What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-07 compared with 2020-05-11 · 322 added, 133 removed, 363 unchanged (56% of the section changed)

16 unchanged sentences

Martin Resource Management Corporation is an important supplier and customer of ours.

As of March 31, 2020 , Martin Resource Management Corporation owned 15.7% of our total outstanding common limited partner units.

As of June 30, 2020, Martin Resource Management Corporation owned 15.7% of our total outstanding common limited partner units.

Furthermore, Martin Resource Management Corporation 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.

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Significant Recent Developments

COVID-19 Pandemic

The Partnership prioritizes the health and safety of our employees, the businesses we serve, and the communities where we live and work.

To support the safety of all of our employees and operations, precautionary measures have been implemented to prevent the COVID-19 virus from spreading in our workplace or the locations we serve, including suspending non-essential travel, limiting the number of employees attending meetings, reducing the number of people at our locations at any one time, monitoring the health of all employees, and implementing work-from-home initiatives for all eligible employees.

Further, we began awareness training for all of our drivers, vessel crews, blending operators and other affected personnel regarding preventative measures in or around our docks, vessels, and trucks and locations to which they are delivering.

The Partnership continues to prioritize the health and safety of our employees, the businesses we serve, and the communities where we live and work.

To support the safety of all of our employees and operations, precautionary measures were implemented to prevent the COVID-19 virus from spreading in our workplace or the locations we serve, including suspending non-essential travel, limiting the number of employees attending meetings, reducing the number of people at our locations at any one time, monitoring the health of all employees, and implementing work-from-home initiatives for all eligible

Further, we continue to provide awareness training for all of our drivers, vessel crews, blending operators and other affected personnel regarding preventative measures in or around our docks, vessels, and trucks and locations to which they are delivering.

Our communication lines are open 24/7 for the environmental health and safety division, land and marine logistics, and sales and marketing teams.

Due to the economic impacts of the COVID-19 pandemic, the markets have experienced a decline in oil prices in response to oil demand concerns.

These concerns have been further exacerbated by the price war among members of the Organization of Petroleum Exporting Countries and other non-OPEC producer nations during the first quarter 2020 and global storage considerations.

These concerns were further exacerbated by the price war among members of OPEC and other non-OPEC producer nations during the first quarter 2020 and global storage considerations.

Travel restrictions and stay-at-home orders implemented by governments in many regions and countries across the globe, including the United States, have greatly impacted the demand for refined products resulting in a significant reduction in refinery utilization.

The COVID-19 pandemic has impacted our 2020 performance to date.

The impact of this outbreak started in February and was more significant in March, during which time we have seen unfavorable trends in certain key metrics across several of our business lines compared to recent periods.

The impact of this outbreak started in February and continued through the second quarter, during which time we have seen unfavorable trends in certain key metrics across several of our business lines compared to recent periods.

We expect to continue to experience the adverse impacts of COVID-19 on our business throughout the remainder of 2020 as a result of an expected continued reduction in refined product demand across the industries we serve.

As we look forward in our Terminalling and Storage segment, t here should be minimal impact on the storage component of this business due to minimum volume commitment contracts.

However, there is downside risk in our packaged lubricant and grease businesses due to anticipated reduced demand from our oil and gas production customers and our construction customers.

In our Transportation segment, reduced demand for refined products is expected to continue to impact our daily load count specific to our refinery customers in our land transportation business.

Our near-term outlook currently remains cautiously optimistic for marine transportation as we are now seeing demand for the use of barges as floating storage for crude oil, which should support barge utilization if refinery barge demand decreases.

While the Gulf Coast Region where the majority of our refinery services is focused has reopened their economies, the increase in COVID-19 cases and the impact on refinery utilization due to demand destruction is not clear.

As we look forward in our Terminalling and Storage segment, we continue to expect minimal impact on the storage component of this business due to minimum volume commitment contracts.

However, downside risk remains in our packaged lubricant and grease businesses due to reduced demand from our oil and gas production customers and our construction customers.

In our Transportation segment, reduced demand for refined products and chemicals is expected to continue to impact our land and marine transportation businesses.

In our Natural Gas Liquids segment, our butane optimization business could be impacted by reduced butane production out of third-party refineries as they run at lower utilization rates during the economic shutdown.

As a result, we are unable to predict the amount of butane volume we are able to purchase and store this summer in order to sell back to refiners during the winter blending season.

However, we believe working capital invested in this business will be significantly less than last year, primarily due to depressed energy prices which translates to lower debt levels supporting our butane business in 2020.

Looking forward in our Sulfur Services segment, we believe our molten sulfur business will not be affected as we are paid a monthly logistics fee by our primary customer.

However, we do believe there will be reduced overall sulfur volumes from third-party refineries, which will negatively impact our prilling volume, reducing our operating fee revenue.

However, we continue to believe there will be reduced overall sulfur volumes from third-party refineries, which will negatively impact our prilling volume, reducing our operating fee revenue.

We expect, however, to continue to receive our reservation fees regardless of the amount of sulfur volume processed through our prillers.

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Management also assessed the extent to which the current macroeconomic events brought about by COVID-19 and significant declines in refined product demand impacted the valuation of expected credit losses on accounts receivable and certain inventory items or resulted in modifications to any significant contracts.

Ultimately the results of these assessments did not have a material impact on our results as of March 31, 2020.

Ultimately the results of these assessments did not have a material impact on our results as of June 30, 2020.

Other Recent Developments

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As a result of dispositions, offset by acquisitions, we were able to pay down $300.5 million of outstanding debt while incurring only a slight reduction to projected EBITDA.

Consistent with our strategy of reducing leverage and improving liquidity, on January 28, 2020, we announced a $0.75 per unit reduction of our cash distribution on an annual basis, allowing us to retain $29.2 million to continue to strengthen our balance sheet.

Consistent with our strategy of reducing leverage and improving

liquidity, on January 28, 2020, we announced a $0.75 per unit reduction of our cash distribution on an annual basis, allowing us to retain $29.2 million to continue to strengthen our balance sheet.

Subsequent Events

Quarterly Distribution.

