MARTIN MIDSTREAM PARTNERS L.P. 10-Q

Item 1. Financial Statements MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED AND CONDENSED BALANCE SHEETS (Dollars in thousands) June 30, 2023 December 31, 2022 (Unaudited) (Audited) Assets Cash $ 57 $ 45 Accounts and other receivables, less allowance for doubtful accounts of $ 496 and $ 496 , respectively 57,022 79,641 Inventories 50,865 109,798 Due from affiliates 2,356 8,010 Other current assets 6,926 13,633 Total current assets 117,226 211,127 Property, plant and equipment, at cost 902,605 903,535 Accumulated depreciation ( 593,324 ) ( 584,245 ) Property, plant and equipment, net 309,281 319,290 Goodwill 16,671 16,671 Right-of-use assets 45,221 34,963 Deferred income taxes, net 12,519 14,386 Other assets, net 1,899 2,414 Total assets $ 502,817 $ 598,851 Liabilities and Partners’ Capital (Deficit) Current installments of long-term debt and finance lease obligations $ — $ 9 Trade and other accounts payable 48,469 68,198 Product exchange payables 310 32 Due to affiliates 2,306 8,947 Income taxes payable 450 665 Other accrued liabilities 37,249 33,074 Total current liabilities 88,784 110,925 Long-term debt, net 436,481 512,871 Operating lease liabilities 33,827 26,268 Other long-term obligations 7,482 8,232 Total liabilities 566,574 658,296 Commitments and contingencies Partners’ capital (deficit) ( 63,757 ) ( 59,445 ) Total partners’ capital (deficit) ( 63,757 ) ( 59,445 ) Total liabilities and partners' capital (deficit) $ 502,817 $ 598,851 See accompanying notes to consolidated and condensed financial statements. 4 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (Dollars and units in thousands, except per unit amounts) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Revenues: Terminalling and storage * $ 21,684 $ 20,423 $ 42,542 $ 39,820 Transportation * 54,750 55,832 110,473 102,542 Sulfur services 3,357 3,084 6,715 6,168 Product sales: * Specialty products 78,872 133,788 211,141 287,759 Sulfur services 36,973 53,869 69,294 109,908 115,845 187,657 280,435 397,667 Total revenues 195,636 266,996 440,165 546,197 Costs and expenses: Cost of products sold: (excluding depreciation and amortization) Specialty products * 71,570 119,859 189,565 253,651 Sulfur services * 25,654 37,063 47,471 74,848 Terminalling and storage * 25 4 31 9 97,249 156,926 237,067 328,508 Expenses: Operating expenses * 60,737 64,082 123,482 120,577 Selling, general and administrative * 8,447 9,944 19,619 21,147 Depreciation and amortization 12,547 14,800 25,448 29,286 Total costs and expenses 178,980 245,752 405,616 499,518 Other operating income (loss), net 673 246 285 260 Operating income (loss) 17,329 21,490 34,834 46,939 Other income (expense): Interest expense, net ( 15,263 ) ( 12,846 ) ( 30,920 ) ( 25,275 ) Loss on extinguishment of debt — — ( 5,121 ) — Other, net 11 ( 1 ) 33 ( 2 ) Total other expense ( 15,252 ) ( 12,847 ) ( 36,008 ) ( 25,277 ) Net income (loss) before taxes 2,077 8,643 ( 1,174 ) 21,662 Income tax expense ( 996 ) ( 2,037 ) ( 2,831 ) ( 3,578 ) Net income (loss) 1,081 6,606 ( 4,005 ) 18,084 Less general partner's interest in net (income) loss ( 22 ) ( 132 ) 80 ( 362 ) Less (income) loss allocable to unvested restricted units ( 4 ) ( 21 ) 12 ( 51 ) Limited partners' interest in net income (loss) $ 1,055 $ 6,453 $ ( 3,913 ) $ 17,671 Net income (loss) per unit attributable to limited partners - basic $ 0.03 $ 0.17 $ ( 0.10 ) $ 0.46 Net income (loss) per unit attributable to limited partners - diluted $ 0.03 $ 0.17 $ ( 0.10 ) $ 0.46 Weighted average limited partner units - basic 38,772,266 38,729,118 38,771,037 38,725,701 Weighted average limited partner units - diluted 38,777,600 38,750,153 38,771,037 38,753,197 See accompanying notes to consolidated and condensed financial statements. *Related Party Transactions Shown Below 5 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (Dollars and units in thousands, except per unit amounts) * Related Party Transactions Included Above Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Revenues:* Terminalling and storage $ 18,077 $ 17,416 $ 35,579 $ 33,620 Transportation 7,277 7,463 12,788 13,751 Product Sales 7,497 96 8,422 423 Costs and expenses:* Cost of products sold: (excluding depreciation and amortization) Specialty products 5,829 10,205 15,339 19,851 Sulfur services 2,644 2,592 5,352 5,268 Terminalling and storage 25 4 31 9 Expenses: Operating expenses 25,058 23,447 48,885 44,826 Selling, general and administrative 6,556 7,498 15,072 16,306 See accompanying notes to consolidated and condensed financial statements. 6 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED AND CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Dollars and units in thousands, except per unit amounts) Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Net income (loss) $ 1,081 $ 6,606 $ ( 4,005 ) $ 18,084 Changes in fair values of commodity cash flow hedges — 167 — 167 Commodity cash flow hedging (gains) losses reclassified to earnings — 440 — ( 816 ) Comprehensive income (loss) $ 1,081 $ 7,213 $ ( 4,005 ) $ 17,435 See accompanying notes to consolidated and condensed financial statements. 