MARTIN MIDSTREAM PARTNERS L.P. 10-K

Item 8. Financial Statements and Supplementary Data The following financial statements of Martin Midstream Partners L.P. (Partnership) are listed below: Page Report of Independent Registered Public Accounting Firm (KPMG LLP, Dallas, TX, Auditor Firm ID 185 ) 68 Consolidated Balance Sheets as of December 31, 2021 and 2020 71 Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 72 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019 75 Consolidated Statements of Changes in Capital (Deficit) for the years ended December 31, 2021, 2020 and 2019 76 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 77 Notes to Consolidated Financial Statements 78 67 Report of Independent Registered Public Accounting Firm To the Unitholders and Board of Directors Martin Midstream Partners L.P. and Martin Midstream GP LLC: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Martin Midstream Partners L.P. and subsidiaries (the Partnership) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in capital (deficit), and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of the recoverability of certain long-lived assets As discussed in Note 2 to the consolidated financial statements, the Partnership reviews long-lived assets, such as property, plant and equipment and intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, the Partnership measures the amount of the impairment by comparing the carrying amount to its estimated fair value. The carrying value of property, plant and equipment at December 31, 2021 was $345,470 thousand. We identified the evaluation of the recoverability of a certain long-lived asset group in the transportation segment as a critical audit matter. A higher degree of subjective auditor judgement was required to evaluate the forecasted revenue used in the asset group’s future undiscounted cash flows. Specifically, the forecasted revenue was challenging to evaluate as the 68 future undiscounted cash flows were sensitive to minor changes in certain assumptions in the development of forecasted revenue that could have a significant effect on the Partnership’s assessment of the recoverability of the long-lived asset group. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Partnership’s long-lived asset impairment assessment process. This included controls related to the development of the certain asset group’s future undiscounted cash flows, including the development of forecasted revenue. We performed sensitivity analyses to assess the impact of reasonably possible changes to certain revenue assumptions. We assessed the Partnership’s forecasted revenue by comparing to historical results, existing long-term contracts, and industry forecasts. We examined quarterly trends of actual financial results within the most recent fiscal year and compared those trends with the asset group’s forecasted financial results. /s/ KPMG LLP We have served as the Partnership’s auditor since 2002. Dallas, Texas March 1, 2022 69 Report of Independent Registered Public Accounting Firm To the Unitholders and Board of Directors Martin Midstream Partners L.P. and Martin Midstream GP LLC: Opinion on Internal Control Over Financial Reporting We have audited Martin Midstream Partners L.P. and subsidiaries' (the Partnership) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Partnership as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in capital (deficit), and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Dallas, Texas March 1, 2022 70 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, 2021 2020 Assets Cash $ 52 $ 4,958 Trade and accrued accounts receivable, less allowance for doubtful accounts of $ 311 and $ 261 , respectively 84,199 52,748 Inventories 62,120 54,122 Due from affiliates 14,409 14,807 Other current assets 12,908 8,991 Total current assets 173,688 135,626 Property, plant and equipment, at cost 898,770 889,108 Accumulated depreciation ( 553,300 ) ( 509,237 ) Property, plant and equipment, net 345,470 379,871 Goodwill 16,823 16,823 Right-of-use assets 21,861 22,260 Deferred income taxes, net 19,821 22,253 Intangibles and other assets, net 2,198 2,805 $ 579,861 $ 579,638 Liabilities and Partners’ Capital (Deficit) Current portion of long term debt and finance lease obligations $ 280 $ 31,497 Trade and other accounts payable 70,342 51,900 Product exchange payables 1,406 373 Due to affiliates 1,824 435 Income taxes payable 385 556 Fair value of derivatives — 207 Other accrued liabilities 29,850 34,407 Total current liabilities 104,087 119,375 Long-term debt, net 498,871 484,597 Finance lease obligations 9 289 Operating lease liabilities 15,704 15,181 Other long-term obligations 9,227 7,067 Total liabilities 627,898 626,509 Commitments and contingencies Partners’ capital (deficit) ( 48,853 ) ( 46,871 ) Accumulated other comprehensive income 816 — Total partners’ capital (deficit) ( 48,037 ) ( 46,871 ) $ 579,861 $ 579,638 See accompanying notes to consolidated financial statements. 71 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per unit amounts) Year Ended December 31, 2021 2020 2019 Revenues: Terminalling and storage * $ 75,223 $ 80,864 $ 87,397 Transportation * 144,314 132,492 159,622 Sulfur services 11,799 11,659 11,434 Product sales: * Natural gas liquids 414,043 247,479 366,502 Sulfur services 133,243 96,348 99,906 Terminalling and storage 103,809 103,300 122,257 651,095 447,127 588,665 Total revenues 882,431 672,142 847,118 Costs and expenses: Cost of products sold: (excluding depreciation and amortization) Natural gas liquids * 362,706 215,895 325,376 Sulfur services * 89,134 58,515 65,893 Terminalling and storage * 81,258 82,516 101,526 533,098 356,926 492,795 Expenses: Operating expenses * 193,952 183,747 209,313 Selling, general and administrative * 41,012 40,900 41,433 Depreciation and amortization 56,751 61,462 60,060 Total costs and expenses 824,813 643,035 803,601 Other operating income (loss), net ( 534 ) 12,488 14,587 Gain on involuntary conversion of property, plant and equipment 196 4,907 — Operating income 57,280 46,502 58,104 Other income (expense): Interest expense, net ( 54,107 ) ( 46,210 ) ( 51,690 ) Gain on retirement of senior unsecured notes — 3,484 — Loss on exchange of senior unsecured notes — ( 8,817 ) — Other, net ( 4 ) 6 6 Total other income (expense) ( 54,111 ) ( 51,537 ) ( 51,684 ) Net income (loss) before taxes 3,169 ( 5,035 ) 6,420 Income tax expense ( 3,380 ) ( 1,736 ) ( 1,900 ) Income (loss) from continuing operations ( 211 ) ( 6,771 ) 4,520 Loss from discontinued operations, net of income taxes — — ( 179,466 ) Net loss ( 211 ) ( 6,771 ) ( 174,946 ) Less general partner's interest in net loss 4 135 3,499 Less (income) loss allocable to unvested restricted units — 21 ( 41 ) Limited partners' interest in net loss $ ( 207 ) $ ( 6,615 ) $ ( 171,488 ) *Related Party Transactions Shown Below See accompanying notes to consolidated financial statements. 72 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per unit amounts) * Related Party Transactions Included Above Year Ended December 31, 2021 2020 2019 Revenues: Terminalling and storage $ 62,677 $ 63,823 $ 71,733 Transportation 20,046 21,997 24,243 Product sales 479 317 931 Costs and expenses: Cost of products sold: (excluding depreciation and amortization) Sulfur services 9,980 10,519 10,765 Terminalling and storage 27,866 18,429 23,859 Expenses: Operating expenses 78,607 80,075 88,194 Selling, general and administrative 32,924 32,886 32,622 See accompanying notes to consolidated financial statements. 73 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per unit amounts) Year Ended December 31, 2021 2020 2019 Allocation of net income (loss) attributable to: Limited partner interest: Continuing operations $ ( 207 ) $ ( 6,615 ) $ 4,430 Discontinued operations — — ( 175,918 ) $ ( 207 ) $ ( 6,615 ) $ ( 171,488 ) General partner interest: Continuing operations $ ( 4 ) $ ( 135 ) $ 91 Discontinued operations — — ( 3,590 ) $ ( 4 ) $ ( 135 ) $ ( 3,499 ) Net income (loss) per unit attributable to limited partners: Basic: Continuing operations $ ( 0.01 ) $ ( 0.17 ) $ 0.11 Discontinued operations — — ( 4.55 ) $ ( 0.01 ) $ ( 0.17 ) $ ( 4.44 ) Weighted average limited partner units - basic 38,689 38,657 38,659 Diluted: Continuing operations $ ( 0.01 ) $ ( 0.17 ) $ 0.11 Discontinued operations — — ( 4.55 ) $ ( 0.01 ) $ ( 0.17 ) $ ( 4.44 ) Weighted average limited partner units - diluted 38,689 38,657 38,659 See accompanying notes to consolidated financial statements. 74 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollars and units in thousands, except per unit amounts) Year Ended December 31, 2021 2020 2019 Net loss $ ( 211 ) $ ( 6,771 ) $ ( 174,946 ) Changes in fair values of commodity cash flow hedges $ 816 $ — $ — Comprehensive income (loss) $ 605 $ ( 6,771 ) $ ( 174,946 ) See accompanying notes to consolidated financial statements. 75 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (DEFICIT) (Dollars in thousands) Partners’ Capital (Deficit) Parent Net Investment Common General Partner Amount Accumulated Other Comprehensive Income Units Amount Total Balances – December 31, 2018 $ 23,720 39,032,237 $ 258,085 $ 6,627 $ — 288,432 Net loss — — ( 171,447 ) ( 3,499 ) — ( 174,946 ) Issuance of common units, net — — ( 289 ) — — ( 289 ) Issuance of time-based restricted units — 16,944 — — — — Forfeiture of restricted units — ( 154,288 ) — — — — Cash distributions — — ( 48,111 ) ( 982 ) — ( 49,093 ) Excess carrying value of the assets over the purchase price paid by Martin Resource Management — — ( 102,393 ) — — ( 102,393 ) Deferred taxes on acquired assets and liabilities — — 24,781 — 24,781 Unit-based compensation — — 1,424 — — 1,424 Purchase of treasury units — ( 31,504 ) ( 392 ) — — ( 392 ) Contribution to parent ( 23,720 ) — — — — ( 23,720 ) Balances – December 31, 2019 — 38,863,389 ( 38,342 ) 2,146 — ( 36,196 ) Net loss — — ( 6,636 ) ( 135 ) — ( 6,771 ) Issuance of time-based restricted units — 81,000 — — — — Forfeiture of restricted units — ( 85,467 ) — — — — Cash distributions — — ( 5,211 ) ( 106 ) — ( 5,317 ) Unit-based compensation — — 1,422 — — 1,422 Purchase of treasury units — ( 7,748 ) ( 9 ) — — ( 9 ) Balances – December 31, 2020 — 38,851,174 ( 48,776 ) 1,905 — ( 46,871 ) Net loss — — ( 207 ) ( 4 ) — ( 211 ) Issuance of time-based restricted units — 42,168 — — — — Forfeiture of restricted units — ( 83,436 ) — — — — General partner contribution — — — 3 — 3 Cash distributions — — ( 775 ) ( 16 ) — ( 791 ) Changes in fair values of commodity cash flow hedges — — — — 816 816 Excess purchase price over carrying value of acquired assets — — ( 1,350 ) — — ( 1,350 ) Unit-based compensation — — 384 — — 384 Purchase of treasury units — ( 7,156 ) ( 17 ) — — ( 17 ) Balances – December 31, 2021 $ — 38,802,750 $ ( 50,741 ) $ 1,888 $ 816 $ ( 48,037 ) See accompanying notes to consolidated financial statements. 76 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities: Net loss $ ( 211 ) $ ( 6,771 ) $ ( 174,946 ) Less: Loss from discontinued operations — — 179,466 Net income (loss) from continuing operations ( 211 ) ( 6,771 ) 4,520 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 56,751 61,462 60,060 Amortization and write-off of deferred debt issue costs 3,367 3,422 4,041 Amortization of premium on notes payable — ( 191 ) ( 306 ) Deferred income tax expense 2,432 1,169 1,360 (Gain) loss on disposition or sale of property, plant, and equipment 534 ( 9,788 ) ( 13,332 ) Gain on involuntary conversion of property, plant and equipment ( 196 ) ( 4,907 ) — Gain on retirement of senior unsecured notes — ( 3,484 ) — Non-cash impact related to exchange of senior unsecured notes — ( 749 ) — Derivative income 5,593 8,209 5,137 Net cash paid for commodity derivatives ( 4,984 ) ( 8,669 ) ( 4,466 ) Unit-based compensation 384 1,422 1,424 Change in current assets and liabilities, excluding effects of acquisitions and dispositions: Accounts and other receivables ( 31,448 ) 30,741 62 Product exchange receivables — — 166 Inventories ( 8,334 ) 5,264 21,493 Due from affiliates 398 2,932 1,822 Other current assets ( 3,552 ) ( 5,733 ) ( 254 ) Trade and other accounts payable 14,331 ( 7,318 ) ( 898 ) Product exchange payables 1,033 ( 3,949 ) ( 7,781 ) Due to affiliates 1,389 ( 1,035 ) ( 1,469 ) Income taxes payable ( 171 ) 84 27 Other accrued liabilities ( 2,236 ) 4,144 ( 3,017 ) Change in other non-current assets and liabilities 649 ( 1,470 ) ( 543 ) Net cash provided by continuing operating activities 35,729 64,785 68,046 Net cash provided by discontinued operating activities — — 7,769 Net cash provided by operating activities 35,729 64,785 75,815 Cash flows from investing activities: Payments for property, plant, and equipment ( 16,059 ) ( 28,622 ) ( 30,621 ) Acquisitions, net of cash acquired — — ( 23,720 ) Payments for plant turnaround costs ( 4,109 ) ( 1,478 ) ( 5,677 ) Proceeds from sale of property, plant, and equipment 643 25,154 20,660 Proceeds from involuntary conversion of property, plant and equipment 284 7,550 5,031 Net cash provided by (used in) continuing investing activities ( 19,241 ) 2,604 ( 34,327 ) Net cash provided by discontinued investing activities — — 209,155 Net cash provided by (used in) investing activities ( 19,241 ) 2,604 174,828 Cash flows from financing activities: Payments of long-term debt ( 333,790 ) ( 333,637 ) ( 724,000 ) Payments under finance lease obligations ( 2,707 ) ( 4,562 ) ( 5,514 ) Proceeds from long-term debt 316,500 282,019 638,000 Proceeds from issuance of common units, net of issuance related costs — — ( 289 ) General partner contributions 3 — — Excess purchase price over carrying value of acquired assets — — ( 102,393 ) Purchase of treasury units ( 17 ) ( 9 ) ( 392 ) Payments of debt issuance costs ( 592 ) ( 3,781 ) ( 4,406 ) Cash distributions paid ( 791 ) ( 5,317 ) ( 49,093 ) Net cash used in financing activities ( 21,394 ) ( 65,287 ) ( 248,087 ) Net increase (decrease) in cash ( 4,906 ) 2,102 2,556 Cash at beginning of year 4,958 2,856 300 Cash at end of year $ 52 $ 4,958 $ 2,856 See accompanying notes to consolidated financial statements. 