UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

Mark One

þ		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 000-50056

MARTIN MIDSTREAM PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Delaware		05-0527861
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

4200 Stone Road Kilgore, Texas 75662
(Address of principal executive offices) (Zip Code)

903-983-6200
(Registrant’s telephone number, including area code)

Title of each class		Name of each exchange on which registered
Common Units representing		NASDAQ
limited partnership interests

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o      No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o       No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements the past 90 days.

Yes þ       No o

     Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes o      No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

     As of June 30, 2009, 13,688,152 common units were outstanding. The aggregate market value of the common units held by non-affiliates of the registrant as of such date approximated $190,489,698 based on the closing sale price on that date. There were 17,707,832 of the registrant’s common units and 889,444 of the registrant’s subordinated units outstanding as of March 4, 2010.

     DOCUMENTS INCORPORATED BY REFERENCE:            None.

 

 

EXPLANATORY NOTE

     Martin Midstream Partners L.P. (the “Partnership”) is filing this Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) to amend its annual report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the Securities and Exchange Commission on March 4, 2010, solely to correct certain typographical errors in the Financial Statements of Martin Midstream Partners L.P. for the year ended December 31, 2009. Specifically, the third paragraph of the Report of Independent Registered Public Accounting Firm on page 78 should read:

     “In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2009 and 2008 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.”

     Although this paragraph contained certain typographical errors, the remainder of Item 8 — Financial Statements and Supplementary Data was accurate. In all other respects, the Partnership’s annual report on Form 10-K filed on March 4, 2010 remains unchanged. This Amendment No. 1 is as of the date of the original filing date of the Partnership’s annual report on Form 10-K and the Partnership has not updated the disclosures contained therein to reflect any events that occurred at a later date.

TABLE OF CONTENTS

PART IV

Item 8. Financial Statements and Supplementary Data

SIGNATURES

Certifications of Chief Executive Officer Pursuant to Section 302

Certifications of Chief Financial Officer Pursuant to Section 302

Certification of Chief Executive Officer Pursuant to Section 906

Certification of Chief Financial Officer Pursuant to Section 906

EX-31.1

EX-31.2

EX-32.1

EX-32.2

Item 8. Financial Statements and Supplementary Data

The following financial statements of Martin Midstream Partners L.P. (Partnership):

		Page
Report of Independent Registered Public Accounting Firm			78
Report of Independent Registered Public Accounting Firm			79
Consolidated Balance Sheets as of December 31, 2009 and 2008			80
Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007			81
Consolidated Statements of Changes in Capital for the years ended December 31, 2009, 2008 and 2007			82
Consolidated Statements of Comprehensive Income for the years ended December 31, 2009, 2008 and 2007			83
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007			84
Notes to the Consolidated Financial Statements			85

Report of Independent Registered Public Accounting Firm

The Board of Directors

Martin Midstream GP LLC:

     We have audited the accompanying consolidated balance sheets of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in capital, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009. These financial statements are the responsibility of Martin Midstream’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2009 and 2008 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, 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), Martin Midstream Partners L.P. and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 4, 2010 expressed an unqualified opinion on the effectiveness of Martin Midstream Partners L.P. and subsidiaries’ internal control over financial reporting.

/s/ KPMG LLP

Shreveport, Louisiana

March 4, 2010

Report of Independent Registered Public Accounting Firm

The Board of Directors
Martin Midstream GP LLC:

     We have audited Martin Midstream Partners L.P. and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Martin Midstream’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 in Item 9A(b). Our responsibility is to express an opinion on Martin Midstream’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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.

     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.

     In our opinion, Martin Midstream Partners L.P. and subsidiaries maintained, in all respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework 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), the consolidated balance sheets of Martin Midstream Partners L.P. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in capital, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated March 4, 2010 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Shreveport, Louisiana
March 4, 2010

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS

		December 31,
		2009				2008 1
		(Dollars in thousands)
Assets
Cash		$	5,956			$	7,983
Accounts and other receivables, less allowance for doubtful accounts of $1,025 and $481, respectively			77,413				68,168
Product exchange receivables			4,132				6,924
Inventories			35,510				42,754
Due from affiliates			3,051				555
Fair value of derivatives			1,872				3,623
Other current assets			1,340				3,418
Total current assets			129,274				133,425
Property, plant and equipment, at cost			584,036				576,608
Accumulated depreciation			(162,121	)			(130,976	)
Property, plant and equipment, net			421,915				445,632
Goodwill			37,268				37,405
Investment in unconsolidated entities			80,582				79,843
Fair value of derivatives			—				1,469
Other assets, net			16,900				8,548
		$	685,939			$	706,322
Liabilities and Partners’ Capital
Current installments of lease obligations		$	111			$	—
Trade and other accounts payable			71,911				94,146
Product exchange payables			7,986				10,924
Due to affiliates			13,810				23,085
Income taxes payable			454				414
Fair value of derivatives			7,227				6,478
Other accrued liabilities			5,000				6,428
Total current liabilities			106,499				141,475
Long-term debt and capital leases, less current maturities			304,372				295,000
Deferred income taxes			8,628				17,499
Fair value of derivatives			—				4,302
Other long-term obligations			1,489				1,667
Total liabilities			420,988				459,943
Partners’ capital			267,027				251,314
Accumulated other comprehensive loss			(2,076	)			(4,935	)
Total partners’ capital			264,951				246,379
Commitments and contingencies
		$	685,939			$	706,322