7 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED AND CONDENSED STATEMENTS OF CAPITAL (DEFICIT) (Unaudited) (Dollars in thousands) Partners’ Capital (Deficit) Common Limited General Partner Amount Accumulated Other Comprehensive Income (Loss) Units Amount Total Balances - March 31, 2023 38,914,806 $ ( 66,236 ) $ 1,559 $ — $ ( 64,677 ) Net income — 1,059 22 — 1,081 Cash distributions — ( 195 ) ( 4 ) — ( 199 ) Unit-based compensation — 38 — — 38 Balances - June 30, 2023 38,914,806 ( 65,334 ) 1,577 — $ ( 63,757 ) Balances - December 31, 2022 38,850,750 $ ( 61,110 ) $ 1,665 $ — $ ( 59,445 ) Net loss — ( 3,925 ) ( 80 ) — ( 4,005 ) Issuance of restricted units 64,056 — — — — Cash distributions — ( 389 ) ( 8 ) — ( 397 ) Unit-based compensation — 90 — — 90 Balances - June 30, 2023 38,914,806 $ ( 65,334 ) $ 1,577 $ — $ ( 63,757 ) 8 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED AND CONDENSED STATEMENTS OF CAPITAL (DEFICIT) (Unaudited) (Dollars in thousands) Partners’ Capital (Deficit) Common Limited General Partner Amount Accumulated Other Comprehensive Income (Loss) Units Amount Total Balances - March 31, 2022 38,836,950 $ ( 39,652 ) $ 2,113 $ ( 440 ) $ ( 37,979 ) Net income — 6,473 133 — 6,606 Issuance of restricted units 13,800 — — — — Cash distributions — ( 194 ) ( 4 ) — ( 198 ) Unit-based compensation — 45 — — 45 Excess purchase price over carrying value of acquired assets — 65 — — 65 Loss reclassified from AOCI into income on commodity cash flow hedges — — — 440 440 Gain recognized in AOCI on commodity cash flow hedges — — — 167 167 Balances - June 30, 2022 38,850,750 $ ( 33,263 ) $ 2,242 $ 167 $ ( 30,854 ) Balances - December 31, 2021 38,802,750 $ ( 50,741 ) $ 1,888 $ 816 $ ( 48,037 ) Net income — 17,722 362 — 18,084 Issuance of restricted units 48,000 — — — — Cash distributions — ( 388 ) ( 8 ) — ( 396 ) Unit-based compensation — 79 — — 79 Excess purchase price over carrying value of acquired assets — 65 — — 65 Gain reclassified from AOCI into income on commodity cash flow hedges — — — ( 816 ) ( 816 ) Gain recognized in AOCI on commodity cash flow hedges — — — 167 167 Balances - June 30, 2022 38,850,750 $ ( 33,263 ) $ 2,242 $ 167 $ ( 30,854 ) See accompanying notes to consolidated and condensed financial statements. 9 MARTIN MIDSTREAM PARTNERS L.P. CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ ( 4,005 ) $ 18,084 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 25,448 29,286 Amortization of deferred debt issuance costs 2,435 1,568 Amortization of debt discount 1,000 — Deferred income tax expense 1,867 2,304 Gain on sale of property, plant and equipment, net ( 285 ) ( 260 ) Loss on extinguishment of debt 5,121 — Derivative income — ( 734 ) Net cash paid for commodity derivatives — 85 Non cash unit-based compensation 90 79 Change in current assets and liabilities, excluding effects of acquisitions and dispositions: Accounts and other receivables 22,619 10,714 Inventories 58,933 ( 55,725 ) Due from affiliates 5,654 ( 2,149 ) Other current assets 5,296 ( 17,741 ) Trade and other accounts payable ( 19,459 ) 37,688 Product exchange payables 278 ( 869 ) Due to affiliates ( 6,641 ) 7,940 Income taxes payable ( 215 ) 368 Other accrued liabilities 1,907 ( 2,332 ) Change in other non-current assets and liabilities ( 1,269 ) 145 Net cash provided by operating activities 98,774 28,451 Cash flows from investing activities: Payments for property, plant and equipment ( 17,024 ) ( 14,634 ) Payments for plant turnaround costs ( 661 ) ( 1,600 ) Proceeds from sale of property, plant and equipment 4,275 689 Net cash used in investing activities ( 13,410 ) ( 15,545 ) Cash flows from financing activities: Payments of long-term debt ( 519,197 ) ( 217,589 ) Payments under finance lease obligations ( 9 ) ( 119 ) Proceeds from long-term debt 448,489 206,500 Payment of debt issuance costs ( 14,238 ) ( 26 ) Excess purchase price over carrying value of acquired assets — ( 1,285 ) Cash distributions paid ( 397 ) ( 396 ) Net cash used in financing activities ( 85,352 ) ( 12,915 ) Net increase (decrease) in cash 12 ( 9 ) Cash at beginning of period 45 52 Cash at end of period $ 57 $ 43 Non-cash additions to property, plant and equipment $ 1,679 $ 1,705 See accompanying notes to consolidated and condensed financial statements. 10 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION 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 United States ("U.S."). Its four primary business lines include: terminalling, processing, and storage 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 marketing, distribution, and transportation services for natural gas liquids and blending and packaging services for specialty lubricants and grease. The Partnership’s unaudited consolidated and condensed financial statements have been prepared in accordance with the requirements of Form 10-Q and U.S. Generally Accepted Accounting Principles ("U.S. GAAP") for interim financial reporting. Accordingly, these financial statements have been condensed and do not include all of the information and footnotes required by U.S. GAAP for annual audited financial statements of the type contained in the Partnership’s annual reports on Form 10-K. 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 financial position, results of operations, and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. Results for such interim periods are not necessarily indicative of the results of operations for the full year. These financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023. 