77 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Martin Midstream Partners L.P. (the "Partnership") is a publicly traded limited partnership with a diverse set of operations focused primarily in the Gulf Coast region of the U.S. Its 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 Partnership provides specialty services to major and independent oil and gas companies, independent refiners, large chemical companies, and other wholesale purchasers of certain petroleum products and by-products, with significant business concentrated around the U.S. Gulf Coast refinery complex, which is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry. The petroleum products and by-products the Partnership gathers, transports, stores and markets are produced primarily by major and independent oil and gas companies who often rely on third parties, such as the Partnership, for the transportation and disposition of these products. On December 28, 2021, Martin Resource Management Corporation indirectly acquired, through its wholly owned subsidiary, Martin Resource LLC, the remaining 49 % voting interest ( 50 % economic interest) in MMGP Holdings, LLC ("Holdings"), which is the sole member of Martin Midstream GP LLC ("MMGP"), the general partner of the Partnership. As a result, Martin Resource Management Corporation indirectly owns 100 % of MMGP. On November 23, 2021, MMGP contributed to the Partnership all of the outstanding incentive distribution rights for no consideration, whereupon the incentive distribution rights were cancelled and cease to exist. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a) Principles of Presentation and Consolidation The consolidated financial statements include the financial statements of the Partnership and its wholly-owned subsidiaries and equity method investees. In the opinion of the management of the Partnership’s general partner, all adjustments and elimination of significant intercompany balances necessary for a fair presentation of the Partnership’s results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. In addition, the Partnership evaluates its relationships with other entities to identify whether they are variable interest entities under certain provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), 810-10 and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Partnership is the primary beneficiary, then that entity is included in the consolidated financial statements in accordance with ASC 810-10. No such variable interest entities existed as of December 31, 2021 or 2020. Divestiture of Natural Gas Storage Assets. On June 28, 2019, the Partnership completed the sale of its membership interests in Arcadia Gas Storage, LLC, Cadeville Gas Storage LLC, Monroe Gas Storage Company, LLC and Perryville Gas Storage LLC (the "Natural Gas Storage Assets") to Hartree Cardinal Gas, LLC ("Hartree"), a subsidiary of Hartree Bulk Storage, LLC. The Natural Gas Storage Assets consist of approximately 50 billion cubic feet of working capacity located in northern Louisiana and Mississippi. In consideration of the sale of the Natural Gas Storage Assets, the Partnership received cash proceeds of $ 210,067 after transaction fees and expenses. The net proceeds were used to reduce outstanding borrowings under the Partnership's credit facility. The Partnership concluded the disposition represents a strategic shift and will have a major effect on its financial results going forward. As a result, the Partnership has presented the results of operations and cash flows relating to the Natural Gas Storage Assets as discontinued operations for the year ended December 31, 2019. See Note 5 for more information. 78 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) (b) Product Exchanges The Partnership enters into product exchange agreements with third parties, whereby the Partnership agrees to exchange NGLs and sulfur with third parties. The Partnership records the balance of exchange products due to other companies under these agreements at quoted market product prices and the balance of exchange products due from other companies at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. Product exchanges with the same counterparty are entered into in contemplation of one another and are combined. The net amount related to location differentials is reported in "Product sales" or "Cost of products sold" in the Consolidated Statements of Operations. (c) Inventories Inventories are stated at the lower of cost or market. Cost is generally determined by using the FIFO method for all inventories except lubricants and lubricants packaging inventories. Lubricants and lubricants packaging inventories cost is determined using standard cost, which approximates actual cost, computed on a FIFO basis. (d) Revenue Recognition Terminalling and Storage – Revenue is recognized for storage contracts based on the contracted monthly tank fixed fee. For throughput contracts, revenue is recognized based on the volume moved through the Partnership’s terminals at the contracted rate. For the Partnership’s tolling agreement, revenue is recognized based on the contracted monthly reservation fee and throughput volumes moved through the facility. When lubricants and drilling fluids are sold by truck or rail, revenue is recognized when title is transferred, which is either upon delivering product to the customer or when the product leaves the Partnership's facility, depending on the specific terms of the contract. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Natural Gas Liquids – Revenue is recognized when product is delivered by truck, rail, or pipeline to the Partnership's NGL customers. Revenue is recognized on title transfer of the product to the customer. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Sulfur Services – Revenue from sulfur and fertilizer product sales is recognized when the customer takes title to the product. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Revenue from sulfur services is recognized as services are performed during each monthly period. The performance of the service is invoiced as the transaction occurs and is generally paid within a month. Transportation – Revenue related to land transportation is recognized for line hauls based on a mileage rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month. Revenue related to marine transportation is recognized for time charters based on a per day rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month. (e) Equity Method Investments The Partnership uses the equity method of accounting for investments in unconsolidated entities where the ability to exercise significant influence over such entities exists. Investments in unconsolidated entities consist of capital contributions and advances plus the Partnership’s share of accumulated earnings as of the entities’ latest fiscal year-ends, less capital withdrawals and distributions. Equity method investments are subject to impairment under the provisions of ASC 323-10, which relates to the equity method of accounting for investments in common stock. No portion of the net income from these entities is included in the Partnership’s operating income. (f) Property, Plant, and Equipment Owned property, plant, and equipment is stated at cost, less accumulated depreciation. Owned buildings and equipment are depreciated using the straight-line method over the estimated lives of the respective assets. Equipment under finance leases is stated at the present value of minimum lease payments less accumulated amortization. Equipment under finance leases is amortized on a straight line basis over the estimated useful life of the asset. 79 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Routine maintenance and repairs are charged to expense while costs of betterments and renewals are capitalized. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts, and the difference between net book value of the asset and proceeds from disposition is recognized as gain or loss. (g) Goodwill and Other Intangible Assets Goodwill is subject to a fair-value based impairment test on an annual basis, or more often if events or circumstances indicate there may be impairment. The Partnership is required to identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets. The Partnership is required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the Partnership will record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. When assessing the recoverability of goodwill and other intangible assets, the Partnership may first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit or other intangible asset is less than its carrying amount. After assessing qualitative factors, if the Partnership determines that it is not more likely than not that the fair value of a reporting unit or other intangible asset 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 or other intangible asset, a quantitative analysis will be performed. The Partnership may also elect to bypass the qualitative assessment and proceed directly to a quantitative analysis depending on the facts and circumstances. Of the Partnership's four reporting units, the terminalling and storage, transportation, and sulfur services reporting units contain goodwill. In performing a quantitative analysis, recoverability of goodwill for each reporting unit is measured using a weighting of the discounted cash flow method and two market approaches (the guideline public company method and the guideline transaction method). The discounted cash flow model incorporates discount rates commensurate with the risks involved. Use of a discounted cash flow model is common practice in assessing impairment in the absence of available transactional market evidence to determine the fair value. The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined by using a weighted average cost of capital ("WACC"). The WACC considers market and industry data as well as company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Management, considering industry and company specific historical and projected data, develops growth rates and cash flow projections for each reporting unit. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. If the calculated fair value is less than the current carrying amount, the Partnership will record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Significant changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could give rise to future impairment. Changes to these estimates and assumptions can include, but may not be limited to, varying commodity prices, volume changes and operating costs due to market conditions and/or alternative providers of services. Applying this impairment review methodology, the Partnership considered the impact that COVID-19 had on our cash flows and the value our unit price during both 2021 and 2020 and elected to bypass the qualitative assessment and perform a quantitative assessment. Based upon the most recent annual review as of August 31, 2021, no goodwill impairment exists within the Partnership's reporting units for the year ended December 31, 2021. No goodwill impairment was recorded for the years ended December 31, 2020 or 2019. 80 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Other intangible assets that have finite lives are tested for impairment when events or circumstances indicate that the carrying value may not be recoverable. An impairment is indicated if the carrying amount of a long-lived intangible asset exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If impairment is indicated, the Partnership would record an impairment loss equal to the difference between the carrying value and the fair value of the asset. There were no intangible asset impairments for the years ended December 31, 2021, 2020 or 2019. (h) Debt Issuance Costs Debt issuance costs relating to the Partnership’s credit facility and senior notes are deferred and amortized over the terms of the debt arrangements and are shown, net of accumulated amortization, as a reduction of the related long-term debt. In connection with the issuance, amendment, expansion and restatement of debt arrangements, the Partnership incurred debt issuance costs of $ 592 , $ 3,781 and $ 4,406 in the years ended December 31, 2021, 2020 and 2019, respectively. Amortization and write-off of debt issuance costs, which is included in interest expense, totaled $ 3,367 , $ 3,422 and $ 4,041 for the years ended December 31, 2021, 2020 and 2019, respectively. Accumulated amortization amounted to $ 26,022 and $ 22,655 at December 31, 2021 and 2020, respectively. (i) Impairment of Long-Lived Assets In accordance with ASC 360-10, long-lived assets, such as property, plant and equipment, and intangible assets with definite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. The Partnership identified triggering events related to a certain asset group in its transportation segment in 2021. The Partnership performed a recoverability test and concluded the estimated undiscounted cash flows expected to be generated by the asset group exceeded the carrying value of the asset group and no impairment was recorded. (j) Asset Retirement Obligations Under ASC 410-20, which relates to accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets, the Partnership records an asset retirement obligation at present value based upon estimated costs to retire the asset in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, the liability is accreted over time towards the ultimate obligation amount and the capitalized costs are depreciated over the useful life of the related asset. (k) Derivative Instruments and Hedging Activities In accordance with certain provisions of ASC 815-10 related to accounting for derivative instruments and hedging activities, all derivatives and hedging instruments are included in the Consolidated Balance Sheets as an asset or liability measured at fair value and changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met. If a derivative qualifies for hedge accounting, changes in the fair value can be offset against the change in the fair value of the hedged item through earnings or recognized in other comprehensive income until such time as the hedged item is recognized in earnings. Derivative instruments not designated as hedges are marked to market with all market value adjustments being recorded in the Consolidated Statements of Operations. 