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| MMLP > SEC Filings for MMLP > Form 10-K on 4-Mar-2009 | All Recent SEC Filings |
4-Mar-2009
Annual Report
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 above in "Item 1A. Risk Factors - Risks Related to our Business".
Overview
We are a publicly traded limited partnership with a diverse set of
operations focused primarily in the United States Gulf Coast region. Our four
primary business lines include:
• Terminalling and storage services for petroleum products and by-products;
• Natural gas services;
• Marine transportation services for petroleum products and by-products; and
• Sulfur and sulfur-based products processing, manufacturing, marketing and distribution.
The petroleum products and by-products we collect, transport, store and
distribute 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 Gulf Coast region of the United
States. This region is a major hub for petroleum refining, natural gas gathering
and processing and support services to the exploration and production industry.
2008 Developments and Subsequent Events
Recent Acquisitions
Acquisition of Martin Resource Management Stanolind Assets. In
January 2008, we acquired 7.8 acres of land, a deep water dock and two sulfuric
acid tanks at our Stanolind terminal in Beaumont, from Martin Resource
Management. In connection with this acquisition, we entered into a lease
agreement with Martin Resource Management for use of the sulfuric acid tanks.
Other Developments
Quarterly Distribution. We declared a quarterly cash distribution for the
fourth quarter of 2008 of $0.75 per common and subordinated unit on January 27,
2009, reflecting no change over the quarterly distribution paid in respect of
the third quarter of 2008.
Conversion of Subordinated Units. On November 14, 2008, 850,672 of our
1,701,346 outstanding subordinated units owned by Martin Resource Management
through a subsidiary converted into common units on a one-for-one basis
following our quarterly cash distribution on such date. Additional conversions
of our outstanding subordinated units may occur in the future provided that
certain distribution thresholds contained in our partnership agreement are met
by us.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based on the historical consolidated financial statements
included elsewhere herein. We prepared these financial statements in conformity
with generally accepted accounting principles. The preparation of these
financial statements required us to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. We based our estimates on historical experience and on
various other assumptions we believe to be reasonable under the circumstances.
Our results may differ from these estimates. Currently, we believe that our
accounting policies do not require us to make estimates using assumptions about
matters that are highly uncertain. However, we have described below the critical
accounting policies that we believe could impact our consolidated financial
statements most significantly.
You should also read Note 2, "Significant Accounting Policies" in Notes to
Consolidated Financial Statements contained in this annual report on Form 10-K.
Some of the more significant estimates in these financial statements include the
amount of the allowance for doubtful accounts receivable and the determination
of the fair value of our reporting units under the Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS
142"), Goodwill and Other Intangible Assets.
Derivatives
In accordance with Statement of Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, all
derivatives and hedging instruments are included on the balance sheet as an
asset or liability measured at fair value and changes in fair value are
recognized currently in earnings unless specific hedge accounting criteria are
met. If a derivative qualifies for hedge accounting, changes in the fair value
can be offset against the change in the fair value of the hedged item through
earnings or recognized in other comprehensive income until such time as the
hedged item is recognized in earnings. In early 2006, we adopted a hedging
policy that allows us to use hedge accounting for financial transactions that
are designated as hedges. Derivative instruments not designated as hedges are
being marked to market with all market value adjustments being recorded in the
consolidated statements of operations. As of December 31, 2008, we had
designated a portion of our derivative instruments as qualifying cash flow
hedges. Fair value changes for these hedges have been recorded in other
comprehensive income as a component of equity.
Product Exchanges
We enter into product exchange agreements with third parties whereby we
agree to exchange NGLs and sulfur with third parties. We record the balance of
NGLs and sulfur due to other companies under these agreements at quoted market
product prices and the balance of NGLs and sulfur due from other companies at
the lower of cost or market. Cost is determined using the first-in, first-out
method.