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 and condensed financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS There were no new accounting pronouncements applicable to the Partnership during the six months ended June 30, 2023. NOTE 3. EXIT OF BUTANE OPTIMIZATION BUSINESS During the second quarter of 2023, the Partnership completed its previously announced exit of its butane optimization business at the conclusion of the butane selling season. This exit did not qualify as discontinued operations in accordance with ASC 205. Going forward, with respect to butane, the Partnership will operate as a fee-based butane logistics business, primarily continuing to utilize its north Louisiana underground storage assets, which have both truck and rail capability. This logistics business will also utilize the Partnership's truck transportation assets for fee-based product movements. As a result of this new business model, the Partnership will no longer carry butane inventory, enabling the Partnership to reduce commodity risk exposure, cash flow and earnings volatility, and working capital requirements. The following revenues and costs, which are included in the financial results for all periods presented, are not expected to be incurred under the new fee-based butane logistics business model. The butane optimization business has historically been included in the Partnership's Specialty Products operating segment. Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Products revenue $ 13,650 $ 31,264 $ 70,539 $ 88,447 Cost of products sold 16,074 32,135 72,282 82,414 Selling, general and administrative expenses 140 71 512 1,281 $ ( 2,564 ) $ ( 942 ) $ ( 2,255 ) $ 4,752 11 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 4. REVENUE The following table disaggregates our revenue by major source: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Terminalling and storage segment Throughput and storage $ 21,684 $ 20,423 $ 42,542 $ 39,820 $ 21,684 $ 20,423 $ 42,542 $ 39,820 Transportation segment Land transportation $ 40,869 $ 42,980 $ 83,099 $ 78,485 Inland marine transportation 12,357 11,036 24,435 20,455 Offshore marine transportation 1,524 1,816 2,939 3,602 $ 54,750 $ 55,832 $ 110,473 $ 102,542 Sulfur services segment Sulfur product sales $ 7,462 $ 13,565 $ 13,738 $ 23,635 Fertilizer product sales 29,511 40,304 55,556 86,273 Sulfur services 3,357 3,084 6,715 6,168 $ 40,330 $ 56,953 $ 76,009 $ 116,076 Specialty products segment Natural gas liquids product sales $ 45,678 $ 97,318 $ 143,900 $ 217,724 Lubricant product sales 33,194 36,470 67,241 70,035 $ 78,872 $ 133,788 $ 211,141 $ 287,759 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 storage and throughput contracts at the Partnership's underground NGL storage facility, revenue is recognized based on the volume stored and moved through the facility 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. 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. Specialty Products Segment Natural Gas Liquids ("NGL") revenue is recognized when title is transferred, which is generally when the product is delivered by truck, rail, or pipeline to the Partnership's NGL customers or when the customer picks up the product from our 12 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) facilities. When lubricants are sold by truck or rail, revenue is recognized when title is transferred, which is generally 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. 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. 2023 2024 2025 2026 2027 Thereafter Total Terminalling and storage Throughput and storage $ 21,206 $ 43,571 $ 44,879 $ 46,164 $ 47,549 $ 204,927 $ 408,296 Specialty Products NGL product sales 2,915 5,798 5,782 3,358 — — 17,853 Sulfur services Sulfur product sales 9,398 18,796 18,796 4,391 295 — 51,676 Total $ 33,519 $ 68,165 $ 69,457 $ 53,913 $ 47,844 $ 204,927 $ 477,825 NOTE 5. INVENTORIES Components of inventories at June 30, 2023 and December 31, 2022 were as follows: June 30, 2023 December 31, 2022 Natural gas liquids $ 2,857 $ 52,462 Lubricants 22,810 28,190 Sulfur 1,049 1,541 Fertilizer 18,365 21,691 Other 5,784 5,914 $ 50,865 $ 109,798 13 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 6. DEBT At June 30, 2023 and December 31, 2022, long-term debt consisted of the following: June 30, 2023 December 31, 2022 $ 175,000 Credit facility at variable interest rate ( 8.85 % 1 weighted average at June 30, 2023), due February 2027 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 $ 3,772 and $ 1,086 , respectively 2,4 $ 56,728 $ 169,914 $ 400,000 Senior notes, 11.5 % interest, net of unamortized debt issuance costs of $ 9,247 and $ 0 , respectively, including unamortized premium of $ 11,000 and $ 0 , respectively, due February 2028, secured 2,3,4 379,753 — $ 53,750 Senior notes due February 2024, 10.0 % interest, net of unamortized debt issuance costs of $ 0 and $ 1,288 , respectively, secured 2,3 — 52,462 $ 291,381 Senior notes due February 2025, 11.5 % interest, net of unamortized debt issuance costs of $ 0 and $ 886 , respectively, secured 2,3 — 290,495 Total 436,481 512,871 Less: current portion — — Total long-term debt, net of current portion $ 436,481 $ 512,871 Current installments of finance lease obligations $ — $ 9 Finance lease obligations — — Total finance lease obligations $ — $ 9 1 Effective February 8, 2023, the interest rate fluctuates based on Adjusted Term SOFR (set on the date of each advance) or the alternate base rate plus an applicable margin. The margin is set every three months. All amounts outstanding at June 30, 2023 were at Adjusted Term SOFR plus an applicable margin. The applicable margin for revolving loans that are SOFR loans currently ranges from 2.75 % to 3.75 %, and the applicable margin for revolving loans that are alternate base rate loans currently ranges from 1.75 % to 2.75 %. The applicable margin for SOFR borrowings at June 30, 2023 is 3.50 %. The applicable margin for SOFR borrowings effective July 19, 2023 remains 3.50 %. The credit facility contains various covenants that 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"). 