81 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) (l) Use of Estimates Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the U.S. Actual results could differ from those estimates. (m) Environmental Liabilities and Litigation The Partnership’s policy is to accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. (n) Trade and Accrued Accounts Receivable and Allowance for Doubtful Accounts. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Partnership’s best estimate of the amount of probable credit losses in the Partnership’s existing accounts receivable. (o) Deferred Catalyst Costs The cost of the periodic replacement of catalysts is deferred and amortized over the catalyst’s estimated useful life, which ranges from 12 to 36 months. (p) Deferred Turnaround Costs The Partnership capitalizes the cost of major turnarounds and amortizes these costs over the estimated period to the next turnaround, which ranges from 12 to 36 months. (q) Income Taxes The Partnership is subject to the Texas margin tax, which is considered a state income tax, and is included in income tax expense on the Consolidated Statements of Operations. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed as an income tax and, therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a result of this provision is immaterial. MTI is a wholly owned subsidiary of the Partnership. Prior to the acquisition of MTI on January 2, 2019, MTI was a Qualified Subchapter S subsidiary (“QSub”) of Martin Resource Management Corporation, a qualifying S Corporation. A QSub is disregarded and not treated as a corporation separate from its S Corporation parent for federal income tax purposes. S Corporations are generally not subject to income taxes because income and losses flow through to shareholders and are reported on their individual returns. Three states in which MTI was subject to taxation prior to the acquisition - Louisiana, New Jersey and Tennessee - do not recognize the federal S Corporation status and, therefore, taxed MTI on a C Corporation basis. Subsequent to the acquisition, the QSub election terminated resulting in MTI being taxed as a stand-alone C Corporation. The Partnership's financial statements recognize the current and deferred income tax consequences that result from MTI’s activities during the current period pursuant to the provisions of the FASB ASC 740 related to income taxes. As a result of the common control transaction with the Partnership, the deferred tax consequences of the changes in the tax bases of MTI’s assets and liabilities were included in equity under the provisions of ASC 740-20-45-11. With respect to the Partnership’s taxable subsidiary (MTI), income taxes are accounted for under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to 82 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) apply to taxable income in the years those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In the ordinary course of business, there may be many transactions and calculations where the ultimate tax outcome is uncertain. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws. In accordance with the provisions of ASC 740, we use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. In the first step, “recognition”, the Partnership determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Partnership presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. In the second step, “measurement”, a tax position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement based upon management’s intent regarding negotiation and litigation. In evaluating all income tax positions for all open years, management has determined all positions are more likely than not to be sustained at full benefit based upon their technical merit under applicable tax laws. (r) Comprehensive Income Comprehensive income includes net income and other comprehensive income. Other comprehensive income for the Partnership includes unrealized gains and losses on derivative instruments. In accordance with ASC 815-10, the Partnership records deferred hedge gains and losses on its derivative instruments that qualify as cash flow hedges as other comprehensive income. NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS On January 1, 2021, the Partnership adopted FASB Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Accounting Standards Codification (“ASC”) Topic 740): Simplifying the Accounting for Income Taxes , which removes certain exceptions to general principles in ASC 740 and clarifies and amends existing guidance within U.S. GAAP. Adoption of the new standard did not have a material impact on the Partnership’s consolidated financial statements. On January 1, 2020, the Partnership adopted ASU 2016-13, "Financial Instruments - Credit Losses," which required the Partnership to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaced the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables. Adoption of the new standard did not have a material impact on the Partnership’s consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Non-employee Share-Based Payment Accounting , which will expand the scope of FASB ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. The standard is effective for the Partnership's financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Partnership adopted this standard effective January 1, 2019. The result of this adoption did not have a material impact on the Partnership's consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases , which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. Lessor accounting under the new standard is substantially unchanged and substantially all of our leases will continue to be classified as operating leases under the new standard. Additional qualitative and quantitative disclosures, including significant judgments made by management are required. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to FASB ASC 842 , which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. The Partnership adopted this ASU on January 1, 2019, electing the transition option provided under ASU 2018-11. 83 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) The new standard provides a number of optional practical expedients in transition. The Partnership elected the "package of practical expedients", which permits the Partnership not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. The Partnership elected the short-term lease recognition exemption for all leases that qualify. This means, for those assets that qualify, the Partnership did not recognize Right-of-Use ("ROU") assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. See Note 10 for more information. NOTE 4. ACQUISITIONS Martin Transport, Inc. Stock Purchase Agreement. On January 2, 2019, the Partnership acquired all of the issued and outstanding equity interests of MTI, a wholly-owned subsidiary of Martin Resource Management Corporation, which operates a fleet of trucks providing transportation of petroleum products, liquid petroleum gas, chemicals, sulfur and other products, as well as owns 24 terminals located throughout the U.S. Gulf Coast and Southeastern U.S. for total consideration as follows: Purchase price 1 $ 135,000 Plus: Working Capital Adjustment 2,795 Less: Finance lease obligations assumed ( 11,682 ) Cash consideration paid $ 126,113 1 The stock purchase agreement also includes a $ 10,000 earn-out based on certain performance thresholds. The performance threshold related to financial results for the years ended December 31, 2020 and 2019 was not achieved, which resulted in a reduction in the potential earn-out by $ 6,666 . For the year ended December 31, 2021, the performance threshold related to financial results was exceeded, resulting in an earn-out payment of $ 1,350 , which, pursuant to the terms of the stock purchase agreement, will be paid in the second quarter of 2022. The transaction closed on January 2, 2019 and was effective as of January 1, 2019 and was funded with borrowings under the Partnership's credit facility. This acquisition is considered a transfer of net assets between entities under common control. The acquisition of MTI was recorded at the historical carrying value of the assets at the acquisition date, which were as follows: Accounts receivable, net $ 11,724 Inventories 1,138 Due from affiliates 1,042 Other current assets 897 Property, plant and equipment, net 25,383 Goodwill 489 Other noncurrent assets 362 Current installments of finance lease obligations ( 5,409 ) Accounts payable ( 2,564 ) Due to affiliates ( 482 ) Other accrued liabilities ( 2,588 ) Finance lease obligations, net of current installments ( 6,272 ) Historical carrying value of assets acquired $ 23,720 The excess purchase price over the historical carrying value of the assets at the acquisition date was $ 102,393 and was recorded as an adjustment to "Partners' capital (deficit)". The earn out-payment discussed above was recorded as additional excess purchase price over the historical carrying value of the assets, resulting in an adjustment to "Partners' capital (deficit)" of $ 1,350 . 84 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 5. DISCONTINUED OPERATIONS AND DIVESTITURES Divestitures Divestiture of Mega Lubricants. On December 22, 2020, the Partnership completed the sale of its Mega Lubricants shored-based terminals business (“Mega Lubricants”) for $ 22,400 . Mega Lubricants is engaged in the business of blending, manufacturing and delivering various marine application lubricants, sub-sea specialty fluids, and proprietary developed commercial and industrial products. The Partnership recorded a gain on the disposition of $ 10,101 , which was included in "Other operating income, net" on the Partnership's Consolidated Statements of Operations. The proceeds from the transaction were used to reduce outstanding borrowings under the Partnership’s credit facility. The divestiture of Mega Lubricants did not qualify for discontinued operations presentation under the guidance of ASC 205-20. Divestiture of East Texas Pipeline. On August 12, 2019, the Partnership completed the sale of its East Texas Pipeline for $ 17,500 . The Partnership recorded a gain on the disposition of $ 16,154 , which was included in "Other operating income, net" on the Partnership's Consolidated Statements of Operations. The net proceeds were used to reduce outstanding borrowings under the Partnership's credit facility. The divestiture of the East Texas Pipeline assets did not qualify for discontinued operations presentation under the guidance of ASC 205-20. Divestiture of Natural Gas Storage Assets. On June 28, 2019, the Partnership completed the sale of the Natural Gas Storage Assets to Hartree, a subsidiary of Hartree Bulk Storage, LLC. The Natural Gas Storage Assets consist of approximately 50 billion cubic feet of working capacity located in northern Louisiana and Mississippi. In consideration of the sale of these assets, the Partnership received cash proceeds of $ 210,067 after transaction fees and expenses. The net proceeds were used to reduce outstanding borrowings under the Partnership's credit facility. The Partnership concluded the disposition represents a strategic shift and will have a major effect on its financial results going forward. As a result, the Partnership has presented the results of operations and cash flows relating to the Natural Gas Storage Assets as discontinued operations for the year ended December 31, 2019. The operating results, which are included in income (loss) from discontinued operations, were as follows: For the Year Ended December 31, 2019 Total revenues $ 22,836 Total costs and expenses and other, net, excluding depreciation and amortization ( 15,360 ) Depreciation and amortization ( 8,161 ) Other operating loss, net 1 ( 178,781 ) Other, net — Income (loss) from discontinued operations before income taxes ( 179,466 ) Income tax expense — Income (loss) from discontinued operations, net of income taxes $ ( 179,466 ) 1 The year ended December 31, 2019 includes a loss on the disposition of the Natural Gas Storage Assets of $ 178,781 . 