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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended June 30, 2017
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from ____________ to ____________
 
Commission File Number
000-50056
MARTIN MIDSTREAM PARTNERS L.P.
(Exact name of registrant as specified in its charter)
Delaware
 
05-0527861
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
4200 Stone Road
Kilgore, Texas 75662
(Address of principal executive offices, zip code)

Registrant’s telephone number, including area code: (903) 983-6200

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes  x
 
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Yes x
 
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o
Accelerated filer  x
Non-accelerated filer   o (Do not check if a smaller reporting company)
Smaller reporting company  o
Emerging growth company  o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes o
 
No x
 The number of the registrant’s Common Units outstanding at July 26, 2017, was 38,452,112.
 



 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1



PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
MARTIN MIDSTREAM PARTNERS L.P.
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(Dollars in thousands)
 
June 30, 2017
 
December 31, 2016
 
(Unaudited)
 
(Audited)
Assets
 
 
 
Cash
$
32

 
$
15

Accounts and other receivables, less allowance for doubtful accounts of $238 and $372, respectively
50,986

 
80,508

Product exchange receivables
220

 
207

Inventories
101,696

 
82,631

Due from affiliates
21,293

 
11,567

Fair value of derivatives
133

 

Other current assets
4,756

 
3,296

Assets held for sale
13,764

 
15,779

Total current assets
192,880

 
194,003

 
 
 
 
Property, plant and equipment, at cost
1,248,328

 
1,224,277

Accumulated depreciation
(399,684
)
 
(378,593
)
Property, plant and equipment, net
848,644

 
845,684

 
 
 
 
Goodwill
17,296

 
17,296

Investment in WTLPG
128,909

 
129,506

Note receivable - affiliate

 
15,000

Other assets, net
38,791

 
44,874

Total assets
$
1,226,520

 
$
1,246,363

 
 
 
 
Liabilities and Partners’ Capital
 

 
 

Trade and other accounts payable
$
68,029

 
$
70,249

Product exchange payables
7,606

 
7,360

Due to affiliates
2,700

 
8,474

Income taxes payable
402

 
870

Fair value of derivatives

 
3,904

Other accrued liabilities
26,689

 
26,717

Total current liabilities
105,426

 
117,574

 
 
 
 
Long-term debt, net
780,359

 
808,107

Other long-term obligations
6,055

 
8,676

Total liabilities
891,840

 
934,357

 
 
 
 
Commitments and contingencies (Note 17)


 


Partners’ capital
334,680

 
312,006

Total partners’ capital
334,680

 
312,006

Total liabilities and partners' capital
$
1,226,520

 
$
1,246,363


See accompanying notes to consolidated and condensed financial statements.

2

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


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Terminalling and storage  *
$
24,695

 
$
31,090

 
$
49,353

 
$
62,795

Marine transportation  *
12,433

 
14,339

 
25,254

 
30,685

Natural gas services*
14,838

 
15,403

 
29,503

 
31,500

Sulfur services
2,850

 
2,700

 
5,700

 
5,400

Product sales: *
 
 
 
 
 
 
 
Natural gas services
73,666

 
58,899

 
200,323

 
149,990

Sulfur services
32,027

 
39,588

 
71,554

 
79,063

Terminalling and storage
33,413

 
28,329

 
65,560

 
56,520

 
139,106

 
126,816

 
337,437

 
285,573

Total revenues
193,922

 
190,348

 
447,247

 
415,953

 
 
 
 
 
 
 
 
Costs and expenses:
 

 
 

 
 

 
 

Cost of products sold: (excluding depreciation and amortization)
 

 
 

 
 

 
 

Natural gas services *
70,198

 
55,579

 
178,377

 
134,123

Sulfur services *
21,207

 
24,700

 
45,690

 
52,224

Terminalling and storage *
28,014

 
22,934

 
54,460

 
46,766

 
119,419

 
103,213

 
278,527

 
233,113

Expenses:
 

 
 

 
 

 
 

Operating expenses  *
34,435

 
40,822

 
69,492

 
82,054

Selling, general and administrative  *
8,909

 
8,144

 
18,830

 
16,315

Loss on impairment of goodwill

 
4,145

 

 
4,145

Depreciation and amortization
20,326

 
22,089

 
45,662

 
44,137

Total costs and expenses
183,089

 
178,413

 
412,511

 
379,764

 
 
 
 
 
 
 
 
Other operating income (loss)
15

 
(1,679
)
 
(140
)
 
(1,595
)
Operating income
10,848

 
10,256

 
34,596

 
34,594

 
 
 
 
 
 
 
 
Other income (expense):
 

 
 

 
 

 
 

Equity in earnings of WTLPG
853

 
805

 
1,758

 
2,482

Interest expense, net
(11,219
)
 
(12,155
)
 
(22,139
)
 
(22,267
)
Other, net
520

 
74

 
550

 
136

Total other expense
(9,846
)
 
(11,276
)
 
(19,831
)
 
(19,649
)
 
 
 
 
 
 
 
 
Net income (loss) before taxes
1,002

 
(1,020
)
 
