UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to ______

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)		(IRS Employer Identification No.)

4200 Stone Road
Kilgore, Texas 75662
(Address of principal executive offices, zip code)

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

     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 for the past 90 days. Yes þ No o

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

 

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

     Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The number of the registrant’s Common Units outstanding at August 5, 2008 was 12,837,480. The number of the registrant’s subordinated units outstanding at August 5, 2008 was 1,701,346

 

 

		Page
PART I – FINANCIAL INFORMATION			1
Item 1. Financial Statements			1
Consolidated and Condensed Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007 (audited)			1
Consolidated and Condensed Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)			2
Consolidated and Condensed Statements of Capital for the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)			3
Consolidated and Condensed Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)			4
Consolidated and Condensed Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (unaudited)			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures about Market Risk			45
Item 4. Controls and Procedures			46
PART II. OTHER INFORMATION			47
Item 1.    Legal Proceedings			47
Item 1A. Risk Factors			47
Item 5.    Other Information			47
Item 6.    Exhibits			47
SIGNATURE
CERTIFICATIONS
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906
Balance Sheets

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MARTIN MIDSTREAM PARTNERS L.P.

		June 30,				December 31,
		2008				2007
		(Unaudited)				(Audited)
Assets
Cash		$	11,273			$	4,113
Accounts and other receivables, less allowance for doubtful accounts of $350 and $211, respectively			110,998				88,039
Product exchange receivables			42,148				10,912
Inventories			101,832				51,798
Due from affiliates			8,336				2,325
Fair value of derivatives			—				235
Other current assets			7,093				584
Total current assets			281,680				158,006
Property, plant and equipment, at cost			497,323				441,117
Accumulated depreciation			(110,332	)			(98,080	)
Property, plant and equipment, net			386,991				343,037
Goodwill			37,405				37,405
Investment in unconsolidated entities			77,276				75,690
Fair value of derivatives			42				—
Other assets, net			8,493				9,439
		$	791,887			$	623,577
Liabilities and Partners’ Capital
Current installments of long-term debt		$	—			$	21
Trade and other accounts payable			169,144				104,598
Product exchange payables			70,856				24,554
Due to affiliates			10,138				7,543
Income taxes payable			671				602
Fair value of derivatives			13,083				4,502
Other accrued liabilities			4,717				4,752
Total current liabilities			268,609				146,572
Long-term debt			285,000				225,000
Deferred income taxes			8,660				8,815
Fair value of derivatives			11,535				5,576
Other long-term obligations			1,586				1,766
Total liabilities			575,390				387,729
Partners’ capital			232,798				242,610
Accumulated other comprehensive income (loss)			(16,301	)			(6,762	)
Total partners’ capital			216,497				235,848
Commitments and contingencies		$	791,887			$	623,577

     See accompanying notes to consolidated and condensed financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues:
Terminalling and storage		$	9,900			$	7,037			$	17,820			$	13,988
Marine transportation			19,309				15,154				35,712				29,038
Product sales:
Natural gas services			182,025				105,321				389,117				207,109
Sulfur services			86,027				30,353				156,252				59,733
Terminalling and storage			10,882				4,449				22,258				8,242
			278,934				140,123				567,627				275,084
Total revenues			308,143				162,314				621,159				318,110
Costs and expenses:
Cost of products sold:
Natural gas services			180,324				100,939				383,174				197,711
Sulfur services			75,964				22,416				132,304				44,217
Terminalling and storage			10,270				3,917				20,191				6,932
			266,558				127,272				535,669				248,860
Expenses:
Operating expenses			26,195				20,663				50,412				39,656
Selling, general and administrative			3,467				2,744				6,946				5,465
Depreciation and amortization			7,614				5,468				14,954				10,362
Total costs and expenses			303,834				156,147				607,981				304,343
Other operating income (loss)			(14	)			—				126				—
Operating income			4,295				6,167				13,304				13,767
Other income (expense):
Equity in earnings of unconsolidated entities			4,372				2,418				7,882				4,468
Interest expense			(3,895	)			(2,739	)			(8,638	)			(6,316	)
Other, net			67				72				247				151
Total other income (expense)			544				(249	)			(509	)			(1,697	)
Net income before taxes			4,839				5,918				12,795				12,070
Income tax benefit (expense)			(522	)			9				(461	)			(340	)
Net income		$	4,317			$	5,927			$	12,334			$	11,730
General partner’s interest in net income		$	665			$	354			$	1,316			$	629
Limited partners’ interest in net income		$	3,652			$	5,573			$	11,018			$	11,101
Net income per limited partner unit — basic and diluted		$	0.25			$	0.41			$	0.76			$	0.82
Weighted average limited partner units — basic			14,532,826				13,638,101				14,532,826				13,478,271
Weighted average limited partner units — diluted			14,535,779				13,642,950				14,535,564				13,483,246

     See accompanying notes to consolidated and condensed financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