On April 22, 2020, we declared a quarterly cash distribution of $0.0625 per common unit for the first quarter of 2020, or $0.25 per common unit on an annualized basis, which will be paid on May 15, 2020 to unitholders of record as of May 8, 2020.

On July 27, 2020, we declared a quarterly cash distribution of $0.005 per common unit for the second quarter of 2020, or $0.020 per common unit on an annualized basis, which will be paid on August 14, 2020 to unitholders of record as of August 7, 2020.

Restructuring Support Agreement;

Exchange Offer and Related Transactions.

On June 25, 2020, the Partnership entered into the Restructuring Support Agreement with certain Supporting Holders, pursuant to which such holders and the Partnership agreed to enter into and implement a proposed debt restructuring transaction through the Exchange Offer and Cash Tender Offer, and if the Exchange Offer and Cash Tender Offer are unsuccessful, the Restructuring Support Agreement provides agreed-upon terms for a pre-packaged financial restructuring Plan to be filed in the Chapter 11 Cases.

As of the Early Participation Date, the Partnership received tenders of approximately $335.5 million aggregate principal amount of the 2021 Notes, which represented approximately 92.045% in principal amount of the 2021 Notes.

On July 31, 2020, the required amount of Supporting Holders and the Partnership entered into an amendment to the Restructuring Support Agreement that, among other things, reduced the Minimum Participation Condition from 95% to 92% in principal amount of 2021 Notes tendered.

As a result, the Minimum Participation Condition has been satisfied and, subject to satisfaction of other customary closing conditions, the Exchange offer and Cash Tender Offer will be consummated on or about August 12, 2020 and the Plan will not be filed.

In addition, the Partnership received the requisite majority consent necessary for the adoption of the proposed amendments to the 2021 Notes Indenture, which will, among other things, eliminate substantially all of the restrictive covenants in the 2021 Notes Indenture, delete certain events of default, and shorten the period of advance notice required to be given to holders of 2021 Notes from 30 days to three business days in the case of a redemption of the 2021 Notes.

Please see Note 1 and Note 18 in Part I of this Form 10-Q for more information about the Restructuring Support Agreement, the Exchange Offer and related transactions.

Critical Accounting Policies and Estimates

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The Omnibus Agreement requires us to reimburse Martin Resource Management Corporation 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 Corporation for $34.4 million of direct costs and expenses for the three months ended March 31, 2020 compared to $35.4 million for the three months ended March 31, 2019 .

We reimbursed Martin Resource Management Corporation for $30.2 million of direct costs and expenses for the three months ended June 30, 2020 compared to $38.8 million for the three months ended June 30, 2019.

We reimbursed Martin Resource Management Corporation for $64.6 million of direct costs and expenses for the six months ended June 30, 2020 compared to $74.2 million for the six months ended June 30, 2019.

There is no monetary limitation on the amount we are required to reimburse Martin Resource Management Corporation for direct expenses.

In addition to the direct expenses, under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses.

In each of the three months ended March 31, 2020 and 2019 , the Conflicts Committee approved reimbursement amounts of $4.2 million and $4.2 million , respectively.

For the three months ended June 30, 2020 and 2019, the conflicts committee of the board of directors of the general partner of the Partnership (the "Conflicts Committee") approved reimbursement amounts of $4.1 million and $4.3 million, respectively.

In each of the six months ended June 30, 2020 and 2019, the Conflicts Committee approved reimbursement amounts of $8.3 million and $8.4 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 Corporation 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 Corporation’s retained businesses.

These indirect expenses covered the centralized corporate functions Martin Resource Management Corporation 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 R esource Management Corporation’s retained businesses.

The Omnibus Agreement also contains significant non-compete provisions and indemnity obligations.

Martin Resource Management Corporation also licenses certain of its trademarks and trade names to us under the Omnibus Agreement.

The agreements include, but are not limited to, a master transportation services agreement, marine transportation agreements, terminal services agreements, a tolling agreement, and a sulfuric acid sales agency agreement.

These additional agreements include, but are not limited to, a master transportation services agreement, marine transportation agreements, terminal services agreements, a tolling agreement, and a sulfuric acid sales agency agreement.

Pursuant to the terms of the Omnibus Agreement, we are prohibited from entering into certain material agreements with Martin Resource Management Corporation without the approval of the Conflicts Committee.

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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 Corporation.

In the aggregate, the impact of related party transactions included in total costs and expenses accounted for approximately 21% and 17% of our total costs and expenses during the three months ended March 31, 2020 and 2019 , respectively.

In the aggregate, the impact of related party transactions included in total costs and expenses accounted for approximately 26% and 24% of our total costs and expenses during the three months ended June 30, 2020 and 2019, respectively.

In the aggregate, the impact of related party transactions included in total costs and expenses accounted for approximately 23% and 20% of our total costs and expenses during the six months ended June 30, 2020 and 2019, respectively.

Correspondingly, Martin Resource Management Corporation is one of our significant customers.

Our sales to Martin Resource Management Corporation accounted for approximately 11% and 10% of our total revenues for both the three months ended March 31, 2020 and 2019 , respectively.

Our sales to Martin Resource Management Corporation accounted for approximately 15% and 13% of our total revenues for the three months ended June 30, 2020 and 2019, respectively.

Our sales to Martin Resource Management Corporation accounted for approximately 13% and 11% of our total revenues for both the six months ended June 30, 2020 and 2019, respectively.

For a more comprehensive discussion concerning the agreements that we have entered into with Martin Resource Management Corporation, please refer to "Item 13.

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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 months ended March 31, 2020 and 2019 .

Reconciliation of 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 six months ended June 30, 2020 and 2019.

