MARTIN MIDSTREAM PARTNERS LP - 10-Q Quarterly Report

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

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

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 [X] No [ ]

Indicated 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 August 8,
2003 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)
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

See accompanying notes to consolidated and combined condensed financial
statements.

1

MARTIN MIDSTREAM PARTNERS L.P.
(SUCCESSOR TO MARTIN MIDSTREAM PARTNERS PREDECESSOR - SEE NOTE 1)
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

See accompanying notes to consolidated and combined condensed
financial statements.

2

MARTIN MIDSTREAM PARTNERS L.P.
(SUCCESSOR TO MARTIN MIDSTREAM PARTNERS PREDECESSOR - SEE NOTE 1)
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CAPITAL/EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
(DOLLARS IN THOUSANDS)

See accompanying notes to consolidated and combined condensed
financial statements.

3

MARTIN MIDSTREAM PARTNERS L.P.
(SUCCESSOR TO MARTIN MIDSTREAM PARTNERS PREDECESSOR -SEE NOTE 1)
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

See accompanying notes to consolidated and combined condensed
financial statements.

4

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

NOTES TO CONSOLIDATED AND COMBINED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

JUNE 30, 2003

(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.

Before November 6, 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, 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, (3)
liquefied petroleum gas ("LPG") distribution; and (4) fertilizer manufacturing.

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.

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 Partnership's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 26, 2003.

PRINCIPLES OF PRESENTATION, COMBINATION AND CONSOLIDATION

The balance sheets as of June 30, 2003 and December 31, 2002 and the
statements of operations, capital/equity and cash flows for the six months ended
June 30, 2003 are presented on a consolidated basis and include the operations
of the Partnership and its two wholly-owned subsidiaries, Martin Operating GP
LLC and Martin Operating Partnership L.P. ("Operating Partnership").

The statements of operations, capital/equity and cash flows for the six
months ended June 30, 2002 are presented on a combined basis and include the
operations of MRMC in the four lines of business described above, including
certain operations in the LPG distribution and fertilizer manufacturing lines of
business which were retained by MRMC on November 6, 2002.

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These financial statements should be read in conjunction with
Partnership's audited consolidated and combined financial statements and notes
thereto included in the Partnership's 2002 Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 26, 2003. The Partnership's
unaudited consolidated and 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
management of the Partnership's general partner, 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 six months ended June 30, 2003 are
not necessarily indicative of the results of operations for the full year.

3. GOODWILL

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

4. CF MARTIN SULPHUR

The following table sets forth CF Martin Sulphur's summarized net
income information for the three and six months ended June 30, 2003 and 2002.
The Partnership owns an unconsolidated non-controlling 49.5% limited partnership
interest in CF Martin Sulphur, which is accounted for using the equity method of
accounting. During the three months ended June 30, 2003 and 2002, the
Partnership recorded equity in earnings from CF Martin Sulphur of $803 and $490,
respectively, and recorded cash distributions therefrom of $891 and $0,
respectively. During the six months ended June 30, 2003 and 2002, the
Partnership recorded equity in earnings from CF Martin Sulphur of $1,466 and
$1,392, respectively, and recorded cash distributions therefrom of $1,782 and
$0, respectively.

5. RELATED PARTY TRANSACTIONS

Included in the financial statements for the three months and six
months ended June 30, 2003 and 2002, are various related party transactions and
balances primarily with (1) MRMC and affiliates and (2) CF Martin Sulphur. More
information concerning these transactions is set forth elsewhere in this
Quarterly Report on Form 10-Q and in the Partnership's Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 26, 2003.

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

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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.

The following table reconciles operating income to income before income taxes.

Total assets by segment are as follows:

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

References in this quarterly report to "we," "our," "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" refer 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 consolidated and
combined condensed financial statements and the notes thereto included elsewhere
in this quarterly report.

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

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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 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 MRMC
related to the four lines of business that in which we operate. 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 June 30, 2002, the Partnership had not been formed. 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.