See accompanying notes to consolidated financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2009 1				2008 1				2007 1
		(Dollars in thousands, except per unit amounts)
Revenues:
Terminalling and storage *		$	69,710			$	68,552			$	67,905
Marine transportation *			68,480				76,349				59,579
Product sales: *
Natural gas services			408,982				679,375				515,992
Sulfur services			79,629				371,949				131,326
Terminalling and storage			35,584				50,219				29,525
			524,195				1,101,543				676,843
Total revenues			662,385				1,246,444				804,327
Costs and expenses:
Cost of products sold: (excluding depreciation and amortization)
Natural gas services *			382,542				657,662				495,641
Sulfur services *			43,386				313,143				97,577
Terminalling and storage			31,331				42,721				25,471
			457,259				1,013,526				618,689
Expenses:
Operating expenses *			117,438				126,808				104,165
Selling, general and administrative *			19,775				19,062				13,918
Depreciation and amortization			39,506				34,893				26,323
Total costs and expenses			633,978				1,194,289				763,095
Other operating income			6,013				209				703
Operating income			34,420				52,364				41,935
Other income (expense):
Equity in earnings of unconsolidated entities			7,044				13,224				10,941
Interest expense			(18,995	)			(21,433	)			(15,125	)
Other, net			326				801				405
Total other income (expense)			(11,625	)			(7,408	)			(3,779	)
Net income before taxes			22,795				44,956				38,156
Income tax benefit (expense)			(592	)			(1,398	)			(5,595	)
Net income		$	22,203			$	43,558			$	32,561
General partner’s interest in net income2		$	3,249			$	3,301			$	1,564
Limited partners’ interest in net income2		$	17,179			$	39,509			$	23,375
Net income per limited partner unit — basic and diluted		$	1.17			$	2.72			$	1.67
Weighted average limited partner units — basic			14,680,807				14,529,826				14,018,799
Weighted average limited partner units — diluted			14,684,775				14,534,722				14,022,545

Revenues:
Terminalling and storage		$	19,998			$	18,362			$	11,816
Marine transportation			19,370				24,956				23,729
Product Sales			5,838				26,704				7,577
Costs and expenses:
Cost of products sold: (excluding depreciation and amortization)
Natural gas services			56,914				92,322				62,686
Sulfur services			12,583				13,282				13,992
Expenses:
Operating expenses			37,284				37,661				28,991
Selling, general and administrative			7,162				6,284				4,089

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
For the years ended December 31, 2009, 2008 and 2007

		Partners’ Capital																								Accumulated
														Subordinated												Comprehensive
		Parent Net				Common								Units				Amount				General Partner				Income
		Investment 1				Units				Amount				(Dollars in thousands)								Amount				Amount				Total
Balances — December 31, 2006		$	3,295				10,603,808			$	201,426				2,552,018			$	(6,224	)		$	3,201			$	122			$	201,820
Net Income			7,622				—				19,781				—				3,594				1,564				—				32,561
Follow-on public offering			—				1,380,000				55,933				—				—				—				—				55,933
General partner contribution			—				—				—				—				—				1,192				—				1,192
Conversion of subordinated units to common units			—				850,672				(3,243	)			(850,672	)			3,243				—				—				—
Unit-based compensation			—				3,000				46				—				—				—				—				46
Cash distributions ($2.60 per unit)			—				—				(29,423	)			—				(6,635	)			(1,845	)			—				(37,903	)
Commodity hedging gains reclassified to earnings			—				—				—				—				—				—				478				478
Adjustment in fair value of derivatives			—				—				—				—				—				—				(7,362	)			(7,362	)
Balances — December 31, 2007		$	10,917				12,837,480			$	244,520				1,701,346			$	(6,022	)		$	4,112			$	(6,762	)		$	246,765
Net Income			748				—				34,978				—				4,531				3,301				—				43,558
Cash distributions ($2.91 per unit)			—				—				(37,357	)			—				(4,951	)			(3,409	)			—				(45,717	)
Conversion of subordinated units to common units			—				850,672				(2,754	)			(850,672	)			2,754				—				—				—
Unit-based compensation			—				3,000				39				—				—				—				—				39
Purchase of treasury units			—				(3,000	)			(93	)			—				—				—				—				(93	)
Adjustment in fair value of derivatives			—				—				—				—				—				—				1,827				1,827
Balances — December 31, 2008		$	11,665				13,688,152			$	239,333				850,674			$	(3,688	)		$	4,004			$	(4,935	)		$	246,379
Net Income			1,664				—				16,310				—				980				3,249				—				22,203
General partner contribution			—				—				—				—				—				1,324				—				1,324
Units issued in connection with Cross acquisition							804,721				16,523				889,444				16,434				—				—				32,957
Recognition of beneficial conversion feature			—				—				(111	)			—				111				—				—				—
Issuance of common units			—				714,285				20,000				—				—				—				—				20,000
Cash distributions ($3.00 per unit)			—				—				(41,064	)			—				(2,552	)			(3,846	)			—				(47,462	)
Conversion of subordinated units to common units			—				850,674				(5,328	)			(850,674	)			5,328				—				—				—
Unit-based compensation			—				3,000				98				—				—				—				—				98
Purchase of treasury units			—				(3,000	)			(78	)			—				—				—				—				(78	)
Distributions to parent			(13,329	)			—				—				—				—				—				—				(13,329	)
Adjustment in fair value of derivatives			—				—				—				—				—				—				2,859				2,859
Balances — December 31, 2009		$	—				16,057,832			$	245,683				889,444			$	16,613			$	4,731			$	(2,076	)		$	264,951

See accompanying notes to consolidated financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)

		Year Ended December 31,
		20091				20081				20071
		(Dollars in thousands)
Net income		$	22,203			$	43,558			$	32,561
Changes in fair values of commodity cash flow hedges			14				4,219				(3,569	)
Commodity cash flow hedging (gains) losses reclassified to earnings			(2,646	)			3,043				478
Changes in fair value of interest rate cash flow hedges			(1,854	)			(5,435	)			(3,793	)
Interest rate cash flow hedging losses reclassified to earnings			7,345				—				—
Comprehensive income		$	25,062			$	45,385			$	25,677