Reconciliation of EBITDA, Adjusted EBITDA, and Distributable Cash Flow

Three Months Ended

(in thousands)

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

(in thousands) (in thousands)

Net income (loss) $ (2,203) $ (191,182) $ 6,612 $ (194,838)

(Income) from discontinued operations, net of income taxes

Loss from discontinued operations, net of income taxes

— 180,568 — 179,466

Income (loss) from continuing operations (2,203) (10,614) 6,612 (15,372)

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EBITDA from Continuing Operations 23,307 20,098 57,633 44,608

Loss on sale of property, plant and equipment, net

(Gain) loss on sale of property, plant and equipment, net (15) 1,633 175 2,353

Unrealized mark-to-market on commodity derivatives — 2,220 (669) 2,073

Transaction costs associated with acquisitions — 40 — 224

Non-cash insurance related accruals 250 500 250 500

Lower of cost or market adjustments — 303 335 303

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Distributable Cash Flow from Continuing Operations $ 12,532 $ 7,983 $ 30,829 $ 12,736

Income from discontinued operations, net of income taxes

Loss from discontinued operations, net of income taxes $ — $ (180,568) $ — $ (179,466)

Depreciation and amortization — 4,080 — 8,161

EBITDA from Discontinued Operations — (176,488) — (171,305)

Loss on sale of property, plant and equipment, net — 178,781 — 178,781

Non-cash insurance related accruals — 3,213 — 3,213

EBITDA and Adjusted EBITDA from Discontinued Operations — 5,506 — 10,689

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Results of Operations

The results of operations for the three months ended March 31, 2020 and 2019 have been derived from our consolidated and condensed financial statements.

The results of operations for the three and six months ended June 30, 2020 and 2019 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 months ended March 31, 2020 and 2019 .

The following table sets forth our operating revenues and operating income by segment for the three and six months ended June 30, 2020 and 2019.

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.

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These items, including interest expense and indirect selling, general and administrative expenses, are discussed following the comparative discussion of our results within each segment.

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

Operating Revenues

Intersegment Revenues Eliminations

Operating Revenues

after Eliminations

Operating Income (Loss)

Operating Income (Loss) Intersegment Eliminations

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

Operating Revenues Intersegment Revenues Eliminations Operating Revenues

after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating

Income (Loss)

Three Months Ended March 31, 2020

(in thousands)

Three Months Ended June 30, 2020 (in thousands)

Terminalling and storage $ 46,976 $ (1,542) $ 45,434 $ 3,352 $ (383) $ 2,969

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Indirect selling, general and administrative

Operating Revenues

Intersegment Revenues Eliminations

Operating Revenues

after Eliminations

Operating Income (Loss)

Operating Income (Loss) Intersegment Eliminations

— — — (4,361) — (4,361)

Total $ 145,955 $ (5,317) $ 140,638 $ 7,960 $ — $ 7,960

Operating Revenues Intersegment Revenues Eliminations Operating Revenues

after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating

Income (Loss)

Three Months Ended March 31, 2019

(in thousands)

Three Months Ended June 30, 2019 (in thousands)

Terminalling and storage $ 54,351 $ (1,603) $ 52,748 $ 4,400 $ (146) $ 4,254

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Indirect selling, general and administrative

— — — (4,599) — (4,599)

Total $ 194,838 $ (7,515) $ 187,323 $ 5,010 $ — $ 5,010

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Operating Revenues Intersegment Revenues Eliminations Operating Revenues

after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating

Income (Loss)

Six Months Ended June 30, 2020 (in thousands)

Terminalling and storage $ 98,110 $ (3,268) $ 94,842 $ 4,381 $ (654) $ 3,727

Transportation 80,433 (10,007) 70,426 2,944 (10,043) (7,099)

Sulfur services 61,756 (13) 61,743 18,681 3,991 22,672

Natural gas liquids 112,515 (5) 112,510 6,287 6,706 12,993

Indirect selling, general and administrative

— — — (8,733) — (8,733)

Total $ 352,814 $ (13,293) $ 339,521 $ 23,560 $ — $ 23,560

Operating Revenues Intersegment Revenues Eliminations Operating Revenues

after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating

Income (Loss)

Six Months Ended June 30, 2019 (in thousands)

Terminalling and storage $ 110,243 $ (3,324) $ 106,919 $ 9,486 $ (417) $ 9,069

Transportation 92,419 (13,303) 79,116 6,844 (13,353) (6,509)

Sulfur services 67,449 — 67,449 9,103 4,805 13,908

Natural gas liquids 173,872 — 173,872 (1,651) 8,965 7,314

Indirect selling, general and administrative

— — — (9,166) — (9,166)

Total $ 443,983 $ (16,627) $ 427,356 $ 14,616 $ — $ 14,616

Terminalling and Storage Segment

Comparative Results of Operations for the Three Months Ended March 31, 2020 and 2019

Three Months Ended March 31,

Percent Change

Comparative Results of Operations for the Three Months Ended June 30, 2020 and 2019

Three Months Ended June 30, Variance Percent Change

(In thousands, except BBL per day)

Services $ 21,436 $ 22,966 $ (1,530) (7) %

Products 25,540 31,385 (5,845) (19) %

Total revenues 46,976 54,351 (7,375) (14) %

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Depreciation and amortization 7,272 7,826 (554) (7) %

3,355 4,393 (1,038) (24) %

Other operating income (loss), net (3) 7 (10) (143) %

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Services revenues.

Services revenue decreased $2.6 million, of which $1.8 million was primarily a result of decreased throughput fees at our shore-based terminals combined with a $0.9 million decrease as a result of a decrease in minimum throughput revenue and pipeline fees at our Smackover refinery.

Services revenues decreased $1.5 million, of which $0.9 million was primarily a result of expiring capital recovery fees at our Smackover refinery and decreased fees related to a crude pipeline gathering rate adjustment combined with a $0.3 million decrease as a result of decreased lubricant delivery fees at our shore-based terminals.

In addition, a decrease of $0.3 million was a result of decreased throughput rates at our specialty terminals.

Products revenues.

A 27% decrease in average sales price at our shore-based terminals resulted in a $2.9 million decrease in products revenues.

Offsetting this decrease was a 4% increase in sales volumes at our blending and packaging facilities, resulting in a $0.9 million increase to products revenues.

A 15% decrease in sales volumes combined with a 3% decrease in average sales price at our blending and packaging facilities resulted in a $4.3 million decrease to products revenues.