2 The Partnership was in compliance with all debt covenants as of June 30, 2023 and December 31, 2022, respectively. 3 On February 8, 2023, the Partnership completed the sale of $ 400,000 in aggregate principal amount of 11.500 % senior secured second lien notes due 2028 (the “2028 Notes”). The Partnership used the proceeds of the 2028 Notes to repurchase, through a tender offer and then redemption, all of the Partnership’s 10.00 % senior secured 1.5 lien notes due 2024 (the “2024 Notes”) and 11.50 % senior secured second lien notes due 2025 (the “2025 Notes”), repay a portion of the indebtedness under the credit facility, and pay fees and expenses in connection with the foregoing. The indenture for the 2028 Notes restricts 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 Effective February 8, 2023, in connection with the completion of our sale of the 2028 Notes, we amended our credit facility to, among other things, reduce the commitments thereunder from $ 275,000 to $ 200,000 (with further scheduled reductions to $ 175,000 on June 30, 2023 and $ 150,000 on June 30, 2024) and extend the scheduled maturity date of the amended credit facility to February 8, 2027. In conjunction with the issuance of the 2028 Notes, the Partnership recognized a loss on extinguishment of debt of $ 5,121 comprised of $ 2,827 in tender premium, $ 2,044 of unamortized debt costs and $ 250 in other expense. 14 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) The Partnership paid cash interest in the amount of $ 2,632 and $ 2,258 for the three months ended June 30, 2023 and 2022, respectively. Capitalized interest was $ 8 and $ 0 for the three months ended June 30, 2023 and 2022, respectively. The Partnership paid cash interest in the amount of $ 24,808 and $ 24,109 for the six months ended June 30, 2023 and 2022, respectively. Capitalized interest was $ 11 and $ 0 for the six months ended June 30, 2023 and 2022, respectively. NOTE 7. 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 Right-of-Use 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. Our leases have remaining lease terms of 1 year to 14 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 Par tnership will exercise the option. The components of lease expense for the three and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Operating lease cost $ 3,604 $ 2,540 $ 6,791 $ 4,811 Finance lease cost: Amortization of right-of-use assets $ 2 $ 25 $ 6 50 Interest on lease liabilities — 3 — 7 Short-term lease cost 1,368 2,887 3,075 5,505 Variable lease cost 39 41 94 84 Total lease cost $ 5,013 $ 5,496 $ 9,966 $ 10,457 Supplemental balance sheet information related to leases at June 30, 2023 and December 31, 2022 was as follows: 15 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) June 30, 2023 December 31, 2022 Operating Leases Operating lease right-of-use assets $ 45,221 $ 34,963 Current portion of operating lease liabilities included in "Other accrued liabilities" $ 11,649 $ 9,084 Operating lease liabilities $ 33,827 26,268 Total operating lease liabilities $ 45,476 $ 35,352 Finance Leases Property, plant and equipment, at cost $ 54 $ 83 Accumulated depreciation $ ( 33 ) ( 44 ) Property, plant and equipment, net $ 21 $ 39 Current installments of finance lease obligations $ — $ 9 Finance lease obligations $ — $ — Total finance lease obligations $ — $ 9 The Partnership’s future minimum lease obligations as of June 30, 2023 consist of the following: Operating Leases Finance Leases Year 1 $ 15,438 $ — Year 2 13,072 — Year 3 11,330 — Year 4 8,565 — Year 5 5,188 — Thereafter 6,312 — Total $ 59,905 $ — Less amounts representing interest costs ( 14,429 ) — Total lease liability $ 45,476 $ — 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 June 30, 2023 are as follows: 2023 - $ 12,432 ; 2024 - $ 17,842 ; 2025 - $ 15,696 ; 2026 - $ 11,741 ; 2027 - $ 11,552 ; subsequent years - $ 29,620 . 16 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 8. SUPPLEMENTAL BALANCE SHEET INFORMATION Components of "Other accrued liabilities" were as follows: June 30, 2023 December 31, 2022 Accrued interest $ 18,392 $ 15,131 Asset retirement obligations — 298 Property and other taxes payable 3,546 4,562 Accrued payroll 3,357 3,504 Operating lease liabilities 11,649 9,084 Other 305 495 $ 37,249 $ 33,074 The schedule below summarizes the changes in our asset retirement obligations: June 30, 2023 Asset retirement obligations as of December 31, 2022 $ 4,992 Additions to asset retirement obligations — Accretion expense 127 Liabilities settled — Ending asset retirement obligations 5,119 Current portion of asset retirement obligations 1 — Long-term portion of asset retirement obligations 2 $ 5,119 1 The current portion of asset retirement obligations is included in "Other accrued liabilities" on the Partnership's Consolidated and Condensed Balance Sheets. 2 The non-current portion of asset retirement obligations is included in "Other long-term obligations" on the Partnership's Consolidated and Condensed Balance Sheets. 17 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 9. 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 of occurring, 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 June 30, 2023 and December 31, 2022, there were no outstanding derivatives. 