		Partners’ Capital
																						Accumulated
																						Other
																		General				Comprehensive
		Common								Subordinated								Partner				Income
		Units				Amount				Units				Amount				Amount				Amount				Total
Balances – January 1, 2007			10,603,808			$	201,387				2,552,018			$	(6,237	)		$	3,253			$	122			$	198,525
Net Income			—				9,254				—				1,847				629				—				11,730
Follow-on public offering			1,380,000				55,934				—				—				—				—				55,934
General partner contribution			—				—				—				—				1,192				—				1,192
Unit-based compensation			3,000				26				—				—				—				—				26
Cash distributions			—				(13,361	)			—				(3,216	)			(697	)			—				(17,274	)
Adjustment in fair value of derivatives			—				—				—				—				—				193				193
Balances – June 30, 2007			11,986,808			$	253,240				2,552,018			$	(7,606	)		$	4,377			$	315			$	250,326
Balances – January 1, 2008			12,837,480			$	244,520				1,701,346			$	(6,022	)		$	4,112			$	(6,762	)		$	235,848
Net income			—				9,958				—				1,060				1,316				—				12,334
Cash distributions			—				(18,229	)			—				(2,416	)			(1,535	)			—				(22,180	)
Unit-based compensation			—				34				—				—				—				—				34
Adjustment in fair value of derivatives			—				—				—				—				—				(9,539	)			(9,539	)
Balances – June 30, 2008			12,837,480			$	236,283				1,701,346			$	(7,378	)		$	3,893			$	(16,301	)		$	216,497

     See accompanying notes to consolidated and condensed financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Net income		$	4,317			$	5,927			$	12,334			$	11,730
Changes in fair values of commodity cash flow hedges			(8,700	)			(193	)			(8,487	)			(357	)
Cash flow hedging gains (losses) reclassified to earnings			41				40				(625	)			(270	)
Changes in fair value of interest rate cash flow hedges			4,112				1,457				(427	)			820
Comprehensive income		$	(230	)		$	7,231			$	2,795			$	11,923

     See accompanying notes to consolidated and condensed financial statements.

MARTIN MIDSTREAM PARTNERS L.P.

		Six Months Ended
		June 30,
		2008				2007
Cash flows from operating activities:
Net income		$	12,334			$	11,730
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			14,954				10,362
Amortization of deferred debt issuance costs			559				540
Deferred taxes			(155	)			(68	)
Gain on sale of property, plant and equipment			(126	)			—
Equity in earnings of unconsolidated entities			(7,882	)			(4,468	)
Distributions from unconsolidated entities			—				200
Distributions in-kind from equity investments			5,621				4,541
Non-cash mark-to-market on derivatives			5,195				854
Other			34				26
Change in current assets and liabilities, excluding effects of acquisitions and dispositions:
Accounts and other receivables			(22,959	)			6,769
Product exchange receivables			(31,236	)			4,170
Inventories			(50,034	)			702
Due from affiliates			(6,011	)			(1,145	)
Other current assets			(6,509	)			148
Trade and other accounts payable			64,546				6,059
Product exchange payables			46,302				(7,401	)
Due to affiliates			2,595				(4,694	)
Income taxes payable			69				277
Other accrued liabilities			(34	)			(892	)
Change in other non-current assets and liabilities			(224	)			47
Net cash provided by operating activities			27,039				27,757
Cash flows from investing activities:
Payments for property, plant and equipment			(52,756	)			(36,772	)
Acquisitions, net of cash acquired			(5,983	)			(37,344	)
Proceeds from sale of property, plant and equipment			404				—
Return of investments from unconsolidated entities			600				2,970
Distributions from (contributions to) unconsolidated entities for operations			75				(5,777	)
Net cash used in investing activities			(57,660	)			(76,923	)
Cash flows from financing activities:
Payments of long-term debt			(100,791	)			(97,287	)
Proceeds from long-term debt			160,770				103,250
Net proceeds from follow on public offering			—				55,934
General partner contribution			—				1,192
Payments of debt issuance costs			(18	)			—
Cash distributions paid			(22,180	)			(17,274	)
Net cash provided by financing activities			37,781				45,815
Net increase (decrease) in cash			7,160				(3,351	)
Cash at beginning of period			4,113				3,675
Cash at end of period		$	11,273			$	324

     See accompanying notes to consolidated and condensed financial statements.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

(1) General

     Martin Midstream Partners L.P. (the “Partnership”) is a publicly traded limited partnership with a diverse set of operations focused primarily in the United States Gulf Coast region. Its four primary business lines include: terminalling and storage services for petroleum products and by-products, natural gas services, marine transportation services for petroleum products and by-products, and sulfur and sulfur based products processing, manufacturing, marketing and distribution.

     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 for interim financial reporting. Accordingly, these financial statements have been condensed and do not include all of the information and footnotes required by generally accepted accounting principles 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 results of operations, financial position 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, 2007 filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2008.

     (a) 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 U.S. generally accepted accounting principles. Actual results could differ from those estimates.

     (b) Unit Grants

     The Partnership issued 1,000 restricted common units to each of its three independent, non-employee directors under its long-term incentive plan in May 2008. These units vest in 25% increments beginning in January 2009 and will be fully vested in January 2012.

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

     The Partnership issued 1,000 restricted common units to each of its three independent, non-employee directors under its long-term incentive plan in January 2006. 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 transactions under Emerging Issues Task Force 96-18 “Accounting for Equity Instruments That are Issued to other than Employees For Acquiring, or in Conjunction with Selling, Goods or Services.” The cost resulting from the share-based payment transactions was $17 and $15 for the three months ended June 30, 2008 and 2007, respectively, and $34 and $26 for the six months ended June 30, 2008 and 2007, respectively. The Partnership’s general partner contributed cash of $2 in January 2006 and $3 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. The Partnership’s general partner did not make a contribution attributable to the restricted units issued to its three independent, non-employee directors in May 2008, as such units were purchased in the open market by the Partnership.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

     (c) 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 unitholders have received $0.625 per unit, 25% of quarterly cash distributions in excess of $0.625 per unit until all unitholders have received $0.75 per unit, and 50% of quarterly cash distributions in excess of $0.75 per unit. For the three months ended June 30, 2008 and 2007 the general partner received $590 and $240, respectively, in incentive distributions. For the six months ended June 30, 2008 and 2007, the general partner received and $1,091 and $402, respectively, in incentive distributions.

