significantly increase the costs of United States flag vessels when compared
with foreign flag vessels. During the past several years, certain interest
groups have lobbied Congress to repeal the Jones Act to facilitate foreign flag
competition for trades and cargoes reserved for United States flag vessels under
the Jones Act and cargo preference laws. If the Jones Act were to be modified to
permit foreign competition that would not be subject to the same United States
government imposed costs, we may need to lower the prices we charge for our
services in order to compete with foreign competitors, which would adversely
affect our cash flow and ability to make distributions to our unitholders.

OUR MARINE TRANSPORTATION BUSINESS WOULD BE ADVERSELY AFFECTED IF THE
UNITED STATES GOVERNMENT PURCHASES OR REQUISITIONS ANY OF OUR VESSELS UNDER THE
MERCHANT MARINE ACT. We are subject to the Merchant Marine Act of 1936, which
provides that, upon proclamation by the President of the United States of a
national emergency or a threat to the national security, the United States
Secretary of Transportation may requisition or purchase any vessel or other
watercraft owned by United States citizens (including us, provided that we are
considered a United States citizen for this purpose.) If one of our pushboats,
tugboats or tank barges were purchased or requisitioned by the United States
government under this law, we would be entitled to be paid the fair market value
of the vessel in the case of a purchase or, in the case of a requisition, the
fair market value of charter hire. However, if one of our pushboats or tugboats
is requisitioned or purchased and its associated tank barge is left idle, we
would not be entitled to receive any compensation for the lost revenues
resulting from the idled barge. We also

31

would not be entitled to be compensated for any consequential damages we suffer
as a result of the requisition or purchase of any of our pushboats, tugboats or
tank barges. If any of our vessels are purchased or requisitioned for an
extended period of time by the United States government, such transactions could
have a material adverse affect on our results of operations, cash flow and
ability to make distributions to our unitholders.

REGULATION AFFECTING THE DOMESTIC TANK VESSEL INDUSTRY MAY LIMIT OUR
ABILITY TO DO BUSINESS, INCREASE OUR COSTS AND ADVERSELY IMPACT OUR RESULTS OF
OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO OUR UNITHOLDERS. The U.S. Oil
Pollution Act of 1990, or OPA 90, provides for the phase out of single-hull
vessels and the phase-in of the exclusive operation of double-hull tank vessels
in U.S. waters. Under OPA 90, substantially all tank vessels that do not have
double hulls will be phased out by 2015 and will not be permitted to come to
U.S. ports or trade in U.S. waters. The phase out dates vary based on the age of
the vessel and other factors. All of our offshore tank barges are double-hull
vessels and have no phase out date. We have six inland single-hull barges that
will be phased out in the year 2015. The phase out of these single-hull vessels
in accordance with OPA 90 may require us to make substantial capital
expenditures, which could adversely affect our operations and market position
and reduce our cash available for distribution.

COST REIMBURSEMENTS WE PAY TO MRMC MAY BE SUBSTANTIAL AND WILL REDUCE
OUR CASH AVAILABLE FOR DISTRIBUTION TO OUR UNITHOLDERS. Under our omnibus
agreement with MRMC, MRMC provides us with corporate staff and support services
on behalf of our general partner that are substantially identical in nature and
quality to the services it conducted for our business prior to our formation.
The omnibus agreement requires us to reimburse MRMC for the costs and expenses
it incurs in rendering these services, including an overhead allocation to us of
MRMC's indirect general and administrative expenses from its corporate
allocation pool. These payments may be substantial. Payments to MRMC will reduce
the amount of available cash for distribution to our unitholders.

MRMC HAS CONFLICTS OF INTEREST AND LIMITED FIDUCIARY RESPONSIBILITIES,
WHICH MAY PERMIT IT TO FAVOR ITS OWN INTERESTS TO THE DETRIMENT OF OUR
UNITHOLDERS. MRMC owns an approximate 58.3% limited partner interest in us and
owns and controls our general partner, which owns our 2.0% general partner
interest and incentive distribution rights. Conflicts of interest may arise
between MRMC and our general partner, on the one hand, and our unitholders, on
the other hand. As a result of these conflicts, our general partner may favor
its own interests and the interests of MRMC over the interests of our
unitholders. Potential conflicts of interest between us, MRMC and our general
partner could occur in many of our day-to-day operations including, among
others, the following situations:

o Officers of MRMC who provide services to us also devote
significant time to the businesses of MRMC and are compensated
by MRMC for that time.