85 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 6. REVENUE The following table disaggregates our revenue by major source: 2021 2020 2019 Terminalling and storage segment Lubricant product sales $ 103,809 $ 103,300 $ 122,257 Throughput and storage 75,223 80,864 87,397 $ 179,032 $ 184,164 $ 209,654 Transportation segment Land transportation $ 111,611 $ 88,652 $ 98,895 Inland transportation 29,536 40,507 54,834 Offshore transportation 3,167 3,333 5,893 $ 144,314 $ 132,492 $ 159,622 Sulfur service segment Sulfur product sales $ 32,416 $ 24,176 $ 30,135 Fertilizer product sales 100,827 72,172 69,771 Sulfur services 11,799 11,659 11,434 $ 145,042 $ 108,007 $ 111,340 Natural gas liquids segment Natural gas liquids product sales $ 414,043 $ 247,479 $ 366,502 $ 414,043 $ 247,479 $ 366,502 Revenue is measured based on a consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties where the Partnership is acting as an agent. The Partnership recognizes revenue when the Partnership satisfies a performance obligation, which typically occurs when the Partnership transfers control over a product to a customer or as the Partnership delivers a service. The following is a description of the principal activities - separated by reportable segments - from which the Partnership generates revenue. Terminalling and Storage Segment Revenue is recognized for storage contracts based on the contracted monthly tank fixed fee. For throughput contracts, revenue is recognized based on the volume moved through the Partnership’s terminals at the contracted rate. For the Partnership’s tolling agreement, revenue is recognized based on the contracted monthly reservation fee and throughput volumes moved through the facility. When lubricants and drilling fluids are sold by truck or rail, revenue is recognized when title is transferred, which is either upon delivering product to the customer or when the product leaves the Partnership's facility, depending on the specific terms of the contract. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Throughput and storage revenue in the table above includes non-cancelable revenue arrangements that are under the scope of ASC 842, whereby the Partnership has committed certain Terminalling and Storage assets in exchange for a minimum fee. Natural Gas Liquids Segment NGL revenue is recognized when product is delivered by truck, rail, or pipeline to the Partnership's NGL customers. Revenue is recognized on title transfer of the product to the customer. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. 86 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Sulfur Services Segment Revenue from sulfur and fertilizer product sales is recognized when the customer takes title to the product. Delivery of product is invoiced as the transaction occurs and is generally paid within a month. Revenue from sulfur services is recognized as services are performed during each monthly period. The performance of the service is invoiced as the transaction occurs and is generally paid within a month. Transportation Segment Revenue related to land transportation is recognized for line hauls based on a mileage rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month. Revenue related to marine transportation is recognized for time charters based on a per day rate. For contracted trips, revenue is recognized upon completion of the particular trip. The performance of the service is invoiced as the transaction occurs and is generally paid within a month. The table below includes estimated minimum revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period. The Partnership applies the practical expedient in ASC 606-10-50-14(a) and does not disclose information about remaining performance obligations that have original expected durations of one year or less. 2022 2023 2024 2025 2026 Thereafter Total Terminalling and storage Throughput and storage $ 43,527 $ 42,041 $ 43,360 $ 44,661 $ 45,940 $ 251,349 $ 470,878 Natural Gas Services Natural Gas Liquids $ 6,047 $ 5,391 $ 5,406 $ 5,391 $ 3,131 $ — $ 25,366 Sulfur services Sulfur product sales 17,703 16,953 14,493 2,156 1,182 295 52,782 Total $ 67,277 $ 64,385 $ 63,259 $ 52,208 $ 50,253 $ 251,644 $ 549,026 NOTE 7. INVENTORIES Components of inventories at December 31, 2021 and 2020 were as follows: 2021 2020 Natural gas liquids $ 20,034 $ 27,878 Sulfur 612 24 Fertilizer 13,005 10,854 Lubricants 23,876 11,002 Other 4,593 4,364 $ 62,120 $ 54,122 87 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 8. PROPERTY, PLANT, AND EQUIPMENT At December 31, 2021 and 2020, property, plant and equipment consisted of the following: Depreciable Lives 2021 2020 Land — $ 21,422 $ 21,459 Improvements to land and buildings 10 - 25 years 132,064 135,227 Storage equipment 5 - 50 years 122,300 121,437 Marine vessels 4 - 25 years 183,414 179,666 Operating plant and equipment 3 - 50 years 360,122 356,293 Furniture, fixtures and other equipment 3 - 20 years 13,727 14,209 Transportation equipment 3 - 7 years 50,961 49,836 Construction in progress 14,760 10,981 $ 898,770 $ 889,108 Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $ 52,289 , $ 55,817 and $ 53,856 , respectively, which includes amortization of fixed assets acquired under capital lease obligations of $ 164 , $ 1,755 , and $ 2,686 . Gross assets under capital leases were $ 1,071 and $ 10,352 at December 31, 2021 and 2020, respectively. Accumulated amortization associated with capital leases was $ 364 and $ 3,703 at December 31, 2021 and 2020, respectively. Additions to property, plant and equipment included in accounts payable at December 31, 2021, 2020 and 2019 were $ 3,229 , $ 468 , and $ 3,791 , respectively. Equipment purchased under capital lease obligations was $ 0 , $ 83 , and $ 1,308 for the years ended December 31, 2021, 2020, and 2019, respectively. In the first quarter of 2020, the Partnership identified a triggering event related to a decline in the fair value related to the assets classified as held for sale at December 31, 2019. As a result, an impairment charge of $ 3,052 and $ 1,300 was recorded in the Terminalling and Storage and Transportation segments, respectively, during the year ended December 31, 2020 and was recorded in "Other operating income (loss)" in the Partnership's Consolidated Statements of Operations. At December 31, 2020, the remaining assets previously classified as held for sale in the amount of $ 700 no longer met the criteria to be classified as held for sale in accordance with ASC 360-10. NOTE 9. GOODWILL The following table represents the goodwill balance by reporting unit at December 31, 2021 and 2020 as follows: 2021 2020 Carrying amount of goodwill: Terminalling and storage $ 10,985 $ 10,985 Sulfur services 5,349 5,349 Transportation 489 489 Total goodwill $ 16,823 $ 16,823 NOTE 10. LEASES The Partnership has numerous operating leases primarily for terminal facilities and transportation and other equipment. The leases generally provide that all expenses related to the equipment are to be paid by the lessee. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Partnership's leases do not provide an implicit rate of return, the Partnership uses its imputed collateralized rate based on the information available at commencement date in determining the present value of lease payments. The estimated rate is based on a risk-free rate plus a risk-adjusted margin. 88 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) The Partnership's leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year. The Partnership includes extension periods and excludes termination periods from its lease term if, at commencement, it is reasonably likely that the Partnership will exercise the option. The components of lease expense for the years ended December 31, 2021, 2020, and 2019 were as follows: 2021 2020 2019 Operating lease cost $ 9,266 $ 10,672 $ 10,805 Finance lease cost: Amortization of right-of-use assets 164 1,755 2,686 Interest on lease liabilities 26 294 671 Short-term lease cost 10,290 13,187 13,756 Variable lease cost 115 109 92 Total lease cost $ 19,861 $ 26,017 $ 28,010 Supplemental cash flow information for the years ended December 31, 2021, 2020, and 2019 related to leases were as follows: 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 19,678 $ 23,996 $ 24,526 Operating cash flows from finance leases 26 294 671 Financing cash flows from finance leases 2,707 4,562 5,514 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 7,668 $ 7,779 $ 9,122 Finance leases 0 83 1,309 89 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Supplemental balance sheet information related to leases was as follows at December 31, 2021 and 2020: 2021 2020 Operating Leases Operating lease right-of-use assets $ 21,861 $ 22,260 Current portion of operating lease liabilities included in "Other accrued liabilities" $ 6,600 $ 7,529 Operating lease liabilities 15,704 15,181 Total operating lease liabilities $ 22,304 $ 22,710 Finance Leases Property, plant and equipment, at cost $ 1,071 $ 10,352 Accumulated depreciation ( 364 ) ( 3,703 ) Property, plant and equipment, net $ 707 $ 6,649 Current installments of finance lease obligations $ 280 $ 2,707 Finance lease obligations 9 289 Total finance lease obligations $ 289 $ 2,996 Weighted Average Remaining Lease Term (years) Operating leases 6.46 5.87 Finance leases 0.97 1.39 Weighted Average Discount Rate Operating leases 4.96 % 5.04 % Finance leases 5.74 % 6.04 % The Partnership’s future minimum lease obligations as of December 31, 2021 consist of the following: Operating Leases Finance Leases Year 1 $ 7,501 $ 289 Year 2 4,672 9 Year 3 3,137 — Year 4 2,460 — Year 5 1,602 — Thereafter 6,820 — Total 26,192 298 Less amounts representing interest costs ( 3,888 ) ( 9 ) Total lease liability $ 22,304 $ 289 As of December 31, 2021, we have additional operating leases for land, buildings and equipment that have not yet commenced of $ 1,184 . These operating leases will commence during the first quarter of 2022 with lease terms of 3 to 5 years. The Partnership has non-cancelable revenue arrangements that are under the scope of ASC 842 whereby we have committed certain terminalling and storage assets in exchange for a minimum fee. Future minimum revenues the Partnership expects to receive under these non-cancelable arrangements as of December 31, 2021 are as follows: 2022 - $ 17,093 ; 2023 - $ 14,425 ; 2024 - $ 14,425 ; 2025 - $ 13,858 ; 2026 - $ 8,173 ; subsequent years - $ 30,670 . 90 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 11. FAIR VALUE MEASUREMENTS The Partnership uses a valuation framework based upon inputs that market participants use in pricing certain assets and liabilities. These inputs are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources. Unobservable inputs represent the Partnership's own market assumptions. Unobservable inputs are used only if observable inputs are unavailable or not reasonably available without undue cost and effort. The two types of inputs are further prioritized into the following hierarchy: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that reflect the entity's own assumptions and are not corroborated by market data. Assets and liabilities measured at fair value on a recurring basis are summarized below: Level 2 December 31, 2021 2020 Commodity derivative contracts, net $ — $ ( 207 ) The Partnership is required to disclose estimated fair values for its financial instruments. Fair value estimates are set forth below for these financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instrument: • Accounts and other receivables, trade and other accounts payable, accrued interest payable, other accrued liabilities, income taxes payable and due from/to affiliates: The carrying amounts approximate fair value due to the short maturity and highly liquid nature of these instruments, and as such these have been excluded from the table below. There is negligible credit risk associated with these instruments. • Current and non-current portion of long-term debt: The carrying amount of the credit facility approximates fair value due to the debt having a variable interest rate and is in Level 2. The estimated fair value of the 2021 Notes, 2024 Notes, and 2025 Notes (collectively, the "senior notes") is considered Level 2, as the fair value is based upon quoted prices for identical liabilities in markets that are not active. December 31, 2021 December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value 2021 Notes $ — $ — $ 28,790 $ 28,581 2024 Notes $ 51,317 $ 55,220 $ 50,173 $ 55,214 2025 Notes $ 290,667 $ 307,146 $ 290,250 $ 288,692 Total $ 341,984 $ 362,366 $ 369,213 $ 372,487 91 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Partnership’s results of operations could be materially impacted by changes in commodity prices and interest rates. In an effort to manage its exposure to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate hedges. At the time derivative contracts are entered into, the Partnership assesses whether the nature of the instrument qualifies for hedge accounting treatment according to the requirements of ASC 815 – Derivatives and Hedging . For those transactions designated as hedging instruments for accounting purposes, the Partnership documents all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking the various hedge transactions. The Partnership also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair value of hedged items. All derivatives and hedging instruments are included on the balance sheet as an asset or a liability measured at fair value. Changes in fair value for hedging instruments are recognized on the balance sheet through Accumulated Other Comprehensive Income ("AOCI"). Settlements related to effective hedging relationships will be reclassified from AOCI to earnings during the period in which the hedged transactions are reflected on the income statement. From time to time, derivatives designated for hedge accounting may be closed prior to contract expiration. The accounting treatment of closed positions depends on whether the closure occurred due to the hedged transaction occurring early or if the hedged transaction is still expected to occur as originally forecasted. For hedged transactions that occur early, the closure results in the realized gain or loss from closure being recognized in the same period the accelerated hedged transaction affects earnings. For hedged transactions that are still expected to occur as originally forecasted, the closure results in the realized gain or loss being deferred until the hedged transaction affects earnings. If it is