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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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References in this quarterly report on Form 10-Q to "Martin Resource Management" refer to Martin Resource Management Corporation and its subsidiaries, unless the context otherwise requires. You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated and condensed financial statements and the notes thereto included elsewhere in this quarterly report.
Forward-Looking Statements
This quarterly 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 Operations, are forward-looking statements. These statements can be identified by the use of forward-looking terminology including "forecast," "may," "believe," "will," "expect," "anticipate," "estimate," "continue," or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other "forward-looking" information. We and our representatives may from time to time make other oral or written statements that are also forward-looking statements.
These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under "Item 1A. Risk Factors" of our Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (the "SEC") on February 29, 2016, as amended, by Amendment No. 1 on Form 10-K/A for the year ended December 31, 2015 filed on March 30, 2016, and in this report.
Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in the United States ("U.S.") Gulf Coast region. Our four primary business lines include:
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•
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Terminalling and storage services for petroleum products and by-products including the refining of naphthenic crude oil and the blending and packaging of finished lubricants;
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•
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Natural gas liquids transportation and distribution services and natural gas storage;
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•
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Sulfur and sulfur-based products gathering, processing, marketing, manufacturing and distribution; and
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•
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Marine transportation services for petroleum products and by-products.
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The petroleum products and by-products we collect, transport, store and market are produced primarily by major and independent oil and gas companies who often turn to 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 these products. We operate primarily in the U.S. Gulf Coast region. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry.
We were formed in 2002 by Martin Resource Management, a privately-held company whose initial predecessor was incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then, Martin Resource Management has expanded its operations through acquisitions and internal expansion initiatives as its management identified and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids. Martin Resource Management is an important supplier and customer of ours. As of
September 30, 2016
, Martin Resource Management owned 17.7% of our total outstanding common limited partner units. Furthermore, Martin Resource Management
controls Martin Midstream GP LLC ("MMGP"), our general partner, by virtue of its 51% voting interest in MMGP Holdings, LLC ("Holdings"), the sole member of MMGP. MMGP owns a 2.0% general partner interest in us and all of our incentive distribution rights. Martin Resource Management directs our business operations through its ownership interests in and control of our general partner.
We entered into an omnibus agreement dated November 1, 2002, with Martin Resource Management (the "Omnibus Agreement") 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 our use of certain of Martin Resource Management’s trade names and trademarks. Under the terms of the Omnibus Agreement, the employees of Martin Resource Management are responsible for conducting our business and operating our assets.
Martin Resource Management has operated our business since 2002. Martin Resource Management began operating our natural gas services business in the 1950s and our sulfur business in the 1960s. It began our marine transportation business in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s. In recent years, Martin Resource Management has increased the size of our asset base through expansions and strategic acquisitions.
Recent Developments
Over the past two years, commodity prices have declined substantially and experienced significant volatility. If commodity prices remain weak for a sustained period, our pipeline, terminalling throughput and NGL volumes may be negatively impacted, particularly as producers are curtailing or redirecting drilling. A sustained decline in commodity prices could result in a decrease in activity in the areas served by certain of our terminalling and storage and marine transportation assets resulting in reduced utilization of these assets. Drilling activity levels vary by geographic area, but in general, we have observed widespread decreases in drilling activity, particularly in the Gulf of Mexico, with lower commodity prices. The abundance of supply of inland marine tank barges in our predominantly Gulf Coast market has had a direct impact on our utilization as well a decreased transportation rates.
We continually adjust our business strategy to focus on maximizing liquidity; maintaining a stable asset base, which generates fee based revenues not sensitive to commodity prices; and improving profitability by increasing asset utilization and controlling costs, which includes force reductions and asset rationalization strategies. Given the current environment, we have altered and reduced our planned growth capital expenditures. We believe that controlling our spending in an effort to preserve liquidity is prudent and reduces our need for near-term access to the somewhat uncertain capital markets.
The following information highlights selected developments since January 1, 2016.
West Texas LPG Pipeline L.P. ("WTLPG") 2015 Rate Complaints.
Certain shippers filed complaints with the Railroad Commission of Texas (“RRC”) challenging the increased rates WTLPG implemented effective July 1, 2015. The complaints request that the rate increase be suspended until the RRC has determined appropriate new rates. On March 8, 2016, the RRC issued an order directing that WTLPG’s rates “in effect prior to July 1, 2015, are the lawful rates for the duration of this docket unless changed by Commission order.” The RRC indicated that WTLPG’s rates should be reviewed on a market basis, without consideration of cost of service, if market information is available. A hearing on the merits on the complaint has not occurred and is not currently scheduled.
Credit Facility Amendment.
On April 27, 2016, we made certain strategic amendments to our revolving credit facility which, among other things, decreased our borrowing capacity from $700.0 million to $664.4 million and extended the maturity date of the facility from March 28, 2018 to March 28, 2020.
Subsequent Events
Divestiture of Terminalling Assets.
On October 14, 2016, we entered into a definitive agreement with NuStar Logistics, L.P. (“NuStar”) to sell our 900,000 barrel crude oil storage terminal, its refined product barge terminal, certain pipelines and related easements as well as dockage and trans-loading assets located in Corpus Christi, Texas ("CCCT Assets") for gross consideration of $107.0 million plus the reimbursement of certain capital expenditures and prepaid items. We expect to receive net proceeds of approximately $93.0 million after transaction fees and expenses as well as the application of certain net cash payments previously received by us in conjunction with its mandated relocation of certain dockage assets to the purchase price in the amount of $13.4 million. We expect to close the transaction prior to December 31, 2016. Proceeds from the sale will be used to reduce outstanding borrowings under the our revolving credit facility.
Quarterly Distribution.
On October 20, 2016, we declared a quarterly cash distribution of $0.50 per common unit for the third quarter of 2016, or $2.00 per common unit on an annualized basis, which will be paid on November 14, 2016 to unitholders of record as of November 7, 2016.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on the historical consolidated and condensed financial statements included elsewhere herein. We prepared these financial statements in conformity with United States generally accepted accounting principles ("U.S. GAAP" or "GAAP"). The preparation of these financial statements requires 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 base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. We routinely evaluate these estimates, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Our results may differ from these estimates, and any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Changes in these estimates could materially affect our financial position, results of operations or cash flows. You should also read Note 2, "Significant Accounting Policies" in Notes to Consolidated Financial Statements included within our Annual Report on Form 10-K for the year ended December 31,
2015
. The following table evaluates the potential impact of estimates utilized during the periods ended
September 30, 2016
and
2015
:
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Description
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Judgments and Uncertainties
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Effect if Actual Results Differ from Estimates and Assumptions
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Allowance for Doubtful Accounts
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We evaluate our allowance for doubtful accounts on an ongoing basis and record adjustments when, in management's judgment, circumstances warrant. Reserves are recorded to reduce receivables to the amount ultimately expected to be collected.
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We evaluate the collectability of our accounts receivable based on factors such as the customer's ability to pay, the age of the receivable and our historical collection experience. A deterioration in any of these factors could result in an increase in the allowance for doubtful accounts balance.
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If actual collection results are not consistent with our judgments, we may experience an increase in uncollectible receivables. A 10% increase in our allowance for doubtful accounts would not significantly impact net income.
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Depreciation
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Depreciation expense is computed using the straight-line method over the useful life of the assets.
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Determination of depreciation expense requires judgment regarding estimated useful lives and salvage values of property, plant and equipment. As circumstances warrant, estimates are reviewed to determine if any changes in the underlying assumptions are needed.
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The lives of our fixed assets range from 3 - 50 years. If the depreciable lives of our assets were decreased by 10%, we estimate that annual depreciation expense would increase approximately $7.6 million, resulting in a corresponding reduction in net income.
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Impairment of Long-Lived Assets
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We periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of the assets may not be recoverable. These evaluations are based on undiscounted cash flow projections over the remaining useful life of the asset. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows. Any impairment loss is measured as the excess of the asset's carrying value over its fair value.
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Our impairment analyses require management to use judgment in estimating future cash flows and useful lives, as well as assessing the probability of different outcomes.
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No impairment of long-lived assets was recorded during the three or nine months ended September 30, 2016 or 2015.
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Impairment of Goodwill
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Goodwill is subject to a fair-value based impairment test on an annual basis, or more frequently if events or changes in circumstances indicate that the fair value of any of our reporting units is less than its carrying amount.
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We determine fair value using accepted valuation techniques, including discounted cash flow, the guideline public company method and the guideline transaction method. These analyses require management to make assumptions and estimates regarding industry and economic factors, future operating results and discount rates. We conduct impairment testing using present economic conditions, as well as future expectations.
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During the three months ended June 30, 2016, we determined that based on a continued decrease in the demand for utilization and transportation day rates forecasted in our Marine Transportation reporting unit, an impairment of goodwill may exist. Based on the results of our impairment analysis, we determined that a $4.1 million impairment loss of all goodwill in the Marine Transportation reporting unit was incurred during the three months ended June 30, 2016. See note 17 for more information. We are in the process of completing the most recent annual review as of August 31, 2016. Based on preliminary results of the evaluation, no impairment exists with the remaining goodwill.