Revenue Recognition
Revenue for our four operating segments is recognized as follows:
Terminalling and storage - Revenue is recognized for storage contracts
based on the contracted monthly tank fixed fee. For throughput contracts,
revenue is recognized based on the volume moved through our terminals at the
contracted rate. When lubricants and drilling fluids are sold by truck, revenue
is recognized upon delivering product to the customers as title to the product
transfers when the customer physically receives the product.
Natural gas services - Natural gas gathering and processing revenues are
recognized when title passes or service is performed. NGL distribution revenue
is recognized when product is delivered by truck to our NGL customers, which
occurs when the customer physically receives the product. When product is sold
in storage, or by pipeline, we recognize NGL distribution revenue when the
customer receives the product from either the storage facility or pipeline.
Marine transportation - Revenue is recognized for contracted trips upon
completion of the particular trip. For time charters, revenue is recognized
based on a per day rate.
Sulfur Services - Revenue is recognized when the customer takes title to
the product, either at our plant or the customer facility.
Equity Method Investments
We use the equity method of accounting for investments in unconsolidated
entities where the ability to exercise significant influence over such entities
exists. Investments in unconsolidated entities consist of capital contributions
and advances plus our share of accumulated earnings as of the entities' latest
fiscal year-ends, less capital withdrawals and distributions. Investments in
excess of the underlying net assets of equity method investees, specifically
identifiable to property, plant and equipment, are amortized over the useful
life of the related assets. Excess investment representing equity method
goodwill is not amortized but is evaluated for impairment, annually. Under the
provisions of SFAS 142, this goodwill is not subject to amortization and is
accounted for as a component of the investment. Equity method investments are
subject to impairment under the provisions of Accounting Principles Board
("APB") Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock. No portion of the net income from these entities is included in
our operating income.
Following our acquisition of Prism Gas in November 2005, we own an
unconsolidated 50% interest in Waskom, Matagorda, and PIPE. As a result, these
assets are accounted for by the equity method and we do not include any portion
of their net income in operating income.
On June 30, 2006, we, through Prism Gas, acquired a 20% ownership interest
in a partnership which owns the lease rights to the assets of the BCP. This
interest is accounted for by the equity method of accounting. The lease contract
expires in June 2009 and an extension is not currently contemplated.
Goodwill
Goodwill is subject to a fair-value based impairment test on an annual
basis, or more often if events or circumstances indicate there may be
impairment. We are required to identify our reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets. Goodwill is assigned to
reporting units at the date the goodwill is initially recorded. Once goodwill
has been assigned to reporting units, it no longer retains its association with
a particular acquisition, and all of the activities within a reporting unit,
whether acquired or organically grown, are available to support value of the
goodwill.
We performed the annual impairment tests as of September 30, 2008,
September 30, 2007 and September 30, 2006, respectively. In performing such
tests, we determined we had four "reporting units" which contained goodwill.
These reporting units were in each of our four reporting segments: terminalling,
natural gas services, marine transportation, and sulfur services. The estimated
fair value of our reporting units with goodwill were developed using the
guideline public company method, the guideline transaction method, and the
discounted cash flow ("DCF") method using observable market data where
available. To the extent the carrying amount of a reporting unit exceeds the
fair value of the reporting unit, we would be required to perform the second
step of the impairment test, as this is an indication that the reporting unit
goodwill may be impaired. At September 30, 2008, 2007 and 2006 the estimated
fair value of each of our four reporting units was in excess of its carrying
value resulting in no impairment.
As a result of the deterioration in the overall stock market subsequent to
September 30, 2008 and the decline in our unit price, we reviewed specific
factors, as outlined in Statement of Financial Accounting Standards No. 142, to
determine if we had a trigging event that required us to test our goodwill for
impairment as of December 31, 2008.
These factors included whether there have been any significant fundamental
changes since our annual impairment test to (i) our business as a whole or to
the reporting units, including regulatory changes, (ii) our level of operating
cash flows, (iii) our expectation of future levels of operating cash flows,
(iv) our executive management team, and (v) the carrying value of our other
long-lived assets. While these factors did not indicate a triggering event
occurred, our unit price fell to a point by December 31, 2008, that resulted in
our total market capitalization being less than our partner's equity. We
determined this to be a triggering event requiring us to perform an impairment
test as of December 31, 2008. As a result of our goodwill impairment test for
each of the four reporting units as of December 31, 2008, no impairment was
determined to exist.
