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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 SEPTEMBER 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 November 10,
2003 was 2,900,000.
Page
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................... 1
Consolidated Condensed Balance Sheets as of September 30, 2003 (unaudited) and December 31,
2002 (audited)..................................................................................... 1
Consolidated and Combined Condensed Statements of Operations for the Three Months Ended
and Nine months ended September 30, 2003 and 2002 (unaudited)...................................... 2
Consolidated and Combined Condensed Statements of Capital/Equity for the Nine Months
Ended September 30, 2003 and 2002 (unaudited) ..................................................... 3
Consolidated and Combined Condensed Statements of Cash Flows for the Nine months ended
September 30, 2003 and 2002 (unaudited)............................................................ 4
Notes to Consolidated and Combined Condensed Financial Statements (unaudited)...................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk......................................... 33
Item 4. Controls and Procedures............................................................................ 34
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 34
Item 2. Changes in Securities and Use of Proceeds.......................................................... 34
Item 5. Other Information.................................................................................. 34
Item 6. Exhibits and Reports on Form 8-K................................................................... 35
SIGNATURE
CERTIFICATIONS
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)
SEPTEMBER 30, 2003 DECEMBER 31, 2002
(UNAUDITED) (AUDITED)
------------------ -----------------
ASSETS
Cash....................................................................................... $ 5,956 $ 1,734
Accounts and other receivables, less allowance for doubtful accounts of $280 and $355...... 18,187 20,225
Product exchange receivables............................................................... 2,285 1,040
Inventories................................................................................ 17,248 15,511
Due from affiliates........................................................................ 795 332
Other current assets....................................................................... 352 273
-------- --------
Total current assets................................................................. 44,823 39,115
-------- --------
Property, plant, and equipment, at cost.................................................... 84,691 83,345
Accumulated depreciation................................................................... (30,934) (27,488)
-------- --------
Property, plant and equipment, net................................................... 53,757 55,857
-------- --------
Goodwill 2,922 2,922
Investment in unconsolidated entities...................................................... 716 1,081
Other assets, net.......................................................................... 1,056 1,480
-------- --------
$103,274 $100,455
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Trade and other accounts payable........................................................... $ 11,850 $ 14,007
Product exchange payables.................................................................. 8,478 2,285
Due to affiliates.......................................................................... 770 -
Other accrued liabilities.................................................................. 1,278 2,057
-------- --------
Total current liabilities............................................................ 22,376 18,349
Long-term debt............................................................................. 35,000 35,000
-------- --------
Total liabilities.................................................................... 57,376 53,349
-------- --------
Partners' capital.......................................................................... 45,898 47,106
Commitments and contingencies..............................................................
-------- --------
$103,274 $100,455
======== ========
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)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- ------------
(PARTNERSHIP) (PREDECESSOR) (PARTNERSHIP) (PREDECESSOR)
Revenues:
Marine transportation.............................. $ 6,470 $ 6,176 $ 19,582 $ 17,827
Terminalling....................................... 1,769 1,349 5,038 3,741
Product sales:
LPG distribution............................. 26,617 20,838 95,335 59,217
Fertilizer................................... 5,384 4,639 20,143 20,557
---------- --------- ---------- ---------
32,001 25,477 115,478 79,774
---------- --------- ---------- ---------
Total revenues......................... 40,240 33,002 140,098 101,342
---------- --------- ---------- ---------
Costs and expenses:
Cost of products sold:
LPG distribution.............................. 25,728 19,855 92,116 55,606
Fertilizer.................................... 4,933 4,337 17,579 17,061
---------- --------- ---------- ---------
30,661 24,192 109,695 72,667
Expenses:
Operating expenses.................................. 4,977 4,707 14,908 14,725
Selling, general and administrative................. 1,444 1,579 4,576 4,953
Depreciation and amortization....................... 1,192 1,140 3,515 3,356
---------- --------- ---------- ---------
Total costs and expenses...................... 38,274 31,618 132,694 95,701
---------- --------- ---------- ---------
Operating income.............................. 1,966 1,384 7,404 5,641
---------- --------- ---------- ---------
Other income (expense):
Equity in earnings of unconsolidated entities....... 580 766 2,308 2,236
Interest expense.................................... (394) (937) (1,442) (2,976)
Other, net.......................................... 29 21 68 36
---------- --------- ---------- ---------
Total other income (expense).................. 215 (150) 934 (704)
---------- --------- ---------- ---------
Income before income taxes................... 2,181 1,234 8,338 4,937
Income taxes............................................. - 485 - 1,818
---------- --------- ---------- ---------
Net income......................................... $ 2,181 $ 749 $ 8,338 $ 3,119
========== ========= ========== =========
General partner's interest in net income................. $ 44 $ 167
Limited partners' interest in net income................. $ 2,137 $ 8,171
Net income per limited partner unit...................... $ 0.30 $ 1.14
Weighted average limited partner units................... 7,153,362 7,153,362
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 NINE MONTHS ENDED SEPTEMBER 30, 2003 (PARTNERSHIP) AND 2002
(PREDECESSOR)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
OWNER'S
EQUITY PARTNERS' CAPITAL
------- --------------------------------------------------
GENERAL
LIMITED PARTNERS PARTNER
---------------------------------------- --------
COMMON SUBORDINATED
------------------- -------------------
UNITS AMOUNT UNITS AMOUNT AMOUNT TOTAL
--------- -------- --------- -------- -------- --------
Balances- January 1, 2002.................. $18,758 -- -- -- -- -- $18,758
Net Income................................. 3,119 -- -- -- -- -- 3,119
------- --------- -------- --------- -------- -------- -------
Balances - September 30, 2002.............. $21,877 -- -- -- -- -- $21,877
======= ========= ======== ========= ======== ======== =======
Balances - January 1, 2003................. -- 2,900,000 $ 48,396 4,253,362 $ (1,288) $ (2) $47,106
Net Income................................. -- -- 3,313 -- 4,858 167 8,338
Cash distributions ($1.31 per unit)........ -- -- (3,792) -- (5,563) (191) (9,546)
------- --------- -------- --------- -------- -------- -------
Balances - September 30, 2003.............. $ -- 2,900,000 $ 47,917 4,253,362 $ (1,993) $ (26) $45,898
======= ========= ======== ========= ======== ======== =======
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)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2003 2002
------------- -------------
(PARTNERSHIP) (PREDECESSOR)
Cash flows from operating activities:
Net income.............................................................................. $ 8,338 $ 3,119
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 3,515 3,356
Amortization of deferred debt issuance costs...................................... 355 --
Deferred income taxes............................................................. -- 2,269
Gain on sale of property, plant, and equipment.................................... -- (12)
Equity in earnings of unconsolidated entities..................................... (2,308) (2,236)
Change in current assets and liabilities, excluding effects of acquisitions
and dispositions:
Accounts and other receivables.............................................. 2,038 (1,427)
Product exchange receivables................................................ (1,245) (228)
Inventories................................................................. (1,737) (5,193)
Due from affiliates......................................................... (463) --
Other current assets........................................................ (79) (125)
Trade and other accounts payable............................................ (2,157) 2,605
Product exchange payables................................................... 6,193 2,236
Due to affiliates........................................................... 770 --
Other accrued liabilities................................................... (779) 268
Change in other noncurrent assets, net............................................ -- (53)
------- --------
Net cash provided by operating activities............................... 12,441 4,579
------- --------
Cash flows from investing activities:
Payments for property, plant, and equipment............................................. (1,346) (2,216)
Proceeds from sale of property, plant and equipment..................................... -- 444
Distributions from unconsolidated partnership........................................... 2,673 --
Cash paid for acquisition............................................................... -- (103)
------- --------
Net cash provided by (used in) investing activities..................... 1,327 (1,875)
------- --------
Cash flows from financing activities:
Payments of long-term debt.............................................................. -- (640)
Cash distributions paid................................................................. (9,546) --
Borrowings from affiliates.............................................................. -- 35,750
Payments to affiliates.................................................................. -- (37,751)
------- --------
Net used in by financing activities..................................... (9,546) (2,641)
------- --------
Net increase in cash and cash equivalents............................... 4,222 63
Cash at beginning of period................................................................... 1,734 62
------- --------
Cash at end of period......................................................................... $ 5,956 $ 125
======= ========
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)
SEPTEMBER 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 consolidated and
combined financial statements and notes thereto in the Partnership's Annual
Report on Form 10-K filed with the Securities and Exchange Commission (the
"SEC") on March 26, 2003.
PRINCIPLES OF PRESENTATION, COMBINATION AND CONSOLIDATION
The balance sheets as of September 30, 2003 and December 31, 2002 and
the statements of operations, capital/equity and cash flows for the nine months
ended September 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. (the "Operating
Partnership").
The statements of operations, capital/equity and cash flows for the
nine months ended September 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 following the
Partnership's initial public offering on November 6, 2002.