     (d) Net Income per Unit

     Except as discussed in the following paragraph, basic and diluted net income per limited partner unit is determined by dividing net income after deducting the amount allocated to the general partner interest (including its incentive distribution in excess of its 2% interest) by the weighted average number of outstanding limited partner units during the period. Subject to applicability of Emerging Issues Task Force Issue No. 03-06 (“EITF 03-06’’), “Participating Securities and the Two-Class Method under FASB Statement No. 128,’’ as discussed below, Partnership income is first allocated to the general partner based on the amount of incentive distributions. The remainder is then allocated between the limited partners and general partner based on percentage ownership in the Partnership.

     EITF 03-06 addresses the computation of earnings per share by entities that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the entity when, and if, it declares dividends on its common stock. Essentially, EITF 03-06 provides that in any accounting period where the Partnership’s aggregate net income exceeds the Partnership’s aggregate distribution for such period, the Partnership is required to present earnings per unit as if all of the earnings for the periods were distributed, regardless of the pro forma nature of this allocation and whether those earnings would actually be distributed during a particular period from an economic or practical perspective. EITF 03-06 does not impact the Partnership’s overall net income or other financial results; however, for periods in which aggregate net income exceeds the Partnership’s aggregate distributions for such period, it will have the impact of reducing the earnings per limited partner unit. This result occurs as a larger portion of the Partnership’s aggregate earnings is allocated to the incentive distribution rights held by the Partnership’s general partner, as if distributed, even though the Partnership makes cash distributions on the basis of cash available for distributions, not earnings, in any given accounting period. In accounting periods where aggregate net income does not exceed the Partnership’s aggregate distributions for such period, EITF 03-06 does not have any impact on the Partnership’s earnings per unit calculation.

     The weighted average units outstanding for basic net income per unit were 14,532,826 and 13,638,101 for the three months ended June 30, 2008 and 2007, respectively, and 14,532,826 and 13,478,271 for the six months ended June 30, 2008 and 2007, respectively. For diluted net income per unit, the weighted average units outstanding were increased by 2,953 and 4,849 for the three months ended June 30, 2008 and 2007, respectively, and 2,738 and 4,975 for the six months ended June 30, 2008 and 2007, respectively, due to the dilutive effect of restricted units granted under the Partnership’s long-term incentive plan.

     (e) Income taxes

     With respect to our taxable subsidiary (Woodlawn Pipeline Co., Inc.), 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

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

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.

     (f) Reclassification

     The Partnership made a reclassification to the consolidated balance sheet for the year ended December 31, 2007 to properly classify current and long-term derivative liabilities. This reclassification had no impact on the total liabilities reported in consolidated balance sheet for the year ended December 31, 2007.

(2) New Accounting Pronouncements

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, which delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statement on a recurring basis, to fiscal years beginning after November 15, 2008. On January 1, 2008, the Partnership adopted the portion of SFAS No. 157 that was not delayed, and since the Partnership’s existing fair value measurements are consistent with the guidance of SFAS No. 157, the partial adoption of SFAS No. 157 did not have a material impact on the Partnership’s consolidated financial statements. The adoption of the deferred portion of SFAS No. 157 on January 1, 2009 is not expected to have a material impact on the Partnership’s consolidated financial statements. See Note 3 for expanded disclosures about fair value measurements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 permits the Partnership to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”). The Partnership would report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting period. This accounting standard is effective as of the beginning of the first fiscal year that begins after November 15, 2007 but is not required to be applied. The Partnership currently has no plans to apply SFAS No. 159.

     In December 2007, the FASB revised SFAS No. 141, “Business Combinations” (SFAS No. 141), to establish revised principles and requirements for how entities will recognize and measure assets and liabilities acquired in a business combination. SFAS No. 141 is effective for business combinations completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Partnership will apply the guidance of SFAS No. 141 to business combinations completed on or after January 1, 2009.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Partnership is currently evaluating the impact of adopting SFAS No. 160 on January 1, 2009.

       In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133” (SFAS No. 161). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAS No. 161 is effective for fiscal years and

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

interim periods beginning after November 15, 2008. The Partnership is evaluating the additional disclosures required by SFAS No. 161 beginning January 1, 2009.

(3) Fair Value Measurements

     During the first quarter of 2008, the Partnership adopted FASB Statement No. 157, Fair Value Measurements (FAS 157). FAS 157 established a framework for measuring fair value and expanded disclosures about fair value measurements. The adoption of FAS 157 had no impact on the Partnership’s financial position or results of operations.

     FAS 157 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. The statement requires that each asset and liability carried at fair value be classified 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.

     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 are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Refer to Notes 7 and 8 for further information on the Partnership’s derivative instruments and hedging activities.