In addition, a 21% decrease in sales volumes combined with a 5% decrease in average sales price at our shore-based terminals resulted in a $1.7 million decrease to products revenues.

Cost of products sold.

A 28% decrease in average cost per gallon at our shore-based terminals resulted in a $2.8 million decrease in cost of products sold.

In addition, a 6% decrease in average cost per gallon, offset with a 4% increase in sales volumes at our blending and packaging facilities resulted in a $0.4 million decrease in cost of products sold.

A 15% decrease in sales volumes combined with a 2% decrease in average cost per gallon at our blending and packaging facilities resulted in a $3.3 million decrease in cost of products sold.

In addition, a 21% decrease in sales volumes combined with a 7% decrease in average cost per gallon at our shore-based terminals resulted in a $1.6 million decrease in cost of products sold.

Operating expenses.

Operating expenses decreased primarily as a result of decreased utilities across our terminals.

Operating expenses decreased $1.0 million which is primarily a result of decreased compensation expenses of $0.3 million, repairs and maintenance of $0.2 million and materials and supplies of $0.2 million.

Selling, general and administrative expenses.

Selling, general and administrative expenses remained consistent.

Depreciation and amortization.

The decrease in depreciation and amortization is the result of assets becoming fully depreciated.

Other operating income (loss), net.

Other operating loss, net represents gains and losses from the disposition of property, plant and equipment.

Comparative Results of Operations for the Six Months Ended June 30, 2020 and 2019

Six Months Ended June 30, Variance Percent Change

(In thousands, except BBL per day)

Services $ 43,603 $ 47,766 $ (4,163) (9) %

Products 54,507 62,477 (7,970) (13) %

Total revenues 98,110 110,243 (12,133) (11) %

Cost of products sold 47,685 55,774 (8,089) (15) %

Operating expenses 25,205 26,610 (1,405) (5) %

Selling, general and administrative expenses 3,057 2,727 330 12 %

Depreciation and amortization 14,728 15,663 (935) (6) %

7,435 9,469 (2,034) (21) %

Other operating income (loss), net (3,054) 17 (3,071) (18,065) %

Operating income $ 4,381 $ 9,486 $ (5,105) (54) %

Shore-based throughput volumes (guaranteed minimum) (gallons) 40,000 40,000 — — %

Smackover refinery throughput volumes (guaranteed minimum) (BBL per day) 6,500 6,500 — — %

Services revenues.

Services revenue decreased $4.2 million, of which $1.8 million was primarily a result of decreased throughput fees at our shore-based terminals combined with a $1.8 million decrease as a result of expiring capital recovery fees at our Smackover refinery and decreased fees related to a crude pipeline gathering rate adjustment.

In addition, a decrease of $0.6 million was a result of decreased throughput rates at our specialty terminals.

Products revenues.

A 10% decrease in sales volumes combined with a 18% decrease in average sales price at our shore-based terminals resulted in a $4.6 million decrease in products revenues.

In addition, a 7% decrease in sales volumes combined with a 1% decrease in average sales price at our blending and packaging facilities resulted in a $3.4 million decrease to products revenues.

Cost of products sold.

A 10% decrease in sales volumes combined with a 19% decrease in average cost per gallon at our shore-based terminals resulted in a $4.5 million decrease in cost of products sold.

In addition, a 7% decrease in sales volumes combined with a 3% decrease in average cost per gallon at our blending and packaging facilities resulted in a $3.6 million decrease in cost of products sold.

Operating expenses.

Operating expenses decreased $1.4 million primarily as a result of decreased utilities of $0.4 million, materials and supplies of $0.3 million, chemicals of $0.3 million and compensation expense of $0.2 million across our terminals.

Selling, general and administrative expenses.

Selling, general and administrative expenses increased primarily due to an increase in professional fees across our terminals.

Depreciation and amortization.

The decrease in depreciation and amortization is due to the disposition of assets at several shore-based and specialty terminals, offset by recent capital expenditures.

The decrease in depreciation and amortization is primarily the result of assets becoming fully depreciated.

Other operating income (loss), net.

Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.

For the six months ended June 30, 2020, other operating income (loss), net represents the impairment charge resulting from a decline in the fair value related to assets previously classified as held for sale.

Transportation Segment

Comparative Results of Operations for the Three Months Ended March 31, 2020 and 2019

Three Months Ended March 31,

Percent Change

Comparative Results of Operations for the Three Months Ended June 30, 2020 and 2019

Three Months Ended June 30, Variance Percent Change

(In thousands)

Revenues $ 35,259 $ 47,233 $ (11,974) (25) %

Operating expenses 28,331 36,512 (8,181) (22) %

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Depreciation and amortization 4,328 3,778 550 15 %

542 4,963 (4,421) (89) %

Other operating income (loss), net 13 (1,649) 1,662 101 %

Operating income $ 555 $ 3,314 $ (2,759) (83) %

Marine Transportation Revenues .

Inland revenue decreased $2.3 million, primarily related to decreased utilization and transportation rates.

In addition, offshore revenue decreased $0.5 million primarily due to a decrease in transportation rates.

Additionally, ancillary revenue (primarily fuel) decreased $1.4 million.

Land Transportation Revenues.

Freight revenue decreased $5.5 million.

Miles decreased 23% resulting in a $6.1 million decrease.

Offsetting this decrease, transportation rates increased 2% resulting in a $0.6 million increase.

Additionally, fuel surcharge revenue decreased $2.3 million.

Operating expenses .

The decrease in operating expenses is primarily a result of decreases in pass through expenses (primarily fuel) of $3.3 million, compensation expense of $3.6 million, and repairs and maintenance of $0.9 million.

Selling, general and administrative expenses .

Selling, general and administrative expenses remained relatively consistent.

Depreciation and amortization .

Depreciation and amortization increased as a result of recent capital expenditures offset by asset disposals.

Other operating income (loss), net.

Other operating income (loss), net represents losses from the disposition of property, plant and equipment.