Environmental Liabilities
We have historically not experienced circumstances requiring us to account
for environmental remediation obligations. If such circumstances arise, we would
estimate remediation obligations utilizing a remediation feasibility study and
any other related environmental studies that we may elect to perform. We would
record changes to our estimated environmental liability as circumstances change
or events occur, such as the issuance of revised orders by governmental bodies
or court or other judicial orders and our evaluation of the likelihood and
amount of the related eventual liability.
Allowance for Doubtful Accounts
In evaluating the collectability of our accounts receivable, we assess a
number of factors, including a specific customer's ability to meet its financial
obligations to us, the length of time the receivable has been past due and
historical collection experience. Based on these assessments, we record both
specific and general reserves for bad debts to reduce the related receivable to
the amount we ultimately expect to collect from customers.
Asset Retirement Obligation
In accordance with Statement of Financial Accounting Standards No. 143 ("SFAS
143"), Accounting for Asset Retirement Obligations and FASB issued
Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations"
("FIN 47"), an interpretation of SFAS 143, we recognize and measure our asset
retirement obligations and the associated asset retirement cost upon acquisition
of the related asset. Subsequent measurement and accounting provisions are in
accordance with SFAS 143. We have recognized asset retirement obligations, where
appropriate.
Reclassifications
As previously reported in our Quarterly Report on Form 10-Q for the three
months ended September 30, 2005, which was filed with the SEC on November 9,
2005, we converted to a new accounting system in August 2005. In connection with
the system conversion, we closely examined expense classifications under the new
system. Upon review, it was determined that certain payroll, property insurance
and property tax expenses that were previously categorized as selling, general
and administrative expenses would be more appropriately classified as operating
expenses or costs of products sold. As a result, those expenses were set up in
the new system with the new classification. Accordingly, it is necessary for us
to reclassify the related expense items for fiscal year 2004. Since the
reclassifications, as indicated in the tables set forth below, had no impact on
the prior periods' revenues, operating income, cash flows from operations or net
income, we have determined that the reclassifications are not material to our
audited financial statements for the prior periods. Nonetheless, we are
effecting the reclassifications for prior periods in order to provide
comparative clarity and consistency for the 2004 annual period when compared to
our financial reporting for our current 2008 fiscal year.
The following table sets forth the effects of the reclassifications on
certain line items within our previously reported consolidated statements of
income for the year ended December 31, 2004 (dollars in thousands), which
statements of income and certain relevant footnotes thereto as well as the
relevant portions of Management's Discussion and Analysis of Financial Condition
and Results of Operations for those periods have been updated.
Year Ended December 31, 2004
(In Thousands)
Terminalling
and Storage NGL Marine Sulfur Total
Cost of products sold (as
previously reported) $ 6,775 $ 197,859 $ - $ 25,207 $ 229,841
Cost of products sold (as
reclassified) 6,775 197,859 - 25,342 229,976
Operating expenses (as
previously reported) 6,699 928 24,796 - 32,423
Operating expenses (as
reclassified) 8,494 1,185 24,796 - 34,475
Selling, general and
administrative (as previously
reported) 2,194 1,457 175 4,599 8,425
Selling, general and
administrative (as reclassified) 399 1,200 175 4,424 6,198
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Our Relationship with Martin Resource Management
Martin Resource Management directs our business operations through its
ownership and control of our general partner and under an omnibus agreement. 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. The amount of this reimbursement was capped at
$2.0 million through November 1, 2007, when the cap expired. For the years ended
December 31, 2008, 2007 and 2006, the Conflicts Committee of our general partner
approved reimbursement amounts of $2.9, $1.5 and $1.5 million, respectively,
reflecting 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.
We are required 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. Martin Resource Management also licenses certain of
its trademarks and trade names to us under this omnibus agreement.