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
5
filed with the SEC 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 nine months ended September 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:
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
Carrying amount of goodwill:
Marine transportation segment...... $2,026 $2,026
LPG distribution segment........... 80 80
Fertilizer segment................. 816 816
------ ------
$2,922 $2,922
====== ======
The Partnership performed its annual test for impairment of goodwill as
of September 30, 2003. The result of this analysis did not require the
Partnership to recognize an impairment loss.
4. CF MARTIN SULPHUR
The following table sets forth CF Martin Sulphur's summarized net
income information for the three and nine months ended September 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 September 30, 2003
and 2002, the Partnership recorded equity in earnings from CF Martin Sulphur of
$580 and $810, respectively, and recorded cash distributions therefrom of $891
and $0, respectively. The equity in earnings for both three month periods
includes $131 of amortization of the difference between the Partnership's
original book investment in CF Martin Sulphur and its related underlying equity
balance therein. During the nine months ended September 30, 2003 and 2002, the
Partnership recorded equity in earnings from CF Martin Sulphur of $2,308 and
$2,465, respectively, and recorded cash distributions therefrom of $2,673 and
$0, respectively. The equity in earnings for both nine month periods includes
$393 of amortization of the difference between the Partnership's original book
investment in CF Martin Sulphur and its related underlying equity balance
therein.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
2003 2002 2003 2002
------- ------- ------- -------
Revenues............................ $16,472 $13,553 $52,151 $35,870
Costs and expenses.................. 15,339 11,927 47,644 31,001
------- ------- ------- -------
Operating income.................... 1,133 1,626 4,507 4,869
Interest expense.................... (207) (236) (606) (629)
Other, net.......................... (18) (18) (32) (55)
------- ------- ------- -------
Net income.......................... $ 908 $ 1,372 $ 3,869 $ 4,185
======= ======= ======= =======
5. RELATED PARTY TRANSACTIONS
Included in the financial statements for the three months and nine
months ended September 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 SEC on March 26, 2003.
Significant transactions with these related parties are reflected in
the financial statements as follows:
6
MRMC AND AFFILIATES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -----------------
2003 2002 2003 2002
------- ------ ------- ------
LPG product sales (LPG revenues)...................................................... $ 292 $ -- $ 296 $ 9
Marine transportation revenues (Marine transportation revenues)....................... 852 1,163 3,907 3,254
Terminalling revenue and wharfage fees (Terminalling revenues)........................ 239 89 707 273
Fertilizer product sales (Fertilizer revenues)........................................ 307 106 1,542 1,345
LPG storage and throughput expenses (LPG cost of products sold)....................... 92 -- 952 --
LPG product purchases (LPG cost of products sold)..................................... -- 250 -- 250
Land transportation hauling costs (LPG cost of products sold)......................... 1,521 1,327 4,707 4,414
Sulfuric acid product purchases (Fertilizer cost of products sold).................... 80 302 629 1,174
Fertilizer salaries and benefits (Fertilizer cost of products sold)................... 726 -- 2,198 --
Marine fuel purchases (Operating expenses)............................................ 365 400 1,132 1,293
LPG truck loading costs (Operating expenses).......................................... 100 79 300 275
Marine transportation salaries and benefits (Operating expenses)...................... 1,624 -- 4,638 --
LPG salaries and benefits (Operating expenses)........................................ 124 -- 397 --
Overhead allocation expenses (Selling, general and administrative expenses)........... 180 184 540 548
Overhead reimbursement (Offset to selling, general and administrative expenses)....... (90) -- (90) --
Terminalling salaries and benefits (Selling, general and administrative expenses)..... 191 -- 535 --
LPG salaries and benefits (Selling, general and administrative expenses).............. 151 -- 440 --
Fertilizer salaries and benefits (Selling, general and administrative expenses)....... 252 -- 745 --
Interest expense (Interest expense) .................................................. -- 827 -- 2,916
CF MARTIN SULPHUR
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -----------------
2003 2002 2003 2002
------- ------ ------- ------
Marine transportation revenues (Marine transportation revenues)....................... $1,384 $1,979 $4,288 $4,582
Fertilizer handling fee (Fertilizer revenues)......................................... 120 45 233 65
Product purchase settlements (Fertilizer cost of products sold)....................... 104 (141) 358 (641)
Marine tug lease (Operating expenses)................................................. 24 36 38 36
Marine crew charge reimbursement (Offset to operating expenses)....................... (309) (308) (915) (914)
Reimbursement of Overhead (Offset to selling, general and administrative expenses).... (50) (50) (151) (151)
7
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.
OPERATING
REVENUES DEPRECIATION OPERATING
OPERATING INTERSEGMENT AFTER AND INCOME CAPITAL
REVENUES ELIMINATIONS ELIMINATIONS AMORTIZATION (LOSS) EXPENDITURES
--------- ------------ ------------ ------------ --------- ------------
Three Months Ended September 30, 2003
Marine transportation........................... $ 6,470 $ -- $ 6,470 $ 812 $ 1,284 $ 213
Terminalling.................................... 1,769 -- 1,769 129 978 1
LPG distribution................................ 26,798 (181) 26,617 30 277 79
Fertilizer...................................... 5,442 (58) 5,384 221 (145) 195
Indirect selling, general and administrative.... -- -- -- -- (428) --
-------- ------ -------- ------- ------- -----
Total........................................ $ 40,479 $ (239) $ 40,240 $ 1,192 $ 1,966 $ 488
======== ====== ======== ======= ======= =====
Three Months Ended September 30, 2002
Marine transportation........................... $ 6,253 $ (77) $ 6,176 $ 702 $ 1,108 $ 3
Terminalling.................................... 1,349 -- 1,349 110 699 164
LPG distribution................................ 21,011 (173) 20,838 86 306 11
Fertilizer...................................... 4,725 (86) 4,639 242 (545) 22
Indirect selling, general, and administrative... -- -- -- -- (184) --
-------- ------ -------- ------- ------- -----
Total........................................ $ 33,338 $ (336) $ 33,002 $ 1,140 $ 1,384 $ 200
======== ====== ======== ======= ======= =====
OPERATING
REVENUES DEPRECIATION OPERATING
OPERATING INTERSEGMENT AFTER AND INCOME CAPITAL
REVENUES ELIMINATIONS ELIMINATIONS AMORTIZATION (LOSS) EXPENDITURES
--------- ------------ ------------ ------------ --------- ------------
Nine months ended September 30, 2003
Marine transportation.......................... $ 19,585 $ (3) $ 19,582 $ 2,376 $ 3,948 $ 914
Terminalling................................... 5,038 -- 5,038 386 2,675 59
LPG distribution............................... 96,204 (869) 95,335 84 1,407 83
Fertilizer..................................... 20,531 (388) 20,143 669 721 290
Indirect selling, general and administrative... -- -- -- -- (1,347) --
--------- -------- --------- ------- ------- -------
Total..................................... $ 141,358 $ (1,260) $ 140,098 $ 3,515 $ 7,404 $ 1,346
========= ======== ========= ======= ======= =======
Nine months ended September 30, 2002
Marine transportation.......................... $ 17,964 $ (137) $ 17,827 $ 2,120 $ 2,516 $ 78
Terminalling................................... 3,741 -- 3,741 256 1,617 2,061
LPG distribution............................... 60,018 (801) 59,217 269 1,249 26
Fertilizer..................................... 20,874 (317) 20,557 711 807 51
Indirect selling, general, and administrative.. -- -- -- -- (548) --
--------- -------- --------- ------- ------- -------
Total....................................... $ 102,597 $ (1,255) $ 101,342 $ 3,356 $ 5,641 $ 2,216
========= ======== ========= ======= ======= =======
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
Operating income....................................... $ 1,966 $ 1,384 $ 7,404 $ 5,641
Equity in earnings of unconsolidated entities.......... 580 766 2,308 2,236
Interest expense....................................... (394) (937) (1,442) (2,976)
Other, net............................................. 29 21 68 36
------- ------- ------- -------
Income before income taxes....................... $ 2,181 $ 1,234 $ 8,338 $ 4,937
======= ======= ======= =======
8
Total assets by segment are as follows:
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
Total assets:
Marine transportation........................ $ 46,055 $ 45,341
LPG distribution............................. 28,711 28,308
Fertilizer................................... 18,798 17,274
Terminalling................................. 9,710 9,532
------- --------
Total assets........................... $103,274 $100,455
======== ========
7. SUBSEQUENT EVENTS
On October 27, 2003, the Partnership signed a definitive agreement with
Tesoro Marine Services LLC ("Tesoro"), a subsidiary of Tesoro Petroleum
Corporation, for the purchase of certain assets associated with Tesoro's shore
based marine activities for $25 million plus the value of Tesoro's lube oil
inventories, estimated to be $1.5 million. The assets to be acquired include
marine transportation assets, terminalling and storage tank assets, and
associated real estate at 14 terminals along the Gulf Coast from Venice,
Louisiana to Corpus Christi, Texas, as well as Tesoro's lube oil sales and
distribution business. The Partnership intends to finance this acquisition
through an expansion of its existing credit facility. Closing of the
transaction, which is subject to a number of conditions as well as the closing
of the Midstream Fuel agreement referenced below, is expected before December
31, 2003.