14,765

 
14,945

Income tax expense
(13
)
 
(191
)
 
(193
)
 
(242
)
Net income (loss)
989

 
(1,211
)
 
14,572

 
14,703

Less general partner's interest in net income
(19
)
 
(3,869
)
 
(291
)
 
(8,080
)
Less (income) loss allocable to unvested restricted units
(3
)
 
4

 
(38
)
 
(39
)
Limited partners' interest in net income (loss)
$
967

 
$
(5,076
)
 
$
14,243

 
$
6,584

 
 
 
 
 
 
 
 
Net income (loss) per unit attributable to limited partners - basic
$
0.03

 
$
(0.14
)
 
$
0.38

 
$
0.19

Net income (loss) per unit attributable to limited partners - diluted
$
0.03

 
$
(0.14
)
 
$
0.38

 
$
0.19

Weighted average limited partner units - basic
38,357

 
35,346

 
37,842

 
35,366

Weighted average limited partner units - diluted
38,414

 
35,346

 
37,895

 
35,380

 
See accompanying notes to consolidated and condensed financial statements.
*Related Party Transactions Shown Below

3

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



*Related Party Transactions Included Above
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:*
 
 
 
 
 
 
 
Terminalling and storage
$
20,331

 
$
20,590

 
$
40,035

 
$
41,548

Marine transportation
4,187

 
6,036

 
8,512

 
12,447

Natural gas services
6

 
129

 
118

 
442

Product Sales
724

 
968

 
2,154

 
1,668

Costs and expenses:*
 
 
 
 
 
 
 
Cost of products sold: (excluding depreciation and amortization)
 
 
 
 
 
 
 
Natural gas services
2,909

 
4,498

 
11,803

 
7,883

Sulfur services
3,767

 
3,810

 
7,442

 
7,622

Terminalling and storage
4,119

 
4,081

 
9,186

 
7,466

Expenses:
 
 
 
 
 
 
 
Operating expenses
16,452

 
18,088

 
32,828

 
35,445

Selling, general and administrative
6,500

 
6,911

 
14,068

 
12,343



See accompanying notes to consolidated and condensed financial statements.


4

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



 
Partners’ Capital
 
 
 
Common Limited
 
General Partner Amount
 
 
 
Units
 
Amount
 
 
Total
Balances - January 1, 2016
35,456,612

 
$
380,845

 
$
13,034

 
$
393,879

Net income

 
6,623

 
8,080

 
14,703

Issuance of restricted units
13,800

 

 

 

Forfeiture of restricted units
(250
)
 

 

 

Cash distributions

 
(57,603
)
 
(9,119
)
 
(66,722
)
Reimbursement of excess purchase price over carrying value of acquired assets

 
1,875

 

 
1,875

Unit-based compensation

 
486

 

 
486

Purchase of treasury units
(15,200
)
 
(330
)
 

 
(330
)
Balances - June 30, 2016
35,454,962

 
$
331,896

 
$
11,995

 
$
343,891

 
 
 
 
 
 
 
 
Balances - January 1, 2017
35,452,062

 
$
304,594

 
$
7,412

 
$
312,006

Net income

 
14,281

 
291

 
14,572

Issuance of common units, net of issuance related costs
2,990,000

 
51,071

 

 
51,071

Issuance of restricted units
12,000

 

 

 

Forfeiture of restricted units
(1,750
)
 

 

 

General partner contribution

 

 
1,098

 
1,098

Cash distributions

 
(36,952
)
 
(754
)
 
(37,706
)
Unit-based compensation

 
405

 

 
405

Excess purchase price over carrying value of acquired assets

 
(7,887
)
 

 
(7,887
)
Reimbursement of excess purchase price over carrying value of acquired assets

 
1,125

 

 
1,125

Purchase of treasury units
(200
)
 
(4
)
 

 
(4
)
Balances - June 30, 2017
38,452,112

 
$
326,633

 
$
8,047

 
$
334,680

 
See accompanying notes to consolidated and condensed financial statements.

5

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


 
Six Months Ended
 
June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
14,572

 
$
14,703

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
45,662

 
44,137

Amortization of deferred debt issuance costs
1,445

 
2,247

Amortization of premium on notes payable
(153
)
 
(153
)
Loss on sale of property, plant and equipment
140

 
1,595

Loss on impairment of goodwill

 
4,145

Equity in earnings of WTLPG
(1,758
)
 
(2,482
)
Derivative (income) loss
2,392

 
(1,125
)
Net cash (paid) received for commodity derivatives
(6,429
)
 
1,666

Net cash received for interest rate derivatives

 
160

Net premiums received on derivatives that settled during the year on interest rate swaption contracts

 
630

Unit-based compensation
405

 
486

Cash distributions from WTLPG
2,500

 
4,300

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

 
 

Accounts and other receivables
29,522

 
23,995

Product exchange receivables
(13
)
 
932

Inventories
(19,065
)
 
(14,766
)
Due from affiliates
(9,726
)
 
2,154

Other current assets
(1,372
)
 