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Purchase Price Allocations
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We allocate the purchase price of an acquired business to its identifiable assets (including identifiable intangible assets) and liabilities based on their fair values at the date of acquisition. Any excess of purchase price in excess of amounts allocated to identifiable assets and liabilities is recorded as goodwill. As additional information becomes available, we may adjust the preliminary allocation for a period of up to one year.
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The determination of fair values of acquired assets and liabilities requires a significant level of management judgment. Fair values are estimated using various methods as deemed appropriate. For significant transactions, third party assessments may be engaged to assist in the valuation process.
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If subsequent factors indicate that estimates and assumptions used to allocate costs to acquired assets and liabilities differ from actual results, the allocation between goodwill, other intangible assets and fixed assets could significantly differ. Any such differences could impact future earnings through depreciation and amortization expense. Additionally, if estimated results supporting the valuation of goodwill or other intangible assets are not achieved, impairments could result.
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Asset Retirement Obligations
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Asset retirement obligations ("AROs") associated with a contractual or regulatory remediation requirement are recorded at fair value in the period in which the obligation can be reasonably estimated and depreciated over the life of the related asset or contractual term. The liability is determined using a credit-adjusted risk-free interest rate and is accreted over time until the obligation is settled.
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Determining the fair value of AROs requires management judgment to evaluate required remediation activities, estimate the cost of those activities and determine the appropriate interest rate.
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If actual results differ from judgments and assumptions used in valuing an ARO, we may experience significant changes in ARO balances. The establishment of an ARO has no initial impact on earnings.
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Environmental Liabilities
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We estimate environmental liabilities using both internal and external resources. Activities include feasibility studies and other evaluations management considers appropriate. Environmental liabilities are recorded in the period in which the obligation can be reasonably estimated.
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Estimating environmental liabilities requires significant management judgment as well as possible use of third party specialists knowledgeable in such matters.
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Environmental liabilities have not adversely affected our results of operations or financial condition in the past, and we do not anticipate that they will in the future.
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Our Relationship with Martin Resource Management
Martin Resource Management is engaged in the following principal business activities:
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•
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providing land transportation of various liquids using a fleet of trucks and road vehicles and road trailers;
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•
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distributing fuel oil, ammonia, asphalt, sulfuric acid, marine fuel and other liquids;
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•
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providing marine bunkering and other shore-based marine services in Alabama, Louisiana, Florida, Mississippi and Texas;
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•
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operating a crude oil gathering business in Stephens, Arkansas;
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•
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providing crude oil gathering, refining, and marketing services of base oils, asphalt, and distillate products in Smackover, Arkansas;
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•
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providing crude oil marketing and transportation from the well head to the end market;
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•
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operating an environmental consulting company;
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•
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operating an engineering services company;
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•
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supplying employees and services for the operation of our business;
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•
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operating a natural gas optimization business;
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•
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operating, for its account and our account, the docks, roads, loading and unloading facilities and other common use facilities or access routes at our Stanolind terminal; and
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operating, solely for our account, the asphalt facilities in Omaha, Nebraska, Port Neches, Texas and South Houston, Texas.
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We are and will continue to be closely affiliated with Martin Resource Management as a result of the following relationships.
Ownership
Martin Resource Management owns approximately 17.7% of the outstanding limited partner units. In addition, Martin Resource Management controls MMGP, our general partner, by virtue of its 51% voting interest in Holdings, the sole member of MMGP. MMGP owns a 2% general partner interest in us and all of our incentive distribution rights.
Management
Martin Resource Management directs our business operations through its ownership interests in and control of our general partner. We benefit from our relationship with Martin Resource Management through access to a significant pool of management expertise and established relationships throughout the energy industry. We do not have employees. Martin Resource Management employees are responsible for conducting our business and operating our assets on our behalf.
Related Party Agreements
The Omnibus Agreement requires us to reimburse Martin Resource Management for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business. We reimbursed Martin Resource Management for
$30.7 million
of direct costs and expenses for the
three months ended September 30, 2016
compared to
$34.9 million
for the
three months ended September 30, 2015
. We reimbursed Martin Resource Management for
$94.9 million
of direct costs and expenses for the
nine months ended September 30, 2016
compared to
$111.2 million
for the
nine months ended September 30, 2015
. There is no monetary limitation on the amount we are required to reimburse Martin Resource Management for direct expenses.
In addition to the direct expenses, under the Omnibus Agreement, we are required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. For the
three months ended September 30, 2016
and
2015
, the Conflicts Committee approved reimbursement amounts of
$3.3 million
and
$3.4 million
, respectively. For the
nine months ended September 30, 2016
and
2015
, the Conflicts Committee approved reimbursement amounts of
$9.8 million
and
$10.3 million
, respectively. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually. These indirect expenses covered the centralized corporate functions Martin Resource Management provides for us, 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 we share with Martin Resource Management’s retained businesses. The Omnibus Agreement also
contains significant non-compete provisions and indemnity obligations. Martin Resource Management also licenses certain of its trademarks and trade names to us under the Omnibus Agreement.
The agreements include, but are not limited to, motor carrier agreements, marine transportation agreements, terminal services agreements, a tolling agreement, a sulfuric acid agreement, and various other miscellaneous agreements. Pursuant to the terms of the Omnibus Agreement, we are prohibited from entering into certain material agreements with Martin Resource Management without the approval of the Conflicts Committee.
For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into with Martin Resource Management, please refer to "Item 13. Certain Relationships and Related Transactions, and Director Independence" set forth in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016, as amended by Amendment No. 1 on Form 10-K/A filed on March 30, 2016.
Commercial
We have been and anticipate that we will continue to be both a significant customer and supplier of products and services offered by Martin Resource Management. Our motor carrier agreement with Martin Resource Management provides us with access to Martin Resource Management’s fleet of road vehicles and road trailers to provide land transportation in the areas served by Martin Resource Management. Our ability to utilize Martin Resource Management’s land transportation operations is currently a key component of our integrated distribution network.
In the aggregate, the impact of related party transactions included in cost of products sold accounted for approximately
11%
and
10%
of our total cost of products sold during the
three months ended September 30, 2016
and
2015
, respectively. In the aggregate, the impact of related party transactions included in cost of products sold accounted for approximately
10%
and
9%
of our total cost of products sold during the
nine months ended September 30, 2016
and
2015
, respectively. We also purchase marine fuel from Martin Resource Management, which we account for as an operating expense.
Correspondingly, Martin Resource Management is one of our significant customers. Our sales to Martin Resource Management accounted for approximately
15%
and
10%
of our total revenues for the
three months ended September 30, 2016
and
2015
, respectively. Our sales to Martin Resource Management accounted for approximately
14%
and
11%
of our total revenues for the
nine months ended September 30, 2016
and
2015
, respectively. We have entered into certain agreements with Martin Resource Management pursuant to which we provide terminalling and storage and marine transportation services to its subsidiary, Martin Energy Services, LLC ("MES"), and MES provides terminal services to us to handle lubricants, greases and drilling fluids. Additionally, we have entered into a long-term, fee for services-based tolling agreement with Martin Resource Management where Martin Resource Management agrees to pay us for the processing of its crude oil into finished products, including naphthenic lubricants, distillates, asphalt and other intermediate cuts.
For a more comprehensive discussion concerning the agreements that we have entered into with Martin Resource Management, please refer to "Item 13. Certain Relationships and Related Transactions, and Director Independence" set forth in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016, as amended by Amendment No. 1 on Form 10-K/A filed on March 30, 2016.
Approval and Review of Related Party Transactions
If we contemplate entering into a transaction, other than a routine or in the ordinary course of business transaction, in which a related person will have a direct or indirect material interest, the proposed transaction is submitted for consideration to the board of directors of our general partner or to our management, as appropriate. If the board of directors of our general partner is involved in the approval process, it determines whether to refer the matter to the Conflicts Committee of our general partner's board of directors, as constituted under our limited partnership agreement. If a matter is referred to the Conflicts Committee, it obtains information regarding the proposed transaction from management and determines whether to engage independent legal counsel or an independent financial advisor to advise the members of the committee regarding the transaction. If the Conflicts Committee retains such counsel or financial advisor, it considers such advice and, in the case of a financial advisor, such advisor’s opinion as to whether the transaction is fair and reasonable to us and to our unitholders.
How We Evaluate Our Operations
Our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with U.S. GAAP to analyze our performance. These include: (1) net income before interest expense, income tax expense, and depreciation and amortization ("EBITDA"), (2) adjusted EBITDA and (3) distributable cash flow. Our management views these measures as important performance measures of core profitability for our operations and the ability to generate and distribute cash flow, and as key components of our internal financial reporting. We believe investors benefit from having access to the same financial measures that our management uses.
EBITDA and Adjusted EBITDA
. Certain items excluded from EBITDA and adjusted EBITDA are significant components in understanding and assessing an entity's financial performance, such as cost of capital and historical costs of depreciable assets. We have included information concerning EBITDA and adjusted EBITDA because they provide investors and management with additional information to better understand the following: financial performance of our assets without regard to financing methods, capital structure or historical cost basis; our operating performance and return on capital as compared to those of other similarly situated entities; and the viability of acquisitions and capital expenditure projects. Our method of computing adjusted EBITDA may not be the same method used to compute similar measures reported by other entities. The economic substance behind our use of adjusted EBITDA is to measure the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make distributions to our unit holders.