On the same date, in a parallel transaction, Midstream Fuel Services
LLC ("Midstream Fuel"), signed a definitive agreement with Tesoro for the
purchase of Tesoro's fuel oil distribution business for $2 million plus the
value of Tesoro's diesel fuel inventories, estimated to be $3.5 million.
Midstream Fuel is a subsidiary of privately held MRMC, the owner of the
Partnership's general partner. Midstream Fuel is acquiring these assets from
Tesoro because fuel oil distribution generates non-qualifying income under
Internal Revenue Service regulations applicable to master limited partnerships
such as the Partnership. However, following the closings, pursuant to
contractual arrangements between MRMC and the Partnership, the Partnership will
utilize its midstream assets to provide transportation and storage services for
the fuel oil distribution business which is being acquired by Midstream Fuel.
Closing of the transaction, which is subject to a number of conditions as well
as the closing of the Partnership's agreement referenced above, is also expected
before December 31, 2003.
In a separate transaction, on October 27, 2003, the Partnership
acquired a marine terminal and associated assets located in Ouachita County,
Arkansas from Cross Oil Refining & Marketing, Inc. ("Cross") for a purchase
price of $2 million. At the same time, the Partnership and Cross entered into a
five year terminalling agreement, with two five year renewal terms, whereby
Cross will have the right to use the acquired terminal for the storage of bulk
crude oil and/or finished oil products. The Partnership and Cross also entered
into a five year marine transportation agreement, with two five year renewal
terms, whereby the Partnership will provide two vessels on a full time basis for
the marine transportation of bulk crude oil and finished oil products owned by
Cross or owned by others and in transit for sale to Cross at its Smackover,
Arkansas refinery.
In another separate transaction, on October 16, 2003, the Partnership
purchased a push boat and two barges from a third party for a purchase price of
$1 million. These vessels are being used by the Partnership to transport
petroleum products.
During October 2003, in connection with the acquisition of the assets
from Cross and the acquisition of the vessels noted above, the Partnership
borrowed an additional $3 million under its credit facility.
As noted above, the Partnership intends to finance its proposed
acquisition of marine services assets from Tesoro through an expansion of its
existing credit facility. In connection with that transaction, the Partnership
has received a written commitment, which is subject to a number of conditions,
from Royal Bank of Canada under which the Partnership's credit facility would be
increased from $60 million to $80 million.
In May 2003, the Partnership experienced a casualty loss caused by a
lightening strike at its Odessa, Texas sulfur and fertilizer facility. This
event did not negatively affect the Partnership's operating results during the
second or third quarters of 2003. During the fourth quarter of 2003, the
Partnership expects to receive insurance proceeds resulting from this loss of
approximately $700,000 and to record a gain of approximately $500,000 related to
this involuntary conversion of assets.
9
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 "Management's
Discussion and Analysis of Financial Condition and Results of Operation," are
forward-looking statements. These statements can be identified by the use of
forward-looking terminology, including "forecast," "may," "believe," "will,"
"expect," "anticipate," "estimate," "continue" or other similar words. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other "forward-looking"
information. We and our representatives may from time to time make other oral or
written statements that are also forward-looking statements.
These forward-looking statements are made based upon management's
current plans, expectations, estimates, assumptions and beliefs concerning
future events impacting us and therefore involve a number of risks and
uncertainties. We caution that forward-looking statements are not guarantees and
that actual results could differ materially from those expressed or implied in
the forward-looking statements 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 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 September 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:
- marine transportation services for hydrocarbon products and
by-products;
- terminalling of hydrocarbon products and by-products;
- distribution of LPGs; and
10
- 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. 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" 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 nine months ended September 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 nine months ended September 30, 2003 do not
include the effects of any income taxes.
SUBSEQUENT EVENTS
On October 27, 2003, we signed a definitive agreement with Tesoro
Marine Services LLC ("Tesoro"), a subsidiary of Tesoro Petroleum Corporation,
for the purchase of certain assets associated with Tesoro's shore based marine
activities for $25 million plus the value of Tesoro's lube oil inventories,
estimated to be $1.5 million. The assets to be acquired include marine
transportation assets, terminalling and storage tank assets, and associated real
estate at 14 terminals along the Gulf Coast from Venice, Louisiana to Corpus
Christi, Texas, as well as Tesoro's lube oil sales and distribution business. We
intend to finance this acquisition through an expansion of our existing credit
facility. Closing of the transaction, which is subject to a number of conditions
as well as the closing of the Midstream Fuel agreement referenced below, is
expected before December 31, 2003.
On the same date, in a parallel transaction, Midstream Fuel Service LLC
("Midstream Fuel"), signed a definitive agreement with Tesoro for the purchase
of Tesoro's fuel oil distribution business for $2 million plus the value of
Tesoro's diesel fuel inventories, estimated to be $3.5 million. Midstream Fuel
is a subsidiary of privately held MRMC, the owner of our general partner.
Midstream Fuel is acquiring these assets from Tesoro because fuel oil
distribution generates non-qualifying income under Internal Revenue Service
regulations applicable to master limited partnerships such as us. However,
following the closings, pursuant to contractual arrangements between MRMC and
us, we will utilize our midstream assets to provide transportation and storage
services for the fuel oil distribution business which is being acquired by
Midstream Fuel. Closing of the transaction, which is subject to a number of
conditions as well as the closing of our agreement with Tesoro referenced above,
is also expected before December 31, 2003.
11
In a separate transaction, on October 27, 2003, we acquired a marine
terminal and associated assets located in Ouachita County, Arkansas from Cross
Oil Refining & Marketing, Inc. ("Cross") for a purchase price of $2 million. At
the same time, we entered into a five year terminalling agreement with Cross,
with two five year renewal terms, whereby Cross will have the right to use the
acquired terminal for the storage of bulk crude oil and/or finished oil
products. We also entered into a five year marine transportation agreement with
Cross, with two five year renewal terms, whereby we will provide two vessels on
a full time basis for the marine transportation of bulk crude oil and finished
oil products owned by Cross or owned by others and in transit for sale to Cross
at its Smackover, Arkansas refinery.
In another separate transaction, on October 16, 2003, we purchased a
push boat and two barges from a third party for a purchase price of $1 million.
These vessels are being used by us to transport petroleum products.
During October 2003, in connection with the acquisition of the assets
from Cross and the acquisition of the vessels noted above, we borrowed an
additional $3 million under our credit facility.
As noted above, we intend to finance our proposed acquisition of marine
services assets from Tesoro through an expansion of our existing credit
facility. In connection with that transaction, we have received a written
commitment, which is subject to a number of conditions, from Royal Bank of
Canada under which our credit facility would be increased from $60 million to
$80 million.
In May 2003, we experienced a casualty loss caused by a lightening
strike at our Odessa, Texas sulfur and fertilizer facility. This event did not
negatively affect our operating results during the second or third quarters of
2003. During the fourth quarter of 2003, we expect to receive insurance proceeds
resulting from this loss of approximately $700,000 and we expect to record a
gain of approximately $500,000 related to this involuntary conversion of assets.
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 SEC 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.
12
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.
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.
- 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.
- 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.
13
- 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.
- 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.
- We purchase sulfuric acid and marine fuel on a spot-contract
basis at a set margin over MRMC's cost under product supply
agreements.
- 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 SEC 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 September 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 SEC on March 26,
2003.
RESULTS OF OPERATIONS
The results of operations for the three months and nine months ended
September 30, 2003 were derived from the consolidated financial statements of
the Partnership while the results of operations for the three months and
14
nine months ended September 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 nine
months ended September 30, 2003 and 2002. The results of operations for the
first nine months of the year are not necessarily indicative of the results of
operations which might be expected for the entire year.
15
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
(IN THOUSANDS)
Operating income (loss):
Marine transportation....................................... $ 1,284 $ 1,108 $ 3,948 $ 2,516
Terminalling................................................ 978 699 2,675 1,617
LPG distribution ........................................... 277 306 1,407 1,249
Fertilizer (145) (545) 721 807
Indirect selling, general and administrative expenses....... (428) (184) (1,347) (548)
------- ------- ------- -------
Operating income................................ $ 1,966 $ 1,384 $ 7,404 $ 5,641
======= ======= ======= =======
Equity in earnings of unconsolidated subsidiaries........... $ 580 $ 766 $ 2,308 $ 2,236
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 SEPTEMBER 30, 2003 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2002
Our total revenues were $40.2 million for the three months ended
September 30, 2003 compared to $33.0 million for the three months ended
September 30, 2002, an increase of $7.2 million, or 22%. Our cost of products
sold was $30.7 million for the three months ended September 30, 2003 compared to
$24.2 million for the three months ended September 30, 2002, an increase of $6.5
million, or 27%. Our total operating expenses were $5.0 million for the three
months ended September 30, 2003 compared to $4.7 million for the three months
ended September 30, 2002, an increase of $0.3 million, or 6%.