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 gain (loss) recognized in AOCI at June 30, 2023 and December 31, 2022, respectively, and the gain (loss) reclassified from accumulated other comprehensive loss into earnings during the three months ended June 30, 2023 and 2022, respectively, for derivative financial instruments designated as cash flow hedges: 18 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) 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 2023 2022 2023 2022 Commodity contracts $ — $ 167 Cost of products sold $ — $ ( 440 ) Total $ — $ 167 $ — $ ( 440 ) The following table summarizes the gain (loss) recognized in AOCI at June 30, 2023 and December 31, 2022, respectively, and the gain (loss) reclassified from accumulated other comprehensive loss into earnings during the six months ended June 30, 2023 and 2022, respectively, 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 2023 2022 2023 2022 Commodity contracts $ — $ 167 Cost of products sold $ — $ 816 Total $ — $ 167 $ — $ 816 NOTE 10. PARTNERS' CAPITAL (DEFICIT) As of June 30, 2023, Partners’ capital (deficit) consisted of 38,914,806 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 partner units representing approximately 15.7 % of the Partnership's outstanding common limited partner units. Martin Midstream GP LLC ("MMGP"), the Partnership's general partner, owns the 2 % general partnership interest. The partnership agreement of the Partnership (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 $ 552,058 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 $ 289,019 reflected as reductions to Partners' capital. 19 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) 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. When current period distributions are in excess of earnings, the excess distributions for the period are to be allocated to the general partner and limited partners based on their respective sharing of income and 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 allocated to the general partner and limited partners for purposes of calculating net income attributable to limited partners per unit: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Net income (loss) $ 1,081 $ 6,606 $ ( 4,005 ) $ 18,084 Less general partner’s interest in net income (loss): Distributions payable on behalf of general partner interest 4 4 8 8 General partner interest in undistributed income (loss) 18 128 ( 88 ) 354 Less income (loss) allocable to unvested restricted units 4 21 ( 12 ) 51 Limited partners’ interest in net income (loss) $ 1,055 $ 6,453 $ ( 3,913 ) $ 17,671 The following are the unit amounts used to compute the basic and diluted earnings per limited partner unit for the periods presented: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Basic weighted average limited partner units outstanding 38,772,266 38,729,118 38,771,037 38,725,701 Dilutive effect of restricted units issued 5,334 21,035 — 27,496 Total weighted average limited partner diluted units outstanding 38,777,600 38,750,153 38,771,037 38,753,197 20 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) 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 periods presented. All common unit equivalents were antidilutive for the six months ended June 30, 2023 because the limited partners were allocated a net loss in this period. NOTE 11. 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 and condensed financial statements in accordance with certain provisions of ASC 718. Amounts recognized in operating expense and selling, general, and administrative expense in the consolidated and condensed financial statements with respect to these plans are as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Restricted unit Awards Employees $ — $ — $ — $ — Non-employee directors 38 45 90 79 Phantom unit Awards Employees ( 1,574 ) 1,077 ( 1,175 ) 1,981 Non-employee directors — — — — Total unit-based compensation expense $ ( 1,536 ) $ 1,122 $ ( 1,085 ) $ 2,060 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 21 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) 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. On April 20, 2022, the board of directors of the general partner of the Partnership and the Compensation Committee approved the First Amendment to the Plan, effective as of the same date, which amendment increased the total number of phantom units available for grant under the Plan from 2,000,000 units to 5,000,000 units. On April 20, 2022, 365,000 phantom units and 1,097,500 phantom unit appreciation rights were granted to employees of the general partner and its affiliates who perform services for the Partnership. 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 and Condensed Statements of Operations. All of the Partnership's outstanding phantom unit awards at June 30, 2023 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 and Condensed Balance Sheets. As of June 30, 2023, there was a total of $ 1,988 of unrecognized compensation costs related to non-vested phantom unit awards. These costs are expected to be recognized over a remaining life of 1.57 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 ("Performance Based Restricted Units" or "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. 22 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) The restricted units issued to directors generally vest in equal annual installments over a four-year period. Restricted units issued to employees generally vest in equal annual installments over three years of service. All of the Partnership's outstanding restricted unit awards at June 30, 2023 met the criteria to be treated under equity classification. In February 2023, the Partnership issued 21,352 TBRUs to each of the Partnership's three independent directors under the 2017 LTIP. These restricted common units vest in equal installments of 5,338 units on January 24, 2024, 2025, 2026, and 2027. 