Distributable Cash Flow
. Distributable cash flow is a significant performance measure used by our management and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders. Distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit's yield, which in turn is based on the amount of cash distributions the entity pays to a unitholder.
EBITDA, adjusted EBITDA and distributable cash flow should not be considered alternatives to, or more meaningful than, net income, cash flows from operating activities, or any other measure presented in accordance with U.S. GAAP. Our method of computing these measures may not be the same method used to compute similar measures reported by other entities.
Non-GAAP Financial Measures
The following table reconciles the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three and
nine months ended September 30,
2016
and
2015
.
Reconciliation of EBITDA, Adjusted EBITDA, and Distributable Cash Flow
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Three Months Ended
|
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Nine Months Ended
|
|
September 30,
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September 30,
|
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2016
|
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2015
|
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2016
|
|
2015
|
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(in thousands)
|
Net income (loss)
|
$
|
(933
|
)
|
|
$
|
3,330
|
|
|
$
|
13,770
|
|
|
$
|
31,539
|
|
Less: Income from discontinued operations, net of income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,215
|
)
|
Income (loss) from continuing operations
|
(933
|
)
|
|
3,330
|
|
|
13,770
|
|
|
30,324
|
|
Adjustments:
|
|
|
|
|
|
|
|
Interest expense
|
11,779
|
|
|
11,994
|
|
|
34,046
|
|
|
32,465
|
|
Income tax expense
|
180
|
|
|
200
|
|
|
422
|
|
|
814
|
|
Depreciation and amortization
|
22,129
|
|
|
23,335
|
|
|
66,266
|
|
|
68,737
|
|
EBITDA
|
33,155
|
|
|
38,859
|
|
|
114,504
|
|
|
132,340
|
|
Adjustments:
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated entities
|
(1,120
|
)
|
|
(2,363
|
)
|
|
(3,602
|
)
|
|
(5,752
|
)
|
(Gain) loss on sale of property, plant and equipment
|
(13
|
)
|
|
1,586
|
|
|
1,582
|
|
|
1,751
|
|
Loss on impairment of goodwill
|
—
|
|
|
—
|
|
|
4,145
|
|
|
—
|
|
Unrealized mark-to-market on commodity derivatives
|
(742
|
)
|
|
358
|
|
|
795
|
|
|
358
|
|
Gain on retirement of senior unsecured notes
|
—
|
|
|
(728
|
)
|
|
—
|
|
|
(728
|
)
|
Distributions from unconsolidated entities
|
1,800
|
|
|
3,400
|
|
|
6,100
|
|
|
7,800
|
|
Unit-based compensation
|
226
|
|
|
330
|
|
|
712
|
|
|
1,080
|
|
Adjusted EBITDA
|
33,306
|
|
|
41,442
|
|
|
124,236
|
|
|
136,849
|
|
Adjustments:
|
|
|
|
|
|
|
|
Interest expense
|
(11,779
|
)
|
|
(11,994
|
)
|
|
(34,046
|
)
|
|
(32,465
|
)
|
Income tax expense
|
(180
|
)
|
|
(200
|
)
|
|
(422
|
)
|
|
(814
|
)
|
Amortization of debt premium
|
(77
|
)
|
|
(82
|
)
|
|
(230
|
)
|
|
(246
|
)
|
Amortization of deferred debt issuance costs
|
718
|
|
|
2,400
|
|
|
2,965
|
|
|
4,142
|
|
Non-cash mark-to-market on interest rate derivatives
|
—
|
|
|
—
|
|
|
(206
|
)
|
|
—
|
|
Payments for plant turnaround costs
|
(430
|
)
|
|
—
|
|
|
(1,614
|
)
|
|
(1,754
|
)
|
Maintenance capital expenditures
|
(1,609
|
)
|
|
(2,438
|
)
|
|
(12,818
|
)
|
|
(7,621
|
)
|
Distributable Cash Flow
|
$
|
19,949
|
|
|
$
|
29,128
|
|
|
$
|
77,865
|
|
|
$
|
98,091
|
|
Results of Operations
The results of operations for the three and
nine months ended September 30, 2016
and
2015
have been derived from our consolidated and condensed financial statements.
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 revenues and operating income by segment for the three and
nine months ended September 30, 2016
and
2015
. The results of operations for these interim periods are not necessarily indicative of the results of operations which might be expected for the entire year.
Our consolidated and condensed results of operations are presented on a comparative basis below. There are certain items of income and expense which we do not allocate on a segment basis. These items, including equity in earnings (loss) of unconsolidated entities, interest expense, and indirect selling, general and administrative expenses, are discussed following the comparative discussion of our results within each segment.
Three Months Ended
September 30, 2016
Compared to the Three Months Ended
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
Intersegment Revenues Eliminations
|
|
Operating Revenues
after Eliminations
|
|
Operating Income (Loss)
|
|
Operating Income (Loss) Intersegment Eliminations
|
|
Operating
Income (Loss)
after
Eliminations
|
Three Months Ended September 30, 2016
|
(in thousands)
|
Terminalling and storage
|
$
|
60,943
|
|
|
$
|
(1,344
|
)
|
|
$
|
59,599
|
|
|
$
|
6,513
|
|
|
$
|
(765
|
)
|
|
$
|
5,748
|
|
Natural gas services
|
71,996
|
|
|
—
|
|
|
71,996
|
|
|
6,455
|
|
|
695
|
|
|
7,150
|
|
Sulfur services
|
29,096
|
|
|
—
|
|
|
29,096
|
|
|
229
|
|
|
(1,194
|
)
|
|
(965
|
)
|
Marine transportation
|
14,920
|
|
|
(1,074
|
)
|
|
13,846
|
|
|
185
|
|
|
1,264
|
|
|
1,449
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,206
|
)
|
|
—
|
|
|
(4,206
|
)
|
Total
|
$
|
176,955
|
|
|
$
|
(2,418
|
)
|
|
$
|
174,537
|
|
|
$
|
9,176
|
|
|
$
|
—
|
|
|
$
|
9,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Terminalling and storage
|
$
|
68,473
|
|
|
$
|
(1,566
|
)
|
|
$
|
66,907
|
|
|
$
|
8,823
|
|
|
$
|
(1,037
|
)
|
|
$
|
7,786
|
|
Natural gas services
|
103,834
|
|
|
—
|
|
|
103,834
|
|
|
5,503
|
|
|
762
|
|
|
6,265
|
|
Sulfur services
|
36,303
|
|
|
—
|
|
|
36,303
|
|
|
3,573
|
|
|
(665
|
)
|
|
2,908
|
|
Marine transportation
|
19,522
|
|
|
(545
|
)
|
|
18,977
|
|
|
(917
|
)
|
|
940
|
|
|
23
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,948
|
)
|
|
—
|
|
|
(4,948
|
)
|
Total
|
$
|
228,132
|
|
|
$
|
(2,111
|
)
|
|
$
|
226,021
|
|
|
$
|
12,034
|
|
|
$
|
—
|
|
|
$
|
12,034
|
|
Nine Months Ended September 30, 2016
Compared to the
Nine Months Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
Intersegment Revenues Eliminations
|
|
Operating Revenues
after Eliminations
|
|
Operating Income (Loss)
|
|
Operating Income (Loss) Intersegment Eliminations
|
|
Operating
Income (Loss)
after
Eliminations
|
Nine Months Ended September 30, 2016
|
(in thousands)
|
Terminalling and storage
|
$
|
183,014
|
|
|
$
|
(4,100
|
)
|
|
$
|
178,914
|
|
|
$
|
22,239
|
|
|
$
|
(2,466
|
)
|
|
$
|
19,773
|
|
Natural gas services
|
253,486
|
|
|
—
|
|
|
253,486
|
|
|
22,543
|
|
|
2,152
|
|
|
24,695
|
|
Sulfur services
|
113,559
|
|
|
—
|
|
|
113,559
|
|
|
20,187
|
|
|
(2,681
|
)
|
|
17,506
|
|
Marine transportation
|
46,854
|
|
|
(2,323
|
)
|
|
44,531
|
|
|
(8,523
|
)
|
|
2,995
|
|
|
(5,528
|
)
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,676
|
)
|
|
—
|
|
|
(12,676
|
)
|
Total
|
$
|
596,913
|
|
|
$
|
(6,423
|
)
|
|
$
|
590,490
|
|
|
$
|
43,770
|
|
|
$
|
—
|
|
|
$
|
43,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
Intersegment Revenues Eliminations
|
|
Operating Revenues
after Eliminations
|
|
Operating Income (Loss)
|
|
Operating Income (Loss) Intersegment Eliminations
|
|
Operating
Income (Loss)
after
Eliminations
|
Nine Months Ended September 30, 2015
|
(in thousands)
|
Terminalling and storage
|
$
|
207,794
|
|
|
$
|
(4,065
|
)
|
|
$
|
203,729
|
|
|
$
|
22,736
|
|
|
$
|
(1,965
|
)
|
|
$
|
20,771
|
|
Natural gas services
|
380,974
|
|
|
—
|
|
|
380,974
|
|
|
22,739
|
|
|
1,673
|
|
|
24,412
|
|