Our total selling, general and administrative expenses were $1.4
million for the three months ended September 30, 2003 compared to $1.6 million
for the three months ended September 30, 2002, a decrease of $0.1 million, or
9%. Total depreciation and amortization was $1.2 million for the three months
ended September 30, 2003 compared to $1.1 million for the three months ended
September 30, 2002, an increase of $0.1 million, or 5%. Our operating income was
$2.0 million for the three months ended September 30, 2003 compared to $1.4
million for the three months ended September 30, 2002, an increase of $0.6
million, or 42%.
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.
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
------- -------
(IN THOUSANDS)
Revenues $ 6,470 $ 6,176
Operating expenses..................................... 4,334 4,192
------- -------
Operating margin................................. 2,136 1,984
Selling, general and administrative expenses........... 40 174
Depreciation and amortization.......................... 812 702
------- -------
Operating income................................. $ 1,284 $ 1,108
======= =======
Revenues. Our marine transportation revenues increased $0.3 million, or
5%, for the three months ended September 30, 2003 compared to the three months
ended September 30, 2002. The revenue increase was primarily due to increased
day rates for our inland marine fleet.
16
Operating expenses. Operating expenses increased $0.1 million, or 3%,
for the three months ended September 30, 2003 compared to the three months ended
September 30, 2002. This increase was due primarily to increased maintenance and
salary expense, offset by reduced fuel expense.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million for the three months ended
September 30, 2003 compared to the three months ended September 30, 2002.
Depreciation and Amortization. Depreciation and amortization increased
$0.1 million, or 16%, for the three months ended September 30, 2003 compared to
the three months ended September 30, 2002.
In summary, our marine transportation operating income increased $0.2
million, or 16%, for the three months ended September 30, 2003 compared to the
three months ended September 30, 2002.
Terminalling Business.
The following table summarizes our results of operations in our
terminalling segment.
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
------- -------
(IN THOUSANDS)
Revenues............................................... $ 1,769 $1,349
Operating expenses..................................... 350 251
------- ------
Operating margin................................. 1,419 1,098
Selling, general and administrative expenses........... 312 289
Depreciation and amortization.......................... 129 110
------- ------
Operating income................................. $ 978 $ 699
======= ======
Revenues. Our terminalling revenues increased $0.4 million, or 31%, for
the three months ended September 30, 2003 compared to the three months ended
September 30, 2002. This increase was due primarily to an increase in rates for
certain terminalling contracts at our Tampa terminal. Also, in the third quarter
of 2002, we had a tank at Tampa that was out of service for repairs which was
fully utilized in the third quarter of 2003.
Operating expenses. Operating expenses increased $0.1 million or 39%
for the three months ended September 30, 2003 compared to the three months ended
September 30, 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 $0.3 million,
or 40%, for the three months ended September 30, 2003 compared to the three
months ended September 30, 2002.
LPG Distribution Business
The following table summarizes our results of operations in our LPG
distribution segment.
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
------- -------
(IN THOUSANDS)
Revenues............................................... $26,617 $20,838
Cost of products sold.................................. 25,728 19,854
Operating expenses..................................... 253 265
------- -------
Operating margin................................. 636 719
Selling, general and administrative expenses........... 329 327
Depreciation and amortization.......................... 30 86
------- -------
Operating income................................. $ 277 $ 306
======= =======
17
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
------- -------
(IN THOUSANDS)
LPG Volumes (gallons) 40,733 39,286
====== ======
Revenues. Our LPG distribution revenue increased $5.8 million, or 28%,
for the three months ended September 30, 2003 compared to the three months ended
September 30, 2002. This increase was due to both volume and price increases.
Our volume for the quarter ended September 30, 2003 was 4% greater than the
quarter ended September 30, 2002. The average sales price per gallon was 23%
greater for the third quarter of 2003 compared to the third quarter of 2002. 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 $5.9 million,
or 30%, for the three months ended September 30, 2003 compared to the three
months ended September 30, 2002, which approximated our increase in sales. As
previously mentioned, this increase was primarily due to a 4% increase in sales
volume and a 25% increase in price of products sold for the quarter ended
September 30, 2003 as compared to the quarter ended September 30, 2002.
Operating expenses. Operating expenses were $0.3 million for both three
month periods.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $0.3 million for both three month periods.
Depreciation and amortization. Depreciation and amortization decreased
$0.1 million for the three months ended September 30, 2003 compared to the three
months ended September 30, 2002.
In summary, our LPG distribution operating income was $0.3 million for
both three month periods.
Fertilizer Business
The following table summarizes our results of operations in our
fertilizer segment.
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
------- -------
(IN THOUSANDS)
Revenues............................................... $ 5,384 $ 4,639
Cost of products sold and operating expenses........... 4,973 4,337
------- -------
Operating margin................................. 411 302
Selling, general and administrative expenses........... 335 605
Depreciation and amortization.......................... 221 242
------- -------
Operating loss................................... $ (145) $ (545)
======= =======
Fertilizer Volumes (tons) 27.7 30.0
======= =======
Revenues. Our fertilizer business revenues increased $0.7 million, or
16%, for three months ended September 30, 2003 compared to the three months
ended September 30, 2002. Our sales volume decreased 8% for the quarter ended
September 30, 2003 as compared to the quarter ended September 30, 2002. This
decrease was primarily due to dry weather conditions. We experienced a 26%
increase in the average selling price per ton in the third quarter of 2003
compared to the third quarter of 2002. This was primarily a result of selling
some of our premium priced products in the third quarter of 2003 compared to no
sales of this product in the third quarter of 2002.
Cost of products sold and operating expenses. Our cost of products sold
and operating expenses increased $0.6 million, or 15%, for the three months
ended September 30, 2003 compared to the three months ended September 30, 2002.
This increase was primarily due selling some of our premium priced products in
the third quarter of 2003.
18
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.3 million, or 45%, for the three months
ended September 30, 2003 compared to the three months ended September 30, 2002.
This decrease was primarily due to reduction in personnel.
Depreciation and amortization. Depreciation and amortization was $0.2
million for both three month periods.
In summary, our fertilizer operating loss decreased $0.4 million for
the three months ended September 30, 2003 compared to the three months ended
September 30, 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
Our total revenues were $140.1 million for the nine months ended
September 30, 2003 compared to $101.3 million for the nine months ended
September 30, 2002, an increase of $38.8 million, or 38%. Our cost of products
sold was $109.7 million for the nine months ended September 30, 2003 compared to
$72.7 million for the nine months ended September 30, 2002, an increase of $37.0
million, or 51%. Our total operating expenses were $14.9 million for the nine
months ended September 30, 2003 compared to $14.7 million for the nine months
ended September 30, 2002, an increase of $0.2 million, or 1%.
Our total selling, general and administrative expenses were $4.6
million for the nine months ended September 30, 2003 compared to $5.0 million
for the nine months ended September 30, 2002, a decrease of $0.3 million, or 7%.
Total depreciation and amortization was $3.5 million for the nine months ended
September 30, 2003 compared to $3.4 million for the nine months ended September
30, 2002, an increase of $0.2 million, or 5%. Our operating income was $7.4
million for the nine months ended September 30, 2003 compared to $5.6 million
for the nine months ended September 30, 2002, an increase of $1.8 million, or
31%.
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.
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
------- -------
(IN THOUSANDS)
Revenues $19,582 $17,827
Operating expenses................................. 13,064 12,790
------- -------
Operating margin............................. 6,518 5,037
Selling, general and administrative expenses....... 194 401
Depreciation and amortization...................... 2,376 2,120
------- -------
Operating income............................. $ 3,948 $ 2,516
======= =======
Revenues. Our marine transportation revenues increased $1.8 million, or
10%, for the nine months ended September 30, 2003 compared to the nine months
ended September 30, 2002. Approximately $0.6 million of this increase was due to
two offshore barge units that were fully utilized in the first nine 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 of 2002 for routine repairs and maintenance.
The remaining increase in revenues of $1.2 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 $0.3 million, or 2%,
for the nine months ended September 30, 2003 compared to the nine months ended
September 30, 2002. Reduced maintenance and lease expenses of $0.9 million were
more than offset by salaries, benefits, supplies and other operating expenses.
19
Selling, general, and administrative expenses. Selling, general and
administrative expenses decreased $0.2 million, or __% for the nine months ended
September 30, 2003 compared to the nine months ended September 30, 2002.
Depreciation and Amortization. Depreciation and amortization increased
$0.3 million, or 12%, for the nine months ended September 30, 2003 compared to
the nine months ended September 30, 2002. This increase was due primarily to
depreciation of capital expenditures made during 2002.
In summary, our marine transportation operating income increased $1.4
million, or 57%, for the nine months ended September 30, 2003 compared to the
nine months ended September 30, 2002.
Terminalling Business.
The following table summarizes our results of operations in our
terminalling segment.
