Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in the Gulf Coast region of the U.S. Our four primary business lines include:
• Terminalling, processing, storage and packaging services for petroleum products and by-products including the refining of naphthenic crude oil;
• Land and marine transportation services for petroleum products and by-products, chemicals, and specialty products;
• Sulfur and sulfur-based products processing, manufacturing, marketing, and distribution; and
• NGL marketing, distribution, and transportation services.
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, and other wholesale purchasers of these products. We operate primarily in the Gulf Coast region of the U.S. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry.
Significant Recent Developments
Hurricane Ida. On August 29, 2021, Ida made landfall in Southeast Louisiana as a category 4 hurricane. Ida impacted our transportation and sulfur services segments due to the effects on refinery utilization in the Lake Charles, Louisiana area resulting from the storm. We did not experience any material storm-related damage. We spent approximately $0.1 million on restoration and recovery costs as a result of Ida.
Winter Storm Uri. In February 2021, we experienced Winter Storm Uri ("Uri"), an unprecedented storm bringing extreme cold temperatures to Texas and the surrounding areas, which resulted in Gulf Coast refineries running at reduced rates or halting operations entirely. The majority of the impact we experienced was centered around our transportation and sulfur services segments, where we saw reduced activity due to Uri's impact on Gulf Coast refinery utilization. Additionally, our Smackover Refinery was down approximately nine days due to Uri, during which time we began preparations for the previously scheduled turnaround in March of 2021. This allowed us to minimize the amount of downtime at the Smackover Refinery, which was back in operation by March 9, 2021.
COVID-19. We continue to monitor the impacts of the COVID-19 pandemic (including variants of the virus) on all aspects of our business. Travel restrictions and stay-at-home orders in place during much of 2020 that were implemented by governments in many regions and countries across the globe, including the U.S., have greatly impacted the demand for refined products resulting in a significant reduction in refinery utilization, which impacted our 2020 performance and continued to impact our marine transportation business in 2021.
Looking forward, we expect to continue to experience some adverse impacts of COVID-19 in our marine transportation segment, but we believe that refinery utilization will continue to increase as a result of widespread vaccinations and a rebounding economy. This should ultimately improve refined product demand as people continue to return to in-person work and resume travel. We expect this will positively impact our marine transportation business as demand for our services improves.
Overall, the extent to which the duration and severity of the pandemic impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted at this time. Accordingly, it is possible that the impact of the pandemic, including the impact of variants of COVID-19, could have a material adverse effect on the Partnership's results of operations, financial position and cash flows in 2022, including the recoverability of long-lived assets and goodwill, the valuation of inventory, and the amount of expected credit losses.
Management considered the impact of the pandemic on the assumptions and estimates used in the preparation of the financial statements. A sustained reduction in refinery demand and utilization could lead to future asset impairments as well as
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adversely affect access to capital and financing to be able to meet future obligations. Management also assessed the extent to which the current macroeconomic events brought about by the pandemic 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 December 31, 2021.
Regulatory Developments . On January 20, 2021, the Biden Administration came into office and immediately issued a number of executive orders related to climate change and the production of oil and gas that could affect our operations and those of our customers. On his first day in office, President Biden signed an instrument reentering the U.S. into the Paris Agreement, effective February 19, 2021, and issued an executive order on “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis” seeking to adopt new regulations and policies to address climate change and suspend, revise, or rescind prior agency actions that are identified as conflicting with the Biden Administration’s climate policies. In addition, on January 27, 2021, President Biden issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in offshore waters pending completion of an ongoing comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. On June 15, 2021, however, a judge in the U.S. District Court for the Western District of Louisiana issued a nationwide temporary injunction blocking the suspension. The Department of the Interior appealed the U.S. District Court’s ruling but resumed oil and gas leasing pending resolution of the appeal. In November 2021, the Department of the Interior completed its review and issued a report on the federal oil and gas leasing program. The Department of the Interior’s report recommends several changes to federal leasing practices, including changes to royalty payments, bidding, and bonding requirements. Furthermore, on April 22, 2021, at a global summit on climate change, President Biden committed the U.S. to target emissions reductions of 50-52% of 2005 levels by 2030. Lastly, on June 30, 2021, President Biden signed into law a reinstatement of regulations put in place during the Obama administration regarding methane emissions. The Company had previously complied with these regulations during the Obama administration and does not expect the reinstatement to have a material effect on the Company or its operations. The Biden Administration could also seek, in the future, to put into place additional executive orders, policy and regulatory reviews, or seek to have Congress pass legislation that could adversely affect the production of oil and natural gas, and our operations and those of our customers.
For more information about the potential physical effects of climate change and environmental regulation on our business, see our environmental and climate change related risk factors in Section 1A “Risk Factors.”
Subsequent Events
Quarterly Distribution. On January 25, 2022, we declared a quarterly cash distribution of $0.005 per common unit for the fourth quarter of 2021, or $0.02 per common unit on an annualized basis, which was paid on February 14, 2022 to unitholders of record as of February 7, 2022.