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 an unconsolidated 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"

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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, the statements of operations for the three months
and six months ended June 30, 2002 include the effects of applicable income
taxes in order to comply with generally accepted accounting principles.
Subsequent to November 6, 2002, we are not subject to federal or state income
taxes as a result of our partnership structure. Therefore, the statements of
operations for the three months and six months ended June 30, 2003 do not
include the effects of any income taxes.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of
operations are based on the historical consolidated and 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
consolidated and combined condensed financial statements most significantly.

You should also read Note 2, "Significant Accounting Policies" in Notes
to Consolidated and Combined Condensed Financial Statements contained in this
quarterly report and the similar note in the consolidated and combined financial
statements included in the Partnership's 2002 Form 10-K filed with the
Securities and Exchange Commission on March 26, 2003 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
determination of the fair value of our reporting units under SFAS No. 142.

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 an unconsolidated
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.

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Goodwill. As required by SFAS No. 142, we perform an annual impairment
test of our recorded goodwill. In performing such test, we determined we had
three "reporting units" which contained goodwill. These reporting units were
three of our reporting segments and were marine transportation, LPG distribution
and fertilizer. Our annual impairment test date is September 30.

We perform the first test under SFAS No. 142 which requires us to
compare the fair value of each reporting unit to the related carrying amount
(including amounts for goodwill) of each reporting unit. We determine fair value
in each reporting unit based on a multiple of current annual cash flows. We
determine such multiple from our recent experience with actual acquisitions and
dispositions and valuing potential acquisitions and dispositions.

Environmental Liabilities. Historically, we have 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.

Allowance for Doubtful Accounts. In evaluating the collectibility of
our accounts receivable, we assess a number of factors, including a specific
customer's ability to meet its financial obligations to us, the length of time
the receivable has been past due and historical collection experience. Based on
these assessments, we record both specific and general reserves for bad debts to
reduce the related receivable to the amount we ultimately expect to collect from
customers.

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, which 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, under this agreement, MRMC has agreed, for a
three year period beginning November 1, 2002, to 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.

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, beginning
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 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.

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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 on 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.

Further information concerning our relationship with MRMC and its
affiliates is set forth in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 26, 2003.

OUR RELATIONSHIP WITH CF MARTIN SULPHUR

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 June 30, 2003, our aggregate
reimbursement liability would have been approximately $2.1 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.

We only own an unconsolidated 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.

Further information concerning our relationship with CF Martin Sulphur
is set forth in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 26, 2003.

RESULTS OF OPERATIONS

The results of operations for the three months and six months ended
June 30, 2003 were derived from the consolidated financial statements of the
Partnership while the results of operations for the three months and six months
ended June 30, 2002 were derived from the combined financial statements of
predecessor lines of business.

Prior to November 6, 2002, our combined financial statements reflected
our operations as being subject to income taxes. Subsequent to November 6, 2002,
we are not subject to income taxes due to our partnership structure. Therefore,
we believe a more meaningful comparison of the results of our operations is
income before income taxes. Accordingly, we will exclude income taxes from our
discussion of the results of our 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 and six
months ended June 30, 2003 and 2002. The results of

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operations for the first six 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, and indirect selling,
general and administrative expenses, after the comparative discussion of our
results within each segment.

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 2002

Our total revenues were $38.7 million for the three months ended June
30, 2003 compared to $32.7 million for the three months ended June 30, 2002, an
increase of $5.9 million, or 18%. Our cost of products sold was $28.6 million
for the three months ended June 30, 2003 compared to $23.2 million for the three
months ended June 30, 2002, an increase of $5.4 million, or 23%. Our total
operating expenses were $4.9 million for the three months ended June 30, 2003
compared to $5.3 million for the three months ended June 30, 2002, a decrease of
$0.5 million, or 9%.

Our total selling, general and administrative expenses were $1.6
million for the three months ended June 30, 2003 compared to $1.7 million for
the three months ended June 30, 2002, a decrease of $0.1 million, or 6%. Total
depreciation and amortization was $1.2 million for both three month periods. Our
operating income was $2.4 million for the three months ended June 30, 2003
compared to $1.3 million for the three months ended June 30, 2002, an increase
of $1.0 million, or 79%.