     As prescribed by the FAS 157 levels listed above, the Partnership considers the Partnership’s derivative assets and liabilities as Level 2. The net fair value of the Partnership’s assets and liabilities measured on a recurring basis was a liability of $24,576 and $ 9,843 at June 30, 2008 and December 31, 2007, respectively.

(4) Acquisitions

     (a) 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 Corporation (“Martin Resource Management”) for $5,983 which was allocated to property, plant and equipment. The Partnership entered into a lease agreement with Martin Resource Management for use of the sulfuric acid tanks.

     (b) Asphalt Terminal

     In October 2007, the Partnership acquired the asphalt assets of Monarch Oil, Inc. and related companies (“Monarch Oil”) for $3,927 which was allocated to property, plant and equipment. The results of Monarch Oil’s operations have been included in the consolidated financial statements beginning October 2, 2007. The assets are located in Omaha, Nebraska. The Partnership entered into an agreement with Martin Resource Management, whereby Martin Resource Management will operate the facilities through a terminalling service agreement based upon throughput rates and will bear all additional expenses to operate the facility.

     (c) Lubricants Terminal

     In June 2007, the Partnership acquired all of the operating assets of Mega Lubricants Inc. (“Mega Lubricants”) located in Channelview, Texas. The results of Mega Lubricant’s operations have been included in the consolidated financial statements beginning June 13, 2007. The excess of the fair value over

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

the carrying value of the assets was allocated to all identifiable assets. After recording all identifiable assets at their fair values, the remaining $1,020 was recorded as goodwill. The goodwill was a result of Mega Lubricant’s strategically located assets combined with the Partnership’s access to capital and existing infrastructure. This will enhance the Partnership’s ability to offer additional lubricant blending and truck loading and unloading services to customers. In accordance with FAS 142, the goodwill will not be amortized but tested for impairment. The terminal is located on 5.6 acres of land, and consists of 38 tanks with a storage capacity of approximately 15,000 Bbls, pump and piping infrastructure for lubricant blending and truck loading and unloading operations, 34,000 square feet of warehouse space and an administrative office.

     The purchase price of $4,738, including two three-year non-competition agreements totaling $530 and goodwill of $1,020, was allocated as follows:

Current assets		$	446
Property, plant and equipment, net			3,042
Goodwill			1,020
Other assets			530
Other liabilities			(300	)
Total		$	4,738

     In connection with the acquisition, the Partnership borrowed approximately $4,600 under its credit facility.

     (d) Woodlawn Pipeline Co., Inc.

     On May 2, 2007, the Partnership, through its subsidiary Prism Gas Systems I, L.P. (“Prism Gas”), acquired 100% of the outstanding stock of Woodlawn Pipeline Co., Inc (“Woodlawn”). The results of Woodlawn’s operations have been included in the consolidated financial statements beginning May 2, 2007. The excess of the fair value over the carrying value of the assets was allocated to all identifiable assets. After recording all identifiable assets at their fair values, the remaining $8,785 was recorded as goodwill. The goodwill was a result of Woodlawn’s strategically located assets combined with the Partnership’s access to capital and existing infrastructure. This will enhance the Partnership’s ability to offer additional gathering services to customers through internal growth projects including natural gas processing, fractionation and pipeline expansions as well as new pipeline construction. In accordance with FAS 142, the goodwill will not be amortized but tested for impairment.

     Woodlawn is a natural gas gathering and processing company which owns integrated gathering and processing assets in East Texas. Woodlawn’s system consists of approximately 135 miles of natural gas gathering pipe, approximately 36 miles of condensate transport pipe and a 30 Mcf/day processing plant. Prism Gas also acquired a nine-mile pipeline, from a Woodlawn related party, that delivers residue gas from Woodlawn to the Texas Eastern Transmission pipeline system.

     The selling parties in this transaction were Lantern Resources, L.P., David P. Deison, and Peak Gas Gathering L.P. The final purchase price, after final adjustments for working capital, was $32,606 and was funded by borrowings under the Partnership’s credit facility.

     The purchase price of $32,606, including four two-year non-competition agreements and other intangibles reflected as other assets, was allocated as follows:

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

Current assets		$	4,297
Property, plant and equipment, net			29,101
Goodwill			8,785
Other assets			3,339
Current liabilities			(3,889	)
Deferred income taxes			(8,964	)
Other long-term obligations			(63	)
Total		$	32,606

     The identifiable intangible assets of $3,339 are subject to amortization over a weighted-average useful life of approximately ten years. The intangible assets include four non-competition agreements totaling $40, customer contracts associated with the gathering and processing assets of $3,002, and a transportation contract associated with the residue gas pipeline of $297.

     In connection with the acquisition, the Partnership borrowed approximately $33,000 under its credit facility.

(5) Inventories

     Components of inventories at June 30, 2008 and December 31, 2007 were as follows:

		June 30,				December 31,
		2008				2007
Natural gas liquids		$	26,715			$	31,283
Sulfur			50,977				7,490
Sulfur Based Products			14,303				6,626
Lubricants			7,402				5,345
Other			2,435				1,054
		$	101,832			$	51,798

(6) Investment in Unconsolidated Partnerships and Joint Ventures

     The Partnership, through its Prism Gas subsidiary, owns 50% of the ownership interests in Waskom Gas Processing Company (“Waskom”), Matagorda Offshore Gathering System (“Matagorda”), Panther Interstate Pipeline Energy LLC (“PIPE”) and a 20% ownership interest in a partnership which owns the lease rights to Bosque County Pipeline (“BCP”). Each of these interests is accounted for under the equity method of accounting.