See accompanying notes to consolidated financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		20091				20081				20071
		(Dollars in thousands)
Cash flows from operating activities:
Net income		$	22,203			$	43,558			$	32,561
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			39,506				34,895				26,322
Amortization of deferred debt issue costs			1,689				1,120				1,233
Deferred income taxes			294				2,442				680
Gain on disposition or sale of property, plant, and equipment			(4,996	)			(131	)			(484	)
Gain on involuntary conversion of property, plant, and equipment			(1,017	)			(65	)			—
Equity in earnings of unconsolidated entities			(7,044	)			(13,224	)			(10,941	)
Distributions from unconsolidated entities			650				500				1,523
Distribution in-kind from unconsolidated entities			5,826				9,725				9,337
Non-cash mark-to-market on derivatives			2,526				(2,327	)			3,904
Other			98				39				47
Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
Accounts and other receivables			(10,471	)			19,753				(26,992	)
Product exchange receivables			2,792				3,988				(3,422	)
Inventories			7,135				9,398				(18,651	)
Due from affiliates			1,560				1,770				(995	)
Other current assets			2,461				(992	)			(1,241	)
Trade and other accounts payable			(15,874	)			(14,904	)			46,119
Product exchange payables			(2,938	)			(13,629	)			9,817
Due to affiliates			4,133				5,966				(5,583	)
Income taxes payable			569				(453	)			(1,225	)
Other accrued liabilities			871				101				793
Change in other non-current assets and liabilities			(2,381	)			(1,190	)			(1,593	)
Net cash provided by operating activities			47,592				86,340				61,209
Cash flows from investing activities:
Payments for property, plant, and equipment			(35,846	)			(101,450	)			(85,359	)
Acquisitions, net of cash acquired			(327	)			(5,983	)			(41,271	)
Proceeds from sale of property, plant, and equipment			19,445				463				1,293
Insurance proceeds from involuntary conversion of property, plant and equipment			2,224				1,503				—
Return of investments from unconsolidated entities			877				1,225				1,952
Distributions from (contributions to) unconsolidated entities for operations			(1,048	)			(2,379	)			(6,910	)
Net cash used in investing activities			(14,675	)			(106,621	)			(130,295	)
Cash flows from financing activities:
Payments of long-term debt			(431,982	)			(257,191	)			(169,024	)
Proceeds from long-term debt			433,700				327,170				219,950
Net proceeds from follow on public offering			—				—				55,933
General partner contribution			1,324				—				1,192
Purchase of treasury units			(78	)			(93	)			—
Proceeds from issuance of common units			20,000				—				—
Payments of debt issuance costs			(10,446	)			(18	)			(252	)
Cash distributions paid			(47,462	)			(45,717	)			(37,903	)
Net cash provided by (used in) financing activities			(34,944	)			24,151				69,896
Net increase(decrease) in cash			(2,027	)			3,870				810
Cash at beginning of period			7,983				4,113				3,303
Cash at end of period		$	5,956			$	7,983			$	4,113
Supplemental schedule of non-cash investing and financing activities:
Purchase of assets under capital lease obligations		$	7,764			$	—			$	—
Issuance of common and subordinated units in connection with Cross acquisition		$	32,957			$	—			$	—

See accompanying notes to consolidated financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Dollars in Thousands)

(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 United Stated Gulf Coast region. Its four primary business lines include: terminalling and storage services for petroleum products and by-products, natural gas services, sulfur and sulfur-based products processing, manufacturing, marketing and distribution and marine transportation services for petroleum products and by-products.

          The petroleum products and by-products the Partnership collects, transports, stores and distributes are produced primarily by major and independent oil and gas companies who often turn to third parties, such as the Partnership, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, fertilizer manufacturers and other wholesale purchasers of these products. The Partnership operates primarily in the Gulf Coast region of the United States, which is a major hub for petroleum refining, natural gas gathering and processing and support services for the oil and gas exploration and production industry.

          The Partnership owns Prism Gas Systems I, L.P. (“Prism Gas”) which is engaged in the gathering, processing and marketing of natural gas and natural gas liquids, predominantly in Texas and northwest Louisiana. Prism Gas owns a 50% ownership interest in Waskom Gas Processing Company (“Waskom”), the Matagorda Offshore Gathering System (“Matagorda”), Panther Interstate Pipeline Energy LLC (“PIPE”), and Bosque County Pipeline (“BCP”) each accounted for under the equity method of accounting.

(2) SIGNIFICANT ACCOUNTING POLICIES

          (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 exist as of December 31, 2009 or 2008.

          The Partnership acquired the assets of Cross Oil Refining & Marketing Inc. (“Cross”) from Martin Resource Management (“Martin Resource Management”) in November 2009 as described in Note 5. The acquisition of the Cross assets was considered a transfer of net assets between entities under common control. The acquisition of the Cross assets and increase in partners capital for the common and subordinated units issued in November 2009 are recorded at amounts based on the historical carrying value of the Cross assets at that date, and the Partnership is required to revise its historical financial statements to include the activities of the Cross assets as of the date of common control. Martin Resource Management acquired Cross in November 2006; however, the activity for the period Cross was owned by Martin Resource Management during 2006 was not considered significant to the Partnership’s consolidated financial statements and has been excluded from the consolidated financial statements. The Partnership’s historical financial statements for 2007, 2008 and the period January 1, 2009 through November 24, 2009 have been revised to reflect the financial position, cash flows and results of operations attributable to the Cross assets as if the Partnership owned the Cross assets for these periods. Net income attributable to the Cross assets for periods prior to the Partnership’s acquisition of the assets is not allocated to the general and limited partners for purposes of calculating net income per limited partner unit. See Note (2)(o).