o We own a non-controlling 49.5% limited partnership interest in
CF Martin Sulphur, which operates a business involving the
acquisition, handling and sale of molten sulfur. As a limited
partner, we have virtually no rights or control over the
operation and management of this entity. The day-to-day
operation and control of this partnership is managed by its
general partner, CF Martin Sulphur, L.L.C., which is owned
equally by CF Industries and MRMC. Because we have very
limited control over the operations and management of CF
Martin Sulphur, we are subject to the risks that this business
may be operated in a manner that would not be in our interest.
For example, the amount of cash distributed to us from CF
Martin Sulphur could decrease if it uses a significant amount
of cash from operations or additional debt to make significant
capital expenditures or acquisitions.

o Neither the partnership agreement nor any other agreement
requires MRMC to pursue a business strategy that favors us or
utilizes our assets or services. MRMC's directors and officers
have a fiduciary duty to make these decisions in the best
interests of the shareholders of MRMC without regard to the
best interests of the common unitholders.

o MRMC may compete with us, subject to the limitations set forth
in the omnibus agreement.

o Our general partner is allowed to take into account the
interests of parties other than us, such as MRMC, in resolving
conflicts of interest, which has the effect of reducing its
fiduciary duty to our unitholders.

32

o Under the partnership agreement, our general partner may limit
its liability and reduce its fiduciary duties, while also
restricting the remedies available to our unitholders for
actions that, without the limitations and reductions, might
constitute breaches of fiduciary duty. As a result of
purchasing units, our unitholders will consent to some actions
and conflicts of interest that, without such consent, might
otherwise constitute a breach of fiduciary or other duties
under applicable state law.

o Our general partner determines which costs incurred by MRMC
are reimbursable by us.

o The partnership agreement does not restrict our general
partner from causing us to pay it or its affiliates for any
services rendered on terms that are fair and reasonable to us
or from entering into additional contractual arrangements with
any of these entities on our behalf.

o Our general partner controls the enforcement of obligations
owed to us by MRMC.

o Our general partner decides whether to retain separate
counsel, accountants or others to perform services for us.

o In some instances, our general partner may cause us to borrow
funds to permit us to pay cash distributions, even if the
purpose or effect of the borrowing is to make a distribution
on the subordinated units, to make incentive distributions or
to accelerate the expiration of the subordination period.

o Our general partner has broad discretion to establish
financial reserves for the proper conduct of our business.
These reserves also will affect the amount of cash available
for distribution. Our general partner may establish reserves
for distribution on the subordinated units, but only if those
reserves will not prevent us from distributing the full
minimum quarterly distribution, plus any arrearages, on the
common units for the following four quarters.

OUR GENERAL PARTNER'S DISCRETION IN DETERMINING THE LEVEL OF OUR CASH
RESERVES MAY ADVERSELY AFFECT OUR ABILITY TO MAKE CASH DISTRIBUTIONS TO OUR
UNITHOLDERS. Our partnership agreement requires our general partner to deduct
from operating surplus cash reserves it determines in its reasonable discretion
to be necessary to fund our future operating expenditures. In addition, our
partnership agreement permits our general partner to reduce available cash by
establishing cash reserves for the proper conduct of our business, to comply
with applicable law or agreements to which we are a party or to provide funds
for future distributions to partners. These cash reserves will affect the amount
of cash available for distribution to our unitholders.

YOU MAY NOT HAVE LIMITED LIABILITY IF A COURT FINDS THAT WE HAVE NOT
COMPLIED WITH APPLICABLE STATUTES OR THAT UNITHOLDER ACTION CONSTITUTES CONTROL
OF OUR BUSINESS. The limitations on the liability of holders of limited partner
interests for the obligations of a limited partnership have not been clearly
established in some states. The holder of one of our common units could be held
liable in some circumstances for our obligations to the same extent as a general
partner if a court determined that:

o we had been conducting business in any state without
compliance with the applicable limited partnership statute; or

o the right or the exercise of the right by our unitholders as a
group to remove or replace our general partner, to approve
some amendments to the partnership agreement, or to take other
action under the partnership agreement constituted
participation in the "control" of our business.

Our general partner generally has unlimited liability for our
obligations, such as its debts and environmental liabilities, except for our
contractual obligations that are expressly made without recourse to our general
partner. In addition, under some circumstances, a unitholder may be liable to us
for the amount of a distribution for a period of three years from the date of
the distribution.