509

Trade and other accounts payable
(4,067
)
 
(3,429
)
Product exchange payables
246

 
(3,923
)
Due to affiliates
(5,774
)
 
(1,879
)
Income taxes payable
(468
)
 
(615
)
Other accrued liabilities
(2,761
)
 
2,130

Change in other non-current assets and liabilities
490

 
(614
)
Net cash provided by operating activities
45,788

 
74,803

 
 
 
 
Cash flows from investing activities:
 

 
 

Payments for property, plant and equipment
(19,756
)
 
(27,844
)
Acquisitions
(19,533
)
 

Acquisition of intangible assets

 
(2,150
)
Payments for plant turnaround costs
(1,591
)
 
(1,184
)
Proceeds from sale of property, plant and equipment
1,597

 
655

Proceeds from involuntary conversion of property, plant and equipment

 
9,100

Proceeds from repayment of Note receivable - affiliate
15,000

 

Contributions to WTLPG
(145
)
 

Net cash used in investing activities
(24,428
)
 
(21,423
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Payments of long-term debt
(184,000
)
 
(163,700
)
Proceeds from long-term debt
155,000

 
180,700

Proceeds from issuance of common units, net of issuance related costs
51,071

 

General partner contribution
1,098

 

Purchase of treasury units
(4
)
 
(330
)
Payment of debt issuance costs
(40
)
 
(5,206
)
Excess purchase price over carrying value of acquired assets
(7,887
)
 

Reimbursement of excess purchase price over carrying value of acquired assets
1,125

 
1,875

Cash distributions paid
(37,706
)
 
(66,722
)
Net cash used in financing activities
(21,343
)
 
(53,383
)
 
 
 
 
Net increase (decrease) in cash
17

 
(3
)
Cash at beginning of period
15

 
31

Cash at end of period
$
32

 
$
28

Non-cash additions to property, plant and equipment
$
3,666

 
$
989


See accompanying notes to consolidated and condensed financial statements.

6

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)




(1)
General

Martin Midstream Partners L.P. (the "Partnership") is a publicly traded limited partnership with a diverse set of operations focused primarily in the United States ("U.S.") Gulf Coast region. Its four primary business lines include:  natural gas services, including liquids transportation and distribution services and natural gas storage; terminalling and storage services for petroleum products and by-products including the refining of naphthenic crude oil, blending and packaging of finished lubricants; sulfur and sulfur-based products processing, manufacturing, marketing and distribution; and marine transportation services for petroleum products and by-products.
 
The Partnership’s unaudited consolidated and condensed financial statements have been prepared in accordance with the requirements of Form 10-Q and U.S. Generally Accepted Accounting Principles ("U.S. GAAP") for interim financial reporting. Accordingly, these financial statements have been condensed and do not include all of the information and footnotes required by U.S. GAAP for annual audited financial statements of the type contained in the Partnership’s annual reports on Form 10-K. In the opinion of the management of the Partnership’s general partner, all adjustments and elimination of significant intercompany balances necessary for a fair presentation of the Partnership’s financial position, results of operations, and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. Results for such interim periods are not necessarily indicative of the results of operations for the full year. These financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the "SEC") on February 15, 2017, as amended by Amendment No. 1 on Form 10-K/A for the year ended December 31, 2016 filed on March 31, 2017.

Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated and condensed financial statements in conformity with U.S. GAAP.  Actual results could differ from those estimates.

(2)
New Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04 “Intangibles-Goodwill and other: Simplifying the test for goodwill impairment.” This ASU removes the second step of the two-step test currently required under the current guidance. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Partnership elected to early adopt this amended guidance effective January 1, 2017. The Partnership expects that adoption of this standard will change its approach for testing goodwill for impairment; however, this standard requires prospective application and therefore will only impact periods subsequent to adoption.

In August 2016, the Financial Accounting Standards Board FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This ASU is intended to clarify the presentation of cash receipts and payments in specific situations. The amendments in this ASU are effective for financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and early application is permitted. The Partnership does not anticipate that ASU 2016-15 will have a material effect on its consolidated and condensed financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases.  This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption of this standard is permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief.  The Partnership is evaluating the effect that ASU 2016-02 will have on its consolidated and condensed financial statements and related disclosures.


7

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Partnership on January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Partnership is currently determining the overall impacts that ASU 2014-09 will have on its contract portfolio and consolidated financial statements, and anticipate testing its new controls and processes designed to comply with ASU 2014-09 throughout 2017 to permit adoption by January 1, 2018. The Partnership's approach will include performing a detailed review of key contracts representative of its different businesses and comparing historical accounting policies and practices to the new standard. The Partnership currently intends on adopting the new standard utilizing the cumulative effect method which will result in the cumulative effect of the adoption being recorded as of January 1, 2018. The Partnership has adopted a three-phase implementation approach and is currently in phase one of implementation, which includes performing contract review and a gap assessment in order to evaluate the effect the adoption of ASU 2014-09 will have on its consolidated and condensed financial statements.
        