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 six months ended June 30, 2023 is provided below: Number of Units Weighted Average Grant-Date Fair Value Per Unit Non-vested, beginning of period 124,362 $ 3.36 Granted (TBRU) 64,056 $ 2.81 Vested ( 45,878 ) $ 3.74 Forfeited — $ — Non-Vested, end of period 142,540 $ 2.99 Aggregate intrinsic value, end of period $ 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 three and six months ended June 30, 2023 and 2022 is provided below: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Aggregate intrinsic value of units vested $ — $ — $ 89 $ 92 Fair value of units vested — — 178 188 As of June 30, 2023, there was $ 358 of unrecognized compensation cost related to non-vested restricted units. That cost is expected to be recognized over a weighted-average period of 2.69 years. NOTE 12. RELATED PARTY TRANSACTIONS As of June 30, 2023, Martin Resource Management Corporation owns 6,114,532 of the Partnership’s common units representing approximately 15.7 % of the Partnership’s outstanding limited partner units. Martin Resource Management Corporation controls the Partnership's general partner by virtue of its 100 % voting interest in MMGP Holdings, LLC ("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 June 30, 2023 of approximately 15.7 % 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 and transactions: 23 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) 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. • 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 of the board of directors of the general partner of the Partnership (the "Conflicts Committee"); and 24 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) • 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, 2023, through December 31, 2023, the Conflicts Committee approved an annual reimbursement amount for indirect expenses of $ 13,982 . The Partnership reimbursed Martin Resource Management Corporation for $ 3,496 and $ 3,373 of indirect expenses for the three months ended June 30, 2023 and 2022, respectively. The Partnership reimbursed Martin Resource Management Corporation for $ 6,991 and $ 6,746 of indirect expenses for the six months ended June 30, 2023 and 2022, respectively. The Conflicts Committee 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. 25 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) Master Transportation Services Agreement Master Transportation Services Agreement. Martin Transport, Inc. ("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. 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. Terminal Services Agreements Diesel Fuel Terminal Services Agreement. Effective October 1, 2022, the Partnership entered into a third amended and restated terminalling services agreement under which it provides terminal services to Martin Energy Services LLC (“MES”), a wholly owned subsidiary of Martin Resource Management Corporation, for fuel distribution utilizing marine shore based terminals owned by the Partnership. This agreement amended the existing arrangement between the Partnership and MES by eliminating any minimum throughput volume requirements and increasing the per gallon throughput fee. The term of this agreement expires on December 31, 2023 but will continue on a year to year basis until terminated by either party by giving at least 90 days’ written notice prior to the end of any term. 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. 26 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) 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 28, 2014, under which the Partnership processes crude oil into finished products, including naphthenic lubricants, distillates, asphalt and other intermediate cuts for Cross. The tolling agreement 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. All of these fees (other than the fuel surcharge) are subject to escalation annually based upon the greater of 3 % or the increase in the Consumer Price Index for a specified annual perio d. 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 three months ended June 30, 2023 and 2022 were $ 785 and $ 453 , respectively. Amounts paid to East Texas Mack for tractor and trailer lease payments and lease residuals for the six months ended June 30, 2023 and 2022 were $ 1,409 and $ 763 , respectively. Consulting Services Agreement. Martin Operating Partnership L.P. (the “Operating Partnership”) is a party to a Consulting Services Agreement with Ruben S. Martin (the “Consulting Services Agreement”). Pursuant to the terms of the Consulting Services Agreement, Mr. Martin has agreed to provide business and strategic development support to the Operating Partnership, and the Operating Partnership has agreed to pay Mr. Martin $ 263 per year for such services, which amount was paid to Mr. Martin for each of the fiscal years ended December 31, 2022 and 2021. The Consulting Services Agreement expired on December 31, 2022. Storage and Services Agreement. The Partnership is a party to a storage and services agreement with Martin Butane, a division of Martin Product Sales LLC (a subsidiary of Martin Resource Management Corporation), dated May 1, 2023 under which the Partnership provides storage and other services for NGLs at the Partnership's Arcadia, Louisiana underground storage facility. The agreement expires on April 30, 2024, but will continue on a year to year basis until terminated by either party by giving at least 90 days’ written notice prior to the end of any term. 