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THE CONTROL OF OUR GENERAL PARTNER MAY BE TRANSFERRED TO A THIRD PARTY,
AND THAT PARTY COULD REPLACE OUR CURRENT MANAGEMENT TEAM, WITHOUT UNITHOLDER
CONSENT. ADDITIONALLY, IF MRMC NO LONGER CONTROLS OUR GENERAL PARTNER, AMOUNTS
WE OWE UNDER OUR CREDIT FACILITY MAY BECOME IMMEDIATELY DUE AND PAYABLE. Our
general partner may transfer its general partner interest to a third party in a
merger or in a sale of all or substantially all of its assets without the
consent of the unitholders. Furthermore, there is no restriction in the
partnership agreement on the ability of the owner of our general partner to
transfer its ownership interest in our general partner to a third party. A new
owner of our general partner could replace the directors and officers of our
general partner with its own designees and to control the decisions taken by our
general partner.

If, at any time, MRMC no longer controls our general partner, the
lender under our credit facility may declare all amounts outstanding thereunder
immediately due and payable. If such event occurs, we may be required to
refinance our debt on unfavorable terms, which could negatively impact our
results of operations and our ability to make distribution to our unitholders.

MRMC MAY ENGAGE IN LIMITED COMPETITION WITH US. MRMC may engage in
limited competition with us. If MRMC does engage in competition with us, we may
lose customers or business opportunities, which could have an adverse impact on
our results of operations, cash flow and ability to make distributions to our
unitholders.

THE IRS COULD TREAT US AS A CORPORATION FOR TAX PURPOSES, WHICH WOULD
SUBSTANTIALLY REDUCE THE CASH AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS. If we
were treated as a corporation for federal income tax purposes, we would pay tax
on our income at corporate rates, which is currently a maximum of 35%.
Distributions to our unitholders would generally be taxed again as corporate
distributions, and no income, gains, losses, or deductions would flow through to
our unitholders. Because a tax would be imposed upon us as a corporation, the
cash available for distribution to unitholders would be substantially reduced.
Although it is not possible to predict the amount of corporate-level tax that
would be due in a given year, it is likely that our ability to make minimum
quarterly distributions would be impaired. Consequently, treatment of us as a
corporation would result in a material reduction in the anticipated cash flow
and after-tax return to our common unitholders and therefore would likely result
in a substantial reduction in the value of the common units.

Current law may change so as to cause us to be taxable as a corporation
for federal income tax purposes or otherwise subject us to entity-level
taxation. Our partnership agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that subjects us to taxation
as a corporation or otherwise subjects us to entity-level taxation for federal,
state or local income tax purposes, then the minimum quarterly distribution
amount and the target distribution amount will be adjusted to reflect the impact
of that law on us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market
rates and prices. The principal market risk to which we are exposed is commodity
price risk for LPGs. We also incur, to a lesser extent, risks related to
interest rate fluctuations.

Commodity Price Risk. Our LPG storage and distribution business is a
"margin-based" business in which our gross profits depend on the excess of our
sales prices over our supply costs. As a result, our profitability is sensitive
to changes in the market price of LPGs. LPGs are a commodity and the price we
pay for them can fluctuate significantly in response to supply and other market
conditions over which we have no control. When there are sudden and sharp
decreases in the market price of LPGs, we may not be able to maintain our
margins. Consequently, sudden and sharp decreases in the wholesale cost of LPGs
could reduce our gross profits. We attempt to minimize our exposure to market
risk by maintaining a balanced inventory position by matching our physical
inventories and purchase obligations with sales commitments. We do not acquire
and hold inventory or derivative financial instruments for the purpose of
speculating on price changes that might expose us to indeterminable losses.

Interest Rate Risk. We will be exposed to changes in interest rates as
a result of our term loan and revolving credit facility, each of which will have
a floating interest rate. We had $37.2 million of indebtedness outstanding under
this facility at the closing of our initial public offering. The impact of a 1%
increase in interest rates on this amount of debt would result in an increase in
interest expense, and a corresponding decrease in income before income taxes of
approximately $0.4 million annually.

34

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of the filing of this report, we
carried out an evaluation, under the supervision and with the participation of
our management, including the Chief Executive Officer and Chief Financial
Officer of our general partner, of the effectiveness of the design and operation
of our disclosure controls and procedures, as defined in Exchange Act Rule
15d-14(c). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer of our general partner concluded that our disclosure controls
and procedures are effective in enabling us to record, process, summarize and
report information required to be disclosed in our periodic filings with the
Securities and Exchange Commission within the required time period. There have
been no significant changes in our internal controls or in other factors that
could significantly affect internal controls subsequent to the date we carried
out our evaluation.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to certain legal proceedings claims and disputes that
arise in the ordinary course of our business. Although we cannot predict the
outcomes of these legal proceedings, we do not believe these actions, in the
aggregate, will have a material adverse impact on our financial position,
results of operations or liquidity.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On June 21, 2002 in connection with the formation of the Martin
Midstream Partners L.P. (the "Partnership"), the Partnership issued to (i)
Martin Midstream GP LLC a 2% general partner interest in the Partnership for
$20, and (ii) Martin Resource LLC a 98% limited partner interest in the
Partnership for $980 in an offering exempt from registration under Section 4(2)
of the Securities Act of 1933.

