MMLP

Business Context and Reporting Period

Martin Midstream Partners L.P. (MMLP) filed a Form 8-K on March 2, 2011, reporting financial results for the fourth quarter and full year ended December 31, 2010. The Partnership operates in the U.S. Gulf Coast region, focusing on terminalling and storage, natural gas services, sulfur services, and marine transportation.

Key Financial Metrics

Note: Q4 2010 Net Income was reduced by a $4.0 million non-cash derivatives loss. Full Year 2010 Net Income was reduced by $4.2 million due to early extinguishment of interest rate swaps ($3.8 million) and non-cash derivatives losses ($0.4 million).

Material Changes vs. Prior Period

• Revenue Growth: Full-year revenues increased 37.7% to $912.1 million, driven primarily by the Sulfur Services segment (up 107% to $165.1 million) and Natural Gas Services (up 35.6% to $554.5 million).
• Net Income Decline: Despite revenue growth, full-year net income decreased 27.9% to $16.0 million. This decline is attributed to the absence of $6.0 million in gains from property sales and involuntary conversions (Hurricanes Gustav and Ike) recorded in 2009, offset by higher operating income.
• Debt Levels: Total long-term debt and capital leases increased from $304.4 million in 2009 to $372.9 million in 2010, reflecting refinancing and acquisition activities.
• Segment Performance: The Sulfur Services segment rebounded from seasonal weakness, and the Marine Transportation segment saw increased day rates and near-full utilization of the inland fleet.

Guidance, Outlook, and Management Commentary

• Distribution Coverage: Management reported a distribution coverage ratio of 1.53x for Q4 2010 and 1.16x for the full year 2010. This performance enabled the Partnership to increase its distribution to unitholders for the first time in nine quarters.
• 2011 Outlook: Management expects organic growth in Natural Gas and Sulfur Services segments to increase distributable cash flow in 2011. The Partnership is pursuing a strategy to become more fee-based, evidenced by new fee-based contracts for prilling capacity and renegotiated sulfur buyer contracts.
• Operational Updates: Work on the Macondo disaster recovery is complete, freeing two offshore vessels for the spot market. Low-cost growth projects at the Cross lubricant processing facility are underway, with completion expected in 2012.
• Risks and Contingencies: The filing includes standard forward-looking statement disclaimers regarding uncertainties in future events, commodity prices, and regulatory factors. The Partnership notes that historical data requires adjustment for the Cross Oil asset contribution to ensure year-over-year comparability.

Investor Verification Checklist

• Non-GAAP Reconciliation: Verify the reconciliation of Distributable Cash Flow ($65.5 million) to Net Income ($16.0 million), specifically the add-backs for non-cash derivatives losses and early extinguishment of debt fees.
• Derivatives Impact: Assess the magnitude of non-cash mark-to-market losses on commodity and interest rate swaps ($4.0 million in Q4; $0.4 million in full year) and their effect on reported earnings.
• Debt Structure: Review the increase in long-term debt ($372.9 million) and the associated interest expense ($33.7 million for the year) to evaluate leverage and liquidity risks.
• One-Time Items: Confirm the exclusion of the $6.0 million gain from property sales and hurricane-related conversions in 2009 when comparing operating performance year-over-year.
• Cross Asset Acquisition: Review the Form 10-K for detailed adjustments regarding the Cross Oil asset contribution to understand the true organic growth rate versus acquisition-driven growth.