Sulfur services
|
137,814
|
|
|
—
|
|
|
137,814
|
|
|
20,932
|
|
|
(2,758
|
)
|
|
18,174
|
|
Marine transportation
|
62,354
|
|
|
(2,398
|
)
|
|
59,956
|
|
|
4,217
|
|
|
3,050
|
|
|
7,267
|
|
Indirect selling, general and administrative
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,258
|
)
|
|
—
|
|
|
(14,258
|
)
|
Total
|
$
|
788,936
|
|
|
$
|
(6,463
|
)
|
|
$
|
782,473
|
|
|
$
|
56,366
|
|
|
$
|
—
|
|
|
$
|
56,366
|
|
Terminalling and Storage Segment
Comparative Results of Operations for the Three Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands, except BBL per day)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
32,114
|
|
|
$
|
35,144
|
|
|
$
|
(3,030
|
)
|
|
(9
|
)%
|
Products
|
28,829
|
|
|
33,329
|
|
|
(4,500
|
)
|
|
(14
|
)%
|
Total revenues
|
60,943
|
|
|
68,473
|
|
|
(7,530
|
)
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
24,118
|
|
|
28,765
|
|
|
(4,647
|
)
|
|
(16
|
)%
|
Operating expenses
|
18,299
|
|
|
20,268
|
|
|
(1,969
|
)
|
|
(10
|
)%
|
Selling, general and administrative expenses
|
1,439
|
|
|
995
|
|
|
444
|
|
|
45
|
%
|
Depreciation and amortization
|
10,828
|
|
|
9,624
|
|
|
1,204
|
|
|
13
|
%
|
|
6,259
|
|
|
8,821
|
|
|
(2,562
|
)
|
|
(29
|
)%
|
Other operating income
|
254
|
|
|
2
|
|
|
252
|
|
|
12,600
|
%
|
Operating income
|
$
|
6,513
|
|
|
$
|
8,823
|
|
|
$
|
(2,310
|
)
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
Lubricant sales volumes (gallons)
|
5,196
|
|
|
5,974
|
|
|
(778
|
)
|
|
(13
|
)%
|
Shore-based throughput volumes (gallons)
|
25,313
|
|
|
36,383
|
|
|
(11,070
|
)
|
|
(30
|
)%
|
Smackover refinery throughput volumes (BBL per day)
|
5,924
|
|
|
6,205
|
|
|
(281
|
)
|
|
(5
|
)%
|
Corpus Christi crude terminal (BBL per day)
|
65,116
|
|
|
148,377
|
|
|
(83,261
|
)
|
|
(56
|
)%
|
Services revenues. S
ervices revenue decreased $3.0 million, primarily as a result of decreased throughput volumes and pass-through revenues at our Corpus Christi crude terminal.
Products revenues.
A 21% decrease in sales volumes at our blending and packaging facilities resulted in a $3.6 million decrease to products revenues. The decline in volumes resulted primarily from increased price competition. A 5% decrease in sales prices resulted in a $0.9 million decrease to products revenues.
Cost of products sold.
A 21% decrease in sales volumes at our blending and packaging facilities resulted in a $2.6 million decrease in cost of products sold. The average price per gallon decreased 13%, resulting in a $2.0 million decrease in cost of products sold.
Operating expenses.
Operating expenses at our specialty terminals decreased $1.9 million, primarily due to decreases in repairs and maintenance of $1.0 million and decreased pass-through expenses at our Corpus Christi crude terminal of $0.9 million.
Selling, general and administrative expenses.
Selling, general and administrative expenses increased due to $0.2 million of higher advertising expense and $0.2 million related to increased legal fees.
Depreciation and amortization.
The increase in depreciation and amortization is due to the impact of recent capital expenditures.
Other operating income.
Other operating income represents gains from the disposition of property, plant and equipment.
Volumetric data.
Actual volumes at our our Corpus Christi crude terminal for the quarter ended September 30, 2016 averaged 65,116 BBL per day, 19,884 BBL per day less than the contracted minimum throughput.
Comparative Results of Operations for the
Nine Months Ended September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands, except BBL per day)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
97,663
|
|
|
$
|
104,893
|
|
|
$
|
(7,230
|
)
|
|
(7
|
)%
|
Products
|
85,351
|
|
|
102,901
|
|
|
(17,550
|
)
|
|
(17
|
)%
|
Total revenues
|
183,014
|
|
|
207,794
|
|
|
(24,780
|
)
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
71,939
|
|
|
90,076
|
|
|
(18,137
|
)
|
|
(20
|
)%
|
Operating expenses
|
54,740
|
|
|
62,947
|
|
|
(8,207
|
)
|
|
(13
|
)%
|
Selling, general and administrative expenses
|
3,546
|
|
|
2,806
|
|
|
740
|
|
|
26
|
%
|
Depreciation and amortization
|
30,904
|
|
|
29,030
|
|
|
1,874
|
|
|
6
|
%
|
|
21,885
|
|
|
22,935
|
|
|
(1,050
|
)
|
|
(5
|
)%
|
Other operating income (loss)
|
354
|
|
|
(199
|
)
|
|
553
|
|
|
(278
|
)%
|
Operating income
|
$
|
22,239
|
|
|
$
|
22,736
|
|
|
$
|
(497
|
)
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Lubricant sales volumes (gallons)
|
15,536
|
|
|
18,007
|
|
|
(2,471
|
)
|
|
(14
|
)%
|
Shore-based throughput volumes (gallons)
|
77,059
|
|
|
122,743
|
|
|
(45,684
|
)
|
|
(37
|
)%
|
Smackover refinery throughput volumes (BBL per day)
|
5,644
|
|
|
6,091
|
|
|
(447
|
)
|
|
(7
|
)%
|
Corpus Christi crude terminal (BBL per day)
|
77,394
|
|
|
166,129
|
|
|
(88,735
|
)
|
|
(53
|
)%
|
Services revenues.
S
ervices revenue decreased $7.2 million, primarily as a result of decreased throughput volumes and pass-through revenues at our Corpus Christi crude terminal.
Products revenues.
A 24% decrease in sales volumes at our blending and packaging facilities resulted in a $13.2 million decrease to products revenues. The decline in volumes resulted primarily from the downturn in the energy industry, as well as increased price competition. Products revenues at our shore-based terminals decreased $3.7 million resulting from a 6% decrease in average sales price combined with a 2% decrease in sales volume.
Cost of products sold.
A 24% decrease in sales volumes at our blending and packaging facilities resulted in a $10.0 million decrease in cost of products sold. Average price per gallon decreased 10%, resulting in a $4.4 million decrease in cost of products sold. Cost of products sold at our shore-based terminals decreased $3.5 million resulting from a 6% decrease in average cost per gallon combined with a 2% decrease in sales volumes.
Operating expenses.
Operating expenses at our specialty terminals decreased $5.9 million, primarily as a result of $2.8 million in decreased pass-through expenses at our Corpus Christi crude terminal, $2.2 million in decreased repairs and maintenance across our specialty terminals, and a $0.4 million decrease related to compensation expense across our specialty terminals. Operating expenses at our Smackover refinery decreased $1.6 million, primarily as a result of $1.3 million in decreased
repairs and maintenance, $0.5 million in decreased compensation expense, $0.7 million in decreased utilities expense. These decreases were offset by an increase in property damage claims of $0.5 million and increased lease expense of $0.4 million. Operating expenses at our shore-based terminals decreased by $0.7 million primarily due to a decrease in contract labor of $0.3 million and lease expense of $0.1 million.
Selling, general and administrative expenses.
Selling, general and administrative expenses increased $0.7 million, of which $0.4 million is the result of increased compensation expense in our blending and packaging operations and $0.3 million is due to increased legal fees.
Depreciation and amortization.
The increase in depreciation and amortization is due to the impact of recent capital expenditures.
Other operating income (loss).
Other operating income (loss) represents gains and losses from the disposition of property, plant and equipment.
Volumetric data.
Actual volumes at our Corpus Christi crude terminal for the nine months ended September 30, 2016 averaged 77,394 BBL per day, 7,606 BBL per day less than the contracted minimum throughput.