     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 $148 and $297 for the three and six months June 30, 2008 and 2007, respectively, and 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 $10,388 and $10,685 at June 30, 2008 and December 31, 2007, respectively. The equity-method goodwill is not amortized in accordance with SFAS 142; however, it is analyzed for impairment annually. No impairment was recognized in the first six months of 2008 or the year ended December 31, 2007.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

     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 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
Acquisitions of interests			—				—				—				—				—
Distributions in kind from equity investments			(5,621	)			—				—				—				(5,621	)
Return on investments from unconsolidated entities			—				—				—				—				—
Contributions to (distributions from) unconsolidated entities:
Cash contributions			500				—				—				80				580
Distributions from (contributions to) unconsolidated entities for operations			(655	)			—				—				—				(655	)
Return of investments from unconsolidated entities			(300	)			(105	)			(195	)			—				(600	)
Equity in earnings:
Equity in earnings from operations			7,875				84				302				(82	)			8,179
Amortization of excess investment			(275	)			(8	)			(14	)			—				(297	)
Investment in unconsolidated entities, June 30, 2008		$	71,761			$	1,553			$	3,786			$	176			$	77,276

		Waskom				PIPE				Matagorda				BCP				Total
Investment in unconsolidated entities, December 31, 2006		$	64,937			$	1,718			$	3,786			$	210			$	70,651
Acquisitions of interests			—				—				—				—				—
Distributions in kind from equity investments			(4,541	)			—				—				—				(4,541	)
Return on investments from unconsolidated entities			—				(200	)			—				—				(200	)
Contributions to (distributions from) unconsolidated entities:
Cash contributions			—				—				—				—				—
Distributions from (contributions to) unconsolidated entities for operations			5,670				—				—				107				5,777
Return of investments from unconsolidated entities			(2,625	)			(270	)			(75	)			—				(2,970	)
Equity in earnings:
Equity in earnings from operations			4,301				419				110				(65	)			4,765
Amortization of excess investment			(275	)			(8	)			(14	)			—				(297	)
Investment in unconsolidated entities, June 30, 2007		$	67,467			$	1,659			$	3,807			$	252			$	73,185

     Select financial information for significant unconsolidated equity method investees is as follows:

										Three Months Ended								Six Months Ended
		As of June 30,								June 30,								June 30,
		Total				Partner’s								Net								Net
		Assets				Capital				Revenues				Income				Revenues				Income
2008
Waskom		$	75,929			$	60,745			$	35,807			$	8,468			$	62,540			$	15,748

2007		As of December 31,
Waskom		$	66,772			$	57,149			$	18,374			$	4,873			$	33,173			$	8,602

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

(7) Commodity Cash Flow Hedges

     The Partnership is exposed to market risks associated with commodity prices, counterparty credit and interest rates. The Partnership has established a hedging policy and monitors and manages the commodity market risk associated with its commodity risk exposure. In addition, the Partnership is focusing on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction.

     The Partnership uses derivatives to manage the risk of commodity price fluctuations. Additionally, the Partnership manages interest rate exposure by targeting a ratio of fixed and floating interest rates it deems prudent and using hedges to attain that ratio.

     In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), all derivatives and hedging instruments are included on the balance sheet as an asset or a 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. The Partnership has adopted a hedging policy that allows it to use hedge accounting for financial transactions that are designated as hedges.

     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 June 30, 2008, 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 other comprehensive income as a component of equity.

     The components of gain (loss) on derivatives qualifying for hedge accounting and those that do not qualify for hedge accounting are included in the revenue of the hedged item in the Consolidated Statements of Operations as follows:

		Three Months								Six Months
		Ended								Ended
		June 30								June 30
		2008				2007				2008				2007
Change in fair value of derivatives that do not qualify for hedge accounting and settlements of maturing hedges		$	(5,964	)		$	(509	)		$	(8,146	)		$	(793	)
Ineffective portion of derivatives qualifying for hedge accounting			(85	)			(35	)			37				89
Change in fair value of derivatives in the Consolidated Statement of Operations		$	(6,049	)		$	(544	)		$	(8,109	)		$	(704	)

     The fair value of derivative assets and liabilities are as follows:

		June 30,				December 31,
		2008				2007
Fair value of derivative assets — current		$	—			$	235
Fair value of derivative assets — long term			—				—
Fair value of derivative liabilities — current			(9,799	)			(3,261	)
Fair value of derivative liabilities — long term			(9,591	)			(2,140	)
Net fair value of derivatives		$	(19,390	)		$	(5,166	)

     Set forth below is the summarized notional amount and terms of all instruments held for price risk

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

management purposes at June 30, 2008 (all gas quantities are expressed in British Thermal Units, crude oil and NGLs are expressed in barrels). As of June 30, 2008, the remaining term of the contracts extend no later than December 2011, with no single contract longer than one year. The Partnership’s counterparties to the derivative contracts include Shell Energy North America (US) L.P., Morgan Stanley Capital Group Inc., Wachovia Bank and Wells Fargo Bank. For the period ended June 30, 2008, changes in the fair value of the Partnership’s derivative contracts were recorded in both earnings and in other comprehensive income as a component of equity since the Partnership has designated a portion of its derivative instruments as hedges as of June 30, 2008.