Critical Accounting Policies and Estimates
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 U.S. generally accepted accounting principles ("U.S. GAAP" or "GAAP"). 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. 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. The following table evaluates the potential impact of estimates utilized during the periods ended December 31, 2021 and 2020:
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Description Judgments and Uncertainties Effect if Actual Results Differ from Estimates and Assumptions
Impairment of Long-Lived Assets
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. 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. Applying this impairment review methodology, no impairment was recorded during the year ended December 31, 2021. We recorded an impairment charge of $3.1 million and $1.3 million in our Terminalling and Storage and Transportation segments, respectively, during the year ended December 31, 2020. No impairment of long-lived assets was recorded during the year ended December 31, 2019.
Impairment of Goodwill
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. When assessing the recoverability of goodwill , we may first assess qualitative factors in determining
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing qualitative factors, if we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative assessment is not required. If an initial qualitative assessment indicates that it is more likely than not the carrying amount exceeds the fair value of a reporting unit, a quantitative analysis will be performed. We may also elect to bypass the qualitative assessment and proceed directly to a quantitative analysis depending on the facts and circumstances. As part of the quantitative evaluation, 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. Applying this impairment review methodology, we considered the impact that COVID-19 had on our cash flows and the value our unit price during 2021 and 2020 and elected to bypass the qualitative assessment and perform a quantitative assessment during each of those years. Based upon the most recent annual review as of August 31, 2021, no goodwill impairment exists within our reporting units for the year ended December 31, 2021. No goodwill impairment was recorded during the years ended December 31, 2020 or 2019.
Our Relationship with Martin Resource Management Corporation
Martin Resource Management Corporation directs our business operations through its ownership of our general partner and under the Omnibus Agreement. In addition to the direct expenses payable to Martin Resource Management Corporation under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. For the years ended December 31, 2021, 2020 and 2019, the board of directors of our general partner approved reimbursement amounts of $14.4 million, $16.4 million and $16.7 million, respectively, reflecting our allocable share of such expenses. The board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
We are required 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. Martin Resource Management Corporation also licenses certain of its trademarks and trade names to us under the Omnibus Agreement.
We are both an important supplier to and customer of Martin Resource Management Corporation. 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 Corporation. For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into with Martin Resource Management Corporation, please see "Item 13. Certain Relationships and Related Transactions, and Director Independence."
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Non-GAAP Financial Measures
To assist management in assessing our business, we use the following non-GAAP financial measures: earnings before interest, taxes, and depreciation and amortization ("EBITDA"), adjusted EBITDA (as defined below), distributable cash flow available to common unitholders (“Distributable Cash Flow”), and free cash flow after growth capital expenditures and principal payments under finance lease obligations ("Adjusted Free Cash Flow"). 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.
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.
EBITDA and Adjusted EBITDA . We define Adjusted EBITDA as EBITDA before unit-based compensation expenses, gains and losses on the disposition of property, plant and equipment, impairment and other similar non-cash adjustments. Adjusted EBITDA is used as a supplemental performance and liquidity measure by our management and by external users of our financial statements, such as investors, commercial banks, research analysts, and others, to assess:
• the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;
• the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness, and make cash distributions to our unitholders; and
• our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing methods or capital structure.
The GAAP measures most directly comparable to adjusted EBITDA are net income (loss) and net cash provided by operating activities. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), net cash provided by operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA does not include interest expense, income tax expense, and depreciation and amortization. Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate cash available for distribution. Because we have capital assets, depreciation and amortization are also necessary elements of our costs. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is important to consider net income (loss) and net cash provided by operating activities as determined under GAAP, as well as adjusted EBITDA, to evaluate our overall performance.
Distributable Cash Flow. We define Distributable Cash Flow as Net Cash Provided by (Used in) Operating Activities less cash received (plus cash paid) for closed commodity derivative positions included in Accumulated Other Comprehensive Income (Loss), plus changes in operating assets and liabilities which (provided) used cash, less maintenance capital expenditures and plant turnaround costs. 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 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.
Adjusted Free Cash Flow. We define Adjusted Free Cash Flow as Distributable Cash Flow less growth capital expenditures and principal payments under finance lease obligations. Adjusted Free Cash Flow is a significant performance measure used by our management and by external users of our financial statements and represents how much cash flow a business generates during a specified time period after accounting for all capital expenditures, including expenditures for growth and maintenance capital projects. We believe that Adjusted Free Cash Flow is important to investors, lenders, commercial banks and research analysts since it reflects the amount of cash available for reducing debt, investing in additional capital projects, paying distributions, and similar matters. Our calculation of Adjusted Free Cash Flow may or may not be comparable to similarly titled measures used by other entities.