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
------- -------
(IN THOUSANDS)
Revenues........................................... $ 5,038 $ 3,741
Operating expenses................................. 1,076 928
------- -------
Operating margin............................. 3,962 2,813
Selling, general and administrative expenses....... 901 940
Depreciation and amortization...................... 386 256
------- -------
Operating income............................. $ 2,675 $ 1,617
======= =======
Revenues. Our terminalling revenues increased $1.3 million, or 35%, for
the nine months ended September 30, 2003 compared to the nine months ended
September 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 increased $0.1 million, or 16%,
for the nine months ended September 30, 2003 compared to the nine months ended
September 30, 2002. This increase was due primarily to increased gas utility
expense.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $0.9 million for both nine month periods.
Depreciation and amortization. Depreciation and amortization increased
$0.1 million, or 51%, for the nine months ended September 30, 2003 compared to
the nine months ended September 30, 2002. This increase was due to new asphalt
tanks put in service in May, 2002.
In summary, our terminalling operating income increased $1.1 million,
or 65%, for the nine months ended September 30, 2003 compared to the nine months
ended September 30, 2002.
LPG Distribution Business
The following table summarizes our results of operations in our LPG
distribution segment.
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
-------- --------
(IN THOUSANDS)
Revenues........................................... $ 95,335 $ 59,217
Cost of products sold.............................. 92,116 55,605
Operating expenses................................. 768 1,003
-------- --------
Operating margin............................. 2,451 2,609
Selling, general and administrative expenses....... 960 1,091
Depreciation and amortization...................... 84 269
-------- --------
Operating income............................. $ 1,407 $ 1,249
======== ========
20
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
-------- --------
(IN THOUSANDS)
LPG Volumes (gallons) 139,707 120,512
======== ========
Revenues. Our LPG distribution revenue increased $36.1 million, or 61%,
for the nine months ended September 30, 2003 compared to the nine months ended
September 30, 2002. This increase was due to both volume and price increases.
Our volume for the nine months ended September 30, 2003 was 16% greater than the
nine months ended September 30, 2002. The average sales price per gallon was 39%
greater for the first nine months of 2003 compared to the first nine 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.
Cost of product sold. Our cost of products sold increased $36.5
million, or 66%, for the nine months ended September 30, 2003 compared to the
nine months ended September 30, 2002, which approximated our increase in sales.
Our LPG cost per gallon increased approximately 43% 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.
Operating expenses. Operating expenses decreased $0.2 million, or 23%,
for the nine months ended September 30, 2003 compared to the nine months ended
September 30, 2002.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.1 million, or 12%, for the nine months
ended September 30, 2003 compared to the nine months ended September 30, 2002.
Depreciation and amortization. Depreciation and amortization decreased
$0.2 million for the nine months ended September 30, 2003 compared to the nine
months ended September 30, 2002.
In summary, our LPG distribution operating income increased $0.2
million, or 13%, for the nine months ended September 30, 2003 compared to the
nine months ended September 30, 2002.
Fertilizer Business
The following table summarizes our results of operations in our
fertilizer segment.
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2003 2002
-------- --------
(IN THOUSANDS)
Revenues.......................................... $ 20,143 $ 20,557
Cost of products sold and operating expenses...... 17,579 17,066
-------- --------
Operating margin............................ 2,564 3,491
Selling, general and administrative expenses...... 1,174 1,973
Depreciation and amortization..................... 669 711
-------- --------
Operating income............................ $ 721 $ 807
======== ========
Fertilizer Volumes (tons) 116.3 120.9
======== ========
Revenues. Our fertilizer business revenues decreased $0.4 million, or
2%, for the nine months ended September 30, 2003 compared to the nine months
ended September 30, 2002. Our sales volume decreased 4% for the nine months
ended September 30, 2003 as compared to the nine months ended September 30,
2002. Offsetting this decrease was a 2% increase in the average selling price
per ton in the first nine months of 2003 compared to the first nine months of
2002.
Cost of products sold and operating expenses. Our cost of products sold
and operating expenses increased $0.5 million, or 3%, for the nine months ended
September 30, 2003 compared to the nine months ended September 30, 2002. In
2003, we experienced increased costs of raw materials, some of which we were not
able to pass on to our customers.
21
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $0.8 million, or 40%, for the nine months
ended September 30, 2003 compared to the nine months ended September 30, 2002.
This decrease was primarily 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 nine month periods.
In summary, our fertilizer operating income decreased $0.1 million, or
11%, for the nine months ended September 30, 2003 compared to the nine months
ended September 30, 2002.
EQUITY IN EARNINGS OF UNCONSOLIDATED ENTITIES
For the nine months ended September 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 nine months ended
September 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 September 30, 2003 of $0.6 million decreased by $0.2 million, or 24%, over
the same period in 2002. CF Martin Sulphur sold 9% less tons of sulfur during
the third quarter of 2003 as compared to the same period in 2002. This decrease
was due to the reduced production of sulfur caused by refinery disruptions. For
the quarter ended September 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 nine months ended
September 30, 2003 of $2.3 million increased by $0.1 million, or 3%, over the
same period in 2002. Prior to our initial public offering, we held a 50%
interest in a sulfur fungicide joint venture which had a $0.2 million loss for
the nine months ended September 30, 2002. This increase was partially offset by
a decrease in equity in earnings from CF Martin Sulphur. This joint venture
interest was retained by MRMC following our initial public offering. For the
nine months ended September 30, 2003, we received cash distributions from CF
Martin Sulphur of $2.7 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 $0.4 million for both nine month periods.
INTEREST EXPENSE
Our interest expense for all operations was $0.4 million for the three
months ended September 30, 2003 compared to $0.9 million for the three months
ended September 30, 2002, a decrease of $0.5 million, or 58%. This decrease was
primarily due to lower interest rates on our variable rate debt in the third
quarter of 2003 compared to the third quarter of 2002.
Our interest expense for all operations was $1.4 million for the nine
months ended September 30, 2003 compared to $3.0 million for the nine months
ended September 30, 2002, a decrease of $1.5 million, or 52%. This decrease was
primarily due to lower interest rates on our variable rate debt in the first
nine months of 2003 compared to the first nine months of 2002.
INDIRECT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Indirect selling, general and administrative expenses were $0.4 million
for the three months ended September 30, 2003 compared to $0.2 million for the
three months ended September 30, 2002, an increase of $0.2 million or 133%. 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 $1.3 million
for the nine months ended September 30, 2003 compared to $0.5 million for the
nine months ended September 30, 2002, an increase of $0.8 million or 146%. This
increase was primarily due to higher legal fees, accounting fees and other costs
associated
22
with being a public company. For both of these nine month periods, we reimbursed
MRMC $0.5 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 nine months ended September 30, 2003, cash increased $4.2
million as a result of $12.4 million provided by operating activities, $1.3
million provided by investing activities and $9.5 million used in financing
activities. For the nine months ended September 30, 2002, cash increased $0.1
million as a result of $4.6 million provided by operating activities, $1.9
million used in investing activities and $2.6 million used in financing
activities.
For the nine months ended September 30, 2003, our investing activities
consisted of capital expenditures and cash distributions from an unconsolidated
partnership. For the nine months ended September 30, 2002, our investing
activities consisted of capital expenditures, proceeds from the sale of
property, plant and equipment 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:
- 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
- expansion capital expenditures, which are capital expenditures
made to grow our business, to expand and upgrade our existing
marine transportation, terminalling, storage and manufacturing
facilities, and to construct new plants, storage facilities,
terminalling facilities and new marine transportation assets.
For the nine months ended September 30, 2003 and 2002, our capital
expenditures for property and equipment were $1.3 million and $2.2 million,
respectively.
As to each period:
- For the nine months ended September 30, 2003, we spent $0.1
for the buyout of certain operating leases and $1.2 million
for maintenance of marine equipment and fertilizer facilities.
- For the nine months ended September 30, 2002, we spent $1.9
million for expansion to construct new asphalt tanks at our
Stanolind terminal and $0.3 million for maintenance.
For the nine months ended September 30, 2003, financing activities
consisted of cash distributions paid to common and subordinated unit holders.
For the nine months ended September 30, 2002, financing activities consisted of
payments of long term debt to financial lenders, borrowings from affiliates and
payments to affiliates pursuant to intercompany loans. For the nine months ended
September 30, 2003, there were no payments to affiliates and for the nine months
ended September 30, 2002, our net payments to affiliates were $2.0 million.
23
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 September 30, 2003, we had $35.0 million of outstanding
indebtedness, consisting of outstanding borrowings of $25.0 million under our
$25.0 term loan and $10.0 million under our $35.0 million revolving line of
credit.
In October 2003, in connection with the financing of our acquisition
from Cross of a marine terminal and associated assets, and our acquisition of
three vessels from a third party, as noted above in "Subsequent Events",
indebtedness under our credit facility increased by $3.0 million above September
30, 2003 levels.
As noted above in "Subsequent Events", we intend to finance our
proposed acquisition of marine services assets from Tesoro through an expansion
of our existing credit facility. In connection with that transaction, we have
received a written commitment, which is subject to a number of conditions, from
Royal Bank of Canada under which our credit facility would be increased from $60
million to $80 million.