Comparative Results of Operations for the Six Months Ended June 30, 2020 and 2019

Six Months Ended June 30, Variance Percent Change

(In thousands)

Revenues $ 80,433 $ 92,419 $ (11,986) (13) %

Operating expenses 63,493 71,777 (8,284) (12) %

Selling, general and administrative expenses 4,193 4,065 128 3 %

Depreciation and amortization 8,608 7,348 1,260 17 %

$ 4,139 $ 9,229 $ (5,090) (55) %

Other operating loss, net (1,195) (2,385) 1,190 50 %

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Marine Transportation Revenues .

An increase of $0.9 million in inland revenue is attributable to increased utilization and transportation rates.

Offsetting these increases, offshore revenue decreased $0.2 million primarily due to decreased rates of $0.5 million, offset by increased utilization of $0.3 million.

Inland revenue decreased $1.4 million, primarily related to decreased tows.

In addition, offshore revenue decreased $0.7 million primarily due to a decrease in transportation rates.

Additionally, ancillary revenue (primarily fuel) decreased $1.1 million.

Land Transportation Revenues.

Freight revenue decreased $0.6 million primarily due to a 3% decrease in transportation rates.

Freight revenue decreased $6.1 million primarily due to a 12% decrease in miles.

Additionally, fuel surcharge decreased $2.8 million.

Operating expenses .

Operating expenses remained relatively consistent.

The decrease in operating expenses is primarily a result of decreases in pass through expenses (primarily fuel) of $3.6 million, compensation expense of $3.4 million, lease expense of $0.9 million, and repairs and maintenance of $0.9 million.

Selling, general and administrative expenses .

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Sulfur Services Segment

Comparative Results of Operations for the Three Months Ended March 31, 2020 and 2019

Three Months Ended March 31,

Percent Change

Comparative Results of Operations for the Three Months Ended June 30, 2020 and 2019

Three Months Ended June 30, Variance Percent Change

(In thousands)

Services $ 2,914 $ 2,858 $ 56 2 %

Products 30,506 32,998 (2,492) (8) %

Total revenues 33,420 35,856 (2,436) (7) %

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Depreciation and amortization 3,131 2,854 277 10 %

Other operating income, net

7,380 5,286 2,094 40 %

Other operating income (loss), net 5 (1) 6 600 %

Operating income $ 7,385 $ 5,285 $ 2,100 40 %

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Products revenues.

Products revenues decreased $1.0 million as a result of a 3% decrease in average sales price.

A 5% decrease in sales volumes, primarily attributable to a 9% decrease in sulfur volumes, resulted in an additional decrease of $1.5 million.

Cost of products sold.

A 17% decrease in average cost of products sold per ton reduced our cost of products sold by $4.1 million.

A 5% decrease in sales volumes decreased our cost of products sold by $1.0 million.

Margin per ton increased $11.80, or 34%.

Operating expenses.

Our operating expenses increased primarily as a result of a $0.3 million increase in insurance premiums and claims.

An additional $0.2 million increase related to outside towing offset by a $0.2 million decrease in marine fuel and lube.

Selling, general and administrative expenses.

Selling, general and administrative expenses decreased a combined $0.1 million due to decreased compensation expense and professional fees.

Depreciation and amortization.

Depreciation and amortization increased as a result of recent capital expenditures.

Other operating income (loss), net.

Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.

Comparative Results of Operations for the Six Months Ended June 30, 2020 and 2019

Six Months Ended June 30, Variance Percent Change

(In thousands)

Services $ 5,829 $ 5,717 $ 112 2 %

Products 55,927 61,732 (5,805) (9) %

Total revenues 61,756 67,449 (5,693) (8) %

Cost of products sold 35,405 45,242 (9,837) (22) %

Operating expenses 6,052 4,952 1,100 22 %

Selling, general and administrative expenses 2,369 2,429 (60) (2) %

Depreciation and amortization 6,025 5,722 303 5 %

11,905 9,104 2,801 31 %

Other operating income (loss), net 6,776 (1) 6,777 677,700 %

Operating income $ 18,681 $ 9,103 $ 9,578 105 %

Sulfur (long tons) 349 291 58 20 %

Fertilizer (long tons) 165 155 10 6 %

Total sulfur services volumes (long tons) 514 446 68 15 %

Services revenues.

Services revenues increased $0.1 million as a result of renegotiation of contract terms effective January 2020.

Products revenues.

Products revenue decreased $13.2 million as a result of a 21% decrease in average sales price.

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A 15% increase in sales volumes resulted in an offsetting increase in cost of products sold of $4.7 million.

Margin per ton decreased $7.20, or 18%.

Margin per ton increased $2.95, or 8%.

Operating expenses.

Operating expenses increased primarily as a result of increases of $0.2 million in outside towing, $0.2 million in assist tugs, $0.2 million in marine fuel and lube, and $0.1 million in employee related expenses.

Operating expenses increased as a result of a $0.4 million increase in insurance premiums and claims, a $0.4 million increase in outside towing, a $0.2 million increase in harbor and agency fees and a $0.1 million increase in repairs and maintenance expense.

Selling, general and administrative expenses.

Selling, general and administrative expenses remained relatively consistent.

Selling, general and administrative expenses decreased slightly due to a decrease in professional fees.

Depreciation and amortization.

Depreciation and amortization increased slightly as a result of recent capital expenditures.

Other operating income, net.

Depreciation and amortization increased as a result of recent capital expenditures.

Other operating income (loss), net.

Other operating income, net increased $2.7 million as a result of business interruption recoveries related to the Neches ship-loader insurance claim received in the first quarter of 2020.

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Natural Gas Liquids Segment

Comparative Results of Operations for the Three Months Ended March 31, 2020 and 2019

Three Months Ended March 31,

Percent Change

Comparative Results of Operations for the Three Months Ended June 30, 2020 and 2019

Three Months Ended June 30, Variance Percent Change

(In thousands)

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Depreciation and amortization 612 629 (17) (3) %

1,029 (3,400) 4,429 130 %

Other operating income (loss), net — 10 (10) (100) %

Operating income

Operating income (loss) $ 1,029 $ (3,390) $ 4,419 130 %

NGL sales volumes (Bbls) 1,698 1,457 241 17 %

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The decrease in average sales price per barrel was a result of a decrease in market prices.