Natural Gas Services Segment
Comparative Results of Operations for the Three Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
14,618
|
|
|
$
|
17,120
|
|
|
$
|
(2,502
|
)
|
|
(15
|
)%
|
Products
|
57,378
|
|
|
86,714
|
|
|
(29,336
|
)
|
|
(34
|
)%
|
Total revenues
|
71,996
|
|
|
103,834
|
|
|
(31,838
|
)
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
51,353
|
|
|
81,472
|
|
|
(30,119
|
)
|
|
(37
|
)%
|
Operating expenses
|
5,822
|
|
|
6,489
|
|
|
(667
|
)
|
|
(10
|
)%
|
Selling, general and administrative expenses
|
1,309
|
|
|
1,848
|
|
|
(539
|
)
|
|
(29
|
)%
|
Depreciation and amortization
|
7,050
|
|
|
8,522
|
|
|
(1,472
|
)
|
|
(17
|
)%
|
|
6,462
|
|
|
5,503
|
|
|
959
|
|
|
17
|
%
|
Other operating loss
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
|
|
Operating income
|
$
|
6,455
|
|
|
$
|
5,503
|
|
|
$
|
952
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated entities
|
$
|
1,800
|
|
|
$
|
3,400
|
|
|
$
|
(1,600
|
)
|
|
(47
|
)%
|
|
|
|
|
|
|
|
|
|
NGL sales volumes (Bbls)
|
1,592
|
|
|
3,138
|
|
|
(1,546
|
)
|
|
(49
|
)%
|
Services Revenues.
The decrease in services revenue is primarily a result of decreased storage rates at our Arcadia and Monroe gas storage facilities.
Products Revenues.
Our NGL average sales price per barrel increased $8.41, or 30%, resulting in an increase to products revenues of $26.4 million. The increase in average sales price per barrel was a result of an increase in market prices. Product sales volumes decreased 49%, decreasing products revenues $55.7 million.
Cost of products sold
. Our average cost per barrel excluding the effects of non-cash mark-to-market adjustments on derivative instruments increased $6.87, or 27%, increasing cost of products sold by $21.6 million. The increase in average cost per barrel was a result of an increase in market prices. The decrease in sales volume of 49% resulted in a $50.6 million decrease to cost of products sold. Our margins increased $1.54 per barrel, or 86%, during the period.
Operating expenses
. Operating expenses decreased $0.7 million primarily due to a $0.5 million decrease in pipeline testing expense related to our East Texas NGL pipeline.
Selling, general and administrative expenses
. Selling, general and administrative expenses decreased primarily due to decreased compensation expense.
Depreciation and amortization.
Depreciation and amortization decreased $1.5 million primarily due to a $1.7 million decrease in amortization related to contracts acquired during the purchase of Cardinal, offset by a $0.2 million increase in depreciation expense related to recent capital expenditures.
Other operating loss.
Other operating loss represents gains and losses from the disposition of property, plant and equipment.
Comparative Results of Operations for the
Nine Months Ended September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
46,118
|
|
|
$
|
50,171
|
|
|
$
|
(4,053
|
)
|
|
(8
|
)%
|
Products
|
207,368
|
|
|
330,803
|
|
|
(123,435
|
)
|
|
(37
|
)%
|
Total revenues
|
253,486
|
|
|
380,974
|
|
|
(127,488
|
)
|
|
(33
|
)%
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
186,934
|
|
|
308,713
|
|
|
(121,779
|
)
|
|
(39
|
)%
|
Operating expenses
|
17,479
|
|
|
17,905
|
|
|
(426
|
)
|
|
(2
|
)%
|
Selling, general and administrative expenses
|
5,420
|
|
|
6,313
|
|
|
(893
|
)
|
|
(14
|
)%
|
Depreciation and amortization
|
21,007
|
|
|
25,297
|
|
|
(4,290
|
)
|
|
(17
|
)%
|
|
22,646
|
|
|
22,746
|
|
|
(100
|
)
|
|
—
|
%
|
Other operating loss
|
(103
|
)
|
|
(7
|
)
|
|
(96
|
)
|
|
1,371
|
%
|
Operating income
|
$
|
22,543
|
|
|
$
|
22,739
|
|
|
$
|
(196
|
)
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated entities
|
$
|
6,100
|
|
|
$
|
7,800
|
|
|
$
|
(1,700
|
)
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
NGL sales volumes (Bbls)
|
6,520
|
|
|
10,227
|
|
|
(3,707
|
)
|
|
(36
|
)%
|
Services Revenues.
The decrease in services revenue is primarily a result of decreased storage rates at our Arcadia and Monroe gas storage facilities.
Products Revenues.
Our NGL average sales price per barrel decreased $0.54, or 2%, resulting in a decrease to products revenues of $5.5 million. The decrease in average sales price per barrel was a result of a decline in market prices. Product sales volumes decreased 36%, decreasing products revenues by $117.9 million.
Cost of products sold
. Our average cost per barrel excluding the effects of non-cash mark-to-market adjustments on derivative instruments decreased $1.60, or 5%, decreasing cost of products sold by $16.4 million. The decrease in average cost per barrel was a result of a decline in market prices. The decrease in sales volume of 36% resulted in a $105.8 million decrease to cost of products sold. Our margins increased $1.06 per barrel, or 48%, during the period.
Operating expenses
. Operating expenses decreased $0.4 million primarily due to lower fuel expense of $0.6 million at our Cardinal Gas Storage facilities and a $0.5 million decrease in pipeline testing expense. These decreases are offset by a $0.7 million increase from our Arcadia rail facility put into service in June 2015.
Selling, general and administrative expenses
. Selling, general and administrative expenses decreased $0.9 million primarily due to a $0.2 million decrease in compensation expense, a $0.2 million decrease in consulting fees, a $0.1 million
decrease in property taxes, and a $0.1 million decrease due to the 2015 period including the reserve for an uncollectible receivable.
Depreciation and amortization.
Depreciation and amortization decreased $4.3 million primarily due to a $5.0 million decrease in amortization related to contracts acquired during the purchase of Cardinal, offset by a $0.7 million increase in depreciation expense related to recent capital expenditures.
Other operating loss.
Other operating loss represents gains and losses from the disposition of property, plant and equipment.
Sulfur Services Segment
Comparative Results of Operations for the Three Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
2,700
|
|
|
$
|
3,090
|
|
|
$
|
(390
|
)
|
|
(13
|
)%
|
Products
|
26,396
|
|
|
33,213
|
|
|
(6,817
|
)
|
|
(21
|
)%
|
Total revenues
|
29,096
|
|
|
36,303
|
|
|
(7,207
|
)
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
21,601
|
|
|
26,235
|
|
|
(4,634
|
)
|
|
(18
|
)%
|
Operating expenses
|
4,089
|
|
|
3,427
|
|
|
662
|
|
|
19
|
%
|
Selling, general and administrative expenses
|
946
|
|
|
934
|
|
|
12
|
|
|
1
|
%
|
Depreciation and amortization
|
1,997
|
|
|
2,129
|
|
|
(132
|
)
|
|
(6
|
)%
|
|
463
|
|
|
3,578
|
|
|
(3,115
|
)
|
|
(87
|
)%
|
Other operating loss
|
(234
|
)
|
|
(5
|
)
|
|
(229
|
)
|
|
4,580
|
%
|
Operating income
|
$
|
229
|
|
|
$
|
3,573
|
|
|
$
|
(3,344
|
)
|
|
(94
|
)%
|
|
|
|
|
|
|
|
|
|
Sulfur (long tons)
|
241
|
|
|
203
|
|
|
38
|
|
|
19
|
%
|
Fertilizer (long tons)
|
47
|
|
|
51
|
|
|
(4
|
)
|
|
(8
|
)%
|
Total sulfur services volumes (long tons)
|
288
|
|
|
254
|
|
|
34
|
|
|
13
|
%
|
Services Revenues.
Services revenue decreased $0.4 million as a result of renegotiation of contract terms effective January 2016.
Products Revenues.
Products revenue decreased $9.9 million as a result of a 30% decline in average sales price. A 13% increase in sales volumes, primarily attributable to a 19% increase in sulfur volumes, resulted in an offsetting increase of $3.1 million.
Cost of products sold.
A 27% decrease in prices reduced cost of products sold by $7.2 million, resulting from a decline in commodity prices. A 13% increase in volumes resulted in an offsetting increase in cost of products sold of $2.6 million. Margin per ton decreased $10.82, or 39%.
Operating expenses.
Our operating expenses increased primarily as a result of increased outside towing as well as repairs and maintenance to railcars and marine vessels.
Selling, general and administrative expenses.
Selling, general and administrative expenses increased slightly as a result of increased compensation expense.
Depreciation and amortization.
The decrease in depreciation and amortization is due to asset dispositions in the fourth quarter of 2015 and third quarter of 2016.
Other Operating Loss.
Other operating loss represents losses from the disposition of property, plant and equipment.