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 increased $0.7 million, or
12%, for the three months ended June 30, 2003 compared to the three months ended
June 30, 2002. The revenue increase was primarily due to increased utilization
of our inland barge fleet. This increase in utilization was due to increased
demand by industrial users of fuel oil as this product was an economic
substitute for higher cost natural gas.

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Operating expenses. Operating expenses decreased $0.2 million, or 5%,
for the three months ended June 30, 2003 compared to the three months ended June
30, 2002. This decrease was due primarily to reduced repair and maintenance
costs in 2003 as compared to 2002.

Selling, general and administrative expenses. Selling, general and
administrative expenses were approximately the same for both three month
periods.

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

In summary, our marine transportation operating income increased $0.9
million, or 187%, for the three months ended June 30, 2003 compared to the three
months ended June 30, 2002.

Terminalling Business.

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

Revenues. Our terminalling revenues increased $0.5 million, or 34%, for
the three months ended June 30, 2003 compared to the three months ended June 30,
2002. This increase was due primarily to additional revenue generated by our two
newly constructed asphalt tanks which were put into service in May, 2002 and an
increase in rates for certain terminalling contracts at our Tampa terminal.

Operating expenses. Operating expenses decreased $0.1 million or 25%
for the three months ended June 30, 2003 compared to the three months ended June
30, 2002. This decrease was due to a reduction in repairs and maintenance in
2003 as compared to 2002.

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 $0.5 million,
or 117%, for the three months ended June 30, 2003 compared to the three months
ended June 30, 2002.

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LPG Distribution Business

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

Revenues. Our LPG distribution revenue increased $6.6 million, or 39%,
for the three months ended June 30, 2003 compared to the three months ended June
30, 2002. This increase was due to both volume and price increases. Our volume
for the quarter ended June 30, 2003 was 11% greater than the quarter ended June
30, 2002. The average sales price per gallon was 25% greater for the second
quarter of 2003 compared to the second quarter of 2002. The increase in volume
was primarily a result of increased sales to industrial customers. The increase
in price was a result of an overall increase in the price levels of energy.

Cost of product sold. Our cost of products sold increased $6.7 million,
or 42%, for the three months ended June 30, 2003 compared to the three months
ended June 30, 2002, which approximated our increase in sales. As previously
mentioned, this increase was primarily due to a 11% increase in sales volume and
a 28% increase in price of products sold for the quarter ended June 30, 2003 as
compared to the quarter ended June 30, 2002.

Operating expenses. Operating expenses decreased $0.1 million, or 28%,
for the three months ended June 30, 2003 compared to the three months ended June
30, 2002.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 15%, for the three months
ended June 30, 2003 compared to the three months ended June 30, 2002.

Depreciation and amortization. Depreciation and amortization decreased
$0.1 million for the three months ended June 30, 2003 compared to the three
months ended June 30, 2002.

In summary, our LPG distribution operating income increased $0.1
million, or 300%, for the three months ended June 30, 2003 compared to three
months ended June 30, 2002.

Fertilizer Business

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

15

Revenues. Our fertilizer business revenues decreased $1.8 million, or
21%, for three months ended June 30, 2003 compared to the three months ended
June 30, 2002. Our sales volume decreased 16% for the quarter ended June 30,
2003 as compared to the quarter ended June 30, 2002. This decrease was primarily
due to adverse weather conditions, including hail damage to early plant growth,
in our marketing area. We also experienced a 6% decline in the average selling
price per ton in the second quarter of 2003 compared to the second quarter of
2002. This was primarily a result of increased competitive pressures in our
marketing area, as our competition lowered the selling price of certain products
in an attempt to gain market share. We expect this competitive situation to
continue through the end of 2003, which could negatively impact our gross margin
and operating income in the third and fourth quarter of 2003.