On October 30, 2002 the Registration Statement on Form S-1
(Registration No. 333-91706), that the Partnership filed with the Securities and
Exchange Commission relating to its initial public offering became effective.
The underwriters of the offering were Raymond James & Associates, Inc., A. G.
Edwards & Sons, Inc., and RBC Dain Rauscher Inc. The managing underwriter was
Raymond James & Associates, Inc. On November 6, 2002, the Partnership completed
an initial public offering of 2,900,000 common units representing limited
partnership interests, representing a 39.7% limited partner interest in the
Partnership, at a price of $19.00 per common unit. Total proceeds from the sale
of the 2,900,000 common units were $55.1 million before the payment of offering
costs and underwriting commissions. Concurrent with the closing of the initial
public offering, the Partnership (i) assumed borrowings of $67.2 million,
related accrued interest of $4.6 million and related prepayment penalties of
$1.5 million from of MRMC, and its subsidiaries and (ii) entered into a $60.0
million credit facility with a syndicate of financial institutions led by Royal
Bank of Canada. This credit facility is composed of a $25.0 million term loan
and a $35.0 million revolving line of credit comprised of (i) a $25.0 million
working capital subfacility that will be used for ongoing working capital needs
and general partnership purposes and (ii) a $10.0 million subfacility that may
be used to finance permitted acquisitions and capital expenditures. On November
6, 2002, the Partnership borrowed $25.0 million under the term loan facility and
$12.2 million under the revolving line of credit.

35

A summary of the proceeds received from these two transactions and the
use of the proceeds is as follows (in millions):

PROCEEDS RECEIVED:
Sale of common units ............................. $ 55.1
Borrowing under term loan ........................ 25.0
Borrowing under revolving line of credit ......... 12.2
----------

Total proceeds received ...................... $ 92.3
==========

USE OF PROCEEDS:
Underwriter's fees ............................... $ 3.9
Professional fees and other costs ................ 4.0
Repayment of assumed debt and related costs ...... 73.3
Repayment of debt under promissory note .......... 8.2
Buyout of operating lease for two barges ......... 2.9
----------

Total use of proceeds ................... $ 92.3
==========

On November 6, 2002, as consideration for the contribution of assets
and liabilities by Martin Resource Management Corporation and its affiliates,
the Partnership issued to Martin Resource Management Corporation and its
affiliates 4,253,362 subordinated units representing limited partner interests
as well as rights to receive incentive distributions in an offering exempt from
registration under the Securities Act of 1933. In addition, the capital
contribution of Martin Midstream GP LLC was increased so that the general
partner interest in the Partnership held by Martin Midstream GP LLC remained at
2% of the interests of the Partnership.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

None.

(b) Reports on Form 8-K

On November 19, 2002, Martin Midstream Partners L.P. filed a Current
Report on Form 8-K (dated as of November 6, 2002) announcing the
completion of the sale of its common units to the public and filing
execution copies of exhibits to its Registration Statement on Form S-1
(Registration No. 333-91706).

36

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Martin Midstream Partners L.P.
(Registrant)

By: Martin Midstream GP LLC
Its General Partner

Date: December 12, 2002 By: /s/ ROBERT D. BONDURANT
-----------------------------------
Robert D. Bondurant
Executive Vice President and Chief
Financial Officer

37

CERTIFICATION
PURSUANT TO AND IN CONNECTION WITH THE
QUARTERLY REPORTS ON FORM 10-Q
TO BE FILED UNDER SECTIONS 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED

I, Ruben S. Martin, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Martin
Midstream Partners L.P.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: December 12, 2002

/s/ RUBEN S. MARTIN, III
- --------------------------------------------------------------
Ruben S. Martin, III, President and Chief Executive Officer of
Martin Midstream GP LLC, the General Partner of
Martin Midstream Partners L.P.

38

CERTIFICATION
PURSUANT TO AND IN CONNECTION WITH THE
QUARTERLY REPORTS ON FORM 10-Q
TO BE FILED UNDER SECTIONS 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED

I, Robert D. Bondurant, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Martin
Midstream Partners L.P.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: December 12, 2002

/s/ ROBERT D. BONDURANT
- ----------------------------------------------------------------------------
Robert D. Bondurant, Executive Vice President and Chief Financial Officer of
Martin Midstream GP LLC, the General Partner of
Martin Midstream Partners L.P.

39