June 30, 2008
		Total
		Volume				Remaining Terms
Transaction Type		Per Month		Pricing Terms		of Contracts		Fair Value
Mark-to-Market Derivatives:
Natural Gas swap		30,000 MMBTU		Fixed price of $8.12 settled against Houston Ship Channel first of the month		July 2008 to December 2008		$	(904	)
Crude Oil Swap		3,000 BBL		Fixed price of $70.75 settled against WTI NYMEX average monthly closings		July 2008 to December 2008			(1,240	)
Crude Oil Swap		3,000 BBL		Fixed price of $69.08 settled against WTI NYMEX average monthly closings		January 2009 to December 2009			(2,418	)
Crude Oil Swap		3,000 BBL		Fixed price of $70.90 settled against WTI NYMEX average monthly closings		January 2009 to December 2009			(2,357	)
Total swaps not designated as cash flow hedges								$	(6,919	)
Cash Flow Hedges:
Crude Oil Swap		5,000 BBL		Fixed price of $66.20 settled against WTI NYMEX average monthly closings		July 2008 to December 2008		$	(2,201	)
Ethane Swap		5,000 BBL		Fixed price of $27.30 settled against Mt. Belvieu Purity Ethane average monthly postings		July 2008 to December 2008			(720	)
Natural Gasoline Swap		3,000 BBL		Fixed price of $86.52 settled against Mt. Belvieu Non-TET natural gasoline average monthly postings.		July 2008 to September 2008			(369	)
Natural Gasoline Swap		3,000 BBL		Fixed price of $85.79 settled against Mt. Belvieu Non-TET natural gasoline average monthly postings.		October 2008 to December 2008			(377	)
Natural Gas swap		30,000 MMBTU		Fixed price of $9.025 settled against Inside Ferc Columbia Gulf daily average		January 2009 to December 2009			(1,144	)
Crude Oil Swap		1,000 BBL		Fixed price of $70.45 settled against WTI NYMEX average monthly closings		January 2009 to December 2009			(791	)
Natural Gasoline Swap		2,000 BBL		Fixed price of $86.42 settled against Mt. Belvieu Non-TET natural gasoline average monthly postings.		January 2009 to December 2009			(929	)

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

June 30, 2008
		Total
		Volume				Remaining Terms
Transaction Type		Per Month		Pricing Terms		of Contracts		Fair Value
Crude Oil Swap		2,000 BBL		Fixed price of $69.15 settled against WTI NYMEX average monthly closings		January 2010 to December 2010			(1,461	)
Crude Oil Swap		3,000 BBL		Fixed price of $72.25 settled against WTI NYMEX average monthly closings		January 2010 to December 2010			(2,093	)
Crude Oil Swap		1,000 BBL		Fixed price of $104.80 settled against WTI NYMEX average monthly closings		January 2010 to December 2010			(355	)
Natural Gasoline Swap		1,000 BBL		Fixed price of $94.14 settled against Mt. Belvieu Non-TET natural gasoline average monthly postings		January 2010 to December 2010			(335	)
Crude Oil Swap		2,000 BBL		Fixed price of $99.15 settled against WTI NYMEX average monthly closings		January 2011 to December 2011			(744	)
Crude Oil Swap		1,000 BBL		Fixed price of $103.80 settled against WTI NYMEX average monthly closings		January 2011 to December 2011			(326	)
Natural Gasoline Swap		2,000 BBL		Fixed price of $93.18 settled against Mt. Belvieu Non-TET natural gasoline average monthly postings		January 2011 to December 2011			(626	)
Total swaps designated as cash flow hedges								$	(12,471	)
Total net fair value of derivatives								$	(19,390	)

     On all transactions where the Partnership is exposed to counterparty risk, the Partnership analyzes the counterparty’s financial condition prior to entering into an agreement, has established a maximum credit limit threshold pursuant to its hedging policy, and monitors the appropriateness of these limits on an ongoing basis. The Partnership has incurred no losses associated with the counterparty non-performance on derivative contracts.

     As a result of the Prism Gas acquisition, the Partnership is exposed to the impact of market fluctuations in the prices of natural gas, NGLs and condensate as a result of gathering, processing and sales activities. Prism Gas gathering and processing revenues are earned under various contractual arrangements with gas producers. Gathering revenues are generated through a combination of fixed-fee and index-related arrangements. Processing revenues are generated primarily through contracts which provide for processing on percent-of-liquids (POL) and percent-of-proceeds (POP) basis. Prism Gas has entered into hedging transactions through 2011 to protect a portion of its commodity exposure from these contracts. These hedging arrangements are in the form of swaps for crude oil, natural gas, ethane, and natural gasoline.

     Based on estimated volumes, as of June 30, 2008, Prism Gas had hedged approximately 67%, 47%, 22% and 16% of its commodity risk by volume for 2008, 2009, 2010, and 2011, respectively. The Partnership anticipates entering into additional commodity derivatives on an ongoing basis to manage its risks associated with these market fluctuations, and will consider using various commodity derivatives, including forward contracts, swaps, collars, futures and options, although there is no assurance that the Partnership will be able to do so or that the terms thereof will be similar to the Partnership’s existing hedging arrangements.