(3)
Acquisitions

Acquisition of Terminalling Assets.    On February 22, 2017, the Partnership acquired 100% of the membership interests of MEH South Texas Terminals LLC (“MEH”), a subsidiary of Martin Resource Management, for a purchase price of $27,420 (the “Hondo Acquisition”), which was was funded with borrowings under the Partnership's revolving credit facility. At the date of acquisition, MEH was in the process of constructing an asphalt terminal facility in Hondo, Texas (the "Hondo Terminal”), which will serve the asphalt market in San Antonio, Texas and surrounding areas. The Partnership will spend $8,580 to finalize construction of the Hondo Terminal with substantial completion expected to be on or about August 31, 2017.  Martin Resource Management is obligated to pay the Partnership the amount required to complete the construction of the Hondo Terminal in excess of $8,580, if any. As of June 30, 2017, the Partnership has spent $4,779 towards project construction since the acquisition on February 22, 2017. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of these assets was recorded at the historical carrying value of the assets at the acquisition date. The excess of the purchase price over the carrying value of the assets of $7,887 was recorded as an adjustment to "Partners' capital."
Purchase price
$
27,420

Historical carrying value of assets allocated to "Property, plant and equipment"
19,533

Excess purchase price over carrying value of acquired assets
$
7,887



As no individual line item of the historical financial statements of the acquired assets was in excess of 3% of the Partnership's relative consolidated financial statement captions, the Partnership elected not to retrospectively recast the historical financial information to include these assets.


8

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



(4)
Divestitures and discontinued operations

Long-Lived Assets Held for Sale

In the fourth quarter of 2016, the Partnership identified certain assets that were no longer deemed core to the operations of the Partnership in the Smackover refinery and Martin Lubricants divisions of the Terminalling and Storage segment as well as the inland and offshore divisions of the Marine Transportation segment. At June 30, 2017 and December 31, 2016, the assets met the criteria to be classified as held for sale in accordance with ASC 360-10 and are presented at the lower of the assets' carrying amount or fair value less cost to sell by segment in current assets as follows:
 
June 30, 2017
 
December 31, 2016
 
 
 
 
Terminalling and storage
$
10,537

 
$
10,852

Marine transportation
3,227

 
4,927

    Assets held for sale
$
13,764

 
$
15,779



The non-core assets discussed above did not qualify for discontinued operations presentation under the guidance of ASC 205-20.

Divestitures

Divestiture of Terminalling Assets. On December 21, 2016, the Partnership sold its 900,000 barrel crude oil storage terminal, refined product barge terminal, certain pipelines and related easements as well as dockage and trans-loading assets located in Corpus Christi, Texas (collectively the "CCCT Assets") to NuStar Logistics, L.P. (“NuStar”) for gross consideration of $107,000 plus the reimbursement of certain capital expenditures and prepaid items of $2,057. The Partnership received net proceeds of approximately $93,347 after transaction fees and expenses as well as the application of certain net cash payments previously received by the Partnership in conjunction with its mandated relocation of certain dockage assets to the purchase price in the amount of $13,400. Proceeds from the sale were used to reduce outstanding borrowings under the Partnership's revolving credit facility. The Partnership recorded a gain from the divestiture of $37,345, which was included in "Other operating income, net" on the Partnership's Consolidated Statements of Operations for the year ended December 31, 2016. Net income attributable to the CCCT Assets included in the Partnership's Consolidated Statements of Operations was $1,697 and $3,513 for the three and six months ended June 30, 2016, respectively.

The divestiture of the CCCT Assets did not qualify for discontinued operations presentation under the guidance of ASC 205-20.

(5)
Inventories

Components of inventories at June 30, 2017 and December 31, 2016 were as follows: 
 
June 30, 2017
 
December 31, 2016
Natural gas liquids
$
55,435

 
$
33,656

Sulfur
7,955

 
8,521

Sulfur based products
16,503

 
19,107

Lubricants
18,972

 
18,276

Other
2,831

 
3,071

 
$
101,696

 
$
82,631




9

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



(6)
Investment in West Texas LPG Pipeline L.P.

The Partnership owns a 19.8% limited partnership and 0.2% general partnership interest in West Texas LPG Pipeline L.P. ("WTLPG"). A wholly-owned subsidiary of ONEOK, Inc. is the operator of the assets. WTLPG owns an approximate 2,300 mile common-carrier pipeline system that primarily transports NGLs from New Mexico and Texas to Mont Belvieu, Texas for fractionation. The Partnership recognizes its 20% interest in WTLPG as "Investment in WTLPG" on its Consolidated and Condensed Balance Sheets. The Partnership accounts for its ownership interest in WTLPG under the equity method of accounting.

Selected financial information for WTLPG is as follows:
 
As of June 30,
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Total
Assets
Long-Term Debt
 
Members' Equity
 
Revenues
 
Net Income
 
Revenues
 
Net Income
2017
 
 
 
 
 
 
 
 
 
 
 
 
WTLPG
$
805,854

$

 
$
787,420

 
$
21,420

 
$
4,264

 
$
41,139

 
$
8,789

 
As of December 31,
 
 

 
 

 
 
 
 
2016
 

 
 
 

 
 

 
 

 
 
 
 
WTLPG
$
812,464

$

 
$
790,406

 
$
20,166

 
$
4,027

 
$
45,021

 
$
12,725


    
As of June 30, 2017 and December 31, 2016, the Partnership’s interest in cash of WTLPG was $523 and $631, respectively.