          (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

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Dollars in Thousands)

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.

          (c) Inventories

          Inventories are stated at the lower of cost or market. Cost is determined by using the first-in, first-out (FIFO) method for all inventories.

          (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, revenue is recognized upon delivering product to the customers as title to the product transfers when the customer physically receives the product.

          Natural gas services — Natural gas gathering and processing revenues are recognized when title passes or service is performed. NGL distribution revenue is recognized when product is delivered by truck to our NGL customers, which occurs when the customer physically receives the product. When product is sold in storage, or by pipeline, the Partnership recognizes NGL distribution revenue when the customer receives the product from either the storage facility or pipeline.

          Sulfur services — Revenues are recognized when the products are delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership based on specific contract terms at either the shipping or delivery point.

          Marine transportation — Revenue is recognized for contracted trips upon completion of the particular trip. For time charters, revenue is recognized based on a per day rate.

          (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. Investments in excess of the underlying net assets of equity method investees, specifically identifiable to property, plant and equipment, are amortized over the useful life of the related assets. Excess investment representing equity method goodwill is not amortized but is evaluated for impairment, annually. Under certain provisions of ASC 350-20, related to goodwill, this goodwill is not subject to amortization and is accounted for as a component of the investment. 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.

          The Partnership’s Prism Gas subsidiary owns an unconsolidated 50% interest in Waskom, Matagorda, and PIPE. As a result, these assets are accounted for by the equity method.

          (f) Property, Plant, and Equipment

          Owned property, plant, and equipment is stated at cost, less accumulated depreciation. Owned buildings and equipment are depreciated using straight-line method over the estimated lives of the respective assets.

          Equipment under capital leases is stated at the present value of minimum lease payments less accumulated amortization. Equipment under capital leases is amortized straight line over the estimated useful life of the asset.

          Routine maintenance and repairs are charged to operating 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.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Dollars in Thousands)

          (g) Goodwill and Other Intangible Assets

          Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with certain provisions of ASC 350-20. Intangible assets with estimated useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment under certain provisions of ASC 360-10 related to accounting for impairment or disposal of long-lived assets. Other intangible assets primarily consist of covenants not-to-compete and contracts obtained through business combinations and are being amortized over the life of the respective agreements.

          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 their reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support value of the goodwill.

          The Partnership performed the annual impairment tests as of September 30, 2009, September 30, 2008 and September 30, 2007, respectively. In performing such tests, it was determined that there were four “reporting units” which contained goodwill. These reporting units were in each of the four reporting segments: terminalling, natural gas services, marine transportation, and sulfur services. The estimated fair value of the reporting units with goodwill were developed using the guideline public company method, the guideline transaction method, and the discounted cash flow (“DCF”) method using observable market data where available. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, the Partnership would be required to perform the second step of the impairment test, as this is an indication that the reporting unit goodwill may be impaired. At September 30, 2009, 2008 and 2007 the estimated fair value of each of the four reporting units was in excess of its carrying value, which indicates no impairment existed.

          As a result of the deterioration in the overall stock market subsequent to September 30, 2008 and the decline in the Partnership’s unit price, the Partnership reviewed specific factors, as outlined under certain provisions of ASC 350-20, to determine if the Partnership had a trigging event that required it to test the goodwill for impairment as of December 31, 2008. These factors included whether there have been any significant fundamental changes since the annual impairment test to (i) the Partnership as a whole or to the reporting units, including regulatory changes, (ii) the level of operating cash flows, (iii) the expectation of future levels of operating cash flows, (iv) the executive management team, and (v) the carrying value of the other long-lived assets. While these factors did not indicate a triggering event occurred, the Partnership’s unit price fell to a point by December 31, 2008 that resulted in the total market capitalization being less than the partner’s equity. The Partnership determined this to be a triggering event requiring the Partnership to perform an impairment test as of December 31, 2008. As a result of the goodwill impairment test for each of the four reporting units as of December 31, 2008, no impairment was determined to exist.

          (h) Debt Issuance Costs

          In connection with the Partnership’s multi-bank credit facility, on November 10, 2005, it incurred debt issuance costs of $3,258. In connection with the amendment and expansion of the Partnership’s multi-bank credit facility on June 30, 2006, it incurred debt issuance costs of $372. In connection with the amendment and expansion of the Partnership’s multi-bank credit facility on December 28, 2007, it incurred debt issuance costs of $252. In connection with the amendment and expansion of the Partnership’s multi-bank credit facility in December, 2009, it incurred debt issuance costs of $10,383. Due to a reduction in the number of lenders under the Partnership’s multi-bank credit agreement, $495 of the existing debt issuance costs were determined not to have continuing benefit and were expensed during 2009. These debt issuance costs, along with the remaining unamortized deferred issuance costs relating to the line of credit facility as of November 10, 2005 which remain deferred, are amortized over the term of the revised debt arrangement.

          Amortization of debt issuance cost, which is included in interest expense for the years ended December 31, 2009, 2008 and 2007, totaled $1,689, $1,120, and $1,233, respectively, and accumulated amortization amounted to $105 and $5,445 at December 31, 2009 and 2008, respectively. The unamortized balance of debt issuance costs, classified as other assets amounted to $10,885 and $2,086 at December 31, 2009 and 2008, respectively.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Dollars in Thousands)

          (i) Impairment of Long-Lived Assets

          In accordance with ASC 360-10, long-lived assets, such as property, plant and equipment, 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 are no longer 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 has not identified any triggering events in 2009, 2008 or 2007 that would require an assessment for impairment of long-lived assets.

          (j) Asset Retirement Obligation

          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 (“ARO”) at fair value 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. The Partnership’s fixed assets include land, buildings, transportation equipment, storage equipment, marine vessels and operating equipment.