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The GAAP measure most directly comparable to Distributable Cash Flow and Adjusted Free Cash Flow is Net Cash Provided by (Used in) Operating Activities. Distributable Cash Flow and Adjusted Free Cash Flow should not be considered alternatives to, or more meaningful than, Net Income (Loss), Operating Income (Loss), Net Cash Provided by (Used in) Operating Activities , or any other measure of liquidity presented in accordance with GAAP. Distributable Cash Flow and Adjusted Free Cash Flow have important limitations because they exclude some items that affect Net Income (Loss), Operating Income (Loss), and Net Cash Provided by (Used in) Operating Activities. Distributable Cash Flow and Adjusted Free Cash Flow may not be comparable to similarly titled measures of other companies because other companies may not calculate these non-GAAP metrics in the same manner. To compensate for these limitations, we believe that it is important to consider Net Cash Provided by (Used in) Operating Activities determined under GAAP, as well as Distributable Cash Flow and Adjusted Free Cash Flow, to evaluate our overall liquidity.
Non-GAAP Financial Measures
The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the years ended December 31, 2021 and 2020, which represents EBITDA, Adjusted EBITDA, Distributable Cash Flow, and Adjusted Free Cash Flow
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
Year Ended December 31,
2021 2020
(in thousands)
Net loss $ (211) $ (6,771)
Adjustments:
Interest expense 54,107 46,210
Income tax expense 3,380 1,736
Depreciation and amortization 56,751 61,462
EBITDA 114,027 102,637
Adjustments:
(Gain) loss on disposition of property, plant and equipment 534 (9,788)
Gain on involuntary conversion of property, plant and equipment (196) (4,907)
Gain on retirement of senior unsecured notes — (3,484)
Loss on exchange of senior unsecured notes — 8,817
Unrealized mark-to-market on commodity derivatives (207) (460)
Non-cash insurance related accruals — 250
Lower of cost or market adjustments — 370
Unit-based compensation 384 1,422
Adjusted EBITDA 114,542 94,857
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Reconciliation of Net Cash provided by Operating Activities to Adjusted EBITDA, Distributable Cash Flow, and Adjusted Free Cash Flow
Year Ended December 31,
2021 2020
(in thousands)
Net cash provided by operating activities $ 35,729 $ 64,785
Interest expense 1
50,740 42,979
Current income tax expense 948 567
Lower of cost or market adjustments — 370
Loss on exchange of senior unsecured notes — 8,817
Non-cash impact related to exchange of senior unsecured notes — 749
Non-cash insurance related accrual — 250
Net cash (received) paid for closed commodity derivative positions included in AOCI (816) —
Changes in operating assets and liabilities which (provided) used cash:
Accounts and other receivables, inventories, and other current assets 42,936 (33,204)
Trade, accounts and other payables, and other current liabilities (14,346) 8,074
Other (649) 1,470
Adjusted EBITDA 114,542 94,857
Adjustments:
Interest expense (54,107) (46,210)
Income tax expense (3,380) (1,736)
Deferred income taxes 2,432 1,169
Amortization of debt premium — (191)
Amortization of deferred debt issuance costs 3,367 3,422
Payments for plant turnaround costs (4,109) (1,478)
Maintenance capital expenditures (14,115) (10,138)
Distributable Cash Flow 44,630 39,695
Principal payments under finance lease obligations (2,707) (4,562)
Expansion capital expenditures (4,705) (10,828)
Adjusted Free Cash Flow 37,218 24,305
1 Net of amortization of debt issuance costs and discount and premium, which are included in interest expense but not included in net cash provided by operating activities.
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Results of Operations
The results of operations for the years ended December 31, 2021, 2020, and 2019 have been derived from our consolidated financial statements. Discussions of the year ended December 31, 2019 that are not included in this Annual Report on Form 10-K and year-to-year comparisons of the year ended December 31, 2020 and the year ended December 31, 2019 can be found in “Management’s Discussion and Analysis of Financial Condition and the Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.
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.
Our consolidated 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 interest expense, and indirect selling, general and administrative expenses, are discussed after the comparative discussion of our results within each segment.
The Natural Gas Liquids segment information below excludes the discontinued operations of the Natural Gas Storage Assets disposed of on June 28, 2019, for the year ended December 31, 2019. See Item 8, Note 5.
The following table sets forth our operating revenues and operating income by segment for the years ended December 31, 2021, 2020, and 2019.