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 (exclusive of acquisitions) 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.
24
Total Contractual Cash Obligations. A summary of our total contractual
cash obligations, as of September 30, 2003, is as follows (amounts in
thousands):
PAYMENT DUE BY PERIOD
-------------------------------------------------
Total Less than 1 1-3 4-5 After 5
Obligation Years Years Years Years
---------- ----------- ------- ----- -------
Long-term debt.............................. $35,000 $ -- $35,000 $ -- $ --
Operating leases............................ 131 51 56 24 --
Interest expense on long-term debt.......... 2,581 1,210 1,371 $ -- --
------- ------ ------- ----- ----
$37,712 $1,261 $36,427 $ 24 $ --
======= ====== ======= ===== ====
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 sub facility
that will be used for ongoing working capital needs and general partnership
purposes and (ii) a $10.0 million sub facility 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 sub
facility 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 sub facility and
could result in quarterly mandatory prepayments to the extent that borrowings
under this sub facility 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
25
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.
As noted above in "Subsequent Events", we intend to finance our
proposed acquisition of marine services assets from Tesoro through an expansion
of our existing credit facility. In connection with that transaction, we have
received a written commitment, which is subject to a number of conditions, from
Royal Bank of Canada under which our credit facility would be increased from $60
million to $80 million.
SEASONALITY
A substantial portion of our revenues are dependent on sales prices of
products, particularly LPGs and fertilizers, which fluctuate in part based on
winter and spring weather conditions. The demand for LPGs is strongest during
the winter heating season. The demand for fertilizers is strongest during the
early spring planting season. However, our marine transportation and
terminalling businesses and the molten sulfur business of CF Martin Sulphur, are
typically not impacted by seasonal fluctuations. We expect to derive a majority
of our net income from these lines of business and our 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.
THE PENDING ACQUISITION OF MARINE SERVICES ASSETS FROM TESORO MAY NOT
BE CONSUMMATED OR WE MAY NOT SUCCESSFULLY INTEGRATE THE ASSETS OR BUSINESS THAT
WE ACQUIRE INTO OUR OPERATIONS. The pending acquisition of marine services
assets from Tesoro is subject to a number of closing conditions. If this
transaction is not consummated, our future growth plans may be adversely
affected. Furthermore, our inability to successfully integrate the assets or
businesses that we acquire into our operations could adversely affect our
business.
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 unit holders. The amount of cash we can distribute on our
common units principally depends upon the amount of net cash generated from our
operations, which will fluctuate from quarter to quarter based on, among other
things:
- the costs of acquisitions, if any;
- the prices of hydrocarbon products and by-products;
- fluctuations in our working capital;
26
- the level of capital expenditures we make;
- restrictions contained in our debt instruments and our debt
service requirements;
- our ability to make working capital borrowings under our
revolving credit facility; and
- 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 unit holders. 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 UNIT HOLDERS. Our distribution network and
operations are primarily concentrated in the Gulf Coast region and along the
Mississippi River inland waterway. Weather in these regions is often severe and
can be a major factor in our day-to-day operations. Our marine transportation
operations can be significantly delayed, impaired or postponed by adverse
weather conditions, such as fog in the winter and spring months, and certain
river conditions. Additionally, our marine transportation operations and our
assets in the Gulf of Mexico, including our barges, 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 unit holders.
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
27
financing to purchase CF Industries' interest in this partnership, this
transaction could adversely impact our ability to make distributions to our unit
holders. 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 unit holders 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 UNIT HOLDERS. 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 unit holders.
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 UNIT HOLDERS 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:
- accidents on rivers or at sea and other hazards that could
result in releases, spills and other environmental damages,
personal injuries, loss of life and suspension of operations;
- leakage of LPGs and other hydrocarbon by-products;
- fires and explosions;
- damage to transportation, terminalling and storage facilities,
and surrounding properties caused by natural disasters; and
- 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 unit holders 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 UNIT HOLDERS.
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 unit holders.
RESTRICTIONS IN OUR DEBT AGREEMENTS MAY PREVENT US FROM MAKING
DISTRIBUTIONS TO OUR UNIT HOLDERS. As of September 30, 2003, we had $35.0
million of indebtedness, composed of $10.0 million of debt under our revolving
line of credit and $25.0 million of term debt. Furthermore, in October 2003, in
connection with our acquisition from Cross of a marine terminal and associated
assets and our acquisition of vessels from a third party, indebtedness under our
credit facility increased by $3.0 million above September 30, 2003 levels. Our
payment of principal and interest on our debt will reduce the cash available for
distribution to our unit holders. 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
28
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 unit holders. As noted elsewhere herein, we intend to
finance our proposed acquisition of marine services assets from Tesoro through
an expansion of our existing credit facility. In connection with that
transaction, we have received a written commitment, which is subject to a number
of conditions, from Royal Bank of Canada under which our credit facility would
be increased from $60 million to $80 million.
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 unit holders. Additionally, if we do not have sufficient capital
resources, or are not able to obtain financing on terms acceptable to us, for
acquisitions, our ability to implement our growth strategies may be adversely
impacted.
FUTURE ACQUISITIONS AND EXPANSIONS MAY NOT BE SUCCESSFUL, MAY
SUBSTANTIALLY INCREASE OUR INDEBTEDNESS AND CONTINGENT LIABILITIES, AND MAY
CREATE INTEGRATION DIFFICULTIES. As part of our business strategy, we intend to
acquire businesses or assets we believe complement our operations. These
acquisitions may require substantial capital and the incurrence of additional
indebtedness. If we make acquisitions, our capitalization and results of
operations may change significantly. You will not have the opportunity to
evaluate the economic, financial and other relevant information that we will
consider in determining the application of these funds and other resources.
Further, any acquisition could result in:
- the discovery of material undisclosed liabilities of the
acquired business or assets;
- the unexpected loss of key employees or customers from the
acquired businesses;
- difficulties resulting from our integration of the operations,
systems and management of the acquired business; and
- an unexpected diversion of our management's attention from
other operations.
If 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 unit holders.
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 UNIT HOLDERS.
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 unit holders.
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 UNIT HOLDERS. 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
29
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 unit holders. 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 unit holders.
THE LOSS OR INSUFFICIENT ATTENTION OF KEY PERSONNEL COULD NEGATIVELY
IMPACT OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO OUR UNIT
HOLDERS. 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 unit holders.
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 unit holders.
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 unit holders may
be reduced.
OUR LOSS OF SIGNIFICANT COMMERCIAL RELATIONSHIPS WITH MRMC COULD
ADVERSELY IMPACT OUR RESULTS OF OPERATIONS AND ABILITY TO MAKE DISTRIBUTIONS TO
OUR UNIT HOLDERS. 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 unit holders. 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 a material adverse impact on our results of operations, cash
flow and ability to make distributions to our unit holders.
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 unit holders.
Operations at our facilities and at the facilities owned or operated by our
suppliers and customers could be partially or completely shut down, temporarily
or permanently, as the result of any number of circumstances that are not within
our control, such as:
- catastrophic events;
- environmental remediation;
- labor difficulties; and
- disruptions in the supply of our products to our facilities or
means of transportation.
Additionally, terrorist attacks and acts of sabotage could target oil and gas
production facilities, refineries, processing plants 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 unit holders.
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
30
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 unit holders.
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 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
unit holders.
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 UNIT HOLDERS. 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 UNIT HOLDERS. 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 unit holders.
MRMC HAS CONFLICTS OF INTEREST AND LIMITED FIDUCIARY RESPONSIBILITIES,
WHICH MAY PERMIT IT TO FAVOR ITS OWN INTERESTS TO THE DETRIMENT OF OUR UNIT
HOLDERS. 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 unit holders, 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 unit holders.
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:
- 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.
- 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
31
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.
- 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 unit holders.
- MRMC may compete with us, subject to the limitations set forth
in the omnibus agreement.
- 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 unit holders.
- Under the partnership agreement, our general partner may limit
its liability and reduce its fiduciary duties, while also
restricting the remedies available to our unit holders for
actions that, without the limitations and reductions, might
constitute breaches of fiduciary duty. As a result of
purchasing units, our unit holders 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.
- Our general partner determines which costs incurred by MRMC
are reimbursable by us.
- 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.
- Our general partner controls the enforcement of obligations
owed to us by MRMC.
- Our general partner decides whether to retain separate
counsel, accountants or others to perform services for us.
- 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.
- 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 UNIT
HOLDERS. 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 unit holders.
UNIT HOLDERS MAY NOT HAVE LIMITED LIABILITY IF A COURT FINDS THAT WE
HAVE NOT COMPLIED WITH APPLICABLE STATUTES OR THAT UNIT HOLDER 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:
32
- we had been conducting business in any state without
compliance with the applicable limited partnership statute; or
- the right or the exercise of the right by our unit holders 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 unit holder 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 UNIT HOLDER
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 unit holders. Furthermore, there is no restriction in the
partnership agreement on the ability of the owner of our general partner to
transfer its ownership interest in our general partner to a third party. A new
owner of our general partner could replace the directors and officers of our
general partner with its own designees and to control the decisions taken by our
general partner.