          The transportation equipment includes pipeline systems. The Partnership transports NGLs through the pipeline system and gathering system. The Partnership also gathers natural gas from wells owned by producers and delivers natural gas and NGLs on the Partnership’s pipeline systems, primarily in Texas and Louisiana to the fractionation facility of the Partnership’s 50% owned joint venture. The Partnership is obligated by contractual or regulatory requirements to remove certain facilities or perform other remediation upon retirement of the Partnership’s assets. However, the Partnership is not able to reasonably determine the fair value of the asset retirement obligations for the Partnership’s trunk and gathering pipelines and the Partnership’s surface facilities, since future dismantlement and removal dates are indeterminate. In order to determine a removal date of the Partnership’s gathering lines and related surface assets, reserve information regarding the production life of the specific field is required. As a transporter and gatherer of natural gas, the Partnership is not a producer of the field reserves, and the Partnership therefore does not have access to adequate forecasts that predict the timing of expected production for existing reserves on those fields in which the Partnership gathers natural gas. In the absence of such information, the Partnership is not able to make a reasonable estimate of when future dismantlement and removal dates of the Partnership’s gathering assets will occur. With regard to the Partnership’s trunk pipelines and their related surface assets, it is impossible to predict when demand for transportation of the related products will cease. The Partnership’s right-of-way agreements allow us to maintain the right-of-way rather than remove the pipe. In addition, the Partnership can evaluate the Partnership’s trunk pipelines for alternative uses, which can be and have been found. The Partnership will record such asset retirement obligations in the period in which more information becomes available for us to reasonably estimate the settlement dates of the retirement obligations.

          (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 on the balance sheet 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 being marked to market with all market value adjustments being recorded in the consolidated statements of operations. As of December 31, 2009, the Partnership has designated a portion of its derivative instruments as qualifying cash flow hedges. Fair value changes for these hedges have been recorded in accumulated other comprehensive income as a component of equity.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Dollars in Thousands)

          (l) Comprehensive Income

          Comprehensive income includes net income and other comprehensive income. Other comprehensive income for the partnership includes unrealized gains and losses on derivative financial instruments. In accordance ASC 815-10, the partnership records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedges as other comprehensive income.

          (m) Unit Grants

          In August 2009, the Partnership issued 1,000 restricted common units to each of its three independent, non-employee directors under its long-term incentive plan from treasury shares purchased by the Partnership in the open market for $77. These units vest in 25% increments beginning in January 2010 and will be fully vested in January 2013.

          In May 2008, the Partnership issued 1,000 restricted common units to each of its three independent, non-employee directors under its long-term incentive plan from treasury shares purchased by the Partnership in the open market for $93. These units vest in 25% increments beginning in January 2009 and will be fully vested in January 2012.

          In May 2007, the Partnership issued 1,000 restricted common units to each of its three independent, non-employee directors under its long-term incentive plan. These units vest in 25% increments beginning in January 2008 and will be fully vested in January 2011.

          In January 2006, the Partnership issued 1,000 restricted common units to each of its three independent, non-employee directors under its long-term incentive plan. These units vest in 25% increments on the anniversary of the grant date each year and will be fully vested in January 2010.

          The Partnership accounts for the transaction under certain provisions of FASB ASC 505-50-55 related to equity-based payments to non-employees. The cost resulting from the share-based payment transactions was $98, $39, and $46 for the years ended December 31, 2009, 2008 and 2007, respectively. The Partnership’s general partner contributed cash of $2 in May 2007 to the Partnership in conjunction with the issuance of these restricted units in order to maintain its 2% general partner interest in the Partnership.

          (n) Incentive Distribution Rights

          The Partnership’s general partner, Martin Midstream GP LLC, holds a 2% general partner interest and certain incentive distribution rights in the Partnership. Incentive distribution rights represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution, any cumulative arrearages on common units, and certain target distribution levels have been achieved. The Partnership is required to distribute all of its available cash from operating surplus, as defined in the partnership agreement. The target distribution levels entitle the general partner to receive 15% of quarterly cash distributions in excess of $0.55 per unit until all unit holders have received $0.625 per unit, 25% of quarterly cash distributions in excess of $0.625 per unit until all unit holders have received $0.75 per unit, and 50% of quarterly cash distributions in excess of $0.75 per unit. For the years ended December 31, 2009, 2008 and 2007, the general partner received $2,896, $2,495, and $1,087 in incentive distributions.

          (o) Net Income per Unit

          In March 2008, the FASB amended the provisions of 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. To the extent the partnership agreement does not explicitly limit distributions to the general partner, any earnings in excess of distributions are to be allocated to the general partner and limited partners utilizing the distribution formula for available cash specified in 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 losses specified in the partnership agreement. ASC 260-10 is to be

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Dollars in Thousands)

applied retrospectively for all financial statements presented and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.

          The Partnership adopted the amended provisions of ASC 260-10 on January 1, 2009. Adoption did not impact the Partnership’s computation of earnings per limited partner unit as cash distributions exceeded earnings for the years ended December 31, 2009, 2008 and 2007, respectively, and the IDRs do not share in losses under the partnership agreement. In the event the Partnership’s earnings exceed cash distributions, ASC 260-10 will have an impact on the computation of the Partnership’s earnings per limited partner unit. The Partnership agreement does not explicitly limit distributions to the general partner; therefore, any earnings in excess of distributions are to be allocated to the general partner and limited partners utilizing the distribution formula for available cash specified in the Partnership agreement. For years ended December 31, 2009, 2008 and 2007, the general partner’s interest in net income, including the IDRs, represents distributions declared after period end on behalf of the general partner interest and IDRs less the allocated excess of distributions over earnings for the periods.