determined that hedged transactions associated with cash flow hedges are no longer probable to occur, the gain or loss associated with the instrument is recognized immediately into earnings. From time to time, we may have derivative financial instruments for which we do not elect hedge accounting. Changes in fair value for derivatives not designated as hedges are recognized as gains and losses in the earnings of the periods in which they occur. (a) Commodity Derivative Instruments The Partnership from time to time has used derivatives to manage the risk of commodity price fluctuation. Commodity risk is the adverse effect on the value of a liability or future purchase that results from a change in commodity price. The Partnership has established a hedging policy and monitors and manages the commodity market risk associated with potential commodity risk exposure. In addition, the Partnership has focused on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction. The Partnership enters into hedging transactions to protect a portion of its commodity price risk exposure. These hedging arrangements are in the form of swaps for NGLs. At December 31, 2021, the Partnership has instruments totaling a gross notional quantity of 0 barrels. At December 31, 2020, the Partnership had instruments totaling a gross notional quantity of 137,000 barrels settling during the period from January 31, 2021 through February 28, 2021. These instruments settle against the applicable pricing source for each grade and location. For information regarding gains and losses on commodity derivative instruments, see "Tabular Presentation of Gains and Losses on Derivative Instruments" below. (b) Tabular Presentation of Gains and Losses on Derivative Instruments The following table summarizes the fair value and classification of the Partnership’s derivative instruments in its Consolidated Balance Sheets: 92 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Derivative Assets Derivative Liabilities Fair Values Fair Values Balance Sheet Location December 31, 2021 December 31, 2020 Balance Sheet Location December 31, 2021 December 31, 2020 Derivatives designated as hedging instruments: Current: Commodity contracts Fair value of derivatives $ — $ — Fair value of derivatives $ — $ — Derivatives not designated as hedging instruments: Current: Commodity contracts Fair value of derivatives $ — $ — Fair value of derivatives $ — $ 207 The following table summarizes the loss recognized in AOCI at December 31, 2021 and the gain (loss) reclassified from accumulated other comprehensive loss into earnings during the year ended December 31, 2021 for derivative financial instruments designated as cash flow hedges: Amount of Gain (Loss) Recognized in AOCI Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income 2021 2020 2021 2020 Commodity contracts $ 816 $ — Cost of products sold $ ( 3,768 ) $ — Total $ 816 $ — $ ( 3,768 ) $ — The following tables summarize the loss recognized in earnings for derivative instruments not designated as hedging instruments during the year ended December 31, 2021: Location of Gain (Loss) Recognized in Income on Derivatives Amount of Gain (Loss) Recognized in Income on Derivatives 2021 2020 Derivatives not designated as hedging instruments: Commodity contracts Cost of products sold $ ( 1,825 ) $ ( 8,209 ) Total effect of derivatives not designated as hedging instruments $ ( 1,825 ) $ ( 8,209 ) NOTE 13. RELATED PARTY TRANSACTIONS As of December 31, 2021, Martin Resource Management Corporation owned 6,114,532 of the Partnership’s common units representing approximately 15.8 % of the Partnership’s outstanding limited partnership units. Martin Resource Management Corporation controls the Partnership's general partner by virtue of owning 100 % of the membership interests in 93 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Holdings, the sole member of the Partnership's general partner. The Partnership’s general partner, MMGP, owns a 2 % general partner interest in the Partnership. The Partnership’s general partner’s ability, as general partner, to manage and operate the Partnership, and Martin Resource Management Corporation’s ownership as of December 31, 2021 of approximately 15.8 % of the Partnership’s outstanding limited partnership units, effectively gives Martin Resource Management Corporation the ability to veto some of the Partnership’s actions and to control the Partnership’s management. The following is a description of the Partnership’s material related party agreements: Omnibus Agreement Omnibus Agreement . The Partnership and its general partner are parties to the Omnibus Agreement dated November 1, 2002, with Martin Resource Management Corporation that governs, among other things, potential competition and indemnification obligations among the parties to the agreement, related party transactions, the provision of general administration and support services by Martin Resource Management Corporation and the Partnership’s use of certain Martin Resource Management Corporation trade names and trademarks. The Omnibus Agreement was amended on November 25, 2009, to include processing crude oil into finished products including naphthenic lubricants, distillates, asphalt and other intermediate cuts. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management Corporation. Non-Competition Provisions . Martin Resource Management Corporation has agreed for so long as it controls the general partner of the Partnership, not to engage in the business of: • providing terminalling and storage services for petroleum products and by-products including the refining, blending and packaging of finished lubricants; • providing land and marine transportation of petroleum products, by-products, and chemicals; • distributing NGLs; and • manufacturing and selling sulfur-based fertilizer products and other sulfur-related products. This restriction does not apply to: • the ownership and/or operation on the Partnership’s behalf of any asset or group of assets owned by it or its affiliates; • any business operated by Martin Resource Management Corporation, including the following: ◦ distributing asphalt, marine fuel and other liquids; ◦ providing shore-based marine services in Texas, Louisiana, Mississippi, and Alabama; ◦ operating a crude oil gathering business in Stephens, Arkansas; ◦ providing crude oil gathering and marketing services of base oils, asphalt, and distillate products in Smackover, Arkansas; ◦ providing crude oil marketing and transportation from the well head to the end market; ◦ operating an environmental consulting company; ◦ supplying employees and services for the operation of the Partnership's business; and ◦ operating, solely for our account, the asphalt facilities in each of Hondo, South Houston and Port Neches, Texas and Omaha, Nebraska. 94 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) • any business that Martin Resource Management Corporation acquires or constructs that has a fair market value of less than $ 5,000 ; • any business that Martin Resource Management Corporation acquires or constructs that has a fair market value of $ 5,000 or more if the Partnership has been offered the opportunity to purchase the business for fair market value and the Partnership declines to do so with the concurrence of the Conflicts Committee; and • any business that Martin Resource Management Corporation acquires or constructs where a portion of such business includes a restricted business and the fair market value of the restricted business is $ 5,000 or more and represents less than 20 % of the aggregate value of the entire business to be acquired or constructed; provided that, following completion of the acquisition or construction, the Partnership will be provided the opportunity to purchase the restricted business. Services. Under the Omnibus Agreement, Martin Resource Management Corporation provides the Partnership with corporate staff, support services, and administrative services necessary to operate the Partnership’s business. The Omnibus Agreement requires the Partnership to reimburse Martin Resource Management Corporation for all direct expenses it incurs or payments it makes on the Partnership’s behalf or in connection with the operation of the Partnership’s business. There is no monetary limitation on the amount the Partnership is required to reimburse Martin Resource Management Corporation for direct expenses. In addition to the direct expenses, under the Omnibus Agreement, the Partnership is required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. Effective January 1, 2021, through December 31, 2021, the board of directors of our general partner approved an annual reimbursement amount for indirect expenses of $ 14,386 . The Partnership reimbursed Martin Resource Management Corporation for $ 14,386 , $ 16,410 and $ 16,657 of indirect expenses for the years ended December 31, 2021, 2020 and 2019, respectively. The board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually. These indirect expenses are intended to cover the centralized corporate functions Martin Resource Management Corporation provides to the Partnership, 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 the Partnership shares with Martin Resource Management Corporation retained businesses. The provisions of the Omnibus Agreement regarding Martin Resource Management Corporation’s services will terminate if Martin Resource Management Corporation ceases to control the general partner of the Partnership. Related Party Transactions . The Omnibus Agreement prohibits the Partnership from entering into any material agreement with Martin Resource Management Corporation without the prior approval of the Conflicts Committee. For purposes of the Omnibus Agreement, the term "material agreements" means any agreement between the Partnership and Martin Resource Management Corporation that requires aggregate annual payments in excess of the then-applicable agreed upon reimbursable amount of indirect general and administrative expenses. Please read "Services" above. License Provisions. Under the Omnibus Agreement, Martin Resource Management Corporation has granted the Partnership a nontransferable, nonexclusive, royalty-free right and license to use certain of its trade names and marks, as well as the trade names and marks used by some of its affiliates. Amendment and Termination. The Omnibus Agreement may be amended by written agreement of the parties; provided, however, that it may not be amended without the approval of the Conflicts Committee if such amendment would adversely affect the unitholders. The Omnibus Agreement was first amended on November 25, 2009, to permit the Partnership to provide refining services to Martin Resource Management Corporation. The Omnibus Agreement was amended further on October 1, 2012, to permit the Partnership to provide certain lubricant packaging products and services to Martin Resource Management Corporation. Such amendments were approved by the Conflicts Committee. The Omnibus Agreement, other than the indemnification provisions and the provisions limiting the amount for which the Partnership will reimburse Martin Resource Management Corporation for general and administrative services performed on its behalf, will terminate if the Partnership is no longer an affiliate of Martin Resource Management Corporation. 95 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Master Transportation Services Agreement Master Transportation Services Agreement. MTI, a wholly owned subsidiary of the Partnership, is a party to a master transportation services agreement effective January 1, 2019, with certain wholly owned subsidiaries of Martin Resource Management Corporation. Under the agreement, MTI agreed to transport Martin Resource Management Corporation's petroleum products and by-products. Term and Pricing. The agreement will continue unless either party terminates the agreement by giving at least 30 days' written notice to the other party. The rates under the agreement are subject to any adjustments which are mutually agreed upon or in accordance with a price index. Additionally, shipping charges are also subject to fuel surcharges determined on a weekly basis in accordance with the U.S. Department of Energy’s national diesel price list. Indemnification. MTI has agreed to indemnify Martin Resource Management Corporation against all claims arising out of the negligence or willful misconduct of MTI and its officers, employees, agents, representatives and subcontractors. Martin Resource Management Corporation has agreed to indemnify MTI against all claims arising out of the negligence or willful misconduct of Martin Resource Management Corporation and its officers, employees, agents, representatives and subcontractors. In the event a claim is the result of the joint negligence or misconduct of MTI and Martin Resource Management Corporation, indemnification obligations will be shared in proportion to each party’s allocable share of such joint negligence or misconduct. Terminal Services Agreements Diesel Fuel Terminal Services Agreement. Effective January 1, 2016, the Partnership entered into a second amended and restated terminalling services agreement under which the Partnership provides terminal services to Martin Resource Management Corporation for marine fuel distribution. At such time, the per-gallon throughput fee the Partnership charged under this agreement was increased when compared to the previous agreement and may be adjusted annually based on a price index. This agreement was further amended on April 1, 2019 and January 1, 2020 to modify its minimum throughput requirements and throughput fees. The term of this agreement is currently evergreen and it will continue on a month to month basis until terminated by either