Comparative Results of Operations for the
Nine Months Ended September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
$
|
8,100
|
|
|
$
|
9,270
|
|
|
$
|
(1,170
|
)
|
|
(13
|
)%
|
Products
|
105,459
|
|
|
128,544
|
|
|
(23,085
|
)
|
|
(18
|
)%
|
Total revenues
|
113,559
|
|
|
137,814
|
|
|
(24,255
|
)
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
Cost of products sold
|
74,006
|
|
|
95,961
|
|
|
(21,955
|
)
|
|
(23
|
)%
|
Operating expenses
|
10,288
|
|
|
11,697
|
|
|
(1,409
|
)
|
|
(12
|
)%
|
Selling, general and administrative expenses
|
2,834
|
|
|
2,859
|
|
|
(25
|
)
|
|
(1
|
)%
|
Depreciation and amortization
|
5,978
|
|
|
6,360
|
|
|
(382
|
)
|
|
(6
|
)%
|
|
20,453
|
|
|
20,937
|
|
|
(484
|
)
|
|
(2
|
)%
|
Other operating loss
|
(266
|
)
|
|
(5
|
)
|
|
(261
|
)
|
|
5,220
|
%
|
Operating income
|
$
|
20,187
|
|
|
$
|
20,932
|
|
|
$
|
(745
|
)
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Sulfur (long tons)
|
579
|
|
|
641
|
|
|
(62
|
)
|
|
(10
|
)%
|
Fertilizer (long tons)
|
217
|
|
|
229
|
|
|
(12
|
)
|
|
(5
|
)%
|
Total sulfur services volumes (long tons)
|
796
|
|
|
870
|
|
|
(74
|
)
|
|
(9
|
)%
|
Services Revenues.
Services revenue decreased $1.2 million as a result of renegotiation of contract terms effective January 2016.
Products Revenues.
Products revenue decreased $13.3 million as a result of a 10% decline in average sales price. A 9% decrease in sales volumes, attributable primarily to a 10% decrease in sulfur volumes, decreased products revenue an additional $9.8 million.
Cost of products sold.
A 16% decrease in prices reduced our cost of products sold by $15.0 million. A 9% decrease in sales volumes decreased cost of products sold by $6.9 million. Margin per ton increased $2.06, or 6%.
Operating expenses.
Our operating expenses decreased primarily as a result of $0.9 million in lower fuel expense, terminal and thruput fees of $0.3 million, and compensation expense of $0.3 million.
Selling, general and administrative expenses.
Selling, general and administrative expenses decreased slightly due to decreased bad debt expense, advertising and dues and subscriptions.
Depreciation and amortization.
The decrease in depreciation and amortization is due to asset dispositions in the fourth quarter of 2015 and third quarter of 2016.
Other Operating Loss.
Other operating loss represents losses from the disposition of property, plant and equipment.
Marine Transportation Segment
Comparative Results of Operations for the Three Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revenues
|
$
|
14,920
|
|
|
$
|
19,522
|
|
|
$
|
(4,602
|
)
|
|
(24)%
|
Operating expenses
|
12,332
|
|
|
15,855
|
|
|
(3,523
|
)
|
|
(22)%
|
Selling, general and administrative expenses
|
149
|
|
|
(59
|
)
|
|
208
|
|
|
(353)%
|
Depreciation and amortization
|
2,254
|
|
|
3,060
|
|
|
(806
|
)
|
|
(26)%
|
|
185
|
|
|
666
|
|
|
(481
|
)
|
|
(72)%
|
Other operating loss
|
—
|
|
|
(1,583
|
)
|
|
1,583
|
|
|
(100)%
|
Operating income (loss)
|
$
|
185
|
|
|
$
|
(917
|
)
|
|
$
|
1,102
|
|
|
(120)%
|
Inland revenues
. A $3.0 million decrease in inland revenues is primarily attributable to decreased utilization of the inland fleet resulting from an abundance of supply of marine equipment in our predominantly Gulf Coast market.
Offshore revenues.
A $1.6 million decrease in offshore revenue is the result of decreased utilization of the offshore fleet.
Operating expenses
. The decrease in operating expenses is a result of decreased compensation expense of $1.0 million, repairs and maintenance of $2.0 million, property taxes of $0.2 million, and outside labor of $0.2 million.
Selling, general and administrative expenses
. Selling, general and administrative expenses increased as a result of the revision of the classification of property taxes to operating expenses in the three month period ended September 30, 2015.
Depreciation and amortization
. Depreciation and amortization decreased as a result of the disposal of property, plant and equipment offset by recent capital expenditures.
Other operating loss.
Other operating loss represents gains and losses from the disposition of property, plant and equipment.
Comparative Results of Operations for the
Nine Months Ended September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revenues
|
$
|
46,854
|
|
|
$
|
62,354
|
|
|
$
|
(15,500
|
)
|
|
(25)%
|
Operating expenses
|
41,400
|
|
|
48,284
|
|
|
(6,884
|
)
|
|
(14)%
|
Selling, general and administrative expenses
|
(112
|
)
|
|
251
|
|
|
(363
|
)
|
|
(145)%
|
Loss on impairment of goodwill
|
4,145
|
|
|
—
|
|
|
4,145
|
|
|
|
Depreciation and amortization
|
8,377
|
|
|
8,050
|
|
|
327
|
|
|
4%
|
Operating income
|
$
|
(6,956
|
)
|
|
$
|
5,769
|
|
|
$
|
(12,725
|
)
|
|
(221)%
|
Other operating loss
|
(1,567
|
)
|
|
(1,552
|
)
|
|
(15
|
)
|
|
1%
|
Operating income (loss)
|
$
|
(8,523
|
)
|
|
$
|
4,217
|
|
|
$
|
(12,740
|
)
|
|
(302)%
|
Inland revenues
. An $8.0 million decrease in inland revenues is primarily attributable to decreased utilization of the inland fleet resulting from an abundance of supply of marine equipment in our predominantly Gulf Coast market.
Offshore revenues.
A $5.1 million decrease in offshore revenue is the result of decreased utilization of the offshore fleet, partially offset by the recognition of previously deferred revenues of $1.5 million.
Pass-through revenues.
A $2.7 million decrease in pass-through revenues was primarily related to fuel.
Operating expenses
. The decrease in operating expenses is a result of decreased pass-through expenses (primarily fuel) of $2.6 million, compensation expense of $1.8 million, lower repairs and maintenance of $3.7 million and outside labor of $0.5 million. Offsetting these decreases were increases in claims expense of $0.5 million, property and liability premiums of $0.7 million, and outside towing of $0.6 million.
Selling, general and administrative expenses
. Selling, general and administrative expenses decreased due to the 2016 period including the collection of a previously deemed uncollectible receivable.
Loss on impairment of goodwill.
This represents the loss on impairment of goodwill in the Marine Transportation reporting unit during the second quarter of 2016.
Depreciation and amortization
. Depreciation and amortization increased as a result of recent capital expenditures offset by the disposal of property, plant and equipment.
Other operating loss.
Other operating loss represents gains and losses from the disposition of property, plant and equipment.
Equity in Earnings of and Distributions from Unconsolidated Entities for the Three Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Equity in earnings of WTLPG
|
$
|
1,120
|
|
|
$
|
2,363
|
|
|
$
|
(1,243
|
)
|
|
(53)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Distributions from WTLPG
|
$
|
1,800
|
|
|
$
|
3,400
|
|
|
$
|
(1,600
|
)
|
|
(47)%
|
Equity in earnings from West Texas LPG Pipeline L.P. ("WTLPG") decreased primarily due to a decrease in transportation rates combined with an increase in repairs and maintenance on the asset. Distributions from WTLPG decreased $1.6 million.
Equity in Earnings in and Distributions from Unconsolidated Entities for the
Nine Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Equity in earnings of WTLPG
|
$
|
3,602
|
|
|
$
|
5,752
|
|
|
$
|
(2,150
|
)
|
|
(37
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Distributions from WTLPG
|
$
|
6,100
|
|
|
$
|
7,800
|
|
|
$
|
(1,700
|
)
|
|
(22
|
)%
|
Equity in earnings from WTLPG decreased primarily due to a decrease in transportation rates combined with an increase in repairs and maintenance on the asset. Distributions from WTLPG decreased $1.7 million.
Interest Expense, Net
Comparative Components of Interest Expense, Net for the Three Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revolving loan facility
|
$
|
4,981
|
|
|
$
|
4,043
|
|
|
$
|
938
|
|
|
23%
|
7.25% Senior notes
|
6,775
|
|
|
7,253
|
|
|
(478
|
)
|
|
(7)%
|
Amortization of deferred debt issuance costs
|
718
|
|
|
2,400
|
|
|
(1,682
|
)
|
|
(70)%
|
Amortization of debt discount
|
(77
|
)
|
|
(82
|
)
|
|
5
|
|
|
(6)%
|
Impact of interest rate derivative activity, including cash settlements
|
—
|
|
|
(750
|
)
|
|
750
|
|
|
(100)%
|
Other
|
178
|
|
|
124
|
|
|
54
|
|
|
44%
|
Capitalized interest
|
(229
|
)
|
|
(427
|
)
|
|
198
|
|
|
(46)%
|
Interest income
|
(567
|
)
|
|
(567
|
)
|
|
—
|
|
|
—%
|
Total interest expense, net
|
$
|
11,779
|
|
|
$
|
11,994
|
|
|
$
|
(215
|
)
|
|
(2)%
|
Comparative Components of Interest Expense, Net for the
Nine Months Ended
September 30, 2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Revolving loan facility
|
$
|
13,707
|
|
|
$
|
12,173
|
|
|
$
|
1,534
|
|
|
13%
|
7.25% Senior notes
|
20,401
|
|
|
21,753
|
|
|
(1,352
|
)
|
|
(6)%
|
Amortization of deferred debt issuance costs
|
2,965
|
|
|
4,142
|
|
|
(1,177
|
)
|
|
(28)%
|
Amortization of debt premium
|
(230
|
)
|
|
(246
|
)
|
|
16
|
|
|
(7)%
|
Impact of interest rate derivative activity, including cash settlements
|
(995
|
)
|
|
(2,495
|
)
|
|
1,500
|
|
|
(60)%
|
Other
|
798
|
|
|
343
|
|
|
455
|
|
|
133%
|
Capitalized interest
|
(911
|
)
|
|
(1,522
|
)
|
|
611
|
|
|
(40)%
|
Interest income
|
(1,689
|
)
|
|
(1,683
|
)
|
|
(6
|
)
|
|
—%
|
Total interest expense, net
|
$
|
34,046
|
|
|
$
|
32,465
|
|
|
$
|
1,581
|
|
|
5%
|
Indirect Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
Indirect selling, general and administrative expenses
|
$
|
4,206
|
|
|
$
|
4,948
|
|
|
$
|
(742
|
)
|
|
(15)%
|
|
$
|
12,676
|
|
|
$
|
14,258
|
|
|
$
|
(1,582
|
)
|
|
(11)%
|
Indirect selling, general and administrative expenses decreased for the three months ended September 30, 2016 due to a $0.4 million reduction in acquisition due diligence costs, $0.1 million in lower unit grant compensation expense, and a $0.2 million reduction in overhead expense allocated from Martin Resource Management.