Hedging Arrangements in Place
As of June 30, 2008

Year		Commodity Hedged		Volume		Type of Derivative		Basis Reference
2008		Condensate & Natural Gasoline		5,000 BBL/Month		Crude Oil Swap ($66.20)		NYMEX
2008		Natural Gas		30,000 MMBTU/Month		Natural Gas Swap ($8.12)		Houston Ship Channel
2008		Ethane		5,000 BBL/Month		Ethane Swap ($27.30)		Mt. Belvieu
2008		Natural Gasoline		3,000 BBL/Month		Crude Oil Swap ($70.75)		NYMEX

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

Year		Commodity Hedged		Volume		Type of Derivative		Basis Reference
2008		Natural Gasoline		3,000 BBL/Month		Natural Gasoline Swap ($86.52)		Mt. Belvieu (Non-TET)
2008		Natural Gasoline		3,000 BBL/Month		Natural Gasoline Swap ($85.79)		Mt. Belvieu (Non-TET)
2009		Natural Gas		30,000 MMBTU/Month		Natural Gas Swap (9.025)		Columbia Gulf
2009		Condensate & Natural Gasoline		3,000 BBL/Month		Crude Oil Swap ($69.08)		NYMEX
2009		Natural Gasoline		3,000 BBL/Month		Crude Oil Swap ($70.90)		NYMEX
2009		Condensate		1,000 BBL/Month		Crude Oil Swap ($70.45)		NYMEX
2009		Natural Gasoline		2,000 BBL/Month		Natural Gasoline Swap ($86.42)		Mt. Belvieu (Non-TET)
2010		Condensate		2,000 BBL/Month		Crude Oil Swap ($69.15)		NYMEX
2010		Natural Gasoline		3,000 BBL/Month		Crude Oil Swap ($72.25)		NYMEX
2010		Condensate		1,000 BBL/Month		Crude Oil Swap ($104.80)		NYMEX
2010		Natural Gasoline		1,000 BBL/Month		Natural Gasoline Swap ($94.14)		Mt. Belvieu (Non-TET)
2011		Natural Gasoline		2,000 BBL/Month		Crude Oil Swap ($99.15)		NYMEX
2011		Condensate		1,000 BBL/Month		Crude Oil Swap ($103.80)		NYMEX
2011		Natural Gasoline		2,000 BBL/Month		Natural Gasoline Swap ($93.18)		NYMEX

     The Partnership’s principal customers with respect to Prism Gas’ natural gas gathering and processing are large, natural gas marketing servicers, oil and gas producers and industrial end-users. In addition, substantially all of the Partnership’s natural gas and NGL sales are made at market-based prices. The Partnership’s standard gas and NGL sales contracts contain adequate assurance provisions which allows for the suspension of deliveries, cancellation of agreements or discontinuance of deliveries to the buyer unless the buyer provides security for payment in a form satisfactory to the Partnership.

Impact of Cash Flow Hedges

Crude Oil

     For the three month periods ended June 30, 2008 and 2007, net gains and losses on swap hedge contracts decreased crude revenue by $4,946 and $494, respectively. For the six month periods ending June 30, 2008 and 2007 net gains and losses on swap hedge contracts decreased crude revenue by $6,037 and $351, respectively. As of June 30, 2008 an unrealized derivative fair value loss of $7,332, related to cash flow hedges of crude oil price risk, was recorded in other comprehensive income (loss). This fair value loss is expected to be reclassified into earnings in 2008, 2009, 2010 and 2011. The actual reclassification to earnings will be based on mark-to-market prices at the contract settlement date, along with the realization of the gain or loss on the related physical volume, which amount is not reflected above.

Natural Gas

     For the three month periods ended June 30, 2008 and 2007, net gains and losses on swap hedge contracts decreased gas revenue by $626 and increased gas revenue $130, respectively. For the six month periods ended June 30, 2008 and 2007, net losses and gains on swap hedge contracts decreased gas revenue by $1,326 and $243, respectively. As of June 30, 2008 an unrealized derivative fair value loss of $1,144, related to cash flow hedges of natural gas price risk, was recorded in other comprehensive income (loss). This fair value loss is expected to be reclassified into earnings in 2009. The actual reclassification to earnings will be based on mark-to-market prices at the contract settlement date, along with the realization of the gain or loss on the related physical volume, which amount is not reflected above.

Natural Gas Liquids

     For the three month periods ended June 30, 2008 and 2007, net gains and losses on swap hedge contracts decreased liquids revenue by $477 and $180, respectively. For the six month periods ended June 30, 2008 and 2007, net gains and losses on swap hedge contracts decreased liquids revenue by $746 and $110, respectively. As of June 30, 2008 an unrealized derivative fair value loss of $3,355, related to cash flow hedges of NGLs price risk, was recorded in other comprehensive income (loss). This fair value loss is expected to be reclassified into earnings in 2008. The actual reclassification to earnings will be based on mark-to-market prices at the contract settlement date, along with the realization of the gain or loss on the related physical volume, which amount is not reflected above.