Cost of products sold and operating expenses. Our cost of products sold
and operating expenses decreased $1.3 million, or 19%, for the three months
ended June 30, 2003 compared to the three months ended June 30, 2002. As
mentioned earlier, this increase was primarily due to a 16% volume decrease for
the second quarter of 2003 as compared to the second quarter of 2002.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.2 million, or 32%, for the three months
ended June 30, 2003 compared to the three months ended June 30, 2002. This
decrease was due to reduction in personnel and a reduction in advertising of our
lawn and garden products.

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

In summary, our fertilizer operating income decreased $0.3 million, or
54%, for the three months ended June 30, 2003 compared to the three months ended
June 30, 2002.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 2002

Our total revenues were $99.9 million for the six months ended June 30,
2003 compared to $68.3 million for the six months ended June 30, 2002, an
increase of $31.5 million, or 46%. Our cost of products sold was $79.0 million
for the six months ended June 30, 2003 compared to $48.5 million for the six
months ended June 30, 2002, an increase of $30.6 million, or 63%. Our total
operating expenses were $9.9 million for the six months ended June 30, 2003
compared to $10.0 million for the six months ended June 30, 2002, a decrease of
$0.1 million, or 1%.

Our total selling, general and administrative expenses were $3.1
million for the six months ended June 30, 2003 compared to $3.4 million for the
six months ended June 30, 2002, a decrease of $0.2 million, or 7%. Total
depreciation and amortization was $2.3 million for the six months ended June 30,
2003 compared to $2.2 million for the six months ended June 30, 2002, an
increase of $0.1 million, or 5%. Our operating income was $5.4 million for the
six months ended June 30, 2003 compared to $4.3 million for the six months ended
June 30, 2002, an increase of $1.2 million, or 28%.

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.

16

Revenues. Our marine transportation revenues increased $1.5 million, or
13%, for the six months ended June 30, 2003 compared to the six months ended
June 30, 2002. Approximately $0.7 million of this increase was due to two
offshore barge units that were fully utilized in the six months of 2003. These
units were in the shipyard in the first quarter of 2002. One of the offshore
barge units was in the shipyard during 2002 while being converted from fuel oil
service to sulfur service. This unit is currently fully utilized under a term
contract with CF Martin Sulphur. The other offshore barge unit was in the
shipyard during the first quarter 2002 for routine repairs and maintenance. The
remaining increase in revenues of $0.8 million was a result of increased
utilization of our inland barge fleet as there was increased demand by
industrial users of fuel oil as this product was an economic substitute for
higher cost natural gas.

Operating expenses. Operating expenses increased $0.1 million, or 2%,
for the six months ended June 30, 2003 compared to the six months ended June 30,
2002. Increases in fuel costs were offset by decreases in repair and maintenance
costs.

Selling, general, and administrative expenses. Selling, general and
administrative expenses were approximately the same for both six month periods.

Depreciation and Amortization. Depreciation and amortization increased
$0.1 million, or 10%, for the six months ended June 30, 2003 compared to the six
months ended June 30, 2002. This increase was due primarily to depreciation of
capital expenditures made during 2002.

In summary, our marine transportation operating income increased $1.3
million, or 89%, for the six months ended June 30, 2003 compared to the six
months ended June 30, 2002.

Terminalling Business.

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

Revenues. Our terminalling revenues increased $0.9 million, or 37%, for
the six months ended June 30, 2003 compared to the six months ended June 30,
2002. This increase was due primarily to additional revenue generated by our two
newly constructed asphalt tanks which were put into service in May, 2002 and an
increase in rates for certain terminalling contracts at our Tampa terminal.

Operating expenses. Operating expenses were $0.7 for both six month
periods.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 10%, for the six months ended
June 30, 2003 compared to the six months ended June 30, 2002.

Depreciation and amortization. Depreciation and amortization increased
$0.1 million, or 76%, for the six months ended June 30, 2003 compared to the six
months ended June 30, 2002. This increase was due to new ashphalt tanks put in
service in May, 2002.

In summary, our terminalling operating income increased $0.8 million,
or 85%, for the six months ended June 30, 2003 compared to the six months ended
June 30, 2002.