(7)
Derivative Instruments and Hedging Activities

The Partnership’s revenues and cost of products sold are materially impacted by changes in NGL prices. Additionally, the Partnership's results of operations are materially impacted by changes in interest rates. In an effort to manage its exposure to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate hedges. All derivatives and hedging instruments are included on the balance sheet as an asset or a liability measured at fair value and changes in fair value are recognized currently in earnings. All of the Partnership's derivatives are non-hedge derivatives and therefore all changes in fair values are recognized as gains and losses in the earnings of the periods in which they occur.

(a)    Commodity Derivative Instruments

The Partnership from time to time has used derivatives to manage the risk of commodity price fluctuation. Commodity risk is the adverse effect on the value of a liability or future purchase that results from a change in commodity price.  The Partnership has established a hedging policy and monitors and manages the commodity market risk associated with potential commodity risk exposure.  In addition, the Partnership has focused on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction. The Partnership has entered into hedging transactions as of June 30, 2017 to protect a portion of its commodity price risk exposure. These hedging arrangements are in the form of swaps for NGLs. The Partnership has instruments totaling a gross notional quantity of 128,000 barrels settling during the period from July 1, 2017 through December 29, 2017. At December 31, 2016, the Partnership had instruments totaling a gross notional quantity of 2,589 barrels settling during the period from January 1, 2017 through June 30, 2017. These instruments settle against the applicable pricing source for each grade and location. Martin Energy Trading LLC ("MET"), an affiliate of Martin Resource Management, serves as the counterparty for all positions outstanding at June 30, 2017.

(b)    Interest Rate Derivative Instruments

The Partnership is exposed to market risks associated with interest rates. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We minimize this market risk by establishing and

10

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



monitoring parameters that limit the types and degree of market risk that may be undertaken. The Partnership enters into interest rate swaps to manage interest rate risk associated with the Partnership’s variable rate credit facility and its fixed rate senior unsecured notes. At June 30, 2017, the Partnership did not have any outstanding interest rate derivative instruments.

During the six months ended June 30, 2016, the Partnership entered into contracts which provided the counterparty the option to enter into swap contracts to hedge the Partnership's exposure to changes in the fair value of its senior unsecured notes ("interest rate swaptions") through June 30, 2016. In connection with the interest rate swaption contracts, the Partnership received premiums of $630, which represented their fair value on the date the transactions were initiated and were initially recorded as derivative liabilities on the Partnership's Consolidated and Condensed Balance Sheets, during the six months ended June 30, 2016. Each of the interest rate swaptions were fully amortized as of June 30, 2016. Interest rate swaption contract premiums received are amortized over the period from initiation of the contract through their termination date. For the six months ended June 30, 2016, the Partnership recognized $630 of premiums in "Interest expense, net" on the Partnership's Consolidated and Condensed Statements of Operations related to the interest rate swaption contracts.

On January 7, 2016, the Partnership terminated a fixed-to-variable interest rate swap position with a notional principal amount of $50,000, resulting in a benefit of $366, which was recorded in "Interest expense, net" on the Partnership's Consolidated and Condensed Statement of Operations.
   
For information regarding gains and losses on interest rate derivative instruments, see "Tabular Presentation of Gains and Losses on Derivative Instruments" below.

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

The following table summarizes the fair value and classification of the Partnership’s derivative instruments in its Consolidated and Condensed Balance Sheets:
 
Fair Values of Derivative Instruments in the Consolidated Balance Sheets
 
Derivative Assets
Derivative Liabilities
 
 
Fair Values
 
Fair Values
 
 Balance Sheet Location
June 30, 2017
 
December 31, 2016
 Balance Sheet Location
June 30, 2017
 
December 31, 2016
Derivatives not designated as hedging instruments:
Current:
 
 
 
 
 
 
 
Commodity contracts
Fair value of derivatives
$
133

 
$

Fair value of derivatives
$

 
$
3,904

Total derivatives not designated as hedging instruments
 
$
133

 
$

 
$

 
$
3,904



Effect of Derivative Instruments on the Consolidated and Condensed Statements of Operations
For the Three Months Ended June 30, 2017 and 2016
 
Location of Gain (Loss)
Recognized in Income on
 Derivatives
Amount of Gain (Loss) Recognized in
Income on Derivatives
 
 
2017
 
2016
Derivatives not designated as hedging instruments:
 
 
Commodity contracts
Cost of products sold
$
103

 
$
(876
)
Total effect of derivatives not designated as hedging instruments
$
103

 
$
(876
)


11

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



Effect of Derivative Instruments on the Consolidated and Condensed Statements of Operations
For the Six Months Ended June 30, 2017 and 2016
 