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Operating Revenues Revenues
Intersegment Eliminations Operating Revenues
after Eliminations Operating Income (loss) Operating Income Intersegment Eliminations Operating
Income (loss)
after
Eliminations
(In thousands)
Year Ended December 31, 2021:
Terminalling and storage $ 185,629 $ (6,597) $ 179,032 $ 15,462 $ (4,677) $ 10,785
Natural gas liquids 414,043 — 414,043 25,566 12,532 38,098
Sulfur services 145,042 — 145,042 23,965 9,007 32,972
Transportation 161,180 (16,866) 144,314 8,416 (16,862) (8,446)
Indirect selling, general and administrative
— — — (16,129) — (16,129)
Total $ 905,894 $ (23,463) $ 882,431 $ 57,280 $ — $ 57,280
Year Ended December 31, 2020:
Terminalling and storage $ 191,041 $ (6,877) $ 184,164 $ 23,969 $ (1,816) $ 22,153
Natural gas liquids 247,484 (5) 247,479 9,660 12,444 22,104
Sulfur services 108,020 (13) 108,007 29,001 7,255 36,256
Transportation 150,285 (17,793) 132,492 1,781 (17,883) (16,102)
Indirect selling, general and administrative
— — — (17,909) — (17,909)
Total $ 696,830 $ (24,688) $ 672,142 $ 46,502 $ — $ 46,502
Year Ended December 31, 2019:
Terminalling and storage $ 216,313 $ (6,659) $ 209,654 $ 17,670 $ (938) $ 16,732
Natural gas liquids 366,502 — 366,502 27,596 16,424 44,020
Sulfur services 111,340 — 111,340 13,989 8,732 22,721
Transportation 183,740 (24,118) 159,622 16,830 (24,218) (7,388)
Indirect selling, general and administrative
— — — (17,981) — (17,981)
Total $ 877,895 $ (30,777) $ 847,118 $ 58,104 $ — $ 58,104
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Terminalling and Storage Segment
Comparative Results of Operations for the Years Ended December 31, 2021 and 2020
Year Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Revenues:
Services $ 81,762 $ 87,661 $ (5,899) (7)%
Products 103,867 103,380 487 —%
Total revenues 185,629 191,041 (5,412) (3)%
Cost of products sold 83,081 87,495 (4,414) (5)%
Operating expenses 52,972 50,421 2,551 5%
Selling, general and administrative expenses 6,052 6,159 (107) (2)%
Depreciation and amortization 28,210 29,489 (1,279) (4)%
15,314 17,477 (2,163) (12)%
Other operating income (loss), net (48) 6,429 (6,477) (101)%
Gain on involuntary conversion of property, plant and equipment 196 63 133 211%
Operating income $ 15,462 $ 23,969 $ (8,507) (35)%
Shore-based throughput volumes (guaranteed minimum) (gallons) 80,000 80,000 — —%
Smackover refinery throughput volumes (guaranteed minimum BBL per day) 6,500 6,500 — —%
Services revenues. Services revenues decreased $5.9 million, of which $4.6 million was primarily a result of the disposition of the consigned lube business as part of the Mega Lubricants sale as well as a $1.0 million decrease related to contract termination fees and $0.2 million in decreased throughput fees at our shore-based terminals. In addition, revenue at the Smackover refinery decreased $1.1 million primarily due to the expiring capital recovery fees of $2.6 million, offset by contractually prescribed, index-based fee adjustments of $1.1 million and natural gas surcharge revenue of $0.3 million. Offsetting these decreases were increases at our specialty terminals related to storage revenue of $0.5 million, service revenue of $0.3 million and throughput revenue of $0.3 million.
Products revenues. A 22% increase in average sales price combined with a 4% increase in sales volumes at our blending and packaging facilities resulted in a $22.2 million increase in products revenues. Offsetting these increases, the disposition of our Mega Lubricants business resulted in a $21.3 million decrease in products revenues at our shore-based terminals.
Cost of products sold. The disposition of our Mega Lubricants business resulted in a $24.3 million decrease in cost of products sold at our shore-based terminals. Offsetting this decrease, a 26% increase in average cost per gallon combined with a 4% increase in sales volume at our blending and packaging facilities resulted in a $20.3 million increase in cost of products sold.
Operating expenses. Operating expenses increased primarily as a result of increased natural gas utilities across all of our terminals.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased primarily as a result of decreased compensation expense.
Depreciation and amortization. The decrease in depreciation and amortization is due to recent disposals, offset by 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.
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Gain on involuntary conversion of property, plant and equipment. The $0.2 million gain for the year ended December 31, 2021 is due to insurance proceeds received related to structural damage at one of our shore-based terminals. The $0.1 million gain for the year ended December 31, 2020 is due to insurance proceeds received related to structural damage at one of our specialty terminals during a weather incident at our Neches Terminal in May of 2019.
Transportation Segment
Comparative Results of Operations for the Years Ended December 31, 2021 and 2020
Year Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Revenues $ 161,180 $ 150,285 $ 10,895 7%
Operating expenses 129,449 122,064 7,385 6%
Selling, general and administrative expenses 7,670 8,245 (575) (7)%
Depreciation and amortization 15,719 17,505 (1,786) (10)%
8,342 2,471 5,871 238%
Other operating income (loss), net 74 (690) 764 111%
Operating income $ 8,416 $ 1,781 $ 6,635 373%
Marine Transportation Revenues . Inland revenues decreased $13.1 million, primarily related to a reduction in marine equipment. In addition, offshore revenue decreased $0.6 million due to decreased utilization related to regulatory inspections. Revenue was also impacted by an increase in pass-through revenue (primarily fuel) of $0.3 million.
Land Transportation Revenues. Transportation rates increased 14%, resulting in an increase of $13.1 million. A 3% increase in miles of product transported resulted in an additional increase to freight revenue of $3.4 million. Additionally, fuel surcharge revenue increased $7.9 million.
Operating expenses . The increase in operating expenses is primarily a result of increased pass through expenses (primarily fuel) of $4.4 million and compensation expense of $2.9 million.