          General and limited partner interest in net income includes only net income of the Cross assets since the date of acquisition. Accordingly, net income of the Partnership is adjusted to remove the net income attributable to the Cross assets prior to the date of acquisition and such income is allocated to the Parent. The recognition of the beneficial conversion feature for the period is considered a deemed distribution to the subordinated unit holders and reduces net income available to common limited partners in computing net income per unit.

          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 beneficial conversion feature is added back to net income available to common limited partners, 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 table reconciles net income to limited partners’ interest in net income:

		Years Ended December 31,
		2009				2008				2007
Net income attributable to Martin Midstream Partners L. P		$	22,203			$	43,558			$	32,561
Less pre-acquisition income allocated to Parent			1,664				748				7,622
Less general partner’s interest in net income:
Distributions payable on behalf of IDRs			2,896				2,495				1,087
Distributions payable on behalf of general partner interest			949				914				758
Distributions payable to the general partner interest in excess of earnings allocable to the general partner interest			(596	)			(108	)			(281	)
Less beneficial conversion feature			111				—				—
Limited partners’ interest in net income		$	17,179			$	39,509			$	23,375

          The weighted average units outstanding for basic net income per unit were 14,680,807, 14,529,826, and 14,018,799 for years ended December 31, 2009, 2008 and 2007, respectively. For diluted net income per unit, the weighted average units outstanding were increased by 3,968, 4,896 and 3,746 units for the years ended December 31, 2009, 2008 and 2007, respectively, due to the dilutive effect of restricted units granted under the Partnership’s long-term incentive plan.

          (p) Indirect Selling, General and Administrative Expenses

          Indirect selling, general and administrative expenses are incurred by Martin Resource Management Corporation (“Martin Resource Management”) and allocated to the Partnership to cover costs of centralized corporate functions such as accounting, treasury, engineering, information technology, risk management and other corporate services. Such expenses are based on the percentage of time spent by Martin Resource Management’s personnel that provide such centralized services. Under the omnibus agreement, we are required to reimburse Martin Resource Management for indirect general and administrative and corporate overhead expenses. The amount of this

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
(Dollars in Thousands)

reimbursement was capped at $2,000 through November 1, 2007 when the cap expired. For the years ended December 31, 2009, 2008 and 2007, the Conflicts Committee of our general partner approved reimbursement amounts of $3,542, $2,896, and $1,493, respectively, reflecting our allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.

          (q) 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.

          (r) 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.

          (s) 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 United States of America. Actual results could differ from those estimates.

          (t) Income Taxes

          With respect to the Partnership’s taxable subsidiary (Woodlawn Pipeline Co., Inc.) and the Cross assets prior to the date of acquisition (see Notes 2(a) and 5(b)), income taxes are accounted for under the asset and liability method. 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.

(3) FAIR VALUE MEASUREMENTS

          During the first quarter of 2008, the Partnership adopted certain provisions of ASC 820 related to fair value measurements and disclosures, which established a framework for measuring fair value and expanded disclosures about fair value measurements. The adoption of this guidance had no impact on the Partnership’s financial position or results of operations.

          ASC 820 applies to all assets and liabilities that are being measured and reported on a fair value basis. This statement enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value of each asset and liability carried at fair value into one of the following categories:

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 are not corroborated by market data.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

     The Partnership’s derivative instruments, which consist of commodity and interest rate swaps, are required to be measured at fair value on a recurring basis. The fair value of the Partnership’s derivative instruments is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets, which is considered Level 2. Refer to Note 13 for further information on the Partnership’s derivative instruments and hedging activities.

     The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 at December 31, 2009:

		Fair Value Measurements at Reporting Date Using
						Quoted Prices in								Significant
						Active Markets for				Significant Other				Unobservable
						Identical Assets				Observable Inputs				Inputs
		December 31,
Description		2009				(Level 1)				(Level 2)				(Level 3)
Assets
Interest rate derivatives		$	1,286			$	—			$	1,286			$	—
Commodity derivatives			586				—				586				—
Total assets		$	1,872			$	—			$	1,872			$	—
Liabilities
Interest rate derivatives		$	6,611			$	—			$	6,611			$	—
Commodity derivatives			616				—				616				—
Total liabilities		$	7,227			$	—			$	7,227			$	—

     The following items are measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 at December 31, 2008:

		Fair Value Measurements at Reporting Date Using
						Quoted Prices in								Significant
						Active Markets for			Significant Other					Unobservable
						Identical Assets			Observable Inputs					Inputs
		December 31,
Description		2008				(Level 1)			(Level 2)					(Level 3)
Assets
Commodity derivatives		$	5,092		$	—			$	5,092			$	—
Liabilities
Interest rate derivatives		$	10,780		$	—			$	10,780			$	—

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

     FASB ASC 825-10-65, Disclosures about Fair Value of Financial Instruments, requires that the Partnership disclose estimated fair values for its financial instruments. Fair value estimates are set forth below for the Partnership’s 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, other accrued liabilities, income taxes payable and due from/to affiliates — The carrying amounts approximate fair value because of the short maturity of these instruments.
	•		Long-term debt including current installments —The carrying amount of the revolving and term loan facilities approximates fair value due to the debt having a variable interest rate.

(4) RECENT ACCOUNTING PRONOUNCEMENTS

     In April 2009, the FASB amended the provisions of ASC 805-10, 805-20 and 805-30 related to accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies, to amend the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination under ASC. Under the new guidance, assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined, companies should typically account for the acquired contingencies using existing guidance. The Partnership adopted this guidance on January 1, 2009. As the provisions of this guidance are applied prospectively to business combinations with an acquisition date on or after the guidance became effective, the impact to the Partnership cannot be determined until the transactions occur. No such transactions have occurred during 2009.

     In March 2008, the FASB amended the provisions of 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. ASC 260-10 is to be applied retrospectively for all financial statements presented and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Partnership adopted this guidance on January 1, 2009. See Note 1(o) for more information.