For the nine months ended September 30, 2016, the decrease in indirect selling, general and administrative expenses is attributable to a $0.5 million reduction in overhead expense allocated from Martin Resource Management, $0.5 million in reduced acquisition due diligence costs, $0.4 million in lower unit grant compensation expense, and reduced audit fees of $0.2 million.
Martin Resource Management allocates to us a portion of its indirect selling, general and administrative expenses for services such as accounting, legal, treasury, clerical, billing, information technology, administration of insurance, engineering,
general office expense and employee benefit plans and other general corporate overhead functions we share with Martin Resource Management retained businesses. This allocation is based on the percentage of time spent by Martin Resource Management personnel that provide such centralized services. GAAP also permits other methods for allocation of these expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these expenses between Martin Resource Management 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 allocation for these expenses. Other methods could result in a higher allocation of selling, general and administrative expense to us, which would reduce our net income.
Under the Omnibus Agreement, we are required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. The Conflicts Committee of our general partner approved the following reimbursement amounts during the three months and
nine months ended September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
Conflicts Committee approved reimbursement amount
|
$
|
3,258
|
|
|
$
|
3,420
|
|
|
$
|
(162
|
)
|
|
(5)%
|
|
$
|
9,775
|
|
|
$
|
10,259
|
|
|
$
|
(484
|
)
|
|
(5)%
|
The amounts reflected above represent our allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
Liquidity and Capital Resources
General
Our primary sources of liquidity to meet operating expenses, pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations and access to debt and equity markets, both public and private. Management believes that expenditures for our current capital projects will be funded with cash flows from operations, current cash balances and our current borrowing capacity under the revolving credit facility. Given the current environment, we have altered and reduced our planned growth capital expenditures. We believe that controlling our spending in an effort to preserve liquidity is prudent and reduces our need for near-term access to the somewhat uncertain capital markets.
Recent Debt Financing Activity
Credit Facility Amendment.
On April 27, 2016, we made certain strategic amendments to our revolving credit facility which, among other things, decreased our borrowing capacity from $700.0 million to $664.4 million and extended the maturity date of the facility from March 28, 2018 to March 28, 2020.
In 2015, we repurchased on the open market an aggregate $26.2 million of our outstanding 7.25% senior unsecured notes.
We believe that cash generated from operations and our borrowing capacity under our credit facility will be sufficient to meet our working capital requirements, anticipated maintenance capital expenditures and scheduled debt payments in 2016.
Finally, our ability to satisfy our working capital requirements, to fund planned capital expenditures and to satisfy our debt service obligations will also depend upon our future operating performance, which is subject to certain risks. Please read "Item 1A. Risk Factors" of our Form 10-K for the year ended December 31, 2015, filed with the SEC on February 29, 2016, as amended by Amendment No. 1 on Form 10-K/A filed on March 30, 2016, for a discussion of such risks.
Cash Flows -
Nine Months Ended September 30, 2016
Compared to
Nine Months Ended September 30, 2015
The following table details the cash flow changes between the
nine months ended September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
Variance
|
|
Percent Change
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
Operating activities
|
$
|
61,735
|
|
|
$
|
112,984
|
|
|
$
|
(51,249
|
)
|
|
(45)%
|
Investing activities
|
(10,074
|
)
|
|
1,358
|
|
|
(11,432
|
)
|
|
(842)%
|
Financing activities
|
(51,682
|
)
|
|
(114,371
|
)
|
|
62,689
|
|
|
(55)%
|
Net increase (decrease) in cash and cash equivalents
|
$
|
(21
|
)
|
|
$
|
(29
|
)
|
|
$
|
8
|
|
|
(28)%
|
The change in net cash provided by operating activities for the
nine months ended September 30, 2016
includes a decrease in operating results plus other non-cash items of $13.5 million and a $38.1 million unfavorable variance in working capital. Net cash used in discontinued operating activities decreased $1.4 million in 2016.
Net cash provided by (used in) investing activities for the
nine months ended September 30, 2016
decreased primarily as a result of the 2015 period including $41.3 million in cash proceeds from the disposition of certain floating storage assets classified as discontinued operations. The 2016 period included an acquisition of intangible assets of $2.2 million compared to no acquisitions in 2015. Payments for capital expenditures and plant turnaround costs decreased $8.6 million in 2016. Additionally, $23.4 million represents net proceeds from th
e involuntary conversion of property, plant and equipment.
The change in net cash used in financing activities for the
nine months ended September 30, 2016
is due to a decrease in net repayments of long-term borrowings of $66.3 million. In 2016, we paid an additional $4.9 million in costs associated with our credit facility amendment compared to the previous period.
Capital Expenditures and Plant Turnaround Costs
Our operations require continual investment to upgrade or enhance operations and to ensure compliance with safety, operational, and environmental regulations. Our capital expenditures consist primarily of:
•
expansion capital expenditures to acquire assets to grow our business, to expand existing facilities, such as projects that increase operating capacity, or to reduce operating costs;
•
maintenance capital expenditures made to maintain existing assets and operations; and
•
plant turnaround costs made at our refinery to perform maintenance, overhaul and repair operations and to inspect, test and replace process materials and equipment.
The following table summarizes our capital expenditure activity, excluding amounts paid for acquisitions, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(In thousands)
|
Expansion capital expenditures
|
$
|
2,510
|
|
|
$
|
10,280
|
|
|
$
|
14,130
|
|
|
$
|
36,891
|
|
Maintenance capital expenditures
|
1,609
|
|
|
2,438
|
|
|
12,818
|
|
|
7,621
|
|
Plant turnaround costs
|
430
|
|
|
—
|
|
|
1,614
|
|
|
1,754
|
|
Total
|
$
|
4,549
|
|
|
$
|
12,718
|
|
|
$
|
28,562
|
|
|
$
|
46,266
|
|
Expansion capital expenditures were made primarily in our Terminalling and Storage segment during the three and
nine months ended September 30, 2016
. Within our Terminalling and Storage segment, expenditures were made primarily at our Smackover refinery and on certain organic growth projects ongoing in our specialty terminalling operations. Maintenance capital expenditures were made primarily in our Terminalling and Storage, Sulfur Services, and Marine Transportation
segments to maintain our existing assets and operations during the three and
nine months ended September 30, 2016
. The increase is primarily related to tank repairs in our specialty terminalling business and a three-year regulatory coast guard inspection on our two marine vessels that operate in our sulfur business. For the three and
nine months ended September 30, 2016
and 2015, plant turnaround costs relate to our Smackover refinery.
Expansion capital expenditures were made primarily in our Terminalling and Storage and Natural Gas Services segments during the three and
nine months ended September 30, 2015
. Within our Terminalling and Storage segment, expenditures were made primarily at our Smackover refinery and on certain organic growth projects ongoing in our specialty terminalling operations. Within our Natural Gas Services segment, expenditures were made on ongoing organic growth projects. Maintenance capital expenditures were made primarily in our Terminalling and Storage segment to maintain our existing assets and operations during the three and
nine months ended September 30, 2015
. For the three and
nine months ended September 30, 2015
, plant turnaround costs relate to our Smackover refinery.
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 will be cash flows from operations and borrowings under our credit facility.
Total Contractual Cash Obligations.