Selling, general and administrative expenses . Selling, general and administrative expenses decreased primarily due to decreased compensation expense.
Depreciation and amortization . Depreciation and amortization decreased as a result of recent disposals, offset by recent capital expenditures.
Other operating income (loss), net. Other operating income, net represents gains from the disposition of property, plant and equipment.
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Sulfur Services Segment
Comparative Results of Operations for the Years Ended December 31, 2021 and 2020
Year Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Revenues:
Services $ 11,799 $ 11,659 $ 140 1%
Products 133,243 96,361 36,882 38%
Total revenues 145,042 108,020 37,022 34%
Cost of products sold 95,287 62,920 32,367 51%
Operating expenses 10,203 10,891 (688) (6)%
Selling, general and administrative expenses 5,284 4,791 493 10%
Depreciation and amortization 10,432 12,012 (1,580) (13)%
23,836 17,406 6,430 37%
Other operating income, net 129 6,751 (6,622) (98)%
Gain on involuntary conversion of property, plant and equipment — 4,844 (4,844) (100)%
Operating income $ 23,965 $ 29,001 $ (5,036) (17)%
Sulfur (long tons) 456.0 642.0 (186.0) (29)%
Fertilizer (long tons) 301.0 275.0 26.0 9%
Sulfur services volumes (long tons) 757.0 917.0 (160.0) (17)%
Services Revenues. Services revenues increased slightly as a result of a contractually prescribed, index-based fee adjustment.
Products Revenues. Products revenues increased $65.0 million as a result of a 68% rise in average sulfur services sales prices. Products revenues decreased an offsetting $28.2 million due to a 17% decrease in sales volumes, primarily related to a 29% decrease in sulfur volumes.
Cost of products sold. An 83% increase in product cost impacted cost of products sold by $52.5 million, resulting from an increase in commodity prices. A 17% decrease in sales volumes resulted in an offsetting decrease in cost of products sold of $20.1 million. Margin per ton increased $13.67, or 37%.
Operating expenses. Operating expenses decreased due to a decrease in outside towing of $0.3 million, repairs and maintenance of marine assets and railcars of $0.2 million, insurance premiums and claims of $0.2 million, employee related expenses of $0.1 million, assist tugs of $0.1 million, and lease expense of $0.1 million. Offsetting was an increase in utilities of $0.2 million, contract labor of $0.1 million and harbor agency fees of $0.1 million.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $0.3 million in employee related expenses and $0.2 million in corporate overhead.
Depreciation and amortization. Depreciation and amortization decreased as a result of certain assets being fully depreciated in the prior period as well as a transfer of assets between segments during the three months ended June 30, 2021. A further decline was attributable to reduced amortization of turnaround costs.
Other operating income, net. Other operating income, net decreased $2.7 million as a result of business interruption recoveries related to downtime associated with the Neches ship-loader insurance claim received in the first quarter of 2020. An additional $4.1 million decrease is related to a net gain from the disposition of property, plant and equipment during 2020.
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Gain on involuntary conversion of property, plant and equipment. The $4.8 million gain for the year ended December 31, 2020 is primarily due to insurance proceeds received related to structural damage of our ship-loader assets during a weather incident at our Neches Terminal in May of 2019.
Natural Gas Liquids Segment
Comparative Results of Operations for the Years Ended December 31, 2021 and 2020
Year Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Products Revenues $ 414,043 $ 247,484 166,559 67%
Cost of products sold 375,239 228,345 146,894 64%
Operating expenses 4,061 3,008 1,053 35%
Selling, general and administrative expenses 6,098 4,013 2,085 52%
Depreciation and amortization 2,390 2,456 (66) (3)%
26,255 9,662 16,593 172%
Other operating loss, net (689) (2) (687) (34,350)%
Operating income $ 25,566 $ 9,660 $ 15,906 165%
NGLs Volumes (barrels) 7,121 7,878 (757) (10)%
Products Revenues. Our NGL average sales price per barrel increased $26.73, or 85%, resulting in an increase to products revenues of $210.6 million. The increase in average sales price per barrel was a result of an increase in market prices. Product sales volumes decreased 10%, decreasing revenues $44.0 million.
Cost of products sold . Our average cost per barrel increased $23.71, or 82%, increasing cost of products sold by $186.8 million. The increase in average cost per barrel was a result of an increase in market prices. The decrease in sales volume of 10% resulted in a $39.9 million decrease to cost of products sold. Our margins increased $3.02 per barrel, or 124% during the period.
Operating expenses . Operating expenses increased $1.1 million related to the 2020 settlement of an insurance claim for less than anticipated with no corresponding transaction in 2021.
Selling, general and administrative expenses . Selling, general and administrative expenses increased $2.1 million as a result of increased compensation expense.
Other operating income loss, net. Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.