If, at any time, MRMC no longer controls our general partner, the
lender under our credit facility may declare all amounts outstanding thereunder
immediately due and payable. If such event occurs, we may be required to
refinance our debt on unfavorable terms, which could negatively impact our
results of operations and our ability to make distribution to our unit holders.
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
unit holders.
THE IRS COULD TREAT US AS A CORPORATION FOR TAX PURPOSES, WHICH WOULD
SUBSTANTIALLY REDUCE THE CASH AVAILABLE FOR DISTRIBUTION TO UNIT HOLDERS. If we
were treated as a corporation for federal income tax purposes, we would pay tax
on our income at corporate rates, which are currently a maximum of 35%.
Distributions to our unit holders would generally be taxed again as corporate
distributions, and no income, gains, losses, or deductions would flow through to
our unit holders. Because a tax would be imposed upon us as a corporation, the
cash available for distribution to unit holders 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 unit holders 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
33
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 September 30, 2003. We had $35.0 million of
indebtedness outstanding under this facility at September 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 $0.4 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"), the Partnership carried
out an evaluation, under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer of
our general partner, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer of our
general partner concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report 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 within the time periods specified in the Securities and Exchange
Commission's rules and forms.
There has been no change in our internal controls over financial
reporting that occurred during the three months ended September 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 outcome 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 5. OTHER INFORMATION
On October 27, 2003, the Partnership signed a definitive agreement with
Tesoro, for the purchase of certain assets associated with Tesoro's shore based
marine activities for $25 million plus the value of Tesoro's lube oil
inventories, estimated to be $1.5 million. The assets to be acquired include
marine transportation assets, terminalling and storage tank assets, and
associated real estate at 14 terminals along the Gulf Coast from Venice,
Louisiana to Corpus Christi, Texas, as well as Tesoro's lube oil sales and
distribution business. The Partnership intends to finance this acquisition
through an expansion of the Partnership's existing credit facility. Closing of
the transaction, which is subject to a number of conditions as well as the
closing of the Midstream Fuel agreement referenced below, is expected before
December 31, 2003.
On the same date, in a parallel transaction, Midstream Fuel, signed a
definitive agreement with Tesoro for the purchase of Tesoro's fuel oil
distribution business for $2 million plus the value of Tesoro's diesel fuel
inventories, estimated to be $3.5 million. Midstream Fuel is a subsidiary of
privately held MRMC, the owner of the Partnership's general partner. Midstream
Fuel is acquiring these assets from Tesoro because fuel oil distribution
generates non-qualifying income under Internal Revenue Service regulations
applicable to master limited partnerships such as the Partnership. However,
following the closings, pursuant to contractual arrangements between MRMC and
the Partnership, the Partnership will utilize its midstream assets to provide
transportation and storage services for the fuel oil distribution business which
is being acquired by Midstream Fuel. Closing of the
34
transaction, which is subject to a number of conditions as well as the closing
of the Partnership's agreement with Tesoro referenced above, is also expected
before December 31, 2003.
In a separate transaction, on October 27, 2003, the Partnership
acquired a marine terminal and associated assets located in Ouachita County,
Arkansas from Cross for a purchase price of $2 million. At the same time, the
Partnership and Cross entered into a five year terminalling agreement, with two
five year renewal terms, whereby Cross will have the right to use the acquired
terminal for the storage of bulk crude oil and/or finished oil products. The
Partnership and Cross also entered into a five year marine transportation
agreement, with two five year renewal terms, whereby the Partnership will
provide two vessels on a full time basis for the marine transportation of bulk
crude oil and finished oil products owned by Cross or owned by others and in
transit for sale to Cross at its Smackover, Arkansas refinery.
In another separate transaction, on October 16, 2003, the Partnership
purchased a push boat and two barges from a third party for a purchase price of
$1 million. These vessels are used by the Partnership to transport petroleum
products.
During October 2003, in connection with the acquisition of the assets
from Cross and the acquisition of the vessels noted above, the Partnership
borrowed an additional $3 million under its credit facility.
As noted above, the Partnership intends to finance its proposed
acquisition of marine services assets from Tesoro through an expansion of its
existing credit facility. In connection with that transaction, the Partnership
has received a written commitment, which is subject to a number of conditions,
from Royal Bank of Canada under which the Partnership's credit facility would be
increased from $60 million to $80 million.
In May of 2003, the Partnership experienced a casualty loss caused by a
lightening strike at its Odessa, Texas sulfur and fertilizer facility. This
event did not negatively affect the Partnership's operating results during the
second and third quarters of 2003. During the fourth quarter of 2003, the
Partnership expects to receive insurance proceeds resulting from this loss of
approximately $700,000 and to record a gain of approximately $500,000 related to
this involuntary conversion of assets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Limited Partnership of Martin Midstream Partners
L.P. (the "Partnership"), dated June 21, 2002 (filed as Exhibit 3.1
to the Partnership's Registration Statement on Form S-1 (Reg. No.
333-91706), filed July 1, 2002, and incorporated herein by
reference).
3.2 First Amended and Restated Agreement of Limited Partnership of the
Partnership, dated November 6, 2002 (filed as Exhibit 3.1 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002,
and incorporated herein by reference).
3.3 Certificate of Limited Partnership of Martin Operating Partnership
L.P. (the "Operating Partnership"), dated June 21, 2002 (filed as
Exhibit 3.3 to the Partnership's Registration Statement on Form S-1
(Reg. No. 333-91706), filed July 1, 2002, and incorporated herein
by reference).
3.4 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated November 6, 2002 (filed as Exhibit 3.2
to the Partnership's Current Report on Form 8-K, filed December 12,
2002, and incorporated herein by reference).
3.5 Certificate of Formation of Martin Midstream GP LLC (the "General
Partner"), dated June 21, 2002 (filed as Exhibit 3.5 to the
Partnership's Registration Statement on Form S-1 (Reg. No.
333-91706), filed July 1, 2002, and incorporated herein by
reference).
3.6 Limited Liability Company Agreement of the General Partner, dated
June 21, 2002 (filed as Exhibit 3.6 to the Partnership's
Registration Statement on Form S-1 (Reg. No. 333-91706), filed July
1, 2002 and incorporated herein by reference).
3.7 Certificate of Formation of Martin Operating GP LLC (the "Operating
General Partner"), dated June 21, 2002 (filed as Exhibit 3.7 to the
Partnership's Registration Statement on Form S-1 (Reg. No.
333-91706), filed July 1, 2002, and incorporated herein by
reference).
3.8 Limited Liability Company Agreement of the Operating General
Partner, dated June 21, 2002 (filed as Exhibit 3.8 to the
Partnership's Registration Statement on Form S-1 (Reg. No.
333-91706), filed July 1, 2002,
35
and incorporated herein by reference).
4.1 Specimen Unit Certificate for Common Units (contained in Exhibit
3.2).
4.2 Specimen Unit Certificate for Subordinated Units (filed as Exhibit
4.2 to Amendment No. 4 to the Partnership's Registration Statement
on Form S-1 (Reg. No. 333-91706), filed October 25, 2002, and
incorporated herein by reference).
10.1 Credit Agreement dated November 6, 2002, among the Operating
Partnership, as borrower, the Partnership, Royal Bank of Canada,
as administrative agent and collateral agent, Comerica Bank-Texas,
as co-agent, and the lenders named therein (filed as Exhibit 10.1
to the Partnership's Current Report on Form 8-K, filed December
12, 2002, and incorporated herein by reference).
10.2 Contribution, Conveyance and Assumption Agreement dated October 31,
2002, by and among Martin Resource Management Corporation ("MRMC"),
Martin Resource LLC, the General Partner, the Partnership, the
Operating Partnership, the Operating General Partner, Martin Gas
Marine LLC ("MGMLLC"), Martin Resources, Inc., Martin L.P. Gas,
Inc. ("MLP Gas"), Martin Gas Sales LLC ("MGSLLC"), Martin
Transport, Inc. ("Transport"), CF Martin Sulphur Holding
Corporation ("CFMSHC") and Midstream Fuel Service LLC ("MFSLLC")
(filed as Exhibit 10.2 to the Partnership's Current Report on Form
8-K, filed December 12, 2002, and incorporated herein by
reference).
10.3 Omnibus Agreement dated November 1, 2002, by and among MRMC, the
General Partner, the Partnership and the Operating Partnership
(filed as Exhibit 10.3 to the Partnership's Current Report on Form
8-K, filed December 12, 2002, and incorporated herein by
reference).
10.4 Motor Carrier Agreement dated November 1, 2002, by and between the
Operating Partnership and Transport (filed as Exhibit 10.4 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002,
and incorporated herein by reference).