Sales volumes increased 17%, increasing revenues by $4.3 million.

Cost of products sold .

Our average cost per barrel decreased $23.74, or 60%, decreasing cost of products sold by $34.6 million.

The decrease in average cost per barrel was a result of a decrease in market prices.

The increase in sales volume of 17% resulted in a $3.8 million increase to cost of products sold.

Our margins increased $2.19 per barrel, or $3.7 million during the period.

Operating expenses .

Operating expenses decreased $0.5 million related to the divestiture of retail propane assets and the elimination of the associated expenses.

Selling, general and administrative expenses .

Selling, general and administrative expenses decreased primarily due to decreased compensation expense.

Depreciation and amortization.

Depreciation and amortization remained relatively consistent.

Other operating income, net.

Other operating income, net represents gains and losses from the disposition of property, plant and equipment.

Comparative Results of Operations for the Six Months Ended June 30, 2020 and 2019

Six Months Ended June 30, Variance Percent Change

(In thousands)

Products Revenues $ 112,515 $ 173,872 $ (61,357) (35) %

Cost of products sold 100,839 168,701 (67,862) (40) %

Operating expenses 2,089 3,386 (1,297) (38) %

Selling, general and administrative expenses 2,077 2,197 (120) (5) %

Depreciation and amortization 1,221 1,255 (34) (3) %

6,289 (1,667) 7,956 477 %

Other operating income (loss), net (2) 16 (18) (113) %

Operating income (loss) $ 6,287 $ (1,651) $ 7,938 481 %

NGL sales volumes (Bbls) 4,143 4,364 (221) (5) %

Products Revenues.

Our average sales price per barrel decreased $12.68, or 32%, resulting in a decrease to revenues of $55.4 million.

The decrease in average sales price per barrel was a result of a decrease in market prices.

Sales volumes decreased 5%, decreasing revenues by $6.0 million.

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The decrease in sales volume of 5% resulted in a $5.4 million decrease to cost of products sold.

Our margins increased $1.48 per barrel, or 83%, during the period.

Our margins increased $1.63 per barrel, or $6.5 million, during the period.

Operating expenses .

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Interest Expense, Net

Comparative Components of Interest Expense, Net for the Three Months Ended March 31, 2020 and 2019

Three Months Ended March 31,

Percent Change

Comparative Components of Interest Expense, Net for the Three Months Ended June 30, 2020 and 2019

Three Months Ended June 30, Variance Percent Change

(In thousands)

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Amortization of deferred debt issuance costs 499 1,583 (1,084) (68) %

Amortization of debt discount (76) (76) — — %

Other 475 379 96 25 %

Finance leases 85 186 (101) (54) %

Capitalized interest (5) — (5)

Interest income — (78) 78 100 %

Total interest expense, net $ 9,377 $ 14,986 $ (5,609) (37)

Comparative Components of Interest Expense, Net for the Six Months Ended June 30, 2020 and 2019

Six Months Ended June 30, Variance Percent Change

(In thousands)

Revolving loan facility $ 4,164 $ 11,790 $ (7,626) (65) %

7.25% Senior notes 13,210 13,324 (114) (1) %

Amortization of deferred debt issuance costs 991 2,478 (1,487) (60) %

Amortization of debt premium (153) (153) — — %

Other 900 941 (41) (4) %

Finance leases 199 369 (170) (46) %

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Indirect Selling, General and Administrative Expenses

Three Months Ended March 31,

Percent Change

(In thousands)

Three Months Ended June 30, Variance Percent Change Six Months Ended June 30, Variance Percent Change

2020 2019 2020 2019

(In thousands) (In thousands)

Indirect selling, general and administrative expenses

Indirect selling, general and administrative expenses decreased for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to transaction expenses incurred in the first quarter of 2019 related to the acquisition of MTI.

$ 4,361 $ 4,599 $ (238) (5) % $ 8,733 $ 9,166 $ (433) (5) %

Indirect selling, general and administrative expenses decreased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to decreased professional fees.

Indirect selling, general and administrative expenses decreased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to transaction expenses incurred in the first quarter of 2019 related to the acquisition of MTI of $0.2 million and decreased professional fees of $0.2 million.

Martin Resource Management Corporation 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 Corporation retained businesses.

This allocation is based on the percentage of time spent by Martin Resource Management Corporation 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.

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 Corporation and us is subject to a number of judgments and estimates, regardless of the method used.

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Under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation 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 ended March 31, 2020 and 2019 :

Three Months Ended March 31,

Percent Change

(In thousands)

The Conflicts Committee of our general partner approved the following reimbursement amounts during the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Variance Percent Change Six Months Ended June 30, Variance Percent Change

2020 2019 2020 2019

(In thousands) (In thousands)

Conflicts Committee approved reimbursement amount

$ 4,103 $ 4,164 $ (61) (1) % $ 8,261 $ 8,328 $ (67) (1) %

The amounts reflected above represent our allocable share of such expenses.

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Liquidity and Capital Resources

Our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures have historically been cash flows generated by our operations, borrowings under our revolving credit facility and access to debt and equity capital markets, both public and private.

Our primary sources of liquidity to meet operating expenses, service our indebtedness, fund capital expenditures and pay distributions to our unitholders have historically been cash flows generated by our operations, borrowings under our revolving credit facility and access to debt and equity capital markets, both public and private.

Set forth below is a description of our cash flows for the periods indicated.

Cash Flows - Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

The following table details the cash flow changes between the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

Percent Change

Cash Flows - Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

The following table details the cash flow changes between the six months ended June 30, 2020 and 2019:

Six Months Ended June 30, Variance Percent Change

(In thousands)

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Net cash provided by operating activities.

The increase in net cash provided by operating activities for the three months ended March 31, 2020 includes an increase in operating results of $13.6 million and a favorable variance in other non-current assets and liabilities of $0.8 million.