     In March 2008, FASB amended the provisions of ASC 815-10-65 related to disclosures about derivative instruments and hedging activities, which requires enhanced disclosures concerning (1) the manner in which an entity uses derivatives (and the reasons it uses them), (2) the manner in which derivatives and related hedged items are accounted for and (3) the effects that derivatives and related hedged items have on an entity’s financial position, financial performance and cash flows. ASC 815-10-65 is effective for financial statements issued for fiscal years and interim periods beginning on or after November 15, 2008. The Partnership adopted this guidance on January 1, 2009, and the adoption did not have a material impact on the Partnership’s financial position or results of operations.

     In December 2007, FASB amended the provisions of ASC 805-10-65 related to business combinations, which establishes principles and requirements for how an acquiror in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase price and (3) determines what information to disclose to enable users of the consolidated financial statements to evaluate the nature and financial effects of the business combination. ASC 805-10-65 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Partnership adopted certain provisions of ASC 805-10-65 on January 1, 2009. The application of ASC 805-10-65 will cause management to evaluate future transactions under different conditions than previously completed significant acquisitions, particularly related to the near-term and long-term economic impact of expensing transaction costs. No such transactions have occurred during 2009.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

(5) ACQUISITIONS

     (a) East Harrison Pipeline System.

     In December 2009, the Partnership acquired, through Prism Gas, from Woodward Partners, Ltd. 6.45 miles of gathering pipeline referred to as the East Harrison Pipeline System for $327. The system currently transports approximately 500 Mcfd of natural gas under various transport contracts which provide for a minimum monthly fee.

     (b) Cross assets.

     In November 2009, the Partnership closed a transaction with Martin Resource Management (“Martin Resource Management”) and Cross Refining & Marketing, Inc. (“Cross”), a wholly owned subsidiary of Martin Resource Management, in which the Partnership acquired certain specialty lubricants processing assets (“Assets”) from Cross for total consideration of $44,878 (the “Contribution”). As consideration for the Contribution, the Partnership issued 804,721 common units and 889,444 subordinated units to Martin Resource Management at a price of $27.96 and $25.16 per limited partner unit, respectively. In connection with the Contribution, the General Partner made a capital contribution of $918 in cash to the Partnership in order to maintain its 2% general partner interest.

     The Partnership accounted for the Cross acquisition as a transfer of net assets between entities under common control pursuant to the provisions of FASB ASC 850. The Cross assets were recorded at $32,957, which represents the amounts reflected in Martin Resource Management’s historical consolidated financial statements. The difference between the purchase price and Martin Resource Management’s carrying value of the combined net assets acquired and liabilities assumed was recorded as an adjustment to partners’ capital.

     (c) Stanolind Assets.

     In January 2008, the Partnership acquired 7.8 acres of land, a deep water dock and two sulfuric acid tanks at its Stanolind terminal in Beaumont, Texas from Martin Resource Management for $5,983 which was allocated to property, plant and equipment. Martin Resource Management entered into a lease agreement with the Partnership for use of the sulfuric acid tanks. In connection with the acquisition, the Partnership borrowed approximately $6,000 under its credit facility.

(6) ISSUANCE OF COMMON UNITS

     In addition to the units referred to in Note 5(b) above, in November 2009, the Partnership closed a private equity sale with Martin Resource Management, under which Martin Resource Management invested $20,000 in cash in the Partnership in exchange for 714,285 common units of the Partnership. In connection with the issuance of these common units, the General Partner made a capital contribution to the Partnership of $408 in order to maintain its 2% general partner interest in the Partnership.

(7) INVENTORIES

     Components of inventories at December 31, 2009 and 2008 were as follows:

		2009				2008
Natural gas liquids		$	15,002			$	10,530
Sulfur			2,540				6,522
Sulfur Based Products			10,053				14,879
Lubricants			4,684				8,110
Other			3,231				2,713
		$	35,510			$	42,754

(8) PROPERTY, PLANT AND EQUIPMENT

     At December 31, 2009 and 2008, property, plant, and equipment consisted of the following:

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

		Depreciable Lives				2009				2008
Land			—			$	15,759			$	16,899
Improvements to land and buildings		10-25 years					48,704				47,237
Transportation equipment		3-7 years					1,786				2,443
Storage equipment		5-20 years					59,597				52,296
Marine vessels		4-25 years					210,593				200,473
Operating equipment		3-20 years					238,956				211,934
Furniture, fixtures and other equipment		3-20 years					1,646				2,168
Construction in progress							6,995				43,158
						$	584,036			$	576,608

Depreciation expense for the year ended December 31, 2009, 2008, and 2007 was $37,027, $33,060, and $24,780, respectively, which includes amortization of fixed assets acquired under capital lease obligations of $116, $0, and $0 for 2009, 2008, and 2007; respectively. Gross assets under capital leases were $7,764 and $0 at December 31, 2009 and 2008. Accumulated amortization associated with capital leases was $116 and $0 at December 31, 2009 and 2008.

(9) GOODWILL AND OTHER INTANGIBLE ASSETS

     At December 31, 2009 and 2008, goodwill balances consisted of the following:

		2009				2008
Carrying amount of goodwill:
Terminalling and storage		$	883			$	1,020
Natural gas services			29,010				29,010
Sulfur services			5,349				5,349
Marine transportation			2,026				2,026
		$	37,268			$	37,405

     In conjunction with the sale of the Partnership’s railcar unloading facility at Mont Belvieu, $137 of goodwill was allocated from the terminalling and storage segment to the carrying value of the disposed assets in accordance with certain provisions of ASC 350-20 related to goodwill. See Note 16 for more information regarding the disposal of the Mont Belvieu facility.