10.5 Terminal Services Agreement dated November 1, 2002, by and between
the Operating Partnership and MGSLLC (filed as Exhibit 10.5 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002,
and incorporated herein by reference).
10.6 Throughput Agreement dated November 1, 2002, by and between MGSLLC
and the Operating Partnership (filed as Exhibit 10.6 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002,
and incorporated herein by reference).
10.7 Contract for Marine Transportation dated November 1, 2002, by and
between the Operating Partnership and MRMC (filed as Exhibit 10.7
to the Partnership's Current Report on Form 8-K, filed December
12, 2002, and incorporated herein by reference).
10.8 Product Storage Agreement dated November 1, 2002, by and between
Martin Underground Storage, Inc. and the Operating Partnership
(filed as Exhibit 10.8 to the Partnership's Current Report on Form
8-K, filed December 12, 2002, and incorporated herein by
reference).
10.9 Marine Fuel Agreement dated November 1, 2002, by and between
MFSLLC and the Operating Partnership (filed as Exhibit 10.9 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002,
and incorporated herein by reference).
10.10 Product Supply Agreement dated November 1, 2002, by and between
MGSLLC and the Operating Partnership (filed as Exhibit 10.10 to
the Partnership's Current Report on Form 8-K, filed December 12,
2002, and incorporated herein by reference).
10.11 Martin Midstream Partners L.P. Long-Term Incentive Plan (filed as
Exhibit 10.11 to the Partnership's Current Report on Form 8-K,
filed December 12, 2002, and incorporated herein by reference).
10.12 Assignment and Assumption of Lease and Sublease dated November 1,
2002, by and between the Operating Partnership and MGSLLC (filed
as Exhibit 10.12 to the Partnership's Current Report on Form 8-K,
filed December 12, 2002, and incorporated herein by reference).
10.13 Purchaser Use Easement, Ingress-Egress Easement, and Utility
Facilities Easement dated November 1, 2002, by and between MGSLLC
and the Operating Partnership (filed as Exhibit 10.13 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002,
and incorporated herein by reference).
10.14* Marine Transportation Agreement, by and between the Operating
Partnership and Cross Oil Refining & Marketing, Inc., dated
October 27, 2003.
10.15* Terminalling Agreement, by and between the Operating Partnership
and Cross Oil Refining & Marketing, Inc., dated October 27, 2003.
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.
36
*Filed herewith
(b) Reports on Form 8-K
On July 18, 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
August 15, 2003 it will pay its minimum quarterly distribution of $0.50 per unit
(for the period April 1, 2003 through June 30, 2003) to its common and
subordinated unit holders of record as of the close of business on August 1,
2003.
On August 1, 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 second quarter earnings call and the release of financial results for the
quarter ended June 30, 2003.
On August 8, 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 June 30, 2003.
37
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Limited Partnership of Martin Midstream Partners L.P.
(the "Partnership"), dated June 21, 2002 (filed as Exhibit 3.1 to the
Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706),
filed July 1, 2002, and incorporated herein by reference).
3.2 First Amended and Restated Agreement of Limited Partnership of the
Partnership, dated November 6, 2002 (filed as Exhibit 3.1 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002, and
incorporated herein by reference).
3.3 Certificate of Limited Partnership of Martin Operating Partnership L.P.
(the "Operating Partnership", dated June 21, 2002 (filed as Exhibit 3.3
to the Partnership's Registration Statement on Form S-1 (Reg. No.
333-91706), filed July 1, 2002, and incorporated herein by reference).
3.4 Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, dated November 6, 2002 (filed as Exhibit 3.2 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002, and
incorporated herein by reference).
3.5 Certificate of Formation of Martin Midstream GP LLC (the "General
Partner"), dated June 21, 2002 (filed as Exhibit 3.5 to the
Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706),
filed July 1, 2002, and incorporated herein by reference).
3.6 Limited Liability Company Agreement of the General Partner, dated June
21, 2002 (filed as Exhibit 3.6 to the Partnership's Registration
Statement on Form S-1 (Reg. No. 333-91706), filed July 1, 2002, and
incorporated herein by reference).
3.7 Certificate of Formation of Martin Operating GP LLC (the "Operating
General Partner"), dated June 21, 2002 (filed as Exhibit 3.7 to the
Partnership's Registration Statement on Form S-1 (Reg. No. 333-91706),
filed July 1, 2002, and incorporated herein by reference).
3.8 Limited Liability Company Agreement of the Operating General Partner,
dated June 21, 2002 (filed as Exhibit 3.8 to the Partnership's
Registration Statement on Form S-1 (Reg. No. 333-91706), filed July 1,
2002, and incorporated herein by reference).
4.1 Specimen Unit Certificate for Common Units (contained in Exhibit 3.2).
4.2 Specimen Unit Certificate for Subordinated Units (filed as Exhibit 4.2
to Amendment No. 4 to the Partnership's Registration Statement on Form
S-1 (Reg. No. 333-91706), filed October 25, 2002, and incorporated
herein by reference).
10.1 Credit Agreement dated November 6, 2002, among the Operating
Partnership, as borrower, the Partnership, Royal Bank of Canada, as
administrative agent and collateral agent, Comerica Bank-Texas, as
co-agent, and the lenders named therein (filed as Exhibit 10.1 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002, and
incorporated herein by reference).
10.2 Contribution, Conveyance and Assumption Agreement dated October 31,
2002, by and among Martin Resource Management Corporation ("MRMC"),
Martin Resource LLC, the General Partner, the Partnership, the
Operating Partnership, the Operating General Partner, Martin Gas Marine
LLC ("MGMLLC"), Martin Resources, Inc., Martin L.P. Gas, Inc. ("MLP
Gas"), Martin Gas Sales LLC ("MGSLLC") Martin Transport, Inc.
("Transport"), CF Martin Sulphur Holding Corporation ("CFMSHC") and
Midstream Fuel Service LLC ("MFSLLC") (filed as Exhibit 10.2 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002, and
incorporated herein by reference).
10.3 Omnibus Agreement dated November 1, 2002, by and among MRMC, the
General Partner, the Partnership and the Operating Partnership (filed
as Exhibit 10.3 to the Partnership's Current Report on Form 8-K, filed
December 12, 2002, and incorporated herein by reference).
10.4 Motor Carrier Agreement dated November 1, 2002, by and between the
Operating Partnership and Transport (filed as Exhibit 10.4 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002, and
incorporated herein by reference).
10.5 Terminal Services Agreement dated November 1, 2002, by and between the
Operating Partnership and MGSLLC (filed as Exhibit 10.5 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002, and
incorporated herein by reference).
10.6 Throughput Agreement dated November 1, 2002, by and between MGSLLC and
the Operating Partnership (filed as Exhibit 10.6 to the Partnership's
Current Report on Form 8-K, filed December 12, 2002, and incorporated
herein by reference).
10.7 Contract for Marine Transportation dated November 1, 2002, by and
between the Operating Partnership and MRMC (filed as Exhibit 10.7 to
the Partnership's Current Report on Form 8-K, filed December 12, 2002,
and incorporated herein by reference).
10.8 Product Storage Agreement dated November 1, 2002, by and between Martin
Underground Storage, Inc. and the Operating Partnership (filed as
Exhibit 10.8 to the Partnership's Current Report on Form 8-K, filed
December 12, 2002, and incorporated herein by reference).
10.9 Marine Fuel Agreement dated November 1, 2002, by and between MFSLLC and
the Operating Partnership (filed as Exhibit 10.9 to the Partnership's
Current Report on Form 8-K, filed December 12, 2002, and incorporated
herein by reference).
10.10 Product Supply Agreement dated November 1, 2002, by and between MGSLLC
and the Operating Partnership (filed as Exhibit 10.10 to the
Partnership's Current Report on Form 8-K, filed December 12, 2002, and
incorporated herein by reference).
10.11 Martin Midstream Partners L.P. Long-Term Incentive Plan (filed as
Exhibit 10.11 to the Partnership's Current Report on Form 8-K, filed
December 12, 2002, and incorporated herein by reference).
10.12 Assignment and Assumption of Lease and Sublease dated November 1, 2002,
by and between the Operating Partnership and MGSLLC (filed as Exhibit
10.12 to the Partnership's Current Report on Form 8-K, filed December
12, 2002, and incorporated herein by reference).
10.13 Purchaser Use Easement, Ingress-Egress Easement, and Utility Facilities
Easement dated November 1, 2002, by and between MGSLLC and the
Operating Partnership (filed as Exhibit 10.13 to the Partnership's
Current Report on Form 8-K, filed December 12, 2002, and incorporated
herein by reference).
10.14* Marine Transportation Agreement, by and between the Operating
Partnership and Cross Oil Refining & Marketing, Inc., dated October 27,
2003.
10.15* Terminalling Agreement, by and between the Operating Partnership and
Cross Oil Refining & Marketing, Inc., dated October 27, 2003.
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.
38
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: November 10, 2003 By: /s/ ROBERT D. BONDURANT
---------------------------------
Robert D. Bondurant
Executive Vice President and
Chief Financial Officer
40