party by giving 60 days’ written notice. Miscellaneous Terminal Services Agreements. The Partnership is currently party to several terminal services agreements and from time to time the Partnership may enter into other terminal service agreements for the purpose of providing terminal services to related parties. Individually, each of these agreements is immaterial but when considered in the aggregate they could be deemed material. These agreements are throughput based with a minimum volume commitment. Generally, the fees due under these agreements are adjusted annually based on a price index. Marine Agreements Marine Transportation Agreement . The Partnership is a party to a marine transportation agreement effective January 1, 2006, as amended, under which the Partnership provides marine transportation services to Martin Resource Management Corporation on a spot-contract basis at applicable market rates. Effective each January 1, this agreement automatically renews for consecutive one year periods unless either party terminates the agreement by giving written notice to the other party at least 60 days prior to the expiration of the then applicable term. The fees the Partnership charges Martin Resource Management Corporation are based on applicable market rates. Marine Fuel. The Partnership is a party to an agreement with Martin Resource Management Corporation dated November 1, 2002, under which Martin Resource Management Corporation provides the Partnership with marine fuel from its locations in the Gulf of Mexico at a fixed rate in excess of the Platt's U.S. Gulf Coast Index for #2 Fuel Oil. Under this agreement, the Partnership agreed to purchase all of its marine fuel requirements that occur in the areas serviced by Martin Resource Management Corporation. Other Agreements Cross Tolling Agreement. The Partnership is a party to an amended and restated tolling agreement with Cross Oil Refining and Marketing, Inc. ("Cross") dated October 20, 2021, under which the Partnership processes crude oil into finished products, including naphthenic lubricants, distillates, asphalt and other intermediate cuts for Cross. The tolling agreement 96 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) expires November 25, 2031. Under this tolling agreement, Cross agreed to process a minimum of 6,500 barrels per day of crude oil at the facility at a fixed price per barrel. Any additional barrels are processed at a modified price per barrel. In addition, Cross agreed to pay a monthly reservation fee and a periodic fuel surcharge fee based on certain parameters specified in the tolling agreement. Further, certain capital improvements, to the extent requested by Cross, are reimbursed through a capital recovery fee. As of December 31, 2019, the annual capital recovery fee reimbursement of $ 2,088 expired. An additional $ 2,586 of capital recovery fee reimbursement expired on December 31, 2020. All of these fees (other than the fuel surcharge) are subject to escalation annually based upon two-thirds of any increase in the Consumer Price Index for a specified annual period. In no event shall the fees charged under the agreement ever decrease below the amounts which existed as of October 20, 2021. Also, the Partnership renegotiated a crude transportation contract set to expire in the first half of 2022 resulting in a reduction in revenue of $ 2,145 annually beginning January 1, 2020. East Texas Mack Leases. MTI leases equipment, including tractors and trailers, from East Texas Mack Sales ("East Texas Mack"). Certain of our directors or officers are owners of East Texas Mack, including entities affiliated with Ruben Martin, who owns approximately 46 % of the issued and outstanding stock of East Texas Mack. Amounts paid to East Texas Mack for tractor and trailer lease payments and lease residuals for the fiscal years ended December 31, 2021, 2020 and 2019 were approximately $ 1,089 , $ 650 , and $ 875 , respectively. Other Miscellaneous Agreements. From time to time the Partnership enters into other miscellaneous agreements with Martin Resource Management Corporation for the provision of other services or the purchase of other goods. The tables below summarize the related party transactions that are included in the related financial statement captions on the face of the Partnership’s Consolidated Statements of Operations. The revenues, costs and expenses reflected in these tables are tabulations of the related party transactions that are recorded in the corresponding caption of the Consolidated Statements of Operations and do not reflect a statement of profits and losses for related party transactions. The impact of related party revenues from sales of products and services is reflected in the Consolidated Statements of Operations as follows: Revenues: 2021 2020 2019 Terminalling and storage $ 62,677 $ 63,823 $ 71,733 Transportation 20,046 21,997 24,243 Product sales: Sulfur services 109 60 54 Terminalling and storage 370 257 877 479 317 931 $ 83,202 $ 86,137 $ 96,907 The impact of related party cost of products sold is reflected in the Consolidated Statements of Operations as follows: Cost of products sold: Sulfur services $ 9,980 $ 10,519 $ 10,765 Terminalling and storage 27,866 18,429 23,859 $ 37,846 $ 28,948 $ 34,624 The impact of related party operating expenses is reflected in the Consolidated Statements of Operations as follows: Operating expenses: Transportation $ 55,382 $ 55,786 $ 61,376 Natural gas liquids 2,038 2,003 3,446 Sulfur services 4,411 4,489 4,810 Terminalling and storage 16,776 17,797 18,562 $ 78,607 $ 80,075 $ 88,194 97 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) The impact of related party selling, general and administrative expenses is reflected in the Consolidated Statements of Operations as follows: Selling, general and administrative: Transportation $ 6,996 $ 7,358 $ 7,107 Natural gas liquids 4,590 2,397 2,804 Sulfur services 3,276 3,080 2,850 Terminalling and storage 3,370 3,403 3,083 Indirect overhead allocation, net of reimbursement 14,692 16,648 16,778 $ 32,924 $ 32,886 $ 32,622 NOTE 14. SUPPLEMENTAL BALANCE SHEET INFORMATION Components of "Intangibles and other assets, net" at December 31, 2021 and 2020 were as follows: 2021 2020 Catalyst and turnaround costs $ 687 $ 803 Other intangible assets 358 586 Other 1,153 1,416 $ 2,198 $ 2,805 Other intangible assets consist of technology-based assets. Amortization expense, included in "Depreciation and amortization" on the Partnership's Consolidated Statements of Operations includes amortization of intangible assets, turnaround expenses, and deferred charges. Aggregate amortization expense included in continuing operations was $ 4,085 , $ 5,235 , and $ 5,797 , for the years ended December 31, 2021, 2020 and 2019, respectively. Estimated amortization expense for the years subsequent to December 31, 2021 are as follows: 2022 - $ 4,403 ; 2023 - $ 661 ; 2024 - $ 266 ; 2025 - $ 84 ; 2026 - $ 1 ; subsequent years - $ 0 . 98 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Components of "Other accrued liabilities" at December 31, 2021 and 2020 were as follows: 2021 2020 Accrued interest $ 15,135 $ 16,104 Asset retirement obligations 261 1,692 Property and other taxes payable 4,631 4,869 Accrued payroll 2,973 3,244 Operating lease liabilities 6,600 7,529 Other 250 969 $ 29,850 $ 34,407 The schedule below summarizes the changes in our asset retirement obligations: Year Ended December 31, 2021 2020 (In thousands) Beginning asset retirement obligations $ 8,759 $ 8,936 Revisions to existing liabilities 1 — 918 Accretion expense 375 410 Liabilities settled ( 62 ) ( 1,505 ) Ending asset retirement obligations 9,072 8,759 Current portion of asset retirement obligations 2 ( 261 ) ( 1,692 ) Long-term portion of asset retirement obligations 3 $ 8,811 $ 7,067 1 Several factors are considered in the annual review process, including inflation rates, current estimates for removal cost, discount rates, and the estimated remaining useful life of the assets. 2 The current portion of asset retirement obligations is included in "Other current liabilities" on the Partnership's Consolidated Balance Sheets. 3 The non-current portion of asset retirement obligations is included in "Other long-term obligations" on the Partnership's Consolidated Balance Sheets. 99 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 15. LONG-TERM DEBT At December 31, 2021 and 2020, long-term debt consisted of the following: 2021 2020 $ 275,000 1 Credit facility at variable interest rate ( 5.00 % 1 weighted average at December 31, 2021), due August 2023 4 secured by substantially all of the Partnership’s assets, including, without limitation, inventory, accounts receivable, vessels, equipment, fixed assets and the interests in the Partnership’s operating subsidiaries, net of unamortized debt issuance costs of $ 2,613 and $ 3,826 , respectively 2 $ 156,887 $ 144,174 $ 400,000 Senior notes, 7.25 % interest, net of unamortized debt issuance costs of $ 0 and $ — respectively, including unamortized premium of $ 0 and $ 344 , respectively, issued $ 250,000 February 2013 and $ 150,000 April 2014, $ 26,200 repurchased during 2015, $ 9,344 repurchased during 2020, and $ 335,666 refinanced as part of the August 2020 Exchange offer, $ 28,790 repaid at maturity in February 2021, unsecured 2,3,4,5 — 28,790 $ 53,750 Senior notes, due February 2024, 10.0 % interest, net of unamortized debt issuance costs of $ 2,433 and $ 3,577 , respectively 2,3 $ 51,317 $ 50,173 $ 291,970 Senior notes, due February 2025, 11.5 % interest, net of unamortized debt issuance costs of $ 1,303 and $ 1,720 , respectively 2,3 $ 290,667 $ 290,250 Total 498,871 513,387 Less: current portion — ( 28,790 ) Total long-term debt, net of current portion $ 498,871 $ 484,597 Current installments of finance lease obligations $ 280 $ 2,707 Finance lease obligations 9 289 Total finance lease obligations $ 289 $ 2,996 1 Interest rate fluctuates based on LIBOR plus an applicable margin set on the date of each advance. The margin above LIBOR is set every three months. All amounts outstanding at December 31, 2021 were at LIBOR plus an applicable margin of 4.00 %, with LIBOR having a floor of 1.00 %. The applicable margin for revolving loans that are LIBOR loans currently ranges from 2.75 % to 4.00 % and the applicable margin for revolving loans that are base prime rate loans ranges from 1.75 % to 3.00 %. The credit facility contains various covenants which limit the Partnership’s ability to make distributions; make certain investments and acquisitions; enter into certain agreements; incur indebtedness; sell assets; and make certain amendments to the Partnership's omnibus agreement with Martin Resource Management Corporation (the "Omnibus Agreement"). The credit facility was amended July 16, 2021 to, among other things, reduce the commitments thereunder from $ 300,000 to $ 275,000 . 2 The Partnership was in compliance with all debt covenants as of December 31, 2021. 3 The indentures for each of the outstanding senior notes restrict the Partnership’s ability to sell assets; pay distributions or repurchase units or redeem or repurchase subordinated debt; make investments; incur or guarantee additional indebtedness or issue preferred units; and consolidate, merge or transfer all or substantially all of its assets. 4 On February 15, 2021, our 2021 Notes matured and we retired the outstanding balance of $ 28,790 using proceeds from our credit facility. 5 In March 2020, the Partnership repurchased on the open market an aggregate $ 9,344 of the 2021 Notes, resulting in a gain on retirement of $ 3,484 . The Partnership paid cash interest, net of capitalized interest, in the amount of $ 51,708 , $ 37,678 , and $ 48,025 for the years ended December 31, 2021, 2020 and 2019, respectively. Capitalized interest was $ 0 , $ 43 , and $ 5 for the years ended December 31, 2021, 2020 and 2019, respectively. 