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Interest Expense
Comparative Components of Interest Expense, Net for the Years Ended December 31, 2021 and 2020
Year Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Credit facility $ 9,498 $ 8,719 $ 779 9%
Senior notes 39,303 32,225 7,078 22%
Amortization of deferred debt issuance costs 3,367 3,422 (55) (2)%
Amortization of debt premium — (191) 191 100%
Other 1,915 1,787 128 7%
Finance leases 23 291 (268) (92)%
Capitalized interest — (43) 43 100%
Total interest expense, net $ 54,106 $ 46,210 $ 7,896 17%
Indirect Selling, General and Administrative Expenses
Year Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Indirect selling, general and administrative expenses $ 16,129 $ 17,909 $ (1,780) (10)%
Indirect selling, general and administrative decreased primarily due to a decrease in the indirect expenses allocated from Martin Resource Management Corporation.
Martin Resource Management Corporation allocates to us a portion of its indirect selling, general and administrative expenses for services 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. 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. 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. 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 Corporation for indirect general and administrative and corporate overhead expenses. The board of directors of our general partner approved the following reimbursement amounts:
Year Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Board approved reimbursement amount $ 14,386 $ 16,410 $ (2,024) (12)%
The amounts reflected above represent our allocable share of such expenses. The board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
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Liquidity and Capital Resources
General
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 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 - Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table details the cash flow changes between the years ended December 31, 2021 and 2020:
Years Ended December 31, Variance Percent Change
2021 2020
(In thousands)
Net cash provided by (used in):
Operating activities $ 35,729 $ 64,785 $ (29,056) (45)%
Investing activities (19,241) 2,604 (21,845) (839)%
Financing activities (21,394) (65,287) 43,893 67%
Net increase (decrease) in cash and cash equivalents $ (4,906) $ 2,102 $ (7,008) (333)%
Net cash provided by operating activities. The decrease in net cash provided by operating activities for the year ended December 31, 2021 includes an unfavorable variance in working capital of $53.7 million, primarily related to a decrease in accounts receivable when comparing the year ended December 31, 2019 to the year ended December 31, 2020, offset by an increase in accounts receivable when comparing the year ended December 31, 2020 to the year ended December 31, 2021. Offsetting this decrease was an increase in operating results of $6.6 million and a favorable variance in other non-current assets and liabilities of $2.1 million. An additional $16.0 million increase in other non-cash charges was primarily due to a $10.3 million gain on sale of property, plant and equipment and a $4.7 million gain on involuntary conversion of property, plant and equipment, both during year ended December 31, 2020.
Net cash provided by (used in) investing activities. Net cash provided by investing activities for the year ended December 31, 2021 decreased $21.8 million. Net proceeds from the sale of property, plant and equipment decreased $24.5 million and proceeds received from the involuntary conversion of property, plant and equipment decreased $7.3 million. A reduction in cash used of $9.9 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 year ended December 31, 2021 decreased primarily as a result of a $34.3 million increase in net proceeds from long-term debt. Further, cash distributions paid decreased $4.5 million, costs associated with the credit facility decreased $3.2 million, and payments of finance lease obligations decreased $1.9 million.
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Total Contractual Obligations
A summary of our total contractual obligations as of December 31, 2021 is as follows (dollars in thousands):
Payments due by period
Type of Obligation Total
Obligation Less than
One Year 1-3
Years 3-5
Years Due
Thereafter
Credit facility $ 159,500 $ — $ 159,500 $ — $ —
11.5% senior secured notes, due 2025 291,970 — — 291,970 —
10.0% senior secured notes, due 2024 53,750 — 53,750 — —
Throughput commitment 3,118 3,118 — — —
Operating leases 26,192 7,501 7,809 4,062 6,820
Finance lease obligations 289 280 9 — —
Interest payable on finance lease obligations 9 9 — — —
Interest payable on fixed long-term debt obligations 117,972 38,952 73,424 5,596 —
Total contractual cash obligations $ 652,800 $ 49,860 $ 294,492 $ 301,628 $ 6,820
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 December 31, 2021, we had outstanding irrevocable letters of credit in the amount of $22.6 million, which were issued under our credit facility.
Off Balance Sheet Arrangements. We do not have any off-balance sheet financing arrangements.
Description of Our Indebtedness
Credit Facility
At December 31, 2021, we maintained a $275.0 million credit facility that matures on August 31, 2023. As of December 31, 2021, we had $159.5 million outstanding under the credit facility and $22.6 million of outstanding irrevocable letters of credit, leaving a maximum available to be borrowed under our credit facility for future credit borrowings and letters of credit of $92.9 million. After giving effect to our then current borrowings, outstanding letters of credit and the financial covenants contained in our credit facility, we had the ability to borrow approximately $92.9 million in additional amounts thereunder as of December 31, 2021.
The credit facility is used for ongoing working capital needs and general partnership purposes, and to finance permitted investments, acquisitions and capital expenditures. During the year ended December 31, 2021, the outstanding balance of our credit facility has ranged from a low of $148.0 million to a high of $230.5 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.