Location of Gain (Loss)
Recognized in Income on
 Derivatives
Amount of Gain (Loss) Recognized in
Income on Derivatives
 
 
2017
 
2016
Derivatives not designated as hedging instruments:
 
 
Interest rate swaption contracts
Interest expense
$

 
$
630

Interest rate contracts
Interest expense

 
366

Commodity contracts
Cost of products sold
(2,392
)
 
129

Total effect of derivatives not designated as hedging instruments
$
(2,392
)
 
$
1,125



(8)
Fair Value Measurements

The Partnership uses a valuation framework based upon inputs that market participants use in pricing certain assets and liabilities. These inputs are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources. Unobservable inputs represent the Partnership's own market assumptions. Unobservable inputs are used only if observable inputs are unavailable or not reasonably available without undue cost and effort. The two types of inputs are further prioritized into the following hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that reflect the entity's own assumptions and are not corroborated by market data.

Assets and liabilities measured at fair value on a recurring basis are summarized below:
 
Level 2
 
June 30, 2017
 
December 31, 2016
Commodity derivative contracts, net
$
133

 
$
(3,904
)

           
The Partnership is required to disclose estimated fair values for its financial instruments. Fair value estimates are set forth below for these financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Accounts and other receivables, trade and other accounts payable, accrued interest payable, other accrued liabilities, income taxes payable and due from/to affiliates: The carrying amounts approximate fair value due to the short maturity and highly liquid nature of these instruments, and as such these have been excluded from the table below. There is negligible credit risk associated with these instruments.

Note receivable and long-term debt including current portion: The carrying amount of the revolving credit facility approximates fair value due to the debt having a variable interest rate and is in Level 2. The Partnership has not had any indicators which represent a change in the market spread associated with its variable interest rate debt. The estimated fair value of the senior unsecured notes is considered Level 1, as the fair value is based on quoted market prices in active markets. The estimated fair value of the note receivable - affiliates was determined by calculating the net present value of the payments over the life of the note. The note is considered Level 3 due to the lack of observable inputs for similar transactions between related parties.

12

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



 
June 30, 2017
 
December 31, 2016
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Note receivable - affiliates
$

 
$

 
$
15,000

 
$
15,797

2021 Senior unsecured notes
372,428

 
383,317

 
372,239

 
377,882



(9)
Supplemental Balance Sheet Information

Components of "Other assets, net" were as follows:
 
June 30, 2017
 
December 31, 2016
Customer contracts and relationships, net
$
30,881

 
$
36,528

Other intangible assets
2,011

 
2,280

Other
5,899

 
6,066

 
$
38,791

 
$
44,874



Accumulated amortization of intangible assets was $56,082 and $48,876 at June 30, 2017 and December 31, 2016, respectively.
    
Components of "Other accrued liabilities" were as follows:
 
June 30, 2017
 
December 31, 2016
Accrued interest
$
10,354

 
$
10,629

Asset retirement obligations
9,042

 
7,953

Property and other taxes payable
5,812

 
6,443

Accrued payroll
1,475

 
1,672

Other
6

 
20

 
$
26,689

 
$
26,717



(10)
Long-Term Debt

At June 30, 2017 and December 31, 2016, long-term debt consisted of the following:
 
June 30,
2017
 
December 31,
2016
$664,444 Revolving credit facility at variable interest rate (3.97%1 weighted average at June 30, 2017), due March 2020 secured by substantially all of the Partnership’s assets, including, without limitation, inventory, accounts receivable, vessels, equipment, fixed assets and the interests in the Partnership’s operating subsidiaries and equity method investees, net of unamortized debt issuance costs of $6,069 and $7,132, respectively2
$
407,931

 
$
435,868

$400,000 Senior notes, 7.25% interest, net of unamortized debt issuance costs of $2,481 and $2,823, respectively, including unamortized premium of $1,109 and $1,262, respectively, issued $250,000 February 2013 and $150,000 April 2014, $26,200 repurchased during 2015, due February 2021, unsecured2,3
372,428

 
372,239

Total long-term debt, net
$
780,359

 
$
808,107

     
1 Interest rate fluctuates based on the LIBOR rate plus an applicable margin set on the date of each advance. The margin above LIBOR is set every three months. Indebtedness under the credit facility bears interest at LIBOR plus an applicable margin or the base prime rate plus an applicable margin. All amounts outstanding at June 30, 2017 and December 31, 2016 were at LIBOR plus an applicable margin. The applicable margin for revolving loans that are LIBOR loans ranges from 2.00% to 3.00% and the applicable margin for revolving loans that are base prime rate loans ranges from 1.00% to

13

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



2.00%.  The applicable margin for existing LIBOR borrowings at June 30, 2017 is 2.75%. The credit facility contains various covenants which limit the Partnership’s ability to make certain investments and acquisitions; enter into certain agreements; incur indebtedness; sell assets; and make certain amendments to the Partnership's omnibus agreement with Martin Resource Management (the "Omnibus Agreement"). The Partnership is permitted to make quarterly distributions so long as no event of default exists.