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

(8) Interest Rate Cash Flow Hedge 

     The Partnership has entered into several cash flow hedge agreements with an aggregate notional amount of $195,000 to hedge its exposure to increases in the benchmark interest rate underlying its variable rate revolving and term loan credit facilities. The Partnership designated these swap agreements as cash flow hedges. Under these swap agreements, the Partnership pays a fixed rate of interest and receives a floating rate based on a three-month U.S. Dollar LIBOR rate. Because these swaps are designated as a cash flow hedge, the changes in fair value, to the extent the swap is effective, are recognized in other comprehensive income until the hedged interest costs are recognized in earnings. At the inception of these hedges, these swaps were identical to the hypothetical swap as of the trade date, and will continue to be identical as long as the accrual periods and rate resetting dates for the debt and these swaps remain equal. This condition results in a 100% effective swap for the following hedges:

Date of Hedge		Notional Amount				Fixed Rate				Maturity Date
January 2008			$25,000				3.400	%		January 2010
September 2007			$25,000				4.605	%		September 2010
November 2006			$40,000				4.820	%		December 2009
March 2006			$75,000				5.250	%		November 2010

     In November 2006, the Partnership entered into an interest rate swap that swaps $30,000 of floating rate to fixed rate. The fixed rate cost is 4.765% plus the Partnership’s applicable LIBOR borrowing spread. This interest rate swap matures in March 2010. The underlying debt related to this swap was paid prior to December 31, 2006; therefore, hedge accounting was not utilized. The swap has been recorded at fair value at June 30, 2008 with an offset to current operations.

     The Partnership recognized increases in interest expense of $193 and $966 for the three and six months ended June 30, 2008, respectively, related to the difference between the fixed rate and the floating rate of interest on the interest rate swap and net cash settlement of interest rate hedges.

     The Partnership recognized decreases in interest expense of $403 and $431 for the three and six months ended June 30, 2007, respectively, related to the difference between the fixed rate and the floating rate of interest on the interest rate swap and net cash settlement of interest rate hedges.

     The fair value of derivative assets and liabilities are as follows:

		June 30,				December 31,
		2008				2007
Fair value of derivative assets — long-term		$	42			$	—
Fair value of derivative liabilities — current			(3,190	)			(1,241	)
Fair value of derivative liabilities — long term			(2,038	)			(3,436	)
Net fair value of derivatives		$	(5,186	)		$	(4,677	)

(9) Related Party Transactions

     Included in the consolidated and condensed financial statements are various related party transactions and balances primarily with Martin Resource Management and affiliates. Related party transactions include sales and purchases of products and services between the Partnership and these related entities as well as payroll and associated costs and allocation of overhead.

     The impact of these related party transactions is reflected in the consolidated and condensed financial statements as follows:

MARTIN MIDSTREAM PARTNERS L.P.
NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except where otherwise indicated)
June 30, 2008
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues:
Terminalling and storage		$	4,454			$	2,683			$	8,232			$	5,268
Marine transportation			6,219				6,133				12,443				12,687
Product sales:
Natural gas services			875				641				2,074				641
Sulfur services			4,410				91				8,921				99
Terminalling and storage			—				7				18				10
			5,285				739				11,013				750
		$	15,958			$	9,555			$	31,688			$	18,705
Costs and expenses:
Cost of products sold:
Natural gas services		$	28,578			$	13,646			$	48,982			$	25,856
Sulfur services			3,398				3,311				6,716				7,289
Terminalling and storage			19				—				297				—
		$	31,995			$	16,957			$	55,995			$	33,145
Expenses:
Operating expenses
Marine transportation		$	5,732			$	5,123			$	12,956			$	9,285
Natural gas services			389				378				773				763
Sulfur services			565				329				1,114				606
Terminalling and storage			2,298				1,138				4,568				2,175
		$	8,984			$	6,968			$	19,411			$	12,829
Selling, general and administrative:
Natural gas services		$	185			$	174			$	385			$	341
Sulfur services			467				397				908				784
Terminalling and storage			—				14				—				28
Indirect overhead allocation, net of reimbursement			674				326				1,347				652
		$	1,326			$	911			$	2,640			$	1,805

(10) Business Segments

     The Partnership has four reportable segments: terminalling and storage, natural gas services, marine transportation and sulfur services. The Partnership’s reportable segments are strategic business units that offer different products and services. The operating income of these segments is reviewed by the chief operating decision maker to assess performance and make business decisions.

     The accounting policies of the operating segments are the same as those described in Note 2 in the Partnership’s annual report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 5, 2008. The Partnership evaluates the performance of its reportable segments based on operating income. There is no allocation of administrative expenses or interest expense.

										Operating								Operating
						Intersegment				Revenues				Depreciation				Income (loss)
		Operating				Revenues				after				and				after				Capital
		Revenues				Eliminations				Eliminations				Amortization				eliminations				Expenditures
Three months ended June 30, 2008
Terminalling and storage		$	21,795			$	(1,013	)		$	20,782			$	2,301			$	2,156			$	5,375
Natural gas services			182,025				—				182,025				961				(2,667	)			2,590
Marine transportation			20,308				(999	)			19,309				2,948				1,993				10,417
Sulfur services			86,445				(418	)			86,027				1,404				4,128				774
Indirect selling, general and administrative			—				—				—				—				(1,315	)			—
Total		$	310,573			$	(2,430	)		$	308,143			$	7,614			$	4,295			$	19,156
Three months ended June 30, 2007
Terminalling and storage		$	11,622			$	(137	)		$	11,485			$	1,466			$	2,563			$	6,278
Natural gas services			105,321				—				105,321				871				464				890
Marine transportation			15,897				(742	)			15,155				1,963				1,385				10,541
Sulfur services			30,373				(20	)			30,353				1,168				2,605				3,300
Indirect selling, general and administrative			—				—				—				—				(850	)			—
Total		$	163,213			$	(899	)		$	162,314			$	5,468			$	6,167			$	21,009