     At December 31, 2009 and 2008, covenants not-to-compete balances consisted of the following:

		2009				2008
Covenants not-to-compete:
Terminalling and storage		$	1,928			$	1,956
Natural gas services			—				40
Sulfur services			100				790
			2,028				2,786
Less accumulated amortization			1,324				1,572
		$	704			$	1,214

     Intangible assets consists of the covenants not-to-compete listed above, customer contracts associated with gathering and processing assets and a transportation contract associated with the residue gas pipeline. The covenants not-to-compete and contracts are presented in the consolidated balance sheets as other assets, net. Aggregate amortization expense for amortizing intangible assets was $2,479, $1,833, and $1,543 for the years ended December 31, 2009, 2008, and 2007, respectively. Estimated amortization expenses for the years subsequent to December 31, 2009 are as follows: 2010 — $600; 2011 — $516; 2012 — $512; 2013 — $514; 2014 — $435; subsequent years -$1,279.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

(10) LEASES

     The Partnership has numerous non-cancelable operating leases primarily for transportation and other equipment. The leases generally provide that all expenses related to the equipment are to be paid by the lessee. Management expects to renew or enter into similar leasing arrangements for similar equipment upon the expiration of the current lease agreements. The Partnership also has cancelable operating lease land rentals and outside marine vessel charters. Certain of our marine vessels have been acquired under capital leases.

     The Partnership’s future minimum lease obligations as of December 31, 2009 consist of the following:

						Capital
Fiscal year		Operating Leases				Leases
2010		$	4,233			$	1,102
2011			4,036				1,102
2012			3,205				1,117
2013			2,457				1,135
2014			2,176				1,147
Thereafter			6,975				6,751
Total			23,082				12,354
Less amounts representing interest costs			—				6,071
Present value of net minimum capital lease payments			—				6,283
Less current installments			—				111
Present value of net minimum capital lease payments, excluding current installments		$	—			$	6,172

     Rent expense for operating leases for the years ended December 31, 2009, 2008 and 2007 was $11,158, $12,527 and $12,492; respectively. The amount recognized in interest expense for capital leases was $250, $0, and $0 for the years ended December 31, 2009, 2008 and 2007; respectively.

(11) INVESTMENT IN UNCONSOLIDATED ENTITIES AND JOINT VENTURES

     The Partnership’s Prism Gas Systems I, L.P. (“Prism Gas”) subsidiary owns an unconsolidated 50% interest in Waskom Gas Processing Company (“Waskom”), the Matagorda Offshore Gathering System (“Matagorda”) and Panther Interstate Pipeline Energy LLC (“PIPE”). As a result, these assets are accounted for by the equity method.

     On June 30, 2006, the Partnership’s Prism Gas subsidiary, acquired a 20% ownership interest in a partnership which owns the lease rights to the assets of the Bosque County Pipeline (“BCP”). The lease contract terminated in June 2009, and, as such, the investment was fully amortized as of June 30, 2009.

     In accounting for the acquisition of the interests in Waskom, Matagorda and PIPE, the carrying amount of these investments exceeded the underlying net assets by approximately $46,176. The difference was attributable to property and equipment of $11,872 and equity method goodwill of $34,304. The excess investment relating to property and equipment is being amortized over an average life of 20 years, which approximates the useful life of the underlying assets. Such amortization amounted to $594 for the years ended December 31, 2009, 2008 and 2007, respectively, has been recorded as a reduction of equity in earnings of unconsolidated equity method investees. The remaining unamortized excess investment relating to property and equipment was $9,497, $10,091 and $10,685 at December 31, 2009, 2008 and 2007, respectively. The equity-method goodwill is not amortized; however, it is analyzed for impairment annually or if changes in circumstance indicate that a potential impairment exists. No impairment was recorded in 2009, 2008 or 2007.

     As a partner in Waskom, the Partnership receives distributions in kind of natural gas liquids (“NGLs”) that are retained according to Waskom’s contracts with certain producers. The NGLs are valued at prevailing market prices. In

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

addition, cash distributions are received and cash contributions are made to fund operating and capital requirements of Waskom.

     Activity related to these investment accounts is as follows:

		Waskom				PIPE				Matagorda				BCP				Total
Investment in unconsolidated entities, December 31, 2007		$	70,237			$	1,582			$	3,693			$	178			$	75,690
Distributions in kind			(9,725	)			—				—				—				(9,725	)
Return on investments			(500	)			—				—				—				(500	)
Contributions to (distributions from) unconsolidated entities:
Cash contributions			1,250				129				—				80				1,459
Contributions to (distributions from) unconsolidated entities for operations			920				—				—				—				920
Return of investments			(300	)			(180	)			(745	)			—				(1,225	)
Equity in earnings:
Equity in earnings from operations			13,646				(302	)			640				(166	)			13,818
Amortization of excess investment			(550	)			(15	)			(29	)			—				(594	)
Investment in unconsolidated entities, December 31, 2008		$	74,978			$	1,214			$	3,559			$	92			$	79,843

		Waskom				PIPE				Matagorda				BCP				Total
Investment in unconsolidated entities, December 31, 2008		$	74,978			$	1,214			$	3,559			$	92			$	79,843
Distributions in kind			(5,826	)			—				—				—				(5,826	)
Distributions from unconsolidated entities			(650	)			—				—				—				(650	)
Contributions to unconsolidated entities:
Cash contributions			—				90				—				—				90
Contributions to unconsolidated entities for operations			958				—				—				—				958
Return of investments			—				(490	)			(375	)			(12	)			(877	)
Equity in earnings:
Equity in earnings (losses) from operations			6,934				602				182				(80	)			7,638
Amortization of excess investment			(550	)			(15	)			(29	)			—				(594	)
Investment in unconsolidated entities, December 31 2009		$	75,844			$	1,401			$	3,337			$	—			$	80,582