17

LPG Distribution Business

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

Revenues. Our LPG distribution revenue increased $30.3 million, or 79%,
for the six months ended June 30, 2003 compared to the six months ended June 30,
2002. This increase was due to both volume and price increases. Our volume for
the six months ended June 30, 2003 was 22% greater than the six months ended
June 30, 2002. The average sales price per gallon was 47% greater for the first
six months of 2003 compared to the first six months of 2002. The increase in
both volume and price was a result of an industry-wide increase in demand for
LPGs during the first quarter of 2003 compared to the first quarter of 2002
because of colder temperatures during the first quarter of 2003. Also, we
increased our volume of sales to industrial customers in the second quarter of
2003 compared to the second quarter of 2002.

Cost of product sold. Our cost of products sold increased $30.6
million, or 86%, for the six months ended June 30, 2003 compared to the six
months ended June 30, 2002, which approximated our increase in sales. Our LPG
cost per gallon increased approximately 52% due to colder temperatures, which
resulted in an industry-wide increase in demand for LPGs in the first quarter of
2003 compared to the first quarter of 2002. Also, we experienced a 22% increase
in sales volume for the quarter ended June 30, 2003 as compared to the quarter
ended June 30, 2002.

Operating expenses. Operating expenses decreased $0.2 million, or 30%,
for the six months ended June 30, 2003 compared to the six months ended June 30,
2002.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 17%, for the six months ended
June 30, 2003 compared to the six months ended June 30, 2002.

Depreciation and amortization. Depreciation and amortization decreased
$0.1 million for the six months ended June 30, 2003 compared to the six months
ended June 30, 2002.

In summary, our LPG distribution operating income increased $0.2
million, or 20%, for the six months ended June 30, 2003 compared to the six
months ended June 30, 2002.

18

Fertilizer Business

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

Revenues. Our fertilizer business revenues decreased $1.2 million, or
7%, for the six months ended June 30, 2003 compared to the six months ended June
30, 2002. Our sales volume decreased 2% for the six months ended June 30, 2003
as compared to the six months ended June 30, 2002. This decrease was primarily
due to adverse weather conditions, including hail damage to early plant growth,
in our marketing area. We also experienced a 5% decline in the average selling
price per ton in the first six months of 2003 compared to the first six months
of 2002. This was primarily a result of increased competitive pressures in our
marketing area, as our competition lowered the selling price of certain products
in an attempt to gain market share. We expect this competitive situation to
continue through the end of 2003, which could negatively impact our gross margin
and operating income in the third and fourth quarter of 2003.

Cost of products sold and operating expenses. Our cost of products sold
and operating expenses decreased $0.1 million, or 1%, for the six months ended
June 30, 2003 compared to the six months ended June 30, 2002.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.5 million, or 39%, for the six months ended
June 30, 2003 compared to the six months ended June 30, 2002. This decrease was
due to a reduction in personnel and a reduction in advertising of our lawn and
garden products.

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

In summary, our fertilizer operating income decreased $0.5 million, or
36%, for the six months ended June 30, 2003 compared to the six months ended
June 30, 2002.

EQUITY IN EARNINGS OF UNCONSOLIDATED ENTITIES

For the six months ended June 30 2002, equity in earnings of
unconsolidated entities primarily relates to our unconsolidated non-controlling
49.5% limited partner interest in CF Martin Sulphur but also includes a 50%
interest in a sulfur fungicide joint venture. For the six months ended June 30
2003, this line item includes the CF Martin Sulphur investment only as the
interest in the fungicide joint venture was retained by MRMC on November 6,
2002.

Equity in earnings of unconsolidated entities for the three months
ended June 30, 2003 increased by $0.4 million, or 75%, over the same period in
2002. Although CF Martin Sulphur sold 16% less tons of sulfur during the second
quarter of 2003 as compared to the same period in 2002, its barge transportation
revenues grew $0.5 million. The growth in barge transportation revenues was a
result of increased demand by certain customers to relieve marine transportation
shortages in the Gulf coast to Tampa market. For the quarter ended June 30,
2003, we received a cash distribution from CF Martin of $0.9 million. For the
same period in 2002, there were no cash distributions.