2 The Partnership is in compliance with all debt covenants as of June 30, 2017 and December 31, 2016, respectively.

3 The 2021 indenture restricts the Partnership’s ability to sell assets; pay distributions or repurchase units or redeem or repurchase subordinated debt; make investments; incur or guarantee additional indebtedness or issue preferred units; and consolidate, merge or transfer all or substantially all of its assets. Many of these covenants will terminate if the notes achieve an investment grade rating from each of Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no default (as defined in the indenture) has occurred.

The Partnership paid cash interest, net of proceeds received from interest rate swaptions and capitalized interest, in the amount of $4,328 and $4,757 for the three months ended June 30, 2017 and 2016, respectively.  The Partnership paid cash interest, net of proceeds received from interest rate swaptions and capitalized interest, in the amount of $22,509 and $22,116 for the six months ended June 30, 2017 and 2016, respectively.  Capitalized interest was $222 and $358 for the three months ended June 30, 2017 and 2016, respectively. Capitalized interest was $445 and $682 for the six months ended June 30, 2017 and 2016, respectively.

(11)
Partners' Capital

As of June 30, 2017, Partners’ capital consisted of 38,452,112 common limited partner units, representing a 98% partnership interest, and a 2% general partner interest. Martin Resource Management, through subsidiaries, owns 6,264,532 of the Partnership's common limited partner units representing approximately 16.3% of the Partnership's outstanding common limited partner units. Martin Midstream GP LLC ("MMGP"), the Partnership's general partner, owns the 2% general partnership interest. Martin Resource Management controls the Partnership's general partner, by virtue of its 51% voting interest in MMGP Holdings, LLC ("Holdings"), the sole member of the Partnership's general partner.

The partnership agreement of the Partnership (the "Partnership Agreement") contains specific provisions for the allocation of net income and losses to each of the partners for purposes of maintaining their respective partner capital accounts.

Issuance of Common Units

On February 22, 2017, the Partnership completed a public offering of 2,990,000 common units at a price of $18.00 per common unit, before the payment of underwriters' discounts, commissions and offering expenses (per unit value is in dollars, not thousands). Total proceeds from the sale of the 2,990,000 common units, net of underwriters' discounts, commissions and offering expenses, were $51,071. Additionally, the Partnership's general partner contributed $1,098 in cash to the Partnership in conjunction with the issuance in order to maintain its 2.0% general partner interest in the Partnership. All of the net proceeds were used to pay down outstanding amounts under the Partnership's revolving credit facility.

Incentive Distribution Rights

MMGP holds a 2% general partner interest and certain incentive distribution rights ("IDRs") in the Partnership. IDRs are a separate class of non-voting limited partner interest that may be transferred or sold by the general partner under the terms of the Partnership Agreement, and represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution and any cumulative arrearages on common units once certain target distribution levels have been achieved. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the Partnership Agreement. The general partner was allocated $0 and $3,893 in incentive distributions during the three months ended June 30, 2017 and 2016, respectively. The general partner was allocated $0 and $7,786 in incentive distributions during the six months ended June 30, 2017 and 2016, respectively.
 
The target distribution levels entitle the general partner to receive 2% of quarterly cash distributions from the minimum of $0.50 per unit up to $0.55 per unit, 15% of quarterly cash distributions in excess of $0.55 per unit until all

14

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



unitholders have received $0.625 per unit, 25% of quarterly cash distributions in excess of $0.625 per unit until all unitholders have received $0.75 per unit and 50% of quarterly cash distributions in excess of $0.75 per unit.
 
Distributions of Available Cash

The Partnership distributes all of its available cash (as defined in the Partnership Agreement) within 45 days after the end of each quarter to unitholders of record and to the general partner. Available cash is generally defined as all cash and cash equivalents of the Partnership on hand at the end of each quarter less the amount of cash reserves its general partner determines in its reasonable discretion is necessary or appropriate to: (i) provide for the proper conduct of the Partnership’s business; (ii) comply with applicable law, any debt instruments or other agreements; or (iii) provide funds for distributions to unitholders and the general partner for any one or more of the next four quarters, plus all cash on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter.

Net Income per Unit

The Partnership follows the provisions of the FASB ASC 260-10 related to earnings per share, which addresses the application of the two-class method in determining income per unit for master limited partnerships having multiple classes of securities that may participate in partnership distributions accounted for as equity distributions. Undistributed earnings are allocated to the general partner and limited partners utilizing the contractual terms of the Partnership Agreement. Distributions to the general partner pursuant to the IDRs are limited to available cash that will be distributed as defined in the Partnership Agreement. Accordingly, the Partnership does not allocate undistributed earnings to the general partner for the IDRs because the general partner's share of available cash is the maximum amount that the general partner would be contractually entitled to receive if all earnings for the period were distributed. When current period distributions are in excess of earnings, the excess distributions for the period are to be allocated to the general partner and limited partners based on their respective sharing of income and losses specified in the Partnership Agreement. Additionally, as required under FASB ASC 260-10-45-61A, unvested share-based payments that entitle employees to receive non-forfeitable distributions are considered participating securities, as defined in FASB ASC 260-10-20, for earnings per unit calculations.