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 and Condensed 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 captions of the consolidated and condensed financial statements 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 and condensed financial statements as follows: 27 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues: Terminalling and storage $ 18,077 $ 17,416 $ 35,579 $ 33,620 Transportation 7,277 7,463 12,788 13,751 Product sales: Specialty products 7,417 56 8,289 354 Sulfur services 80 40 133 69 7,497 96 8,422 423 $ 32,851 $ 24,975 $ 56,789 $ 47,794 The impact of related party cost of products sold is reflected in the consolidated and condensed financial statements as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Cost of products sold: Specialty products $ 5,829 $ 10,205 $ 15,339 $ 19,851 Sulfur services 2,644 2,592 5,352 5,268 Terminalling and storage 25 4 31 9 $ 8,498 $ 12,801 $ 20,722 $ 25,128 The impact of related party operating expenses is reflected in the consolidated and condensed financial statements as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Operating expenses: Transportation $ 17,951 $ 16,471 $ 36,015 $ 31,734 Sulfur services 1,590 1,789 2,590 3,034 Terminalling and storage 5,517 5,187 10,280 10,058 $ 25,058 $ 23,447 $ 48,885 $ 44,826 The impact of related party selling, general and administrative expenses is reflected in the consolidated and condensed financial statements as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Selling, general and administrative: Transportation $ 1,939 $ 1,838 $ 4,202 $ 3,803 Specialty products 570 962 1,881 3,098 Sulfur services 439 999 1,520 1,995 Terminalling and storage ( 8 ) 201 228 462 Indirect, including overhead allocation 3,616 3,498 7,241 6,948 $ 6,556 $ 7,498 $ 15,072 $ 16,306 28 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 13. BUSINESS SEGMENTS The Partnership has four reportable segments: (1) terminalling and storage, (2) transportation, (3) sulfur services and (4) specialty products. 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. Effective January 1, 2023, the Partnership reorganized its Terminalling and Storage and Natural Gas Liquids operating segments. The underground NGL storage division of the Partnership's Natural Gas Liquids operating segment was moved to the Terminalling and Storage operating segment. Further, the Partnership's packaged lubricants and grease businesses were moved from the Terminalling and Storage operating segment to the Specialty Products operating segment (formerly named the Natural Gas Liquids segment). All prior period financial information has been revised to reflect these changes. In conjunction with the segment reorganization, the Partnership allocated $ 4,229 of goodwill from the Terminalling and Storage operating segment to the Specialty Products operating segment. The Partnership evaluates the performance of its reportable segments based on operating income. There is no allocation of interest expense. Three Months Ended June 30, 2023 Operating Revenues Intersegment Revenues Eliminations Operating Revenues after Eliminations Depreciation and Amortization Operating Income (Loss) after Eliminations Capital Expenditures and Plant Turnaround Costs Terminalling and storage $ 23,906 $ ( 2,222 ) $ 21,684 $ 5,195 $ 2,236 $ 3,324 Transportation 58,395 ( 3,645 ) 54,750 3,760 5,345 2,471 Sulfur services 40,330 — 40,330 2,756 8,493 3,660 Specialty products 78,898 ( 26 ) 78,872 836 5,149 340 Indirect selling, general and administrative — — — — ( 3,894 ) — Total $ 201,529 $ ( 5,893 ) $ 195,636 $ 12,547 $ 17,329 $ 9,795 Three Months Ended June 30, 2022 Operating Revenues Intersegment Revenues Eliminations Operating Revenues after Eliminations Depreciation and Amortization Operating Income (Loss) after Eliminations Capital Expenditures and Plant Turnaround Costs Terminalling and storage $ 23,622 $ ( 3,199 ) $ 20,423 $ 7,172 $ ( 3,276 ) $ 2,613 Transportation 60,902 ( 5,070 ) 55,832 3,590 6,154 933 Sulfur services 56,953 — 56,953 2,882 12,000 1,131 Specialty products 133,818 ( 30 ) 133,788 1,156 11,002 98 Indirect selling, general and administrative — — — — ( 4,390 ) — Total $ 275,295 $ ( 8,299 ) $ 266,996 $ 14,800 $ 21,490 $ 4,775 29 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) Six Months Ended June 30, 2023 Operating Revenues Intersegment Revenues Eliminations Operating Revenues after Eliminations Depreciation and Amortization Operating Income (Loss) after Eliminations Capital Expenditures and Plant Turnaround Costs Terminalling and storage $ 47,825 $ ( 5,283 ) $ 42,542 $ 10,794 $ 2,300 $ 7,109 Transportation 120,334 ( 9,861 ) 110,473 7,522 8,524 3,999 Sulfur services 76,009 — 76,009 5,433 15,897 5,708 Specialty products 211,175 ( 34 ) 211,141 1,699 16,205 599 Indirect selling, general and administrative — — — — ( 8,092 ) — Total $ 455,343 $ ( 15,178 ) $ 440,165 $ 25,448 $ 34,834 $ 17,415 Six Months Ended June 30, 2022 Operating Revenues Intersegment Revenues Eliminations Operating Revenues after Eliminations Depreciation and Amortization Operating Income (Loss) after Eliminations Capital Expenditures and Plant Turnaround Costs Terminalling and storage $ 45,993 $ ( 6,173 ) $ 39,820 $ 14,172 $ ( 6,333 ) $ 6,365 Transportation 112,799 ( 10,257 ) 102,542 7,163 7,943 4,514 Sulfur services 116,076 — 116,076 5,591 26,837 3,094 Specialty products 287,827 ( 68 ) 287,759 2,360 27,004 737 Indirect selling, general and administrative — — — — ( 8,512 ) — Total $ 562,695 $ ( 16,498 ) $ 546,197 $ 29,286 $ 46,939 $ 14,710 The Partnership's assets by reportable segment as of June 30, 2023 and December 31, 2022, are as follows: June 30, 2023 December 31, 2022 Total assets: Terminalling and storage $ 169,668 $ 184,537 Transportation 153,226 153,451 Sulfur services 103,196 110,688 Specialty products 76,727 150,175 Total assets $ 502,817 $ 598,851 NOTE 14. COMMITMENTS AND CONTINGENCIES 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 30 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) obligations (the “Litigation”). 