A summary of our total contractual cash obligations as of
September 30, 2016
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
Type of Obligation
|
Total
Obligation
|
|
Less than
One Year
|
|
1-3
Years
|
|
3-5
Years
|
|
Due
Thereafter
|
Revolving credit facility
|
$
|
549,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
549,000
|
|
|
$
|
—
|
|
2021 Senior unsecured notes
|
373,800
|
|
|
—
|
|
|
—
|
|
|
373,800
|
|
|
—
|
|
Throughput commitment
|
29,954
|
|
|
6,191
|
|
|
12,874
|
|
|
10,889
|
|
|
—
|
|
Exclusive right of use commitment
|
5,000
|
|
|
5,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating leases
|
49,202
|
|
|
12,512
|
|
|
16,682
|
|
|
11,353
|
|
|
8,655
|
|
Interest payable on fixed long-term debt obligations
|
118,565
|
|
|
27,101
|
|
|
54,201
|
|
|
37,263
|
|
|
—
|
|
Total contractual cash obligations
|
$
|
1,125,521
|
|
|
$
|
50,804
|
|
|
$
|
83,757
|
|
|
$
|
982,305
|
|
|
$
|
8,655
|
|
The interest payable under our credit facility is not reflected in the above table because such amounts depend on the outstanding balances and interest rates, which vary from time to time.
Letters of Credit
. At
September 30, 2016
, we had outstanding irrevocable letters of credit in the amount of $0.9 million, which were issued under our revolving credit facility.
Off Balance Sheet Arrangements.
We do not have any off-balance sheet financing arrangements.
Description of Our Long-Term Debt
2021 Senior Notes
For a description of our 7.25% senior unsecured notes due 2021, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Description of Our Long-Term Debt" in our Annual Report on Form 10-K for the year ended December 31, 2015, as amended.
Revolving Credit Facility
At September 30, 2016, we maintained a $664.4 million credit facility. This facility was most recently amended on April 27, 2016, when we made certain strategic amendments to our revolving credit facility which, among other things, decreased our borrowing capacity from $700.0 million to $664.4 million and extended the maturity date of the facility from March 28, 2018 to March 28, 2020.
As of
September 30, 2016
, we had $549.0 million outstanding under the revolving credit facility and $0.9 million of letters of credit issued, leaving a maximum available to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of $114.6 million. Subject to the financial covenants contained in our credit facility and based on our existing EBITDA (as defined in our credit facility) calculations, as of
September 30, 2016
, we have the ability to borrow approximately $8.0 million of that amount. While our current debt to EBITDA financial covenant calculation is near the maximum allowed under our credit facility at the September 30, 2016 evaluation, we expect to improve leverage during the fourth quarter through the impacts of selling inventory built during the second and third quarters in our seasonal NGL business. Additionally, we plan to further improve leverage with the $93.0 million in net proceeds we expect to receive upon the completion of the divestiture of the CCCT Assets. We expect to be in compliance with all financial covenants at December 31, 2016.
The revolving credit facility is used for ongoing working capital needs and general partnership purposes, and to finance permitted investments, acquisitions and capital expenditures. During the
nine months ended September 30, 2016
, the level of outstanding draws on our credit facility has ranged from a low of $498.0 million to a high of $582.0 million.
The credit facility is guaranteed by substantially all of our subsidiaries. Obligations under the credit facility are secured by first priority liens on substantially all of our assets and those of the guarantors, including, without limitation, inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in our subsidiaries and certain of our equity method investees.
We may prepay all amounts outstanding under the credit facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. The credit facility requires mandatory prepayments of amounts outstanding thereunder with the net proceeds of certain asset sales, equity issuances and debt incurrences.
Indebtedness under the credit facility bears interest at our option at the Eurodollar Rate (the British Bankers Association LIBOR Rate) plus an applicable margin or the Base Rate (the highest of the Federal Funds Rate plus 0.50%, the 30-day Eurodollar Rate plus 1.0%, or the administrative agent’s prime rate) plus an applicable margin. We pay a per annum fee on all letters of credit issued under the credit facility, and we pay a commitment fee per annum on the unused revolving credit availability under the credit facility. The letter of credit fee, the commitment fee and the applicable margins for our interest rate vary quarterly based on our leverage ratio (as defined in the credit facility, being generally computed as the ratio of total funded debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) and are as follows as of
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
Base Rate Loans
|
|
Eurodollar
Rate
Loans
|
|
Letters of Credit
|
Less than 3.00 to 1.00
|
1.00
|
%
|
|
2.00
|
%
|
|
2.00
|
%
|
Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00
|
1.25
|
%
|
|
2.25
|
%
|
|
2.25
|
%
|
Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00
|
1.50
|
%
|
|
2.50
|
%
|
|
2.50
|
%
|
Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00
|
1.75
|
%
|
|
2.75
|
%
|
|
2.75
|
%
|
Greater than or equal to 4.50 to 1.00
|
2.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
At
September 30, 2016
, 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 2.00%. The applicable margin for LIBOR borrowings at
September 30, 2016
is 3.00%.
The credit facility includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted leverage ratio is 5.25 to 1.00 with a temporary springing provision to 5.50 to 1.00 under certain scenarios. The maximum permitted senior leverage ratio (as defined in the credit facility but generally computed as the ratio of total secured funded debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) is 3.50 to 1.00. The minimum interest coverage ratio (as defined in the credit facility but generally computed as the ratio of consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges to consolidated interest charges) is 2.50 to 1.00.
In addition, the credit facility contains various covenants, which, among other things, limit our and our subsidiaries’ ability to: (i) grant or assume liens; (ii) make investments (including investments in our joint ventures) and acquisitions; (iii) enter into certain types of hedging agreements; (iv) incur or assume indebtedness; (v) sell, transfer, assign or convey assets; (vi) repurchase our equity, make distributions and certain other restricted payments, but the credit facility permits us to make
quarterly distributions to unitholders so long as no default or event of default exists under the credit facility; (vii) change the nature of our business; (viii) engage in transactions with affiliates; (ix) enter into certain burdensome agreements; (x) make certain amendments to the Omnibus Agreement and our material agreements; (xi) make capital expenditures; and (xii) permit our joint ventures to incur indebtedness or grant certain liens.
The credit facility contains customary events of default, including, without limitation: (i) failure to pay any principal, interest, fees, expenses or other amounts when due; (ii) failure to meet the quarterly financial covenants; (iii) failure to observe any other agreement, obligation, or covenant in the credit facility or any related loan document, subject to cure periods for certain failures; (iv) the failure of any representation or warranty to be materially true and correct when made; (v) our, or any of our subsidiaries’ default under other indebtedness that exceeds a threshold amount; (vi) bankruptcy or other insolvency events involving us or any of our subsidiaries; (vii) judgments against us or any of our subsidiaries, in excess of a threshold amount; (viii) certain ERISA events involving us or any of our subsidiaries, in excess of a threshold amount; (ix) a change in control (as defined in the credit facility); and (x) the invalidity of any of the loan documents or the failure of any of the collateral documents to create a lien on the collateral.
The credit facility also contains certain default provisions relating to Martin Resource Management. If Martin Resource Management no longer controls our general partner, the lenders under the credit facility may declare all amounts outstanding thereunder immediately due and payable. In addition, an event of default by Martin Resource Management under its credit facility could independently result in an event of default under our credit facility if it is deemed to have a material adverse effect on us.
If an event of default relating to bankruptcy or other insolvency events occurs with respect to us or any of our subsidiaries, all indebtedness under our credit facility will immediately become due and payable. If any other event of default exists under our credit facility, the lenders may terminate their commitments to lend us money, accelerate the maturity of the indebtedness outstanding under the credit facility and exercise other rights and remedies. In addition, if any event of default exists under our credit facility, the lenders may commence foreclosure or other actions against the collateral.
We are subject to interest rate risk on our credit facility due to the variable interest rate and may enter into interest rate swaps to reduce this variable rate risk.
The Partnership is in compliance with all debt covenants as of September 30, 2016 and expects to be in compliance for the next twelve months.
Seasonality
A substantial portion of our revenues are dependent on sales prices of products, particularly NGLs and fertilizers, which fluctuate in part based on winter and spring weather conditions. The demand for NGLs is strongest during the winter heating season and the refinery blending season. The demand for fertilizers is strongest during the early spring planting season. However, our WTLPG and natural gas storage divisions of the Natural Gas Services segment each provide stable cash flows and are not generally subject to seasonal demand factors. Additionally, our Terminalling and Storage and Marine Transportation segments and the molten sulfur business are typically not impacted by seasonal fluctuations and a significant portion of our net income is derived from our terminalling and storage, sulfur and marine transportation businesses. Therefore, we do not expect that our overall net income will be impacted by seasonality factors. However, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage and Marine Transportation segments.
Impact of Inflation
Inflation did not have a material impact on our results of operations for the
nine months ended September 30, 2016
or
2015
. Although the impact of inflation has been insignificant in recent years, it is still a factor in the U.S. economy and may increase the cost to acquire or replace property, plant and equipment. It may also increase the costs of labor and supplies. In the future, increasing energy prices could adversely affect our results of operations. Diesel fuel, natural gas, chemicals and other supplies are recorded in operating expenses. An increase in price of these products would increase our operating expenses which could adversely affect net income. We cannot provide assurance that we will be able to pass along increased operating expenses to our customers.
Environmental Matters
Our operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which these operations are conducted. We incurred no material environmental costs, liabilities or expenditures to mitigate or eliminate environmental contamination during the
nine months ended September 30,
2016
or
2015
.