For purposes of computing diluted net income per unit, the Partnership uses the more dilutive of the two-class and if-converted methods. Under the if-converted method, the weighted-average number of subordinated units outstanding for the period is added to the weighted-average number of common units outstanding for purposes of computing basic net income per unit and the resulting amount is compared to the diluted net income per unit computed using the two-class method. The following is a reconciliation of net income allocated to the general partner and limited partners for purposes of calculating net income attributable to limited partners per unit:
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
989

 
$
(1,211
)
 
$
14,572

 
$
14,703

Less general partner’s interest in net income (loss):
 
 
 
 
 
 
 
Distributions payable on behalf of IDRs

 
3,893

 

 
7,786

Distributions payable on behalf of general partner interest
393

 
668

 
785

 
1,335

General partner interest in undistributed loss
(374
)
 
(692
)
 
(494
)
 
(1,041
)
Less income (loss) allocable to unvested restricted units
3

 
(4
)
 
38

 
39

Limited partners’ interest in net income (loss)
$
967

 
$
(5,076
)
 
$
14,243

 
$
6,584



The following are the unit amounts used to compute the basic and diluted earnings per limited partner unit for the periods presented:

15

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Basic weighted average limited partner units outstanding
38,357,293

 
35,346,412

 
37,842,140

 
35,366,038

Dilutive effect of restricted units issued
56,618

 

 
52,476

 
13,880

Total weighted average limited partner diluted units outstanding
38,413,911

 
35,346,412

 
37,894,616

 
35,379,918



All outstanding units were included in the computation of diluted earnings per unit and weighted based on the number of days such units were outstanding during the periods presented. All common unit equivalents were antidilutive for the three months ended June 30, 2016 because the limited partners were allocated a net loss in this period.

(12)
Related Party Transactions

As of June 30, 2017, Martin Resource Management owns 6,264,532 of the Partnership’s common units representing approximately 16.3% of the Partnership’s outstanding limited partner units.  Martin Resource Management controls the Partnership's general partner by virtue of its 51% voting interest in Holdings, the sole member of the Partnership's general partner. The Partnership’s general partner, MMGP, owns a 2% general partner interest in the Partnership and the Partnership’s IDRs.  The Partnership’s general partner’s ability, as general partner, to manage and operate the Partnership, and Martin Resource Management’s ownership as of June 30, 2017, of approximately 16.3% of the Partnership’s outstanding limited partner units, effectively gives Martin Resource Management the ability to veto some of the Partnership’s actions and to control the Partnership’s management.
 
The following is a description of the Partnership’s material related party agreements and transactions:
 
Omnibus Agreement
 
       Omnibus Agreement.  The Partnership and its general partner are parties to the Omnibus Agreement dated November 1, 2002, with Martin Resource Management that governs, among other things, potential competition and indemnification obligations among the parties to the agreement, related party transactions, the provision of general administration and support services by Martin Resource Management and the Partnership’s use of certain Martin Resource Management trade names and trademarks. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into finished products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management.

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

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

providing marine transportation of petroleum products and by-products;

distributing NGLs; and

manufacturing and selling sulfur-based fertilizer products and other sulfur-related products.

This restriction does not apply to:

the ownership and/or operation on the Partnership’s behalf of any asset or group of assets owned by it or its affiliates;

any business operated by Martin Resource Management, including the following:


16

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



providing land transportation of various liquids;

distributing fuel oil, sulfuric acid, marine fuel and other liquids;

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

operating a crude oil gathering business in Stephens, Arkansas;

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

providing crude oil marketing and transportation from the well head to the end market;

operating an environmental consulting company;

operating an engineering services company;

supplying employees and services for the operation of the Partnership's business;

operating a crude oil, natural gas, natural gas liquids, and biofuels optimization business; and

operating, solely for the Partnership's account, the asphalt facilities in Omaha, Nebraska, Port Neches, Texas, Hondo, Texas, and South Houston, Texas.

any business that Martin Resource Management acquires or constructs that has a fair market value of less than $5,000;

any business that Martin Resource Management acquires or constructs that has a fair market value of $5,000 or more if the Partnership has been offered the opportunity to purchase the business for fair market value and the Partnership declines to do so with the concurrence of the conflicts committee of the board of directors of the general partner of the Partnership (the "Conflicts Committee"); and

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

Effective January 1, 2017, through December 31, 2017, the Conflicts Committee approved an annual reimbursement amount for indirect expenses of $16,416.  The Partnership reimbursed Martin Resource Management for $4,104 and $3,257 of indirect expenses for the three months ended June 30, 2017 and 2016, respectively.  The Partnership reimbursed Martin Resource Management for $8,208 and $6,516 of indirect expenses for the six months ended June 30, 2017 and 2016, respectively.  The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.

These indirect expenses are intended to cover the centralized corporate functions Martin Resource Management provides for the Partnership, such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions

17

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2017
(Unaudited)



the Partnership