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 excess cash that exceeds $25.0 million and 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 (LIBOR), with a floor for LIBOR of 1%, 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 credit commitments 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 Total 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 December 31, 2021:
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Leverage Ratio
Base Rate Loans Eurodollar
Rate
Loans Letters of Credit
Less than 3.00 to 1.00 1.75 % 2.75 % 2.75 %
Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00 2.00 % 3.00 % 3.00 %
Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00 2.25 % 3.25 % 3.25 %
Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00 2.50 % 3.50 % 3.50 %
Greater than or equal to 4.50 to 1.00 and less than 5.00 to 1.00 2.75 % 3.75 % 3.75 %
Greater than or equal to 5.00 to 1.00 3.00 % 4.00 % 4.00 %
The applicable margin for LIBOR borrowings at December 31, 2021 is 4.00%, with a 1% floor for LIBOR.
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. On July 16, 2021, the credit facility was amended to, among other things:
• require us to maintain a minimum Interest Coverage Ratio (as defined in the credit facility) of 1.75:1.0 with respect to the fiscal quarter ended in December of 2021, 1.85:1.0 with respect to the fiscal quarters ending in March and June of 2022, and 2.0:1.0 with respect to each fiscal quarter thereafter;
• require us to maintain a maximum Total Leverage Ratio (as defined in the credit facility) of not more than 5.25:1.0 with respect to the fiscal quarter ended in December of 2021, and 5.0:1.0 with respect to each fiscal quarter thereafter; and
• require us to maintain a maximum First Lien Leverage Ratio (as defined in the credit facility) of not more than 2.25:1.0 with respect to the fiscal quarter ended in December of 2021, 1.75:1.0 with respect to each fiscal quarter ending in 2022, and 1.5:1.0 with respect to each fiscal quarter thereafter.
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 (including a limit on our ability to make quarterly distributions to unitholders in excess of $0.005 per unit unless our Total Leverage Ratio (as defined in the credit facility) is below 3.75:1:00) and certain other restricted payments; (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; and (xi) 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 Corporation. If Martin Resource Management Corporation 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 Corporation 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.
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2025 Senior Secured Notes and Indenture
General
Pursuant to our exchange offer (the “the Exchange Offer”) to certain eligible holders of our 7.25% senior unsecured notes due 2021 (the “2021 Notes”), we and Martin Midstream Finance Corp., our wholly owned subsidiary (collectively the "Issuers") issued $292.0 million in aggregate principal amount of the Issuers’ 11.50% senior secured second lien notes due 2025 (the "2025 Notes"). The 2025 Notes were issued to eligible holders that participated in the Exchange Offer pursuant to an indenture, dated as of August 12, 2020 (the "2025 Notes Indenture"), among the Issuers, the guarantors party thereto, U.S. Bank National Association, as trustee, and U.S. Bank National Association as collateral trustee.
The 2025 Notes are guaranteed on a full, joint and several basis by each of the Partnership’s existing domestic restricted subsidiaries (other than Martin Midstream Finance Corp. and Talen’s Marine & Fuel, LLC) and will be guaranteed in the future by any domestic restricted subsidiaries, in each case, if and so long as such entity guarantees (or is an obligor with respect to) any other indebtedness for borrowed money of either the Issuers or any guarantor. The 2025 Notes and the guarantees thereof are secured on a third-priority basis by a lien on substantially all assets of the Issuers and the guarantors, subject to the terms of an intercreditor agreement (the "Intercreditor Agreement") and certain other exceptions.
The 2025 Notes and the guarantees thereof are, pursuant to the Intercreditor Agreement, secured by third-priority liens and thus are effectively junior to any obligations under our credit facility, which are secured on a "first-lien" basis, and effectively junior to any obligations under the 2024 Notes Indenture (as defined below), which are secured on a "second-lien" basis, in each case, to the extent of the value of the collateral securing such first-lien obligations, second-lien obligations and third-lien obligations. The 2025 Notes and the guarantees thereof rank effectively senior to all of our existing and future unsecured indebtedness to the extent of the value of the collateral securing the 2025 Notes and such guarantees.
Maturity and Interest
The 2025 Notes will mature on February 28, 2025. Interest on the 2025 Notes accrues at a rate of 11.50% per annum and is payable semi-annually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2021.
Redemption
At any time prior to August 12, 2022, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2025 Notes issued under the 2025 Notes Indenture at a redemption price of 111.5% of the principal amount of the 2025 Notes, plus accrued and unpaid interest to the redemption date, with an amount of cash equal to the net cash proceeds of certain equity offerings. On or after August 12, 2022, the Issuers may redeem all or part of the 2025 Notes at redemption prices equal to 100%, plus accrued and unpaid interest up to, but not including, the redemption date. In addition, at any time prior to August 12, 2022, the Issuers may redeem all or a part of the 2025 Notes at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed plus a make-whole premium, plus accrued and unpaid interest up to, but not including, the redemption date.
Also, if at the end of any fiscal year (commencing with the fiscal year ended December 31, 2021) the Total Leverage Ratio (as defined in the Credit Facility Amendment) is greater than 3.75:1:00, the Issuers will use 25% of any excess annual cash flow (as defined in the 2025 Notes Indenture) to make an offer to all holders of the 2025 Notes to purchase the 2025 Notes at 100% of the principal amount thereof; provided, however, the Issuers, in their sole discretion, can allocate up to 100% of excess cash flow to offer to repurchase the 2025 Notes at 100% of the principal amount thereof, subject to restrictions in the credit facility on prepaying junior debt.