100 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 16. PARTNERS' CAPITAL (DEFICIT) As of December 31, 2021, partners’ capital consisted of 38,802,750 common limited partner units, representing a 98 % partnership interest, and a 2 % general partner interest. Martin Resource Management Corporation, through subsidiaries, owned 6,114,532 of the Partnership's common limited partnership units representing approximately 15.8 % of the Partnership's outstanding common limited partnership units. MMGP, the Partnership's general partner, owns the 2 % general partnership interest. The Partnership Agreement contains specific provisions for the allocation of net income and losses to each of the partners for purposes of maintaining their respective partner capital accounts. Impact on Partners' Capital (Deficit) Related to Transactions Between Entities Under Common Control Under ASC 805, assets and liabilities transferred between entities under common control are accounted for at the historical cost of those entities' ultimate parent, in a manner similar to a pooling of interests. Any difference in the amount paid by the transferee versus the historical cost of the assets transferred is recorded as an adjustment to equity (contribution or distribution) by the transferee. This is in contrast with a business combination between unrelated parties, where assets and liabilities are recorded at their fair values at the acquisition date, with any excess of amounts paid over the fair value representing goodwill. From time to time, the most recent being in 2019, the Partnership has entered into common control acquisitions from Martin Resource Management Corporation. The consideration transferred totaling $ 552,123 exceeds the historical cost of the net assets received. This excess of the purchase price over the historical cost of the net assets received has resulted in cumulative distributions of $ 289,084 reflected as reductions to Partners' capital. Incentive Distribution Rights MMGP holds a 2 % general partner interest and, until November 23, 2021, MMGP held certain incentive distribution rights ("IDRs") in the Partnership. IDRs are a separate class of non-voting limited partner interest that may be transferred or sold by the general partner under the terms of the Partnership Agreement, and represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution and any cumulative arrearages on common units once certain target distribution levels have been achieved. On November 23, 2021, MMGP contributed to the Partnership all of the outstanding IDRs for no consideration, whereupon the IDRs were cancelled and cease to exist (the “IDR Elimination”). Until the IDR Elimination, the Partnership was required to distribute all of its available cash from operating surplus, as previously defined in the Partnership Agreement. For the years ended December 31, 2021, 2020 and 2019, the general partner was allocated no incentive distributions. Distributions of Available Cash The Partnership distributes all of its available cash (as defined in the Partnership Agreement) within 45 days after the end of each quarter to unitholders of record and to the general partner. Available cash is generally defined as all cash and cash equivalents of the Partnership on hand at the end of each quarter less the amount of cash reserves its general partner determines in its reasonable discretion is necessary or appropriate to: (i) provide for the proper conduct of the Partnership’s business; (ii) comply with applicable law, any debt instruments or other agreements; or (iii) provide funds for distributions to unitholders and the general partner for any one or more of the next four quarters, plus all cash on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Net Income per Unit The Partnership follows the provisions of the FASB ASC 260-10 related to earnings per share, which addresses the application of the two-class method in determining income per unit for master limited partnerships having multiple classes of securities that may participate in partnership distributions accounted for as equity distributions. Undistributed earnings are allocated to the general partner and limited partners utilizing the contractual terms of the Partnership Agreement. Distributions to the general partner pursuant to the IDRs are limited to available cash that will be distributed as defined in the Partnership Agreement. Accordingly, the Partnership does not allocate undistributed earnings to the general partner for the IDRs because the general partner's share of available cash is the maximum amount that the general partner would be contractually entitled to receive if all earnings for the period were distributed. When current period distributions are in excess of earnings, the excess 101 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) distributions for the period are to be allocated to the general partner and limited partners based on their respective sharing of losses specified in the Partnership Agreement. Additionally, as required under FASB ASC 260-10-45-61A, unvested share-based payments that entitle employees to receive non-forfeitable distributions are considered participating securities, as defined in FASB ASC 260-10-20, for earnings per unit calculations. For purposes of computing diluted net income per unit, the Partnership uses the more dilutive of the two-class and if-converted methods. Under the if-converted method, the weighted-average number of subordinated units outstanding for the period is added to the weighted-average number of common units outstanding for purposes of computing basic net income per unit and the resulting amount is compared to the diluted net income per unit computed using the two-class method. The following is a reconciliation of net income from continuing operations and net income from discontinued operations allocated to the general partner and limited partners for purposes of calculating net income attributable to limited partners per unit: Years Ended December 31, 2021 2020 2019 Continuing operations: Income (loss) from continuing operations $ ( 211 ) $ ( 6,771 ) $ 4,520 Less general partner’s interest in net income (loss): Distributions payable on behalf of IDRs — — — Distributions payable on behalf of general partner interest 16 61 ( 20 ) General partner interest in undistributed income (loss) ( 20 ) ( 196 ) 111 Less income (loss) allocable to unvested restricted units — ( 21 ) ( 1 ) Limited partners’ interest in net income (loss) $ ( 207 ) $ ( 6,615 ) $ 4,430 Years Ended December 31, 2021 2020 2019 Discontinued operations: Loss from discontinued operations $ — $ — $ ( 179,466 ) Less general partner’s interest in net income (loss): Distributions payable on behalf of IDRs — — — Distributions payable on behalf of general partner interest — — 806 General partner interest in undistributed loss — — ( 4,396 ) Less income allocable to unvested restricted units — — 42 Limited partners’ interest in net loss $ — $ — $ ( 175,918 ) The Partnership allocates the general partner's share of earnings between continuing and discontinued operations as a proportion of net income (loss) from continuing and discontinued operations to total net income (loss). The following are the unit amounts used to compute the basic and diluted earnings per limited partner unit for the periods presented: Years Ended December 31, 2021 2020 2019 Basic weighted average limited partner units outstanding 38,689,041 38,656,559 38,658,881 Dilutive effect of restricted units issued — — — Total weighted average limited partner diluted units outstanding 38,689,041 38,656,559 38,658,881 All outstanding units were included in the computation of diluted earnings per unit and weighted based on the number of days such units were outstanding during the period presented. All common unit equivalents were antidilutive for the years ended December 31, 2021, 2020 and 2019 because the limited partners were allocated a net loss in this period. 102 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) NOTE 17. UNIT BASED AWARDS - LONG-TERM INCENTIVE PLANS The Partnership recognizes compensation cost related to unit-based awards to both employees and non-employees in its consolidated financial statements in accordance with certain provisions of ASC 718. Amounts recognized in operating expense and selling, general, and administrative expense in the consolidated financial statements with respect to these plans are as follows: For the Year Ended December 31, 2021 2020 2019 Restricted unit awards Employees $ 194 $ 1,204 $ 1,226 Non-employee directors 190 — — Phantom unit Awards Employees 415 — — Non-employee directors — 218 198 Total unit-based compensation expense $ 799 $ 1,422 $ 1,424 Long-Term Incentive Plans The Partnership's general partner has long-term incentive plans for employees and directors of the general partner and its affiliates who perform services for the Partnership. Phantom Unit Plan On July 21, 2021, the board of directors of the general partner of the Partnership and the compensation committee of the general partner’s board of directors (the "Compensation Committee") approved the Martin Midstream Partners L.P. 2021 Phantom Unit Plan (the “Plan”), effective as of the same date. The Plan permits the awards of phantom units and phantom unit appreciation rights (collectively, "phantom unit awards") to any employee or non-employee director of the Partnership, including its executive officers. The awards may be time-based or performance-based and will be paid, if at all, in cash. The award of a phantom unit entitles the participant to a cash payment equal to the value of the phantom unit on the vesting date or dates, which value is the fair market value of a common unit of the Partnership (a “Unit”) on such vesting date or dates. The award of a phantom unit appreciation right entitles the recipient to a cash payment equal to the difference between the value of a phantom unit on the vesting date or dates in excess of the value assigned by the Compensation Committee to the phantom unit as of the grant date. Phantom units and phantom unit appreciation rights granted to participants do not confer upon participants any right to a Unit. On July 21, 2021, the Compensation Committee approved forms of time-based award agreements for phantom units and phantom unit appreciation rights, both of which awards vest in full on the third anniversary of the grant date. The grant date value of a phantom unit under a phantom unit appreciation right award is equal to the average of the closing price for a Unit during the 20 trading days immediately preceding the grant date of the award. Generally, vesting of an award is subject to a participant remaining continuously employed with the Partnership through the vesting date. However, if prior to the vesting date (i) a participant is terminated without cause (as defined in the award agreement) or terminates employment after the participant has attained both the age of 65 and ten years of employment (“retirement-eligible”), a prorated portion of the award will vest and be paid in cash no later than the 30 th day following such termination date (subject to a six-month delay in payment for certain retirement-eligible participants) or (ii) there is a change in control of the Partnership (as defined in the Plan), the award will vest in full and be paid in cash no later than the 30 th day following the date of the change of control; provided, that the participant has been in continuous employment through the termination or change in control date, as applicable. On July 21, 2021, 620,000 phantom units and 1,245,000 phantom unit appreciation rights were granted to employees of the general partner and its affiliates who perform services for the Partnership. 103 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Phantom unit awards are recorded in operating expense and selling, general and administrative expense based on the fair value of the vested portion of the awards on the balance sheet date. The fair value of these awards is updated at each balance sheet date and changes in the fair value of the vested portions of the awards are recorded as increases or decreases to compensation expense within operating expense and selling, general and administrative expense in the Consolidated Statements of Operations. All of the Partnership's outstanding phantom unit awards at December 31, 2021 met the criteria to be treated under liability classification in accordance with ASC 718, given that these awards will settle in cash on the vesting date. Compensation expense for the phantom awards is based on the fair value of the units as of the balance sheet date as further discussed below, and such costs are recognized ratably over the service period of the awards. As the fair value of liability awards is required to be re-measured each period end, stock compensation expense amounts recognized in future periods for these awards will vary. The estimated future cash payments of these awards are presented as liabilities within "Other current liabilities" and "Other long-term obligations" in the Consolidated Balance Sheets. As of December 31, 2021, there was a total of $ 1,233 of unrecognized compensation costs related to non-vested phantom unit awards. These costs are expected to be recognized over a remaining life of 2.56 years. The fair value of the phantom unit awards was estimated using a Monte Carlo valuation model as of the balance sheet date. The Monte Carlo valuation model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Partnership’s common units as well as set of peer companies. Restricted Unit Plan On May 26, 2017, the unitholders of the Partnership approved the Martin Midstream Partners L.P. 2017 Restricted Unit Plan (the “2017 LTIP”). The 2017 LTIP currently permits the grant of awards covering an aggregate of 3,000,000 common units, all of which can be awarded in the form of restricted units. The 2017 LTIP is administered by the Compensation Committee. A restricted unit is a unit that is granted to grantees with certain vesting restrictions, which may be time-based and/or performance-based. Once these restrictions lapse, the grantee is entitled to full ownership of the unit without restrictions. The Compensation Committee may determine to make grants under the 2017 LTIP containing such terms as the Compensation Committee shall determine under the 2017 LTIP. With respect to time-based restricted units ("TBRUs"), the Compensation Committee will determine the time period over which restricted units granted to employees and directors will vest. The Compensation Committee may also award a percentage of restricted units with vesting requirements based upon the achievement of specified pre-established performance targets ("PBRUs"). The performance targets may include, but are not limited to, the following: revenue and income measures, cash flow measures, net income before interest expense and income tax expense ("EBIT"), net income before interest expense, income tax expense, and depreciation and amortization ("EBITDA"), distribution coverage metrics, expense measures, liquidity measures, market measures, corporate sustainability metrics, and other measures related to acquisitions, dispositions, operational objectives and succession planning objectives. PBRUs are earned only upon our achievement of an objective performance measure for the performance period. PBRUs which vest are payable in common units. Unvested units granted under the 2017 LTIP may or may not participate in cash distributions depending on the terms of each individual award agreement. The restricted units issued to directors generally vest in equal annual installments over