Offsetting this increase was a $5.2 million decrease in net cash received from discontinued operating activities, a $4.7 million decrease in other non-cash charges, and a $0.2 million unfavorable variance in working capital.

Net cash used in investing activities.

Net cash used in investing activities for the three months ended March 31, 2020 decreased $23.7 million as a result of assets acquired from MTI in January of 2019.

Also contributing to the increase was $3.8 million in proceeds received as a result of higher sales of property, plant and equipment in 2020, as well as, an increase of $1.8 million due to proceeds received from the involuntary conversion of property, plant and equipment.

A decrease of $0.3 million resulted from cash used in discontinued investing activities.

Offsetting these decreases was an increase of $1.9 million due to higher payments for capital expenditures and plant turnaround costs in 2020.

The increase in net cash provided by operating activities for the six months ended June 30, 2020 includes an increase in operating results of $22.0 million, a favorable variance in working capital of $5.8 million, and a favorable variance in other non-current assets and liabilities of $1.2 million.

Offsetting this increase was a $7.8 million decrease in net cash received from discontinued operating activities and a $9.1 million decrease in other non-cash charges.

Net cash provided by (used in) investing activities.

Net cash provided by (used in) investing activities for the six months ended June 30, 2020 decreased $180.4 million.

A decrease of $23.7 million in cash used was a result of assets acquired from MTI in January of 2019.

Offsetting this decrease was $3.7 million in proceeds received as a result of higher sales of property, plant and equipment in 2020 as well as $1.8 million in proceeds received from the involuntary conversion of property, plant and equipment.

Cash received from discontinued investing activities decreased $209.2 million.

An increase in cash used of $0.4 million resulted from higher payments for capital expenditures and plant turnaround costs in 2020.

Net cash used in financing activities.

Net cash used in financing activities for the three months ended March 31, 2020 increased primarily as a result of $154.5 million related to net payments of long-term borrowings.

Offsetting the increase was a $102.4 million decrease in cash used related to excess purchase price over the carrying value of acquired assets in common control transactions during 2019 and a $17.2 million decrease in cash distributions paid.

Net cash used in financing activities for the six months ended June 30, 2020 decreased primarily as a result of a $102.4 million decrease in cash used related to excess purchase price over the carrying value of acquired assets in common control transactions during 2019.

Additionally, net payments of long-term borrowings decreased $35.6 million and cash distributions paid decreased $24.5 million.

Total Contractual Obligations

A summary of our total contractual cash obligations as of March 31, 2020 , is as follows:

A summary of our total contractual cash obligations as of June 30, 2020, is as follows:

Payments due by period

Type of Obligation

Type of Obligation Total

Obligation Less than

Revolving credit facility (1) $ 181,000 $ — $ — $ 181,000 $ —

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Total contractual cash obligations $ 602,168 $ 400,254 $ 11,498 $ 184,097 $ 6,319

(1) The revolving credit facility matures on (a) August 31, 2023, or (b) August 19, 2020 if the 2021 Notes have not been voluntarily refinanced on or prior to August 19, 2020.

(1) The revolving credit facility matures on (a) August 31, 2023, or (b) (i) August 19, 2020 if either (x) more than $36.5 million of the 2021 Notes remain outstanding after completion of the Exchange Offer or (y) the Exchange Offer has not been completed by August 15, 2020 and the Partnership has not commenced the chapter 11 proceedings contemplated by the Plan prior to August 19, 2020 or (ii) October 16, 2020 if the Partnership commences such chapter 11 proceedings and the Plan is not effective by October 16, 2020.

As of the Early Participation Date, the Partnership received sufficient 2021 Notes tendered such that the Minimum Participation Condition has been satisfied and, subject to satisfaction of other customary closing conditions, the Exchange offer and Cash Tender Offer will be consummated on or about August 12, 2020 and the Plan will not be filed.

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 March 31, 2020 , we had outstanding irrevocable letters of credit in the amount of $17.1 million, which were issued under our revolving credit facility.

At June 30, 2020, we had outstanding irrevocable letters of credit in the amount of $21.7 million, which were issued under our revolving credit facility.

Off Balance Sheet Arrangements.

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Revolving Credit Facility

At March 31, 2020 , we maintained a $400.0 million revolving credit facility.

The revolving credit facility matures on (a) August 31, 2023, or (b) August 19, 2020 if the 2021 Notes have not been voluntarily refinanced on or prior to August 19, 2020.

As of March 31, 2020 , we had $170.0 million outstanding under the revolving credit facility and $17.1 million of outstanding irrevocable letters of credit, leaving a maximum available to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of $212.9 million.

After giving effect to our then current borrowings, outstanding letters of credit and the financial covenants contained in our revolving credit facility, we had the ability to borrow approximately $46.2 million in additional amounts thereunder as of March 31, 2020.

At June 30, 2020, we maintained a $400.0 million revolving credit facility.

The revolving credit facility matures on August 31, 2023, or August 19, 2020 if either (x) more than $36.5 million of the 2021 Notes remain outstanding after completion of the Exchange Offer or (y) the Exchange Offer has not been completed by August 15, 2020 and the Partnership has not commenced the chapter 11 proceedings contemplated by the Plan prior to August 19, 2020 or (ii) October 16, 2020 if the Partnership commences such chapter 11 proceedings and the Plan is not effective by October 16, 2020.

As of June 30, 2020, we had $181.0 million outstanding under the revolving credit facility and $21.7 million of outstanding irrevocable letters of credit, leaving a maximum amount available to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of $197.3 million.

After giving effect to our then current borrowings, outstanding letters of credit and the financial covenants contained in our revolving credit facility, we had the ability to borrow approximately $33.7 million in additional amounts thereunder as of June 30, 2020.

Upon the effectiveness of the Credit Facility Amendment, the aggregate amount of commitments under the revolving credit facility will be reduced from $400 million to $300 million.

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 three months ended March 31, 2020 , the level of outstanding draws on our credit facility has ranged from a low of $170.0 million to a high of $223.0 million.

During the six months ended June 30, 2020, the level of outstanding draws on our credit facility has ranged from a low of $170.0 million to a high of $223.0 million.