Certain Covenants and Events of Default
The 2025 Notes Indenture contains customary covenants restricting the Partnership’s ability and the ability of its restricted subsidiaries to: (i) pay distributions on, purchase or redeem its common units or purchase or redeem its subordinated debt; (ii) incur or guarantee additional indebtedness or issue certain kinds of preferred equity securities; (iii) create or incur certain liens securing indebtedness; (iv) sell assets, including dispositions of the collateral securing the 2025 Notes; (v) consolidate, merge or transfer all or substantially all of its assets; (vi) enter into transactions with affiliates; and (vii) enter into agreements that restrict distributions or other payments from its restricted subsidiaries to the Partnership. The 2025 Notes Indenture also contains customary events of default and acceleration provisions relating to such events of default, which provide that upon an event of default under the 2025 Notes Indenture, U.S. Bank National Association, as trustee, or the holders
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of at least 25% in aggregate principal amount of the then outstanding 2025 Notes may declare all of the 2025 Notes to be due and payable immediately and, subject to the terms of the Intercreditor Agreement, foreclose upon the collateral for the 2025 Notes.
2024 Senior Secured Notes and Indenture
General
Pursuant to the rights offering in connection with the Exchange Offer, the Issuers issued $53.8 million aggregate principal amount of the Issuers’ 10.00% senior secured 1.5 lien notes due 2024 (the "2024 Notes"). The 2024 Notes were issued to eligible holders that participated in the Exchange Offer pursuant to an indenture, dated as of August 12, 2020 (the "2024 Notes Indenture"), among the Issuers, the guarantors party thereto, U.S. Bank National Association, as trustee, and U.S. Bank National Association as collateral trustee.
The 2024 Notes are guaranteed on a full, joint and several basis by the guarantors of the 2025 Notes and will be guaranteed in the future by any domestic restricted subsidiaries, in each case, if and so long as such entity guarantees (or is an obligor with respect to) any other indebtedness for borrowed money of either the Issuers or any guarantor. The 2024 Notes and the guarantees thereof are secured on a second-priority basis by a lien on substantially all assets of the Issuers and the guarantors, subject to the terms of the Intercreditor Agreement and certain other exceptions.
The 2024 Notes and the guarantees thereof are, pursuant to the Intercreditor Agreement, secured by second-priority liens and thus are effectively junior to any obligations under our credit facility, which are secured on a "first-lien" basis, and are effectively senior to the obligations under the 2025 Notes Indenture, which are secured on a "third-lien" basis, in each case, to the extent of the value of the collateral securing such first-lien, second-lien obligations and third-lien obligations. The 2024 Notes and the guarantees thereof rank effectively senior to all of the Issuers’ existing and future unsecured indebtedness to the extent of the value of the collateral securing the 2024 Notes and such guarantees.
Maturity and Interest
The 2024 Notes will mature on February 29, 2024. Interest on the 2024 Notes accrues at a rate of 10.00% per annum and is payable semi-annually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2021.
Redemption
At any time prior to August 12, 2021, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2024 Notes issued under the 2024 Notes Indenture at a redemption price of 110% of the principal amount of the 2024 Notes, plus accrued and unpaid interest to the redemption date, with an amount of cash equal to the net cash proceeds of certain equity offerings. On or after August 12, 2021, the Issuers may redeem all or part of the 2024 Notes at redemption prices (expressed as percentages of the principal amount) equal to (i) 102% for the twelve-month period beginning on August 12, 2021; (ii) 101% for the twelve-month period beginning on August 12, 2022 and (iii) 100% at any time thereafter, plus accrued and unpaid interest up to, but not including, the redemption date. In addition, at any time prior to August 12, 2021, the Issuers may redeem all or a part of the 2024 Notes at a redemption price equal to 100% of the principal amount of the 2024 Notes to be redeemed plus a make-whole premium, plus accrued and unpaid interest up to, but not including, the redemption date.
Certain Covenants and Events of Default
The 2024 Notes Indenture contains covenants that are substantially the same as those contained in the 2025 Notes Indenture described above.
Capital Resources and Liquidity
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 December 31, 2021, we had cash and cash equivalents of $0.1 million and available borrowing capacity of $92.9 million under our credit facility with $159.5 million of borrowings outstanding. Our credit facility matures on August 31, 2023.
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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 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 this Form 10-K. In addition, due to the covenants in our credit facility, our financial and operating performance impacts the amount we are permitted to borrow under that facility.
The Partnership is in compliance with all debt covenants as of December 31, 2021 and expects to be in compliance for the next twelve months.
Interest Rate Risk
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.
Seasonality
A substantial portion of our revenues is 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 refinery blending season. 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. Further, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage, Sulfur Services, and Transportation business segments.
Impact of Inflation
Inflation did not have a material impact on our results of operations in 2021, 2020 or 2019. Inflation 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 2021, 2020 or 2019.
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