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 Litigation. Recently, the customer settled the Consolidated Lawsuits. On December 17, 2021, at the request of the customer, the Tennessee Court reopened the Litigation 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 Litigation. The trial for the Litigation is expected to be held in the first quarter of 2025. NOTE 15. 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. 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 2024 Notes, 2025 and 2028 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. June 30, 2023 December 31, 2022 Carrying Value Fair Value Carrying Value Fair Value 2024 Notes $ — $ — $ 52,462 $ 54,081 2025 Notes $ — $ — $ 290,495 $ 290,689 2028 Notes $ 379,753 $ 387,392 $ — $ — Total $ 379,753 $ 387,392 $ 342,957 $ 344,770 NOTE 16. CONDENSED CONSOLIDATED FINANCIAL INFORMATION The Partnership's operations are conducted by its operating subsidiaries as it has no independent assets or operations. 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 Senior Notes and any subsidiaries other than the subsidiary guarantors are minor. 31 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 17. INCOME TAXES Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Provision for income taxes $ 996 $ 2,037 $ 2,831 $ 3,578 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. Current state income taxes attributable to the Texas margin tax relating to the operation of the Partnership of $ 80 and $ 80 were recorded in income tax expense for the three months ended June 30, 2023 and 2022, respectively. Current state income taxes attributable to the Texas margin tax relating to the operation of the Partnership of $ 200 and $ 256 were recorded in income tax expense for the six months ended June 30, 2023 and 2022, respectively. Deferred taxes applicable to the Texas margin tax relating to the operation of the Partnership are immaterial. MTI, a wholly owned subsidiary of the Partnership, is subject to income taxes due to its corporate structure (the "Taxable Subsidiary"). Total income tax expense of $ 916 and $ 1,957 , related to the operation of the Taxable Subsidiary, for the three months ended June 30, 2023 and 2022, resulted in an effective income tax rate ("ETR") of 26.60 % and 21.58 %, respectively. Total income tax expense of $ 2,631 and $ 3,322 , related to the operation of the Taxable Subsidiary, for the six months ended June 30, 2023 and 2022, resulted in an ETR of 25.16 % and 21.77 %, respectively. The increase in the ETR for the income taxes during the three and six months ended June 30, 2023 was primarily due to an increase in state income taxes as a result of full utilization of net operating losses in some states, compared to the same period in 2022. The decrease in the provision for income taxes for both the three and six months ended June 30, 2023, compared to the same period in 2022, was primarily due to a decrease in income before income taxes in the current period. A current federal income tax expense of $ 162 and $ 404 , related to the operation of the Taxable Subsidiary, was recorded for the three months ended June 30, 2023 and 2022, respectively. A current federal income tax expense of $ 487 and $ 723 , related to the operation of the Taxable Subsidiary, was recorded for the six months ended June 30, 2023 and 2022, respectively. A current state income tax expense of $ 64 and $ 170 , related to the operation of the Taxable Subsidiary, was recorded for the three months ended June 30, 2023 and 2022, respectively. A current state income tax expense of $ 277 and $ 295 , related to the operation of the Taxable Subsidiary, was recorded for the six months ended June 30, 2023 and 2022, respectively. With respect to MTI, income taxes are accounted for under the asset and liability method pursuant to the provisions of ASC 740 related to income taxes. 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which 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. A deferred tax expense related to the MTI temporary differences of $ 690 and $ 1,383 was recorded for the three months ended June 30, 2023 and 2022, respectively. A deferred tax expense related to the MTI temporary differences of $ 1,867 and $ 2,304 was recorded for the six months ended June 30, 2023 and 2022, respectively. A net deferred tax asset of $ 12,519 and $ 14,386 , related to the cumulative book and tax temporary differences, existed at June 30, 2023 and December 31, 2022, respectively. All income tax positions taken for all open years are more likely than not to be sustained based upon their technical merit under applicable tax laws. 32 MARTIN MIDSTREAM PARTNERS L.P. NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except where otherwise indicated) June 30, 2023 (Unaudited) NOTE 18. SUBSEQUENT EVENTS Quarterly Distribution. On July 19, 2023, the Partnership declared a quarterly cash distribution of $ 0.005 per common unit for the second quarter of 2023, or $ 0.020 per common unit on an annualized basis, which will be paid on August 14, 2023 to unitholders of record as of August 7, 2023. 33