Equity in earnings of unconsolidated entities for the six months ended
June 30, 2003 increased by $0.3 million, or 18%, over the same period in 2002.
The 50% interest in a sulfur fungicide joint venture, retained by MRMC, was
responsible for 71% of the increase as it had a net loss of $0.2 million for the
six months ending June 30, 2002. The remainder of the increase was due to CF
Martin. CF Martin had increased margins of 12% while

19

maintaining constant volumes for the six month period. For the six months ended
June 30, 2003, we received cash distributions from CF Martin of $1.8 million.
For the same period in 2002, there were no cash distributions.

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 and $0.3 million for both six month periods.

INTEREST EXPENSE

Our interest expense for all operations was $0.5 million for the three
months ended June 30, 2003 compared to $1.0 million for the three months ended
June 30, 2002, a decrease of $0.5 million, or 48%. This decrease was primarily
due to lower interest rates on our variable rate debt in the second quarter of
2003 compared to the second quarter of 2002.

Our interest expense for all operations was $1.0 million for the six
months ended June 30, 2003 compared to $2.0 million for the six months ended
June 30, 2002, a decrease of $1.0 million, or 49%. This decrease was primarily
due to lower interest rates on our variable rate debt in the first six months of
2003 compared to the first six months of 2002.

INDIRECT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Indirect selling, general and administrative expenses were $0.4 million
for the three months ended June 30, 2003 compared to $0.2 million for the three
months ended June 30, 2002, an increase of $0.3 million or 146%. This increase
was primarily due to higher legal fees, accounting fees and other costs
associated with being a public company. For both of these three month periods,
we reimbursed MRMC $0.2 million, which we charged to indirect selling, general,
and administrative expenses.

Indirect selling, general, and administrative expenses were $0.9
million for the six months ended June 30, 2003 compared to $0.4 million for the
six months ended June 30, 2002, an increase of $0.6 million or 152%. This
increase was primarily due to higher legal fees, accounting fees and other costs
associated with being a public company. For both of these six month periods, we
reimbursed MRMC $0.4 million, which we charged to indirect selling, general, and
administrative expenses.

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.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS AND CAPITAL EXPENDITURES

For the six months ended June 30, 2003, cash increased $3.8 million as
a result of $10.8 million provided by operating activities, $0.9 million
provided by investing activities and $7.9 million used in financing activities.
For the six months ended June 30, 2002, cash increased $0.2 million as a result
of $6.7 million provided by operating activities, $2.1 million used in investing
activities and $4.4 million used in financing activities.

20

For the six months ended June 30, 2003, our investing activities
consisted of capital expenditures and cash distributions from an unconsolidated
partnership. For the six months ended June 30, 2002, our investing activities
consisted of capital expenditures and cash paid for an acquisition.

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 six months ended June 30, 2003 and 2002, our capital
expenditures for property and equipment were $0.9 million and $2.0 million,
respectively.

As to each period:

o For the six months ended June 30, 2003, we spent $0.9 million
for maintenance of marine equipment and fertilizer facilities.

o For the six months ended June 30, 2002, we spent $1.9 million
for expansion to construct new asphalt tanks at our Stanolind
terminal and $0.1 million for maintenance.

For the six months ended June 30, 2003, financing activities consisted
of cash distributions paid to common and subordinated unitholders and repayment
of long-term debt. For the six months ended June 30, 2002, financing activities
consisted of payments of long term debt to financial lenders and payments to
affiliates pursuant to intercompany loans. For the six months ended June 30,
2003, there were no payments to affiliates and for the six months ended June 30,
2002, our net payments to affiliates were $4.0 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.

As of June 30, 2003, we had $33.0 million of outstanding indebtedness,
consisting of outstanding borrowings of $25.0 million under our $25.0 term loan
and $8.0 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 quarterly report. However, our ability to
satisfy our working capital requirements, to fund planned capital expenditures
and to satisfy our debt service obligations will depend upon our future
operating performance, which is subject to certain risks. Please read "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 June 30, 2003, is as follows (amounts in thousands):

21

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.