We are both an important supplier to and customer of Martin Resource
Management. Among other things, we sell sulfuric acid and provide marine
transportation and terminalling and storage services to Martin Resource
Management. We purchase land transportation services, underground storage
services, sulfuric acid and marine fuel from Martin Resource Management.
Additionally, we have exclusive access to and use of a truck loading and
unloading terminal and pipeline distribution system owned by Martin Resource
Management at Mont Belvieu, Texas. All of these services and goods are purchased
and sold pursuant to the terms of a number of agreements between us and Martin
Resource Management.
For a more comprehensive discussion concerning the omnibus agreement and
the other agreements that we have entered into with Martin Resource Management,
please see "Item 13. Certain Relationships and Related Transactions -
Agreements."
Results of Operations
The results of operations for the twelve months ended December 31, 2008,
2007 and 2006 have been derived from our consolidated 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 twelve months ended December 31, 2008, 2007
and 2006.
Operating Operating Operating
Revenues Revenues Operating Income Income (loss)
Operating Intersegment after Income Intersegment after
Revenues Eliminations Eliminations (loss) Eliminations Eliminations
(In thousands)
Year ended December 31,
2008:
Terminalling and storage $ 90,474 $ (4,189 ) $ 86,285 $ 12,261 $ (3,635 ) $ 8,626
Natural gas services 679,375 - 679,375 2,780 945 3,725
Marine transportation 80,059 (3,710 ) 76,349 8,104 (2,534 ) 5,570
Sulfur services 372,987 (1,038 ) 371,949 31,956 5,224 37,180
Indirect selling, general
and administrative - - - (5,510 ) - (5,510 )
Total $ 1,222,895 $ (8,937 ) $ 1,213,958 $ 49,591 $ - $ 49,591
Year ended December 31,
2007:
Terminalling and storage $ 59,790 $ (865 ) $ 58,925 $ 10,745 $ (472 ) $ 10,273
Natural gas services 515,992 - 515,992 4,159 333 4,492
Marine transportation 63,533 (3,954 ) 59,579 7,949 (3,679 ) 4,270
Sulfur services 131,602 (276 ) 131,326 9,222 3,818 13,040
Indirect selling, general
and administrative - - - (3,199 ) - (3,199 )
Total $ 770,917 $ (5,095 ) $ 765,822 $ 28,876 $ - $ 28,876
Year ended December 31,
2006:
Terminalling and storage $ 36,606 $ (389 ) $ 36,217 $ 12,646 $ (142 ) $ 12,504
Natural gas services 389,735 - 389,735 4,239 - 4,239
Marine transportation 50,174 (2,339 ) 47,835 8,258 (1,847 ) 6,411
Sulfur services 102,646 (49 ) 102,597 4,719 1,989 6,708
Indirect selling, general
and administrative - - - (3,253 ) - (3,253 )
Total $ 579,161 $ (2,777 ) $ 576,384 $ 26,609 $ - $ 26,609
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Our results of operations are discussed 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 after the comparative discussion of our results within
each segment.
Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
Our total revenues before eliminations were $1,222.9 million for the year
ended December 31, 2008 compared to $770.9 million for the year ended
December 31, 2007, an increase of $452.0 million, or 59%. Our operating income
before eliminations was $49.6 million for the year ended December 31, 2008
compared to $28.9 million for the year ended December 31, 2007, an increase of
$20.7 million, or 72%.
The results of operations are described in greater detail on a segment
basis below.
Terminalling and Storage Segment
The following table summarizes our results of operations in our
terminalling and storage segment.
Years Ended December 31,
2008 2007
(In thousands)
Revenues:
Services $ 40,118 $ 29,400
Products 50,356 30,390
Total Revenues 90,474 59,790
Cost of products sold 42,721 26,298
Operating expenses 26,086 16,238
Selling, general and administrative expenses 120 139
Depreciation and amortization 9,272 6,358
12,275 10,757
Other operating income (loss) (14 ) (12 )
Operating income $ 12,261 $ 10,745
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