a four-year period. On February 22, 2021, the Partnership issued 14,056 TBRUs to each of the Partnership's three independent directors under the 2017 LTIP. These restricted common units vest in equal installments of 3,514 units on January 24, 2022, 2023, 2024, and 2025. On March 1, 2018, the Partnership issued 301,550 TBRUs and 317,925 PBRUs to certain employees of Martin Resource Management Corporation. The TBRUs vested in equal installments over a three-year service period. The PBRUs would have vested at the conclusion of a three-year performance period based on certain performance targets. In addition, the PBRUs awarded on March 1, 2018 would have only vested if the grantee was employed by Martin Resource Management Corporation on March 31, 2021. However, the performance conditions related to the PBRUs awarded on March 1, 2018 were 104 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) not achieved and the Partnership treated these units as forfeited at expiration on March 31, 2021. As such, the Partnership did not recognize compensation expense related to these units. The restricted units are valued at their fair value at the date of grant, which is equal to the market value of common units on such date. A summary of the restricted unit activity for the year ended December 31, 2021 is provided below: Number of Units Weighted Average Grant-Date Fair Value Per Unit Non-vested, beginning of year 273,424 $ 10.52 Granted (TBRU) 42,168 $ 2.49 Vested ( 117,280 ) $ 11.96 Forfeited ( 83,436 ) $ 13.90 Non-Vested, end of year 114,876 $ 3.65 Aggregate intrinsic value, end of year $ 306 A summary of the restricted units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) during the years ended December 31, 2021, 2020 and 2019 is provided below: For the Year Ended December 31, 2021 2020 2019 Aggregate intrinsic value of units vested $ 257 $ 151 $ 1,351 Fair value of units vested $ 1,418 $ 1,427 $ 1,551 As of December 31, 2021, there was $ 248 of unrecognized compensation cost related to non-vested time-based restricted units. That cost is expected to be recognized over a weighted-average period of 2.12 years. NOTE 18. INCOME TAXES The components of income tax expense (benefit) from operations for the years ended December 31, 2021, 2020 and 2019 are as follows: 2021 2020 2019 Current: Federal $ 455 $ ( 174 ) $ 174 State 493 741 366 948 567 540 Deferred: Federal 2,142 1,027 882 State 290 142 478 2,432 1,169 1,360 Total income tax expense $ 3,380 $ 1,736 $ 1,900 The operations of a partnership are generally not subject to income taxes, except for Texas margin tax, because its income is taxed directly to its partners. The Texas margin tax is considered a state income tax and is included in income tax expense on the Consolidated Statements of Operations. Since the tax base on the Texas margin tax is derived from an income-based measure, the margin tax is construed as income tax, and therefore, the recognition of deferred taxes applies to the margin tax. The impact on deferred taxes as a result of this provision is immaterial. State income taxes attributable to the Texas margin tax relating to the operation of the Partnership of $ 300 , $ 468 and $ 458 were recorded in income tax expense for the years ended December 31, 2021, 2020 and 2019, respectively. 105 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) MTI, a wholly owned subsidiary of the Partnership, is subject to income taxes due to its corporate structure (“Taxable Subsidiary”). Prior to the acquisition of MTI on January 2, 2019, MTI was a QSub of Martin Resource Management Corporation, a qualifying S Corporation. A QSub is not treated as a separate corporation for federal income tax purposes as it is deemed liquidated into its S Corporation parent. S Corporations are generally not subject to income taxes because income and losses flow through to shareholders and are reported on their individual returns. The principal component of the difference between the expected state tax expense and actual state tax expense relates to taxes incurred in states that do not recognize S corporation status. Subsequent to the acquisition, the QSub election terminated resulting in MTI being taxed as a stand-alone C Corporation. Total income tax expense relating to the operation of the Taxable Subsidiary of $ 3,080 and $ 1,268 was recorded in income tax expense for the years ended December 31, 2021 and 2020, respectively. The income tax expense from the Taxable Subsidiary operations for the years ended December 31, 2021 and 2020 differs from the "expected" tax expense (computed by applying the federal corporate rate of 21% to income before income taxes of the Taxable Subsidiary) as follows: 2021 2020 "Expected" tax expense $ 2,223 $ 361 Increase in income taxes resulting from: State income taxes, net of federal income tax expense 382 327 Other non-deductible items 384 472 Other, net 91 108 Actual tax expense $ 3,080 $ 1,268 Cash paid for income taxes was $ 1,232 , $ 416 and $ 515 for the years ended December 31, 2021, 2020 and 2019, respectively. Deferred taxes are the result of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Significant components of deferred tax assets and liabilities at December 31, 2021 and 2020 are as follows: 2021 2020 Deferred tax assets: Bad debt reserves $ 26 $ 59 Goodwill and intangibles 12,523 13,893 Employee benefits 57 244 Interest expense — — Tax loss carryforwards 10,676 12,671 Other 129 251 Subtotal 23,411 27,118 Less: Valuation allowance — — Total net deferred tax assets 23,411 27,118 Deferred tax liabilities: Property and equipment ( 3,590 ) ( 4,861 ) Operating leases — ( 4 ) Other — — Total deferred tax liabilities ( 3,590 ) ( 4,865 ) Net deferred tax assets $ 19,821 $ 22,253 Deferred tax assets are regularly reviewed for recoverability and a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets 106 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) is dependent upon future taxable income during the periods in which those temporary differences become deductible. In assessing the need for a valuation allowance, management considers all available positive and negative evidence, including the ability to carryback operating losses to prior periods and the expected future utilization of net operating loss carryforwards, the reversal of deferred tax liabilities, projected taxable income, and tax-planning strategies. On the basis of these considerations, as of December 31, 2021, management believes it is more likely than not that the Taxable Subsidiary will realize the benefit of the existing deferred tax assets. Federal income taxes refundable related to the operation of the Taxable Subsidiary of $ 70 and $ 0 for the years ended December 31, 2021 and 2020, respectively, are included in “Other current assets”."Income taxes payable" includes a state income tax liability related to the operation of the Partnership of $ 304 and $ 455 for the years ended December 31, 2021 and 2020, respectively. Also included in "Income taxes payable" are state income tax liabilities related to the operation of the Taxable Subsidiary of $ 81 and $ 101 for the years ended December 31, 2021 and 2020, respectively. At December 31, 2021, MTI had net operating loss carryforwards for income tax purposes of approximately $ 67,681 related to federal and state taxes. Of these net operating loss carryforwards, approximately $ 19,379 will expire between 2024 and 2041 and approximately $ 48,302 may be carried forward indefinitely. The operations of the Partnership are generally not subject to income taxes, except as discussed above, because its income is taxed directly to its partners. The net tax basis in the Partnership's assets and liabilities is greater (less) than the reported amounts on the financial statements by approximately $ 91,893 and $ 88,526 as of December 31, 2021 and 2020, respectively. As of December 31, 2021, the tax years that remain open to assessment are 2018-2020. NOTE 19. BUSINESS SEGMENTS The Partnership has four reportable segments: terminalling and storage, natural gas liquids, transportation, and sulfur services. The Partnership’s reportable segments are strategic business units that offer different products and services. The operating income of these segments is reviewed by the chief operating decision maker to assess performance and make business decisions. The accounting policies of the operating segments are the same as those described in Note 2. The Partnership evaluates the performance of its reportable segments based on operating income. There is no allocation of interest expense. 107 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Operating Revenues Intersegment Eliminations Operating Revenues After Eliminations Depreciation and Amortization Operating Income (Loss) after Eliminations Capital Expenditures and Plant Turnaround Costs Year Ended December 31, 2021: Terminalling and storage $ 185,629 $ ( 6,597 ) $ 179,032 $ 28,210 $ 10,785 $ 9,582 Natural gas liquids 414,043 — 414,043 2,390 38,098 537 Sulfur services 145,042 — 145,042 10,432 32,972 7,813 Transportation 161,180 ( 16,866 ) 144,314 15,719 ( 8,446 ) 4,997 Indirect selling, general, and administrative — — — — ( 16,129 ) — Total $ 905,894 $ ( 23,463 ) $ 882,431 $ 56,751 $ 57,280 $ 22,929 Year Ended December 31, 2020: Terminalling and storage $ 191,041 $ ( 6,877 ) $ 184,164 $ 29,489 $ 22,153 $ 11,619 Natural gas liquids 247,484 ( 5 ) 247,479 2,456 22,104 395 Sulfur services 108,020 ( 13 ) 108,007 12,012 36,256 7,415 Transportation 150,285 ( 17,793 ) 132,492 17,505 ( 16,102 ) 7,348 Indirect selling, general, and administrative — — — — ( 17,909 ) — Total $ 696,830 $ ( 24,688 ) $ 672,142 $ 61,462 $ 46,502 $ 26,777 Year Ended December 31, 2019: Terminalling and storage $ 216,313 $ ( 6,659 ) $ 209,654 $ 30,952 $ 16,732 $ 12,987 Natural gas liquids 366,502 — 366,502 2,469 44,020 1,870 Sulfur services 111,340 — 111,340 11,332 22,721 14,853 Transportation 183,740 ( 24,118 ) 159,622 15,307 ( 7,388 ) 8,213 Indirect selling, general, and administrative — — — — ( 17,981 ) — Total $ 877,895 $ ( 30,777 ) $ 847,118 $ 60,060 $ 58,104 $ 37,923 Revenues from one customer in the Natural Gas Liquids segment was $ 140,324 , $ 74,722 and $ 112,280 for the years ended December 31, 2021, 2020 and 2019, respectively. The Partnership's assets by reportable segment as of December 31, 2021 and 2020 are as follows: 2021 2020 Total assets: Terminalling and storage $ 248,194 $ 252,794 Natural gas liquids 78,483 80,737 Sulfur services 108,007 94,154 Transportation 145,177 151,953 Total assets $ 579,861 $ 579,638 NOTE 20. COMMITMENTS AND CONTINGENCIES 108 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) Contingencies From time to time, the Partnership is subject to various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Partnership. On December 31, 2015, the Partnership received a demand from a customer in its lubricants packaging business for defense and indemnity in connection with various lawsuits filed against it, which generally alleged that the customer engaged in unlawful and deceptive business practices in connection with its marketing and advertising of its private label motor oil (the “Marketing Lawsuits”). The Partnership disputed and continues to dispute that it has any obligation to defend or indemnify the customer for the customer’s conduct. Accordingly, on January 7, 2016, the Partnership filed a Complaint for Declaratory Judgment in the Chancery Court of Davidson County, Tennessee (the “Tennessee Court”), under Case No. 16-0018-BC, requesting a judicial determination that the Partnership did not owe the customer the demanded defense and indemnity obligations (the “Declaratory Judgment Action”). The Marketing Lawsuits pending in federal court against the customer were transferred to the U.S. District Court for the Western District of Missouri under the consolidated case MDL No. 2709 for pretrial proceedings (the “Consolidated Lawsuits”). On March 1, 2017, at the joint request of the customer and the Partnership, the Tennessee Court administratively closed the Declaratory Judgment Action. Recently, the customer settled the Consolidated Lawsuits. On December 17, 2021, at the request of the customer, the Tennessee Court reopened the Declaratory Judgment Action and the customer asserted various counterclaims against the Partnership seeking, among other things, to recover its costs of defending and settling the Consolidated Lawsuits. At this time, we are unable to determine what ultimate exposure we may have in this matter, if any. The Partnership intends to vigorously defend the counterclaims asserted by the customer in the Declaratory Judgment Action. NOTE 21. CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Partnership's operations are conducted by its operating subsidiaries as it has no independent assets or operations. Martin Operating Partnership L.P. (the "Operating Partnership"), the Partnership’s wholly-owned subsidiary, and the Partnership's other operating subsidiaries have issued in the past, and may issue in the future, unconditional guarantees of senior or subordinated debt securities of the Partnership. The guarantees that have been issued are full, irrevocable and unconditional and joint and several. In addition, the Operating Partnership may also issue senior or subordinated debt securities which, if issued, will be fully, irrevocably and unconditionally guaranteed by the Partnership. Substantially all of the Partnership's operating subsidiaries are subsidiary guarantors of its outstanding senior notes and any subsidiaries other than the subsidiary guarantors are minor. NOTE 22. SUBSEQUENT EVENTS Quarterly Distribution. On January 25, 2022, the Partnership 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. 109 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.