We do not have any off-balance sheet financing arrangements.

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 is 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.

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 bears 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 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, 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,
require 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, our 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 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 requires
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

22

these lines of business and our unconsolidated 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 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 adopted SFAS No. 143 on January 1, 2003 with no 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, 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 2002 and 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.

Investors 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

23

postponed by adverse weather conditions, such as fog in the winter and spring
months, and certain river conditions. Additionally, our marine transportation
operations and our assets in the Gulf of Mexico, including our barges, push
boats, tugboats and terminals, can be adversely impacted or damaged by
hurricanes, tropical storms, tidal waves or other related events.

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.

WE RECEIVE A MATERIAL PORTION OF OUR NET INCOME AND CASH AVAILABLE FOR
DISTRIBUTION FROM OUR UNCONSOLIDATED NON-CONTROLLING 49.5% LIMITED PARTNER
INTEREST IN CF MARTIN SULPHUR. We receive a material portion of our net income
and cash available for distribution from our unconsolidated 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, including operating
difficulties or if CF Martin Sulphur is unable to meet its debt service
obligations, 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:

24

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.

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. As of June 30, 2003, we had $33.0 million of
indebtedness, composed of $8.0 million of debt under our revolving line of
credit and $25.0 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

25

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;

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 are 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.

26

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 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 remediation;

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 are 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 push boats,
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 push boats or tugboats
is requisitioned or purchased and its associated tank barge is left idle, we
would not be entitled to receive any compensation for the lost revenues
resulting from the idled barge. We also would not be entitled to be compensated
for any consequential damages we suffer as a result of the requisition

27

or purchase of any of our push boats, tugboats or tank barges. If any of our
vessels are purchased or requisitioned for an extended period of time by the
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 an unconsolidated 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.

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,

28

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.

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

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.

29

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. We do not engage in commodity contract trading or
hedging activities.

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 are exposed to changes in interest rates as a
result of our term loan and revolving credit facility, each of which have a
floating interest rate as of June 30, 2003. We had $33.0 million of indebtedness
outstanding under this facility at June 30, 2003. 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 $0.3 million annually.

ITEM 4. CONTROLS AND PROCEDURES

In accordance with Rules 13a-15 and 15d-15 under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of June 30, 2003 to provide reasonable assurance
that information required to be disclosed in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported with the
time periods specified in the Securities and Exchange Commission's rules and
forms.

30

There has been no change in our internal controls over financial
reporting that occurred during the three months ended June 30, 2003 that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In connection with the formation of the Partnership on June 21, 2002,
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.

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

31.1* Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2* Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C., Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the
Securities and Exchange Commission and shall not be deemed to be
"filed" under the Securities and Exchange Act of 1934.

32.2* Certification of Chief Financial Officer Pursuant to 18 U.S.C., Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the
Securities and Exchange Commission and shall not be deemed to be
"filed" under the Securities and Exchange Act of 1934.

* Filed herewith

(b) Reports on Form 8-K

On April 21, 2003, Martin Midstream Partners L.P. filed a Current
Report on Form 8-K which included its press release as Exhibit 99.1 announcing
that on May 15, 2003 it will pay its minimum quarterly distribution of $0.50 per
unit (for the period January 1, 2003 through March 31, 2003) to its common and
subordinated unitholders of record as of the close of business on May 2, 2003.

On May 7, 2003, Martin Midstream Partners L.P. filed a Current Report
on Form 8-K which included its press release as Exhibit 99.1 announcing its
first quarter earnings call and the release of financial results for the quarter
ended March 31, 2003.

31

On May 12, 2003, Martin Midstream Partners L.P. filed a Current Report
on Form 8-K which included its press release as Exhibit 99.1 announcing its
financial results for the quarter ended March 31, 2003.

32

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: August 8, 2003 By: /s/ ROBERT D. BONDURANT
---------------------------------------
Robert D. Bondurant
Executive Vice President and
Chief Financial Officer

33

INDEX TO EXHIBITS

* Filed herewith