The credit facility is guaranteed by substantially all of our subsidiaries.

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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.

The credit facility requires mandatory prepayments of amounts outstanding thereunder with excess cash that exceeds $25.0 million and the net proceeds of certain asset sales, equity issuances and debt incurrences.

After giving effect to the Credit Facility Amendment, if we sell assets and receive net

cash proceeds in excess of $25.0 million, the commitments of the lenders under the revolving credit facility will be reduced by $25.0 million.

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 March 31, 2020 :

Leverage Ratio

Base Rate Loans

Letters of Credit

Base Rate Loans Eurodollar

Loans Letters of Credit

Less than 3.00 to 1.00 1.25 % 2.25 % 2.25 %

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Greater than or equal to 5.00 to 1.00 2.50 % 3.50 % 3.50 %

At March 31, 2020 , the applicable margin for revolving loans that are LIBOR loans ranges from 2.25% to 3.50% and the applicable margin for revolving loans that are base prime rate loans ranges from 1.25% to 2.50%.

The applicable margin for LIBOR borrowings at March 31, 2020 is 3.25%.

At June 30, 2020, the applicable margin for revolving loans that are LIBOR loans ranges from 2.25% to 3.50% and the applicable margin for revolving loans that are base prime rate loans ranges from 1.25% to 2.50%.

The applicable margin for LIBOR borrowings at June 30, 2020 is 3.25%.

After giving effect to the Credit Facility Amendment, the applicable margin for revolving loans that are LIBOR loans will range from 2.75% to 4.00%, with a 1.0% floor for LIBOR, and the applicable margin for revolving loans that are base prime rate loans will range from 1.75% to 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.

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(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;

(vi) repurchase our equity, make distributions (including a limit on our ability to make quarterly distributions to unitholders in excess of $0.005 per unit unless our total leverage ratio is below 3.75x) and certain other restricted payments;

(vii) change the nature of our business;

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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.

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.

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Historically, we have generally satisfied our working capital requirements and funded our debt service obligations and capital expenditures with cash generated from operations and borrowings under our revolving credit facility.

At March 31, 2020, we had cash and cash equivalents of $0.1 million and available borrowing capacity of $46.2 million in additional amounts under our revolving credit facility with $170.0 million of borrowings outstanding.

Our revolving credit facility matures on August 31, 2023, or August 19, 2020 if our 2021 Notes have not been refinanced on or before such date.

We are currently seeking to refinance the 2021 Notes, although no assurance can be given.

Upon the successful refinancing of the 2021 Notes, we expect that our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures will be provided by cash flows generated by our operations, borrowings under our revolving credit facility and access to the debt and equity capital markets.

At June 30, 2020, we had cash and cash equivalents of $0.1 million and available borrowing capacity of $33.7 million under our revolving credit facility with $181.0 million of borrowings outstanding.

Our revolving credit facility matures on August 31, 2023, or August 19, 2020 if either (x) more than $36.5 million of the 2021 Notes remain outstanding after completion of the Exchange Offer or (y) the Exchange Offer has not been completed by August 15, 2020 and the Partnership has not commenced the chapter 11 proceedings contemplated by the Plan prior to August 19, 2020 or (ii) October 16, 2020 if the Partnership commences such chapter 11 proceedings and the Plan is not effective by October 16, 2020.

Following the successful refinancing of the 2021 Notes, we expect that our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures will be provided by cash flows generated by our operations, borrowings under our revolving credit facility and access to the debt and equity capital markets.

Our ability to generate cash from operations will depend upon our future operating performance, which is subject to certain risks.

For a discussion of such risks, please read "Item 1A.

Risk Factors" of our Form 10-K for the year ended December 31, 2019, filed with the SEC on February 14, 2020, as updated and supplemented in Part II, Item 1A of this Quarterly Report on Form 10-Q, as may be further updated and supplemented from time to time in our future Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Risk Factors" of our Form 10-K for the year ended December 31, 2019, filed with the SEC on February 14, 2020, as updated and supplemented in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020 and Part II, Item 1A of this Quarterly Report on Form 10-Q, as may be further updated and supplemented from time to time in our future Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

In addition, due to the covenants in our revolving credit facility, our financial and operating performance impacts the amount we are permitted to borrow under that facility.

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We expect this distribution reduction, along with the reduction announced in 2019, to result in approximately $68.2 million in cash we can retain annually for debt reduction and investment in higher return opportunities.

If we are unable to refinance the 2021 Notes and are unable to repay the outstanding borrowings under our revolving credit facility on August 19, 2020, we would be in default under our revolving credit facility.

If we are unable to refinance the 2021 Notes in accordance with the Credit Facility Amendment either via the Exchange Offer or the Plan, in each case as contemplated by the Restructuring Support Agreement, we would be in default under our revolving credit facility.

An event of default under our revolving credit facility would allow the lenders to declare the balance outstanding thereunder due and payable in full, which could trigger cross-defaults under other agreements, which could also result in the acceleration of those obligations by the counterparties to those agreements.

We are in compliance with all debt covenants as of March 31, 2020 and expect to be in compliance for the next twelve months provided the Partnership successfully completes the refinancing of the 2021 Notes.

We are in compliance with all debt covenants as of June 30, 2020 and expect to be in compliance for the next twelve months provided the Partnership successfully completes the refinancing of the 2021 Notes.

Interest Rate Risk

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The demand for fertilizers is strongest during the early spring planting season.

However, our Terminalling and Storage and Transportation business 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 Services and Transportation business segments.

Sulfur Services and Transportation business segments.

Further, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage and Transportation business segments.

Impact of Inflation

Inflation did not have a material impact on our results of operations for the three months ended March 31, 2020 or 2019 .

Inflation did not have a material impact on our results of operations for the six months ended June 30, 2020 or 2019.

Although the impact of inflation has been insignificant in recent years, it is still a factor in the U.S.

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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 three months ended March 31, 2020 or 2019 .

We incurred no material environmental costs, liabilities or expenditures to mitigate or eliminate environmental contamination during the six months ended June 30, 2020 or 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis