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MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
14. Income Taxes – (continued)
these items in prior reporting periods. As of January 1, 2007, the Company had recorded a liability of approximately $400,000 for the payment of interest and penalties. The liability for the payment of interest and penalties did not materially change as of March 31,June 30, 2007.
The Internal Revenue Service, orDuring the quarter ended June 30, 2007, the IRS is concluding ancompleted its audit of the 2003 federal income tax return for a subsidiary of the Company’s airport services business. That audit did not result in a material assessment beyond the related reserve established as of January 1, 2007, upon the adoption of FIN 48. In addition, the IRS has notified the Company that it will conduct an audit of the airport parking business for 2004. The Company does not expect any material adjustments to result from eitherthat audit. There are no other ongoing tax examinations of returns filed by the Company or any of its subsidiaries, and all returns for all tax years ending in 2003 and later are subject to examination by federal and state tax authorities.
There was no material change in the Company’s reserve for uncertain tax positions during the quarter ended June 30, 2007.
The Company does not expect a material change in its reserve for uncertain tax positions in the next twelve12 months.
15. Legal Proceedings and Contingencies
There are no material legal proceedings other than as disclosed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the SEC on March 1, 2007.
16. Distributions
On February 27, 2007, the board of directors declared a distribution of $0.57 per share for the quarter ended December 31, 2006, which was paid on April 9, 2007 to holders of record on April 4, 2007. TheOn May 3, 2007, the board of directors declared a distribution declared hasof $0.59 per share for the quarter ended March 31, 2007, which was paid on June 8, 2007 to holders of record on June 5, 2007. These distributions have been recorded partially as a reduction to trust stock and partially as a reduction to accumulated earningsshare capital in the stockholders’ equity section of the accompanying consolidated condensed balance sheet at March 31,June 30, 2007.
17. Subsequent Events
Distributions
On May 3, August 7, 2007, the board of directors declared a distribution of $0.59 $0.605 per share for the quarter ended March 31,June 30, 2007, payable on June 8, September 11, 2007 to holders of record on June 5, September 6, 2007.
Pending Acquisitions
Limited Liability Interests Issued
On April 16,July 13, 2007, the Company entered into aissued 21,972 limited liability interests to MIMUSA, for the $957,000 performance fee generated in the quarter ended March 31, 2007, following MIMUSA’s election to re-invest the performance fee in Company stock.
On July 13, 2007, the Company issued 5,623 limited liability interests to each of the three independent directors, upon vesting of outstanding restricted stock purchase agreement with Mercury Air Centers, Inc., or Mercury, andunits granted under the Company’s Independent Directors’ Equity Plan.
In addition, the Company completed its equity holders providing for:
·
the Company’s purchase (through its airport services business) on the closing dateoffering in July 2007, further details of 89% of the equity of Mercury (representing 100% of the common stock of Mercury at closing) from Allied Capital Corporation, Directional Aviation Group, LLC and David Moore;
·
the Company’s purchase on the closing date of a call option to acquire the remaining 11% of the equity of Mercury (in the form of voting preferred shares) from Kenneth Ricci, exercisable from October 1, 2007 through October 31, 2007, pursuant to an option agreement to be entered into at closing; and
·
the Company’s grant of a put option under the option agreement to Mr. Ricci to sell the Company his 11% of the equity of Mercury, exercisable from April 1, 2008 to April 30, 2008.
MACQUARIE INFRASTRUCTURE COMPANY TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
17. Subsequent Events – (continued)
Mercury owns and operates 24 fixed base operations in the U.S. The aggregate purchase price, giving effect to the Company’s exercise of the call option, is $427.0 million, subject to working capital and capital expenditure adjustments. In addition to the purchase price, the Company expects to incur transaction costs (including advisory fees), pre-funded capital expenditures and a debt service reserve totaling $29.2 million for a total cost of $456.2 million. The Company intends to fund a portion of the acquisition with $192.0 million two-year term loan borrowings by Mercury with the balance funded with the MIC Inc. acquisition credit facility and $20.0 million of available cash.
The Company has received commitment letters from The Governor and Company of Bank of Ireland and Bayerische Landesbank, New York Branch to provide Mercury with a credit facility consisting of $192.0 million of term loans and a $17.5 million working capital facility. Borrowings under the facility will bear interest at an annual rate of LIBOR plus 1.70%. The Mercury credit facility will be secured by all project revenue and assets of Mercury and the stock of Mercury and, to the extent permitted, its subsidiaries. The facility will also include the following financial covenants:
| | | |
Distributions lock-up test:
| | ·
12 month look forward and 12 month look backward debt service coverage ratio of 1.50x or higher
|
| | ·
Full funding of any required environmental remediation
|
| | ·
12 month Site EBITDA on a proforma basis greater than:
|
| | Year
| Minimum EBITDA
|
| | 2007
| $27.10 million
|
| | 2008
| $28.80 million
|
| | 2009
| $30.50 million
|
| | ·
Projected site EBITDA in 2007 of at least $28.75 million in certain circumstances
|
| | |
Hedging:
| | ·
100% of the term loan portion of the facility
|
The Company is evaluating entering into forward starting interest rate swaps prior to closing, effectively fixing the interest rate on the $192.0 million two-year debt facility.
The Company expects to close the transaction in the third quarter of 2007. MSUSA is acting as financial advisor on the transaction.
MIC Inc. Revolver Amendments
As discussedwhich are provided in Note 13, Related Party Transactions, in April 2007, MBL assigned to a third party all of its rights and obligations under the revolving credit facility agreement with MIC Inc. related to $50.0 million of its aggregate commitment which was originally $100.0 million.11, Stockholders’ Equity.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We own, operate and invest in a diversified group of infrastructure businesses, whichbusinesses. They are businesses that provide basic, everydayan airport services such as airport services,business, a bulk liquid storage terminal business, a gas production and distribution business, a district energy business and an airport parking through long-lifebusiness. Each business provides basic, everyday services to customers in the U.S., such as gas for commercial and residential use and cold water for cooling high-rise buildings. Our businesses are further characterized by their long-lived physical assets. These infrastructure businesses generally operateassets and preferred position in sectors with limited competition and high barriers to entry.their respective markets. As a result they haveof these characteristics our businesses generate sustainable and growing long-term cash flows. We operate and finance our businesses in a manner that maximizes these cash flows.
On June 25, 2007, all of the outstanding shares of trust stock issued by the Trust were exchanged for an equal number of limited liability company interests in the Company and the Trust was dissolved. Prior to this exchange and the dissolution of the Trust, all interests in the Company were held by the Trust.
We are dependent upon cash distributions from our businesses and investments to meet our corporate overhead and management fee expenses and to pay distributions. We receive distributions through our directly owned holding company Macquarie Infrastructure Company Inc., or MIC Inc., for all of our businesses based in the United States.
Distributions received from our businesses and investments net of taxes, are available first to meet management fees and corporate overhead expenses then to fund distribution payments by the Company to the Trust for payment to holders of LLC interests (previously trust stock.stock). Base and performance management fees payable to our Manager are allocated among the Company and its operating company subsidiaries based on the Company’s internal allocation policy.
On February 27, 2007, the board of directors declared a distribution of $0.57 per share for the quarter ended December 31, 2006, which was paid on April 9, 2007 to holders of record on April 4, 2007. Onpayablewhich was paid on
Refer to “Other Matters” at the end of this Item 2 for discussion of forward looking statements and certain defined terms.
Changes in Fair Value of Derivative Instruments
During 2006, the Company determined that its derivative instruments did not qualify as hedges for accounting purposes. We revised our summarized quarterly financial information to eliminate hedge accounting treatment resulting in all changes in the fair value of our derivative instruments being taken through earnings.
From January 2, 2007, changes in the fair value of interest rate derivatives designeddesignated as hedging instruments that effectively offset the variability of cash flows associated with variable-rate, long-term debt obligations will beare reported in other comprehensive income. Any ineffective portion on the change in the valuation of our derivatives will beis taken through earnings, and reported in the (loss) gain on derivative instruments line in our consolidated condensed statements of income. operations.
Tax Treatment of Distributions
EachThrough the year ended December 31, 2006, each holder of the Trust’s stock will bewas required to include in U.S. federal taxable income its allocable share of the Trust’s income, gain, loss deductions and other items. The amounts shareholders include in taxable income may not equalhave equaled the cash distributions to shareholders.
SomeThe agreement reached with the Internal Revenue Service referred to in Note 14, Income Taxes, to our consolidated condensed financial statements in Part I, Item I of this Form 10-Q, which is incorporated herein by reference, will cause the Company to be treated as a corporation for federal income tax purposes beginning January 1, 2007. For tax year 2007 shareholders will need to include in taxable income the portion of our distributions received by the Trust on its investment in Macquarie Infrastructure Company LLC maythat is characterized as a dividend. It is likely that a portion of our distributions will be acharacterized as return of capital for U.S. federal income tax purposes. Therefore, the amount we distributepurposes and will result in an adjustment to our shareholders may exceed their allocable share of the items of income and expense. The extent to which the distributions from Macquarie Infrastructure Company LLC will be characterized as dividend income cannot be estimated at this time. In some cases, distributions to holders of the Trust’s stock may be less than the items of income.
If cash distributions exceed the allocable items of income and deductions, the shareholder’s tax basis in its investment will generally be decreased by the excess, increasing the potential capital gain on the sale of the stock. Correspondingly, if the cash distributions are lessrather than the allocable items of income and deductions, there will be an increase in the shareholders basis and reduction in the potential capital gain.taxable income.
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The portion of our distributions that will be treated as dividends interest or return of capital for U.S. federal income tax purposes is subject to a number of uncertainties. We currently anticipate that substantially all of the
portion of our regular distributions that are treated as dividends for U.S. federal income tax purposes shouldwill be characterizedeligible for treatment as qualified dividend income.
Other Tax Matters
A recent pronouncementincome, subject to the shareholder having met the holding period requirements as defined by the IRS questionsIRS.
Equity Offering
Following the characterizationend of entities with structures like ours as grantor trustssecond quarter 2007, we completed an offering of an aggregate of 5,701,000 limited liability interests at a price of $40.99 per interest, for which we received proceeds of $223.8 million net of underwriting fees and could change how we comply with our tax information reporting obligations. Dependingexpenses. In addition, on July 27, 2007, the resolution of these matters, we may be requiredUnderwriters exercised their overallotment option for 464,871 limited liability interests, generating a further approximately $18.2 million in net proceeds. We plan to report allocable income, expense and credit items touse the IRS and to shareholders on Schedule K-1, in addition to or insteadproceeds of the letter we sendoffering to investors each year. A change inpartially finance the characterizationacquisition of the trust would not change shareholders' distributive share of items of income, gain, lossMercury Air Centers and expense of the Trust or the Company, nor would it change the income tax liability of the Trust or the Company.
If we are required, or reasonably likely to be required, to issue Schedule K-1s to shareholders, we would exchange all shares of outstanding trust stock for an equal number of LLC interestsSJJC (discussed below under “Acquisitions and further, we intend to take all necessary steps to elect to be treated as a corporation for U.S. federal income tax purposes. In that case, we would have the same tax reporting obligations of a corporation (rather than a partnership) and would not be required to issue Schedule K-1s to shareholders.Dispositions — Pending Acquisitions”).
Acquisitions and Dispositions
Results of the operations of the Trajen acquisition infor acquisitions by the airport services business and theour acquisition of TGC are included in our consolidated results from thetheir respective dates of acquisition. Our interest inThe results of the operations of IMTT Holdings Inc. are not included in our consolidated results, but our share of net income from the investment in the business is reflected in our equity in earnings and amortization charges of investee line in our financial statements from May 1, 2006.
Refer to our Annual Report on Form 10-K, filed with the SEC on March 1, 2007, for further details on thesethe 2006 acquisitions, and also the dispositions of non-U.S. investments as discussed below.
Airport Services Business
On May 30, 2007, the Company completed the acquisition of 100% of the interests in entities that own and operate the FBOs at Stewart International Airport in New York and Santa Monica Airport in California (together referred to as “Supermarine”).
On July 11, 2006, our airport services business acquired 100% of the shares of Trajen Holdings, Inc., or Trajen, the holding company for 23 fixed base operations, or FBOs at airports in 11 states.
With this acquisition,these acquisitions, our airport services business owns and operates a network of 40 42 FBOs and one heliport in the United States, the second largest such network in the industry.
The Gas Company, or TGC
We acquired TGC on June 7, 2006. TGC owns and operates the sole regulated gas production and distribution business in Hawaii as well as athe largest propane sales and distribution business in Hawaii.
IMTT
On May 1, 2006, we completed the purchase of newly issued common stock of IMTT Holdings Inc., the holding company for a group of companies and partnerships that operate as International-Matex Tank Terminals, or IMTT. As a result of this transaction, we own 50% of IMTT Holdings’ issued and outstanding common stock. We have entered into a shareholders’ agreement which provides, with some exceptions, for minimum aggregate quarterly distributions of
Dispositions
On August 17, 2006, we sold our 16,517,413 stapled securities of Macquarie Communications Infrastructure Group (ASX: MCG), or MCG, for $76.4 million. On October 2, 2006, we sold our 17.5% minority interest in the holding company for South East Water, or SEW, to HDF (UK) Holdings Limited and received net proceeds on the sale of approximately $89.5 million. On December 29, 2006, we sold our interest in Macquarie Yorkshire Limited, the holding company for its 50% interest in Connect M1-A1 Holdings Limited (the parent of the holder of the Yorkshire Link Concession in England) and received approximately $83.0 million in January 2007.
Pending Acquisitions
On December 21, 2006, the Company entered into a business purchase agreement and a membership interest purchase agreement to acquire 100% of the interests in entities that own and operate two fixed base operations, or FBOs. The total purchase price is a cash consideration of $85.0 million (subject to working capital adjustments). In addition to the purchase price, it is anticipated that a further $4.5 million will be incurred to cover transaction costs, integration costs and reserve funding. The FBOs are located at Stewart International Airport in New York and Santa Monica Airport in California.
The Company expects to close the transaction through its airport services business. The Company expects to finance the purchase price and the associated transaction and other costs, in part, with $32.5 million of additional term loan borrowings under an expansion of the credit facility at its airport services business. The Company expects to pay the remainder of the purchase price and associated costs with cash on hand. The credit facility will continue to be secured by all of the assets and stock of companies within the airport services business.
On April 16, 2007, the Company entered into a stock purchase agreement with Mercury Air Centers, Inc., or Mercury, and its equity holders providing for:
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the Company’s purchase (through its airport services business) on the closing date of 89% of the equity of Mercury (representing 100% of the common stock of Mercury at closing) from Allied Capital Corporation, Directional Aviation Group, LLC and David Moore;
·
the Company’s purchase on the closing date of a call option to acquire the remaining 11% of the equity of Mercury (in the form of voting preferred shares) from Kenneth Ricci, exercisable from October 1, 2007 through October 31, 2007, pursuant to an option agreement to be entered into at closing; and
·
the Company’s grant of a put option under the option agreement to Mr. Ricci to sell us his 11% of the equity of Mercury, exercisable from April 1, 2008 to April 30, 2008.
On June 12, 2007, the Company entered into an amendment of the stock purchase agreement to reflect Mercury, through a wholly-owned subsidiary, entering into an agreement to purchase 100% of the membership interests in SJJC Aviation Services, LLC, or SJJC, from San Jose Jet Center Inc. and ACM Aviation Inc. The closing of the acquisition of SJJC by Mercury is conditioned on either the Company’s closing of its acquisition of Mercury or the termination of the Company’s acquisition of Mercury. In the event of a termination or failure to close the acquisition of Mercury by November 1, 2007, Mercury is obligated to assign to the Company all of its rights and obligations under the SJJC agreement. As a result, the Company has effectively entered into an agreement to acquire SJJC.
Mercury owns and operates 24 fixed base operationsFBOs in the U.S. and SJJC operates two FBOs at Mineta San Jose International Airport in California. The aggregate purchase price giving effect to our exercise offor the call option,whole transaction is $427.0$615.0 million, subject to working capital and capital expenditure adjustments. In addition to the purchase price, the Company expects to incuradjustments and includes $36.9 million of transaction costs, (including advisory fees), pre-funded capital expendituresintegration costs and a debt service reserve totaling $29.2 million for a total cost of $456.2 million.funding. The Company intends to fund a portion of the acquisition with $192.0$272.0 million two-year term loan borrowings by Mercury with the balance funded with proceeds from the MIC Inc. acquisition credit facility and $20.0 million of available cash.Company’s July 2007 equity offering.
Results of Operations
Key Factors Affecting Operating Results
·
positive contributions from our acquisitions including:
·
acquisition of the Trajen network of 23
FBOs;·
FBOs acquired in July 2006;
the acquisition of 50% of IMTT
which has declaredin May 2006, and its declaration of a
quarterly $7.0 million
distributiondividend each quarter since the second quarter of 2006.
This distribution reducesOur investment in IMTT is accounted for using the equity method. As a result, a large portion of the dividends from IMTT increase our
investments in unconsolidated businesses on our balance sheet and iscash flow from investing activities but are not included in our
statementstatements of
income;·
operations;
the acquisition of
TGC;·
TGC in June 2006;
increased gross profit from our airport services business;
·
higher base management fees due to our increased asset base, offset by lowermarket capitalization;
substantially higher performance
fees;fees due to the outperformance of our stock price compared with the benchmark indices, all of which are, or will be, reinvested in additional LLC interests and
·
therefore have no effect on cash; and
an increase in interest expense due to the overall increase in our debt to fund our acquisitions.
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Our consolidated results of operations are summarized
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | |
| | 2007 | | 2006 | | Change | |
| | $ | | $ | | $ | | % | |
| | | ($ in thousands) (unaudited) | |
Revenues | | | | | | | | | |
Revenue from product sales | | | 110,648 | | | 41,992 | | | 68,656 | | | 163.5 | |
Service revenue | | | 57,086 | | | 42,904 | | | 14,182 | | | 33.1 | |
Financing and equipment lease income | | | 1,248 | | | 1,298 | | | (50 | ) | | (3.9 | ) |
Total revenue | | | 168,982 | | | 86,194 | | | 82,788 | | | 96.0 | |
| | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | |
Cost of product sales | | | 70,484 | | | 25,269 | | | 45,215 | | | 178.9 | |
Cost of services | | | 23,342 | | | 21,032 | | | 2,310 | | | 11.0 | |
Gross profit | | | 75,156 | | | 39,893 | | | 35,263 | | | 88.4 | |
| | | | | | | | | | | | | |
Selling, general and administrative | | | 38,978 | | | 23,950 | | | 15,028 | | | 62.7 | |
Fees to manager | | | 5,561 | | | 6,478 | | | (917 | ) | | (14.2 | ) |
Depreciation | | | 3,891 | | | 1,710 | | | 2,181 | | | 127.5 | |
Amortization of intangibles | | | 6,928 | | | 3,446 | | | 3,482 | | | 101.0 | |
Total operating expenses | | | 55,358 | | | 35,584 | | | 19,774 | | | 55.6 | |
| | | | | | | | | | | | | |
Operating income | | | 19,798 | | | 4,309 | | | 15,489 | | | NM | |
| | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | |
Dividend income | | | — | | | 2,651 | | | (2,651 | ) | | (100.0 | ) |
Interest income | | | 1,459 | | | 1,702 | | | (243 | ) | | (14.3 | ) |
Interest expense | | | (17,566 | ) | | (15,663 | ) | | (1,903 | ) | | 12.1 | |
Equity in earnings and amortization charges of investees | | | 3,465 | | | 2,453 | | | 1,012 | | | 41.3 | |
(Loss) gain on derivative instruments | | | (477 | ) | | 13,686 | | | (14,163 | ) | | (103.5 | ) |
Other expense, net | | | (916 | ) | | (178 | ) | | (738 | ) | | NM | |
Net income before income taxes and minority interests | | | 5,763 | | | 8,960 | | | (3,197 | ) | | (35.7 | ) |
Benefit (provision) for income taxes | | | 2,045 | | | (1,393 | ) | | 3,438 | | | NM | |
Net income before minority interests | | | 7,808 | | | 7,567 | | | 241 | | | 3.2 | |
Minority interests | | | (69 | ) | | 6 | | | (75 | ) | | NM | |
Net income | | | 7,877 | | | 7,561 | | | 316 | | | 4.2 | |
——————
 | | | | | | | | | | | | | | | | |
| | Quarter Ended June 30, | | | | Six Months Ended June 30, | | |
| | | 2007 | | 2006 | | Change | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue from
product sales | | | 114,809 | | | | 56,922 | | | | 57,887 | | | | 101.7 | | | | 225,457 | | | | 98,914 | | | | 126,543 | | | | 127.9 | |
| Service revenue | | | 61,161 | | | | 47,726 | | | | 13,435 | | | | 28.2 | | | | 118,247 | | | | 90,630 | | | | 27,617 | | | | 30.5 | |
| Financing and equipment lease income | | | 1,235 | | | | 1,285 | | | | (50 | ) | | | (3.9 | ) | | | 2,483 | | | | 2,583 | | | | (100 | ) | | | (3.9 | ) |
| Total revenue | | | 177,205 | | | | 105,933 | | | | 71,272 | | | | 67.3 | | | | 346,187 | | | | 192,127 | | | | 154,060 | | | | 80.2 | |
Costs and expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of product sales | | | 75,121 | | | | 36,010 | | | | 39,111 | | | | 108.6 | | | | 145,605 | | | | 61,279 | | | | 84,326 | | | | 137.6 | |
| Cost of services | | | 26,323 | | | | 22,632 | | | | 3,691 | | | | 16.3 | | | | 49,665 | | | | 43,664 | | | | 6,001 | | | | 13.7 | |
| Gross profit | | | 75,761 | | | | 47,291 | | | | 28,470 | | | | 60.2 | | | | 150,917 | | | | 87,184 | | | | 63,733 | | | | 73.1 | |
| Selling, general and administrative | | | 38,564 | | | | 24,294 | | | | 14,270 | | | | 58.7 | | | | 77,542 | | | | 48,244 | | | | 29,298 | | | | 60.7 | |
| Fees to manager | | | 48,964 | | | | 3,718 | | | | 45,246 | | | | NM | | | | 54,525 | | | | 10,196 | | | | 44,329 | | | | NM | |
| Depreciation | | | 4,162 | | | | 2,121 | | | | 2,041 | | | | 96.2 | | | | 8,053 | | | | 3,831 | | | | 4,222 | | | | 110.2 | |
| Amortization of intangibles | | | 7,004 | | | | 3,580 | | | | 3,424 | | | | 95.6 | | | | 13,932 | | | | 7,026 | | | | 6,906 | | | | 98.3 | |
| Total operating expenses | | | 98,694 | | | | 33,713 | | | | 64,981 | | | | 192.7 | | | | 154,052 | | | | 69,297 | | | | 84,755 | | | | 122.3 | |
| Operating (loss) income | | | (22,933 | ) | | | 13,578 | | | | (36,511 | ) | | | NM | | | | (3,135 | ) | | | 17,887 | | | | (21,022 | ) | | | (117.5 | ) |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividend income | | | — | | | | 2,351 | | | | (2,351 | ) | | | (100.0 | ) | | | — | | | | 5,002 | | | | (5,002 | ) | | | (100.0 | ) |
| Interest income | | | 1,465 | | | | 1,180 | | | | 285 | | | | 24.2 | | | | 2,924 | | | | 2,882 | | | | 42 | | | | 1.5 | |
| Interest expense | | | (17,705 | ) | | | (15,604 | ) | | | (2,101 | ) | | | 13.5 | | | | (35,271 | ) | | | (31,267 | ) | | | (4,004 | ) | | | 12.8 | |
| Equity in (losses) earnings and amortization charges of investees | | | (1,145 | ) | | | 3,115 | | | | (4,260 | ) | | | (136.8 | ) | | | 2,320 | | | | 5,568 | | | | (3,248 | ) | | | (58.3 | ) |
| Gain on derivative instruments | | | 1,138 | | | | 6,487 | | | | (5,349 | ) | | | (82.5 | ) | | | 661 | | | | 20,162 | | | | (19,501 | ) | | | (96.7 | ) |
Other income
(expense), net | | | 272 | | | | 94 | | | | 178 | | | | 189.4 | | | | (644 | ) | | | (73 | ) | | | (571 | ) | | | NM | |
| Net (loss) income before income taxes and minority interests | | | (38,908 | ) | | | 11,201 | | | | (50,109 | ) | | | NM | | | | (33,145 | ) | | | 20,161 | | | | (53,306 | ) | | | NM | |
| Benefit (provision) for income taxes | | | 13,833 | | | | (1,618 | ) | | | 15,451 | | | | NM | | | | 15,878 | | | | (3,011 | ) | | | 18,889 | | | | NM | |
| Net (loss) income before minority interests | | | (25,075 | ) | | | 9,583 | | | | (34,658 | ) | | | NM | | | | (17,267 | ) | | | 17,150 | | | | (34,417 | ) | | | NM | |
| Minority interests | | | (28 | ) | | | 146 | | | | (174 | ) | | | (119.2 | ) | | | (97 | ) | | | 152 | | | | (249 | ) | | | (163.8 | ) |
| Net (loss) income | | | (25,047 | ) | | | 9,437 | | | | (34,484 | ) | | | NM | | | | (17,170 | ) | | | 16,998 | | | | (34,168 | ) | | | NM | |
NM – Not meaningful
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Gross Profit
The increase in our consolidated gross profit was due primarily to the acquisitions of Trajen on July 11, 2006 and TGC on June 7, 2006.2006 and growth in existing businesses, particularly our airport services business.
Selling, General and Administrative Expenses
The most significant factor in the increase in selling,Selling, general and administrative expenses was $14.9includes approximately $12.6 million additional costsand $27.5 million for the quarter and six months ended June 2007, respectively, from the additionour 2006 acquisitions of TGC and Trajen not reflectedTrajen.
Fees to Manager
The six months ended June 30, 2007 includes $43.0 million in 2006 results.performance fees earned by our manager, MIMUSA, in the second quarter and $957,000 in the first quarter. MIMUSA has elected to reinvest these performance fees in shares of LLC interests.
Other Income (Expense)
Our dividend income in 2006 consisted of distributions declared by MCG in the second quarter and distributions declared by and received from SEW in the first quarter. We sold our investmentinvestments in MCG and SEW in the third quarterand fourth quarters of 2006.2006, respectively.
Interest expense increased due mostly to a higher level of debt in 2006,2007, primarily from the acquisitions made in the second and third quarters of 2006.
Our equity in earnings and amortization charges of investees comprises our equity in the earnings on our Yorkshire Link investment for the first quarter and six months of 2006 and our equity in the earnings of IMTT for the first quarter and six months of 2007.
The increase We sold our investment in other expense was due primarily to foreign currency forward contracts settled duringYorkshire Link in the firstfourth quarter of 2007, in addition to other foreign currency losses from settlement proceeds on the sale of our foreign investments.2006.
Income Taxes
For the 2006 year, the Company reported a net loss before taxes at the MIC Inc. level, for which it recorded an income tax benefit. The Company also reported net income before taxes outside MIC Inc. that will not be subject to income taxes payable by the Company. The income derived from outside MIC Inc. was partially offset by the pre-tax loss at the MIC Inc. level, resulting in pre-tax income on a consolidated basis.
For the 2007 year, theThe Company projects a consolidated net loss before taxes at the MIC Inc. level,for 2007, for which it expects to record an income tax benefit. TheAs the Company also projectshas agreed with the Internal Revenue Service to be treated as a netcorporation for all of 2007, the portion of the loss outsideattributable to MIC Inc. thatis no longer relevant, as all income of the Company and MIC Inc. will not be subject toincluded in one consolidated federal income taxes payable by the Company.tax return.
Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA
We have included EBITDA, a non-GAAP financial measure, on both a consolidated basis as well as for each
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TABLE OF CONTENTS
A reconciliation of net (loss) income to EBITDA, on a consolidated basis, is provided
| | | | | | | | | | |
| | | Quarter Ended March 31, | | |
| | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % |
| | | ($ in thousands) (unaudited) |
Net income | | | 7,877 | | | 7,561 | | 316 | | 4.2 |
Interest expense, net | | | 16,107 | | | 13,961 | | 2,146 | | 15.4 |
Income taxes | | | (2,045 | ) | | 1,393 | | (3,438 | ) | NM |
Depreciation(1) | | | 6,357 | | | 3,998 | | 2,359 | | 59.0 |
Amortization(2) | | | 6,928 | | | 3,446 | | 3,482 | | 101.0 |
EBITDA | | | 35,224 | | | 30,359 | | 4,865 | | 16.0 |
——————
| | | | | | | | | | | | | | | | |
| | Quarter Ended June 30, | | | | Six Months Ended June 30, | | |
| | | 2007 | | 2006 | | Change | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
| Net (loss) income(1) | | | (25,047 | ) | | | 9,437 | | | | (34,484 | ) | | | NM | | | | (17,170 | ) | | | 16,998 | | | | (34,168 | ) | | | NM | |
| Interest expense, net | | | 16,240 | | | | 14,424 | | | | 1,816 | | | | 12.6 | | | | 32,347 | | | | 28,385 | | | | 3,962 | | | | 14.0 | |
| Income taxes | | | (13,833 | ) | | | 1,618 | | | | (15,451 | ) | | | NM | | | | (15,878 | ) | | | 3,011 | | | | (18,889 | ) | | | NM | |
| Depreciation(2) | | | 6,672 | | | | 4,292 | | | | 2,380 | | | | 55.5 | | | | 13,029 | | | | 8,290 | | | | 4,739 | | | | 57.2 | |
| Amortization(3) | | | 7,004 | | | | 3,580 | | | | 3,424 | | | | 95.6 | | | | 13,932 | | | | 7,026 | | | | 6,906 | | | | 98.3 | |
| EBITDA | | | (8,964 | ) | | | 33,351 | | | | (42,315 | ) | | | (126.9 | ) | | | 26,260 | | | | 63,710 | | | | (37,450 | ) | | | (58.8 | ) |
NM – Not meaningful
(1)
Includes depreciation expense of $1.4 million for the district energy business for the quarters ended March 31, 2007 and 2006, which is reported in cost of services in our statements of income. Also includes depreciation expense of $1.0 million and $865,000 for the airport parking business for the quarters ended March 31, 2007 and 2006, respectively, which is reported in cost of services. Does not include depreciation expense of $1.7 million in connection with our investment in IMTT for the quarter ended March 31, 2007, which is reported in equity in earnings and amortization charges of investees in our statements of income.
(2)
Does not include amortization expense related to intangible assets in connection with our investment in the toll road business of $933,000 for the quarter ended March 31, 2006 or our investment in IMTT of $283,000 for the quarter ended March 31, 2007, which are reported in equity in earnings and amortization charges of investees in our statements of income.
| (1) | Net loss for the six months ended June 30, 2007 includes performance fees earned by our manager, MIMUSA, of $43.0 million in the second quarter and $957,000 in the first quarter. MIMUSA has elected to reinvest these performance fees in shares of LLC interests. |
| (2) | Includes depreciation expense of $1.4 million, $1.4 million, $2.9 million and $2.8 million for the district energy business for the quarters ended June 30, 2007 and 2006 and the six month periods ended on the same dates, respectively, which are reported in cost of services in our consolidated condensed statements of operations. Also includes depreciation expense of $1.1 million, $744,000, $2.1 million and $1.6 million for the airport parking business for the quarters ended June 30, 2007 and 2006 and the six month periods ended on the same dates, respectively, which are also reported in cost of services in our consolidated condensed statements of operations. Does not include depreciation expense of $1.7 million and $3.4 million in connection with our investment in IMTT for the quarter and six months ended June 30, 2007, respectively, which is reported in equity in earnings and amortization charges of investees in our statements of operations. |
| (3) | Does not include amortization expense related to intangible assets in connection with our investment in the toll road business of $974,000 and $1.9 million for the quarter and six months ended June 30, 2006, respectively, which are reported in equity in earnings and amortization charges of investees in our consolidated condensed statements of operations. Also does not include amortization expense related to intangible assets in connection with our investment in IMTT of $283,000, $189,000, $567,000 and $189,000 for the quarters ended June 30, 2007 and 2006 and the six month periods ended on the same dates, respectively, which are reported in equity in earnings and amortization charges of investees in our statements of operations. |
Business Segment Operations
AIRPORT SERVICES BUSINESS
The following section summarizes the historical consolidated financial performance of our airport services business for the quarter and six months ended March 31,June 30, 2007. Information in the table below relating to existing locations in 2007 represents the results of our airport services business excluding the results of the twenty three23 locations acquired from Trajen Holdings Inc., or Trajen.Trajen and the two locations acquired from Supermarine of Santa Monica and Supermarine of Stewart, collectively Supermarine. The acquisition column and the total 2007 quarter results in the tabletables below include the operating results of Trajen for theMarch 31,June 30, 2007 and Supermarine for period May 30, 2007 to June 30, 2007.
The performance of the business reflects ongoing operations at 41 locations. The business has ceased operations at New Orleans – Lakefront airport as a result of the ongoing impact of hurricane Katrina on that airport. The airport services business continues
Quarter Ended June 30, 2007 Compared to operate at New Orleans International airport and management does not believe that the cessation of operations at Lakefront will have a material impact on the performance or prospects of the business.
Quarter Ended June 30, 2006Key Factors Affecting Operating Results
·
contribution of positive operating results from
23 FBOs
from Trajen acquired in July
2006;·
2006 and two FBOs acquired in May 2007;
higher dollar per gallon fuel margins
at existing locations and higher
into-planefuel volumes;
·
lower fuel prices resulting in lower fuel sales revenue and costs of good sold;
·
higher other services gross profit due to increased de-icing;
·
increased expenses related to the
acquisitionoperation of
Trajen, including labor costs incurred for the re-branding25 acquired FBOs; and
integration of the Trajen locations; and·
higher interest expensecosts from higher debt levels resulting from the increased borrowings related to the acquisition of Trajenacquisitions in July 2006.2006 and May 2007.
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TABLE OF CONTENTS
Quarter Ended March 31, 2007 Compared to Quarter Ended March 31, 2006
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Existing Locations | | Trajen | | Total | |
| | | 2007 | | 2006 | | Change | | Acquisition | | 2007 | | 2006 | | Change | |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | $ | | % | |
| | | ($ in thousands) (unaudited) | |
Revenue | | | | | | | | | | | | | | | | | | | |
Fuel revenue | | | 41,601 | | | 41,992 | | | (391 | ) | | (0.9 | ) | | 28,246 | | | 69,847 | | | 41,992 | | | 27,855 | | | 66.3 | |
Non-fuel revenue | | | 22,922 | | | 18,179 | | | 4,743 | | | 26.1 | | | 8,291 | | | 31,213 | | | 18,179 | | | 13,034 | | | 71.7 | |
Total revenue | | | 64,523 | | | 60,171 | | | 4,352 | | | 7.2 | | | 36,537 | | | 101,060 | | | 60,171 | | | 40,889 | | | 68.0 | |
Cost of revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenue-fuel | | | 23,489 | | | 25,270 | | | (1,781 | ) | | (7.0 | ) | | 17,089 | | | 40,578 | | | 25,270 | | | 15,308 | | | 60.6 | |
Cost of revenue – non-fuel | | | 2,466 | | | 2,331 | | | 135 | | | 5.8 | | | 955 | | | 3,421 | | | 2,331 | | | 1,090 | | | 46.8 | |
Total cost of revenue | | | 25,955 | | | 27,601 | | | (1,646 | ) | | (6.0 | ) | | 18,044 | | | 43,999 | | | 27,601 | | | 16,398 | | | 59.4 | |
Fuel gross profit | | | 18,112 | | | 16,722 | | | 1,390 | | | 8.3 | | | 11,157 | | | 29,269 | | | 16,722 | | | 12,547 | | | 75.0 | |
Non-fuel gross profit | | | 20,456 | | | 15,848 | | | 4,608 | | | 29.1 | | | 7,336 | | | 27,792 | | | 15,848 | | | 11,944 | | | 75.4 | |
Gross profit | | | 38,568 | | | 32,570 | | | 5,998 | | | 18.4 | | | 18,493 | | | 57,061 | | | 32,570 | | | 24,491 | | | 75.2 | |
Selling, general and administrative expenses | | | 19,735 | | | 18,698 | | | 1,037 | | | 5.5 | | | 10,800 | | | 30,535 | | | 18,698 | | | 11,837 | | | 63.3 | |
Depreciation and amortization | | | 4,414 | | | 4,413 | | | 1 | | | — | | | 3,549 | | | 7,963 | | | 4,413 | | | 3,550 | | | 80.4 | |
Operating income | | | 14,419 | | | 9,459 | | | 4,960 | | | 52.4 | | | 4,144 | | | 18,563 | | | 9,459 | | | 9,104 | | | 96.2 | |
Interest expense, net | | | (5,193 | ) | | (8,913 | ) | | 3,720 | | | (41.7 | ) | | (3,068 | ) | | (8,261 | ) | | (8,913 | ) | | 652 | | | (7.3 | ) |
Other expense | | | (29 | ) | | (36 | ) | | 7 | | | (19.4 | ) | | 6 | | | (23 | ) | | (36 | ) | | 13 | | | (36.1 | ) |
Unrealized (loss) gain on derivative instruments | | | (949 | ) | | 7,315 | | | (8,264 | ) | | (113.0 | ) | | — | | | (949 | ) | | 7,315 | | | (8,264 | ) | | (113.0 | ) |
Provision for income taxes | | | (3,270 | ) | | (3,273 | ) | | 3 | | | (0.1 | ) | | (429 | ) | | (3,699 | ) | | (3,273 | ) | | (426 | ) | | 13.0 | |
Net income (1) | | | 4,978 | | | 4,552 | | | 426 | | | 9.4 | | | 653 | | | 5,631 | | | 4,552 | | | 1,079 | | | 23.7 | |
Reconciliation of net income to EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (1) | | | 4,978 | | | 4,552 | | | 426 | | | 9.4 | | | 653 | | | 5,631 | | | 4,552 | | | 1,079 | | | 23.7 | |
Interest expense, net | | | 5,193 | | | 8,913 | | | (3,720 | ) | | (41.7 | ) | | 3,068 | | | 8,261 | | | 8,913 | | | (652 | ) | | (7.3 | ) |
Provision for income taxes | | | 3,270 | | | 3,273 | | | (3 | ) | | (0.1 | ) | | 429 | | | 3,699 | | | 3,273 | | | 426 | | | 13.0 | |
Depreciation and amortization | | | 4,414 | | | 4,413 | | | 1 | | | — | | | 3,549 | | | 7,963 | | | 4,413 | | | 3,550 | | | 80.4 | |
EBITDA | | | 17,855 | | | 21,151 | | | (3,296 | ) | | (15.6 | ) | | 7,699 | | | 25,554 | | | 21,151 | | | 4,403 | | | 20.8 | |
——————
(1)
Corporate allocation expense, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Quarter Ended June 30, 2007 Compared to Quarter Ended June 30, 2006 |
| | Existing Locations | | | | Total |
| | | 2007 | | 2006 | | Change | | Acquisitions(2) | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fuel revenue | | | 44,867 | | | | 46,298 | | | | (1,431 | ) | | | (3.1 | ) | | | 28,822 | | | | 73,689 | | | | 46,298 | | | | 27,391 | | | | 59.2 | |
| Non-fuel revenue | | | 20,387 | | | | 17,654 | | | | 2,733 | | | | 15.5 | | | | 8,400 | | | | 28,787 | | | | 17,654 | | | | 11,133 | | | | 63.1 | |
| Total revenue | | | 65,254 | | | | 63,952 | | | | 1,302 | | | | 2.0 | | | | 37,222 | | | | 102,476 | | | | 63,952 | | | | 38,524 | | | | 60.2 | |
Cost of revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of revenue-fuel | | | 26,283 | | | | 28,517 | | | | (2,234 | ) | | | (7.8 | ) | | | 18,055 | | | | 44,338 | | | | 28,517 | | | | 15,821 | | | | 55.5 | |
| Cost of revenue-non-fuel | | | 1,527 | | | | 1,558 | | | | (31 | ) | | | (2.0 | ) | | | 1,145 | | | | 2,672 | | | | 1,558 | | | | 1,114 | | | | 71.5 | |
| Total cost of revenue | | | 27,810 | | | | 30,075 | | | | (2,265 | ) | | | (7.5 | ) | | | 19,200 | | | | 47,010 | | | | 30,075 | | | | 16,935 | | | | 56.3 | |
| Fuel gross profit | | | 18,584 | | | | 17,781 | | | | 803 | | | | 4.5 | | | | 10,767 | | | | 29,351 | | | | 17,781 | | | | 11,570 | | | | 65.1 | |
| Non-fuel gross profit | | | 18,860 | | | | 16,096 | | | | 2,764 | | | | 17.2 | | | | 7,255 | | | | 26,115 | | | | 16,096 | | | | 10,019 | | | | 62.2 | |
| Gross profit | | | 37,444 | | | | 33,877 | | | | 3,567 | | | | 10.5 | | | | 18,022 | | | | 55,466 | | | | 33,877 | | | | 21,589 | | | | 63.7 | |
| Selling, general and administrative expenses | | | 18,799 | | | | 18,257 | | | | 542 | | | | 3.0 | | | | 10,396 | | | | 29,195 | | | | 18,257 | | | | 10,938 | | | | 59.9 | |
| Depreciation and amortization | | | 4,395 | | | | 4,458 | | | | (63 | ) | | | (1.4 | ) | | | 4,059 | | | | 8,454 | | | | 4,458 | | | | 3,996 | | | | 89.6 | |
| Operating income | | | 14,250 | | | | 11,162 | | | | 3,088 | | | | 27.7 | | | | 3,567 | | | | 17,817 | | | | 11,162 | | | | 6,655 | | | | 59.6 | |
| Interest expense, net | | | (4,635 | ) | | | (4,857 | ) | | | 222 | | | | (4.6 | ) | | | (3,633 | ) | | | (8,268 | ) | | | (4,857 | ) | | | (3,411 | ) | | | 70.2 | |
| Other expense | | | (37 | ) | | | (29 | ) | | | (8 | ) | | | 27.6 | | | | — | | | | (37 | ) | | | (29 | ) | | | (8 | ) | | | 27.6 | |
| Unrealized gains on derivative instruments | | | 872 | | | | 3,580 | | | | (2,708 | ) | | | (75.6 | ) | | | — | | | | 872 | | | | 3,580 | | | | (2,708 | ) | | | (75.6 | ) |
| Income tax (provision) benefit | | | (4,142 | ) | | | (3,458 | ) | | | (684 | ) | | | 19.8 | | | | 26 | | | | (4,116 | ) | | | (3,458 | ) | | | (658 | ) | | | 19.0 | |
| Net income (loss)(1) | | | 6,308 | | | | 6,398 | | | | (90 | ) | | | (1.4 | ) | | | (40 | ) | | | 6,268 | | | | 6,398 | | | | (130 | ) | | | (2.0 | ) |
Reconciliation of net income (loss) to EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss)(1) | | | 6,308 | | | | 6,398 | | | | (90 | ) | | | (1.4 | ) | | | (40 | ) | | | 6,268 | | | | 6,398 | | | | (130 | ) | | | (2.0 | ) |
| Interest expense, net | | | 4,635 | | | | 4,857 | | | | (222 | ) | | | (4.6 | ) | | | 3,633 | | | | 8,268 | | | | 4,857 | | | | 3,411 | | | | 70.2 | |
| Income tax provision (benefit) | | | 4,142 | | | | 3,458 | | | | 684 | | | | 19.8 | | | | (26 | ) | | | 4,116 | | | | 3,458 | | | | 658 | | | | 19.0 | |
| Depreciation and amortization | | | 4,395 | | | | 4,458 | | | | (63 | ) | | | (1.4 | ) | | | 4,059 | | | | 8,454 | | | | 4,458 | | | | 3,996 | | | | 89.6 | |
| EBITDA | | | 19,480 | | | | 19,171 | | | | 309 | | | | 1.6 | | | | 7,626 | | | | 27,106 | | | | 19,171 | | | | 7,935 | | | | 41.4 | |
| (1) | Corporate allocation expense, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
| (2) | Acquisitions include the results of Trajen FBOs (which were acquired on July 11, 2006) for the quarter ended June 30, 2007 and Supermarine FBOs (which were acquired on May 30, 2007) for the period May 30, 2007 through June 30, 2007. |
Revenue and Gross Profit
Most of the revenue and gross profit in our airport services business is generated through fueling general aviation aircraft at our 43 fixed base operations around the United States. This revenue is categorized according to who owns the fuel we use to service these aircraft. If we own the fuel, we record our cost to purchase that fuel as cost of revenue-fuel. Our corresponding fuel revenue is our cost to purchase that fuel plus a margin. We generally pursue a strategy of maintaining, and where appropriate increasing, dollardollar-based margins, thereby passing on any increase in fuel prices to the customer. We also have into-plane arrangements
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TABLE OF CONTENTS
whereby we fuel aircraft with fuel owned by another party. We collect a fee for this service that is recorded as non-fuel revenue. Other non-fuel revenue includes various services such as hangar rentals, de-icing and airport services. Cost of revenue–non-fuel includes our cost, if any, to provide these se rvices.services.
The key factors for ourdrivers of revenue and gross profit results are fuel volume and dollar margin per gallon. This applies to both fuel and into-plane revenue. Our customers will occasionally move from one category to the other. Therefore, we believe discussing our fuel and non-fuel revenue and gross profit and the related key metrics on a combined basis provides a more meaningful analysis of our airport services business.
Our total revenue and gross profit growth was due to several factors:
·
inclusion of the results of
Trajen fromacquisitions concluded July 11,
2006;·
2006 and May 30, 2007;
an increase in fuel volumes as
a result of higher into-plane
activity;·
activity at existing locations; and
an increase in average dollar per gallon fuel margins at existing locations, resulting largely from a higher proportion of transient customers, whowhich generally pay higher margins;margins.
Selling, General and
·
higher deicing activity in the first quarter of 2007 compared to 2006 due to colder weather in the northeast U.S.
Operating Administrative Expenses
The increase in selling, general and administrative expenses for the existing locations is due to:
·
additional office costs resulting from higher rentprimarily to the addition of expense associated with the integration and utility costs;
·
additional credit card fees related to proportionrebranding of total sales paid by credit card and types of cards used for payment;the acquired locations.
·
additional professional services costs including legal, audit and tax services; and
·
additional salaries and benefits expenses due to higher activity levels.
Interest Expense, Net
Excluding the impact of a non-cashThe increase in total interest expense item in 2006, prioris due to us applying hedge accounting, net interest expense for the quarter ended March 31, 2007 increased as a result of higher debt level associated with the acquisition of Trajenacquisitions and higher non-cash amortization of deferred financing costs. In July 2006, we increased borrowings under our debt facility by $180.0 million to finance our acquisition of Trajen.23 sites. In May 2007, we increased borrowings under our existing debt facility by $32.5 million to finance our acquisition of two sites. The debt facility provides an aggregate term loan borrowing of $480.0$512.5 million and a $5.0 million working capital facility.
EBITDA
EBITDA
The increase in EBITDA from existing locations, excludingExcluding the non cash (loss) gaingains from derivative instruments, is due to:EBITDA at existing locations and total EBITDA would have increased by approximately 19.4% and 68.3%, respectively, primarily driven by:
·
increased average dollar per gallon fuel margins; and
the inclusion of the results of acquisitions concluded July 11, 2006 and May 30, 2007.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Key Factors Affecting Operating Results
contribution of positive operating results from 23 FBOs acquired in July 2006 and two FBOs acquired in May 2007;
higher dollar per gallon fuel margins at existing locations and higher fuel volumes;
higher other services gross profit due to increased de-icing activity;
increased expenses due to higher activity levels and the operation of 25 acquired sites; and
higher interest costs from higher debt levels resulting from the increased borrowings related to the acquisitions in July 2006 and May 2007.
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TABLE OF CONTENTS
·
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006 |
| | | Existing Locations | | | | Total |
| | | 2007 | | 2006 | | Change | | Acquisitions(2) | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fuel revenue | | | 86,468 | | | | 88,290 | | | | (1,822 | ) | | | (2.1 | ) | | | 57,068 | | | | 143,536 | | | | 88,290 | | | | 55,246 | | | | 62.6 | |
| Non-fuel revenue | | | 43,309 | | | | 35,833 | | | | 7,476 | | | | 20.9 | | | | 16,691 | | | | 60,000 | | | | 35,833 | | | | 24,167 | | | | 67.4 | |
| Total revenue | | | 129,777 | | | | 124,123 | | | | 5,654 | | | | 4.6 | | | | 73,759 | | | | 203,536 | | | | 124,123 | | | | 79,413 | | | | 64.0 | |
Cost of revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of revenue-fuel | | | 49,772 | | | | 53,787 | | | | (4,015 | ) | | | (7.5 | ) | | | 35,144 | | | | 84,916 | | | | 53,787 | | | | 31,129 | | | | 57.9 | |
| Cost of revenue-non-fuel | | | 3,993 | | | | 3,889 | | | | 104 | | | | 2.7 | | | | 2,100 | | | | 6,093 | | | | 3,889 | | | | 2,204 | | | | 56.7 | |
| Total cost of revenue | | | 53,765 | | | | 57,676 | | | | (3,911 | ) | | | (6.8 | ) | | | 37,244 | | | | 91,009 | | | | 57,676 | | | | 33,333 | | | | 57.8 | |
| Fuel gross profit | | | 36,696 | | | | 34,503 | | | | 2,193 | | | | 6.4 | | | | 21,924 | | | | 58,620 | | | | 34,503 | | | | 24,117 | | | | 69.9 | |
| Non-fuel gross profit | | | 39,316 | | | | 31,944 | | | | 7,372 | | | | 23.1 | | | | 14,591 | | | | 53,907 | | | | 31,944 | | | | 21,963 | | | | 68.8 | |
| Gross profit | | | 76,012 | | | | 66,447 | | | | 9,565 | | | | 14.4 | | | | 36,515 | | | | 112,527 | | | | 66,447 | | | | 46,080 | | | | 69.3 | |
| Selling, general and administrative expenses | | | 38,534 | | | | 36,955 | | | | 1,579 | | | | 4.3 | | | | 21,196 | | | | 59,730 | | | | 36,955 | | | | 22,775 | | | | 61.6 | |
| Depreciation and amortization | | | 8,809 | | | | 8,871 | | | | (62 | ) | | | (0.7 | ) | | | 7,608 | | | | 16,417 | | | | 8,871 | | | | 7,546 | | | | 85.1 | |
| Operating income | | | 28,669 | | | | 20,621 | | | | 8,048 | | | | 39.0 | | | | 7,711 | | | | 36,380 | | | | 20,621 | | | | 15,759 | | | | 76.4 | |
| Interest expense, net | | | (9,828 | ) | | | (13,770 | ) | | | 3,942 | | | | (28.6 | ) | | | (6,701 | ) | | | (16,529 | ) | | | (13,770 | ) | | | (2,759 | ) | | | 20.0 | |
| Other (expense) income | | | (66 | ) | | | (65 | ) | | | (1 | ) | | | 1.5 | | | | 6 | | | | (60 | ) | | | (65 | ) | | | 5 | | | | (7.7 | ) |
| Unrealized (losses) gains on derivative instruments | | | (77 | ) | | | 10,895 | | | | (10,972 | ) | | | (100.7 | ) | | | — | | | | (77 | ) | | | 10,895 | | | | (10,972 | ) | | | (100.7 | ) |
| Income tax provision | | | (7,412 | ) | | | (6,731 | ) | | | (681 | ) | | | 10.1 | | | | (403 | ) | | | (7,815 | ) | | | (6,731 | ) | | | (1,084 | ) | | | 16.1 | |
| Net income(1) | | | 11,286 | | | | 10,950 | | | | 336 | | | | 3.1 | | | | 613 | | | | 11,899 | | | | 10,950 | | | | 949 | | | | 8.7 | |
Reconciliation of net income to EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income(1) | | | 11,286 | | | | 10,950 | | | | 336 | | | | 3.1 | | | | 613 | | | | 11,899 | | | | 10,950 | | | | 949 | | | | 8.7 | |
| Interest expense, net | | | 9,828 | | | | 13,770 | | | | (3,942 | ) | | | (28.6 | ) | | | 6,701 | | | | 16,529 | | | | 13,770 | | | | 2,759 | | | | 20.0 | |
| Income tax provision (benefit) | | | 7,412 | | | | 6,731 | | | | 681 | | | | 10.1 | | | | 403 | | | | 7,815 | | | | 6,731 | | | | 1,084 | | | | 16.1 | |
| Depreciation and amortization | | | 8,809 | | | | 8,871 | | | | (62 | ) | | | (0.7 | ) | | | 7,608 | | | | 16,417 | | | | 8,871 | | | | 7,546 | | | | 85.1 | |
| EBITDA | | | 37,335 | | | | 40,322 | | | | (2,987 | ) | | | (7.4 | ) | | | 15,325 | | | | 52,660 | | | | 40,322 | | | | 12,338 | | | | 30.6 | |
| (1) | Corporate allocation expense, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
| (2) | Acquisitions include the results of Trajen FBOs (which were acquired on July 11, 2006) for the six months ended June 30, 2007 and Supermarine FBOs (which were acquired on May 30, 2007) for the period May 30, 2007 through June 30, 2007. |
Revenue and Gross Profit
Our total revenue and gross profit growth was due to several factors:
inclusion of the results of acquisitions concluded July 11, 2006 and May 30, 2007;
an increase in fuel volumes as a result of higher into-plane activity at existing locations;
an increase in average dollar per gallon fuel margins at existing locations, resulting largely from a higher proportion of transient customers, which generally pay higher margins; and
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higher de-icing activity in the first quarter of 2007 compared to 2006 due to colder weather in the Northeast U.S.
Selling, General and Administrative Expenses
The increase in selling, general and administrative expenses is due to the addition of the 25 additional locations. Selling, general and administrative expenses at these locations are comparable to these expenses at existing locations as a percentage of total revenue.
Interest Expense, Net
Excluding the impact of a non-cash interest expense item related to interest rate swaps recorded in 2006, net interest expense increased as a result of higher debt levels associated with the acquisitions of Trajen and Supermarine and higher non-cash amortization of deferred financing costs.
EBITDA
Excluding the non-cash gains and losses from derivative instruments, EBITDA at existing locations and total EBITDA would have increased by approximately 27.1% and 79.2%, respectively, primarily due to:
increased fuel volumes;
increased average dollar per gallon fuel margins;
higher de-icing gross profit in
2007.2007; and
the inclusion of the results of Trajen and Supermarine from July 11, 2006 and May 30, 2007, respectively.
BULK LIQUID STORAGE TERMINAL BUSINESS
With respect to our bulk liquid storage terminal business, we included $4.6$3.1 million of net income in our consolidated results for the quartersix months ended March 31,June 30, 2007, consisting of $4.8$4.7 million equity in the earnings of IMTT (plus $1.1 million$760,000 tax benefit) less $2.0$4.0 million depreciation and amortization expense (plus $819,000$1.6 million tax benefit). We received $7.0 million in dividends from IMTT in JanuaryApril 2007 relating to the fourthfirst quarter of 2006.2007. IMTT
declared a dividend of $14.0 million in MarchJune 2007 with $7.0 million payable to MIC Inc.us that we have recorded as a receivable at March 31,June 30, 2007, and which we received in July 2007.
To enable meaningful analysis of IMTT’s performance across periods, IMTT’s performance for the full quarter and six months ended March 31,June 30, 2007, compared to the prior corresponding periodperiods which isin part were prior to our investment, is discussed below.
Key Factors Affecting Operating Results
·
terminal revenue and terminal gross profit increased principally due to:
·
increases in average tank rental rates and storage capacity rented to customers;
·
increases in throughput revenue;
·
increases in revenue from the provision of other services; and
·
consolidation of IMTT’s partially owned subsidiary, IMTT-Quebec, which owns a terminal in Quebec, Canada. This subsidiary was reported using the equity method of accounting in 2006.
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Quarter Ended March
| | | | | | | | | | | | | | | | |
| Quarter and Six Months Ended June 30, 2007 Compared to Quarter and Six Months Ended June 30, 2006 |
| | | Quarter Ended June 30, | | | | Six Months Ended June 30, | | |
| | | 2007 | | 2006 | | Change | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Terminal revenue | | | 54,771 | | | | 45,889 | | | | 8,882 | | | | 19.4 | | | | 109,548 | | | | 92,265 | | | | 17,283 | | | | 18.7 | |
| Terminal revenue – heating | | | 4,255 | | | | 3,032 | | | | 1,223 | | | | 40.3 | | | | 11,354 | | | | 10,542 | | | | 812 | | | | 7.7 | |
| Environmental response revenue | | | 4,165 | | | | 5,243 | | | | (1,078 | ) | | | (20.6 | ) | | | 12,705 | | | | 10,006 | | | | 2,699 | | | | 27.0 | |
| Nursery revenue | | | 3,059 | | | | 3,107 | | | | (48 | ) | | | (1.5 | ) | | | 6,491 | | | | 6,057 | | | | 434 | | | | 7.2 | |
| Total revenue | | | 66,250 | | | | 57,271 | | | | 8,979 | | | | 15.7 | | | | 140,098 | | | | 118,870 | | | | 21,228 | | | | 17.9 | |
| Costs and expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Terminal operating costs | | | 29,650 | | | | 23,921 | | | | 5,729 | | | | 23.9 | | | | 57,527 | | | | 48,731 | | | | 8,796 | | | | 18.1 | |
| Terminal operating costs – fuel | | | 3,775 | | | | 3,292 | | | | 483 | | | | 14.7 | | | | 8,888 | | | | 9,435 | | | | (547 | ) | | | (5.8 | ) |
| Environmental response operating costs | | | 3,193 | | | | 2,858 | | | | 335 | | | | 11.7 | | | | 10,079 | | | | 5,954 | | | | 4,125 | | | | 69.3 | |
| Nursery operating costs | | | 2,975 | | | | 3,446 | | | | (471 | ) | | | (13.7 | ) | | | 6,046 | | | | 6,272 | | | | (226 | ) | | | (3.6 | ) |
| Total operating costs | | | 39,593 | | | | 33,517 | | | | 6,076 | | | | 18.1 | | | | 82,540 | | | | 70,392 | | | | 12,148 | | | | 17.3 | |
| Terminal gross profit | | | 25,601 | | | | 21,708 | | | | 3,893 | | | | 17.9 | | | | 54,487 | | | | 44,641 | | | | 9,846 | | | | 22.1 | |
| Environmental response gross profit | | | 972 | | | | 2,385 | | | | (1,413 | ) | | | (59.2 | ) | | | 2,626 | | | | 4,052 | | | | (1,426 | ) | | | (35.2 | ) |
| Nursery gross profit (loss) | | | 84 | | | | (339 | ) | | | 423 | | | | 124.8 | | | | 445 | | | | (215 | ) | | | 660 | | | | NM | |
| Gross profit | | | 26,657 | | | | 23,754 | | | | 2,903 | | | | 12.2 | | | | 57,558 | | | | 48,478 | | | | 9,080 | | | | 18.7 | |
| General and administrative expenses | | | 6,098 | | | | 5,307 | | | | 791 | | | | 14.9 | | | | 11,667 | | | | 10,866 | | | | 801 | | | | 7.4 | |
| Depreciation and amortization | | | 9,040 | | | | 7,484 | | | | 1,556 | | | | 20.8 | | | | 17,562 | | | | 15,165 | | | | 2,397 | | | | 15.8 | |
| Operating income | | | 11,519 | | | | 10,963 | | | | 556 | | | | 5.1 | | | | 28,329 | | | | 22,447 | | | | 5,882 | | | | 26.2 | |
| Interest expense, net | | | (16,530 | ) | | | (3,906 | ) | | | (12,624 | ) | | | NM | | | | (19,937 | ) | | | (9,323 | ) | | | (10,614 | ) | | | 113.8 | |
| Other income | | | 671 | | | | 680 | | | | (9 | ) | | | (1.3 | ) | | | 3,483 | | | | 2,067 | | | | 1,416 | | | | 68.5 | |
| Unrealized gains on derivatives | | | 4,669 | | | | 1,464 | | | | 3,205 | | | | NM | | | | 4,427 | | | | 3,505 | | | | 922 | | | | 26.3 | |
| Provision for income taxes | | | (305 | ) | | | (3,733 | ) | | | 3,428 | | | | (91.8 | ) | | | (6,728 | ) | | | (7,544 | ) | | | 816 | | | | (10.8 | ) |
| Minority interest | | | 52 | | | | — | | | | 52 | | | | NM | | | | 25 | | | | — | | | | 25 | | | | NM | |
| Net income | | | 76 | | | | 5,468 | | | | (5,392 | ) | | | (98.6 | ) | | | 9,599 | | | | 11,152 | | | | (1,553 | ) | | | (13.9 | ) |
Reconciliation of net income to EBITDA:
| |
| Net income | | | 76 | | | | 5,468 | | | | (5,392 | ) | | | (98.6 | ) | | | 9,599 | | | | 11,152 | | | | (1,553 | ) | | | (13.9 | ) |
| Interest expense, net | | | 16,530 | | | | 3,906 | | | | 12,624 | | | | NM | | | | 19,937 | | | | 9,323 | | | | 10,614 | | | | 113.8 | |
| Provision for income taxes | | | 305 | | | | 3,733 | | | | (3,428 | ) | | | (91.8 | ) | | | 6,728 | | | | 7,544 | | | | (816 | ) | | | (10.8 | ) |
| Depreciation and amortization | | | 9,040 | | | | 7,484 | | | | 1,556 | | | | 20.8 | | | | 17,562 | | | | 15,165 | | | | 2,397 | | | | 15.8 | |
| EBITDA | | | 25,951 | | | | 20,591 | | | | 5,360 | | | | 26.0 | | | | 53,826 | | | | 43,184 | | | | 10,642 | | | | 24.6 | |
NM – Not meaningful
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Consolidation of Quebec Results
As noted earlier, IMTT reported financial results for the Quebec site using equity accounting during 2006 but incorporated 2007 Comparedresults into its financials on a consolidated basis. The following table provides IMTT results in which Quebec 2007 results are consolidated compared to Quarter Ended March 31,where the impact of Quebec has been removed.
| | | | | | | | |
| | Quarter Ended June 30, 2007 | | Six Months Ended June 30, 2007 |
| ($ in thousands) | | IMTT | | IMTT Excl.
Quebec | | IMTT | | IMTT Excl.
Quebec |
| | | $ | | $ | | $ | | $ |
| Total revenue | | | 66,250 | | | | 64,028 | | | | 140,098 | | | | 135,530 | |
| Total operating costs | | | 39,593 | | | | 38,002 | | | | 82,540 | | | | 79,395 | |
| Total gross profit | | | 26,657 | | | | 26,026 | | | | 57,558 | | | | 56,135 | |
| Operating income | | | 11,519 | | | | 11,490 | | | | 28,329 | | | | 28,244 | |
| EBITDA | | | 25,951 | | | | 25,601 | | | | 53,826 | | | | 53,099 | |
To provide a more meaningful comparison of current and previous year results, the following discussion and analysis of financial results will compare the “IMTT Excluding Quebec” 2007 results to the actual 2006 results.
| | | | | | | | | | | | | |
| | | Quarter Ended March 31 | | | | | |
| | 2007 | | 2006 | | Change | |
| | $ | | $ | | $ | | % | |
| | | ($ in thousands) (unaudited) | |
Revenue | | | | | | | | | |
Terminal revenue | | | 54,777 | | | 46,376 | | | 8,401 | | | 18.1 | |
Terminal revenue – heating | | | 7,099 | | | 7,510 | | | (411 | ) | | (5.5 | ) |
Environmental response revenue | | | 8,540 | | | 4,763 | | | 3,777 | | | 79.3 | |
Nursery revenue | | | 3,432 | | | 2,950 | | | 482 | | | 16.3 | |
Total revenue | | | 73,848 | | | 61,599 | | | 12,249 | | | 19.9 | |
Costs and expenses | | | | | | | | | | | | | |
Terminal operating costs | | | 27,877 | | | 24,810 | | | 3,067 | | | 12.4 | |
Terminal operating costs – fuel | | | 5,113 | | | 6,143 | | | (1,030 | ) | | (16.8 | ) |
Environmental response operating costs | | | 6,886 | | | 3,096 | | | 3,790 | | | 122.4 | |
Nursery operating costs | | | 3,071 | | | 2,826 | | | 245 | | | 8.7 | |
Total operating costs | | | 42,947 | | | 36,875 | | | 6,072 | | | 16.5 | |
Terminal gross profit | | | 28,886 | | | 22,933 | | | 5,953 | | |
| |
Environmental response gross profit | | | 1,654 | | | 1,667 | | | (13 | ) | | (0.8 | ) |
Nursery gross profit | | | 361 | | | 124 | | | 237 | | | 191.1 | |
Gross profit | | | 30,901 | | | 24,724 | | | 6,177 | | |
| |
General and administrative expenses | | | 5,569 | | | 5,559 | | | 10 | | | 0.2 | |
Depreciation and amortization | | | 8,522 | | | 7,681 | | | 841 | | | 10.9 | |
Operating income | | |
| | |
| | |
| | |
| |
Revenue and Gross Profit
Terminal revenue increased primarily due to a $5.1 million increase16.1% and 13.2% for the quarter and six-month period, respectively, reflecting growth in storage revenue, $1.6 million of which represents the consolidation of IMTT-Quebec. Excluding IMTT-Quebec, storageeach major service segment. Storage revenue increased due to a 3.8% increase in$4.4 million and $7.9 million during the quarter and six-month period, respectively, as the business increased the storage capacity rented to customers by 4.8% and a 5.8% increase4.4% and the average rental rates charged to customers by 6.7% and 6.1% during the quarter and six-month period, respectively. Storage capacity utilization, which was 95% during the quarter and six-month period of 2006, increased to 96% for the second quarter 2007 and 97% for the six-month period 2007. Terminal revenue growth during the quarter and six-month period also resulted from increases in average storage ratesthroughput ($1.0 million and $1.8 million, respectively) and other services & fees ($1.3 million and $2.9 million, respectively). The business also increased profitability from heating services.
Gross profit from terminal services increased 15.0% and 18.9% for the quarter ended March 31, 2007. Overall storage capacity rented to customers increased slightly from 96% to 97% of available storage capacity forand six-month period, respectively. During the quarter ended March 31, 2007. Terminal revenue also increased due to a $935,000 increaseand six month period in throughput revenue and a $2.0 million increase in revenue from2007, the provision of other terminal services, of which IMTT-Quebec represents over 10% in each case. In the quarter ended March 31, 2007, IMTT also achieved a $619,000 improvement in the differential between terminal revenue – heating and terminal operating costs – fuel.
The increase in terminal revenuerevenues was partially offset by an increaseincreased costs of direct labor, health benefit, and repair and maintenance costs which were in terminal operating costs. Of the $3.1 million increase in terminal operating costs, $1.4 million resulted from the consolidation of IMTT-Quebec in 2007. The balance of the increase in terminal operating costs correlatedpart related to the increase in revenues.revenues from terminal services.
Of the increase in terminal grossGross profit of $6.0from environmental response services decreased by $1.4 million $785,000 resulted from the consolidation of IMTT-Quebec. Excluding the impact of this change in accounting treatment, terminal gross profit increased by approximately $5.2 million or approximately 23%.
Environmental response gross profit remained relatively constant for both the quarter ended March 31, 2007.and six-month periods, reflecting a decrease in profit margins for spill response activities, the biggest source of revenue for this segment.
The nursery gross profit increased by $423,000 and $660,000 for the quarter and six-month period, respectively, due to animprovements in margins as well as the receipt of a $184,000 insurance settlement of $200,000 resulting from hurricaneduring the first quarter 2007 for damage incurred during Hurricane Katrina.
Depreciation and Amortization
Depreciation and amortization expense increased by $1.2 million and $1.8 million for the quarter and six-month periods, respectively, due to continuing high levels of growth capital expenditure.
Interest Expense, Net
Net interest expense increased principally due to a $12.3 million make-whole payment associated with the repayment of the two tranches of senior notes in connection with the establishment of the new $625 million revolving credit facility for IMTT.
Other Income
While other income during the quarter was comparable to the previous year, other income for the six-month period increased due to non-recurring items during the first quarter of 2007. These items included gains
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of $2.0 million on insurance settlements received for claims related to Hurricane Katrina and other matters as well as a $333,000 gain on the sale of assets. Other income for the first quarter of 2006 included $424,000 of non-recurring income related to the write-off of a payable.
EBITDA
In addition to the aforementioned Quebec contribution, EBITDA for second quarter 2007 and six-month 2007 includes gains from interest swap agreements and certain non-recurring items including gains on insurance settlements and a gain on an asset sale. Excluding unrealized gains from interest rate swap agreements in both 2006 and 2007 as well as the non-recurring items described earlier, EBITDA for the quarter and six-month period would have increased by 9.4% and 17.7%, respectively.
GAS PRODUCTION AND DISTRIBUTION BUSINESS
We completed our acquisition of TGC on June 7, 2006. Therefore, TGC has only contributed to our consolidated operating results from that date.
Because TGC’s results of operations are not included in our consolidated financial results until June 7, 2006, the following analysis compares the historical results of operations for TGC under both its current and prior owners. We believe that this is the most appropriate approach to analyzing the historical financial performance and trends of TGC.
Key Factors Affecting Operating Results
·
decreased
utility contribution margin
decreased principally due
principally to:
·
higher therm sales at lower margins;
$1.1331,000 and $1.1 million of for fuel cost adjustments reimbursed to us through escrow funds for the quarter and six months; and
decreased revenue reflecting a lower change in unbilled receivables during the 2007 calculation period versus the 2006 calculation period. This was due primarily to volume and price variances during the respective calculation periods and
a change in
the frequency of
calculation; and·
$766,000 for fuel cost adjustments reimbursed to us through escrow funds.
·
increased calculation.
non-utility contribution margin
increased for the six months primarily due
to:·
to price increases subsequent to MarchJune 2006; and
·
higher therms sold
non-utility contribution margin for the quarter decreased primarily due to lower therm sales. The second quarter 2006 benefited from higher LPG deliveries that resumed following the negative impact of a statewide liquefied petroleum gas, orstate-wide LPG shortage from a local supplier that occurred during Marchoccurring in the first quarter 2006.
Contribution margin for both the utility and non-utility business represents revenue less direct cost of revenue. Management analyzes contribution margin for TGC because it believes that contribution margin, although a non-GAAP measure, is useful and meaningful to understanding the performance of TGC utility operations under its regulated rate structure and of its non-utility operations under a competitive pricing structure, both of which include an ability to change rates when the underlying fuel costs change. Contribution margin should not be considered an alternative to operating income or net income, which isare determined in accordance with U.S. GAAP. Other companies may calculate contribution margin differently and, therefore, the contribution margin presented for TGC is not necessarily comparable with other companies.
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| | | | | | | | | | | | | | | | |
| Quarter and Six Months Ended June 30, 2007 Compared to Quarter and Six Months Ended June 30, 2006 |
| | | Quarter Ended June 30, | | | | Six Months Ended June 30, | | |
| | | 2007 | | 2006 | | Change | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
Contribution margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue – utility | | | 22,820 | | | | 23,962 | | | | (1,142 | ) | | | (4.8 | ) | | | 45,111 | | | | 48,951 | | | | (3,840 | ) | | | (7.8 | ) |
| Cost of revenue – utility | | | 15,008 | | | | 15,805 | | | | (797 | ) | | | (5.0 | ) | | | 29,599 | | | | 30,981 | | | | (1,382 | ) | | | (4.5 | ) |
| Contribution margin – utility | | | 7,812 | | | | 8,157 | | | | (345 | ) | | | (4.2 | ) | | | 15,512 | | | | 17,970 | | | | (2,458 | ) | | | (13.7 | ) |
| Revenue – non-utility | | | 18,300 | | | | 18,375 | | | | (75 | ) | | | (0.4 | ) | | | 36,810 | | | | 35,026 | | | | 1,784 | | | | 5.1 | |
| Cost of revenue – non-utility | | | 10,994 | | | | 10,706 | | | | 288 | | | | 2.7 | | | | 21,805 | | | | 21,168 | | | | 637 | | | | 3.0 | |
| Contribution margin – non-utility | | | 7,306 | | | | 7,669 | | | | (363 | ) | | | (4.7 | ) | | | 15,005 | | | | 13,858 | | | | 1,147 | | | | 8.3 | |
| Total contribution margin | | | 15,118 | | | | 15,826 | | | | (708 | ) | | | (4.5 | ) | | | 30,517 | | | | 31,828 | | | | (1,311 | ) | | | (4.1 | ) |
| Production | | | 1,211 | | | | 994 | | | | 217 | | | | 21.8 | | | | 2,332 | | | | 2,219 | | | | 113 | | | | 5.1 | |
| Transmission and distribution | | | 3,570 | | | | 3,731 | | | | (161 | ) | | | (4.3 | ) | | | 6,953 | | | | 7,049 | | | | (96 | ) | | | (1.4 | ) |
| Selling, general and administrative expenses | | | 4,030 | | | | 4,384 | | | | (354 | ) | | | (8.1 | ) | | | 8,110 | | | | 8,409 | | | | (299 | ) | | | (3.6 | ) |
| Depreciation and amortization | | | 1,666 | | | | 1,417 | | | | 249 | | | | 17.6 | | | | 3,397 | | | | 2,785 | | | | 612 | | | | 22.0 | |
| Operating income | | | 4,641 | | | | 5,300 | | | | (659 | ) | | | (12.4 | ) | | | 9,725 | | | | 11,366 | | | | (1,641 | ) | | | (14.4 | ) |
| Interest expense, net | | | (2,287 | ) | | | (2,749 | ) | | | 462 | | | | (16.8 | ) | | | (4,532 | ) | | | (3,960 | ) | | | (572 | ) | | | 14.4 | |
| Other income (expense) | | | 19 | | | | (2,033 | ) | | | 2,052 | | | | (100.9 | ) | | | (34 | ) | | | (1,844 | ) | | | 1,810 | | | | (98.2 | ) |
| Unrealized gains (losses) on derivative instruments | | | 67 | | | | 1,912 | | | | (1,845 | ) | | | (96.5 | ) | | | (199 | ) | | | 1,912 | | | | (2,111 | ) | | | (110.4 | ) |
| Income before taxes(1) | | | 2,440 | | | | 2,430 | | | | 10 | | | | 0.4 | | | | 4,960 | | | | 7,474 | | | | (2,514 | ) | | | (33.6 | ) |
Reconciliation of income before taxes to EBITDA:
| |
| Income before taxes(1) | | | 2,440 | | | | 2,430 | | | | 10 | | | | 0.4 | | | | 4,960 | | | | 7,474 | | | | (2,514 | ) | | | (33.6 | ) |
| Interest expense, net | | | 2,287 | | | | 2,749 | | | | (462 | ) | | | (16.8 | ) | | | 4,532 | | | | 3,960 | | | | 572 | | | | 14.4 | |
| Depreciation and amortization | | | 1,666 | | | | 1,417 | | | | 249 | | | | 17.6 | | | | 3,397 | | | | 2,785 | | | | 612 | | | | 22.0 | |
| EBITDA | | | 6,393 | | | | 6,596 | | | | (203 | ) | | | (3.1 | ) | | | 12,889 | | | | 14,219 | | | | (1,330 | ) | | | (9.4 | ) |
Quarter Ended March 31, 2007 Compared to Quarter Ended March 31, 2006
| | | | | | | | | | | | | |
| | | Quarter Ended
March 31, | | Change | |
| | | 2007 | | 2006 | | $ | | % | |
| | | ($ in thousands) (unaudited) | |
Contribution margin | | | | | | | | | |
Revenue – utility | | | 22,291 | | | 24,989 | | | (2,698 | ) | | (10.8 | ) |
Cost of revenue – utility | | | 14,591 | | | 15,176 | | | (585 | ) | | (3.9 | ) |
Contribution margin – utility | | | 7,700 | | | 9,813 | | | (2,113 | ) | | (21.5 | ) |
| | | | | | | | | | | | | |
Revenue – non-utility | | | 18,510 | | | 16,651 | | | 1,859 | | | 11.2 | |
Cost of revenue – non-utility | | | 10,811 | | | 10,462 | | | 349 | | | 3.3 | |
Contribution margin – non-utility | | | 7,699 | | | 6,189 | | | 1,510 | | | 24.4 | |
| | | | | | | | | | | | | |
Total contribution margin | | | 15,399 | | | 16,002 | | | (603 | ) | | (3.8 | ) |
| | | | | | | | | | | | | |
Production | | | 1,121 | | | 1,225 | | | (104 | ) | | (8.5 | ) |
Transmission and distribution | | | 3,383 | | | 3,318 | | | 65 | | | 2.0 | |
Selling, general and administrative expenses | | | 4,080 | | | 4,025 | | | 55 | | | 1.4 | |
Depreciation and amortization | | | 1,731 | | | 1,368 | | | 363 | | | 26.5 | |
Operating income | | | 5,084 | | | 6,066 | | | (982 | ) | | (16.2 | ) |
| | | | | | | | | | | | | |
Interest expense, net | | | (2,245 | ) | | (1,211 | ) | | (1,034 | ) | | 85.4 | |
Unrealized loss on derivative instruments | | | (267 | ) | | — | | | (267 | ) | | NM | |
Other income (expense) | | | (53 | ) | | 189 | | | (242 | ) | | (128.0 | ) |
Income before taxes(1) | | | 2,519 | | | 5,044 | | | (2,525 | ) | | (50.1 | ) |
| | | | | | | | | | | | | |
Reconciliation of income before taxes to EBITDA: | | | | | | | | | | | | | |
Income before taxes(1) | | | 2,519 | | | 5,044 | | | (2,525 | ) | | (50.1 | ) |
Interest expense, net | | | 2,245 | | | 1,211 | | | 1,034 | | | 85.4 | |
Depreciation and amortization | | | 1,731 | | | 1,368 | | | 363 | | | 26.5 | |
EBITDA | | | 6,495 | | | 7,623 | | | (1,128 | ) | | (14.8 | ) |
——————
NM – Not meaningful
(1)
Corporate allocation expense has been excluded from the above table as it is eliminated on consolidation at the MIC Inc. level.
| (1) | Corporate allocation expense has been excluded from the above table as it is eliminated on consolidation at the MIC Inc. level. |
Contribution Margin and Operating Income
decreasedwas lower for the quarter and six months primarily as the result of higher therm sales at lower margins and $331,000 and $1.1 million for fuel cost adjustments required by Hawaii state regulators as a condition of our purchase of TGC. The cash effect of the fuel cost adjustments are offset by withdrawals from the escrow account established and funded at acquisition by the seller. TGC believes that these escrowed funds will be fully utilized by mid-2008 and thereafter escrowed funds would not be available. The cash reimbursements of any fuel cost adjustment amounts are not reflected in revenue, but rather are reflected as releases of restricted cash.
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TABLE OF CONTENTS
In addition utility contribution margin was lower as the result of $696,000 of decreased revenue reflecting a lower change in unbilled receivables during the 2007 calculation period versus the 2006 calculation period. This was primarily due primarily to volume and price variances during the respective calculation periods and a change in the frequency of calculation. The March 2006 calculation period under the former owners was nine months. Beginning with the quarter ended June 30, 2006 the calculation has been performed and recorded quarterly. We believe this will eliminate the quarter-over-quarter impact of unbilled receivables on contribution margin going forward. However, the $1.1 million first quarter impact will continue to effect year-over-year comparisons throughout 2007, and all period-over-period comparisons of contribution margin will continue to be impacted by changes in volume and rates.
In addition, contribution margin was lower by approximately $766,000 for fuel cost adjustments required by Hawaii state regulators as a condition of our purchase of TGC. The cash effect of this $766,000 decrease is offset by withdrawals from our $4.5 million escrow account established and funded at acquisition by the seller. TGC believes that these escrowed funds will be fully utilized by mid-2008 and thereafter escrowed funds would not be available. The cash reimbursements of any fuel cost adjustment amounts are not reflected in revenue, but rather are reflected as releases of restricted cash. Contribution margin was also adversely affected by 2.4% fewer therms sold due to increased energy conservation measures, business slowdowns, customer renovations and military deployments.
Non-utility contribution margin decreased for the quarter due to 4% lower therm sales volume as the second quarter 2006 therm sales benefited from pricingdeliveries of LPG that resumed following a state-wide LPG shortage that occurred in first quarter 2006. Non-utility contribution margin for the quarter and six months increased primarily due to price increases subsequent to March 2006, as well as higher therm sales. Therms sold in the non-utility sector increased by 4.3% for the quarter principally due to a statewide LPG shortage from a local supplier that caused therm volumes to decline in MarchJune 2006.
Production costs were lower than inhigher for both the first quarter 2006and six months due primarily to higher personnel costs and rent partially offset by lower repairelectricity costs and, electric utility costsfor the six months, the cost of mechanical inspections at our synthetic natural gas plant in first quarter 2007.SNG plant. Transmission and distribution costs were lower for the quarter and six months due principally to lower outside costs for line repair work, lower rent and higher capitalization of costs in connection with asset additions, partially offset by higher personnel costs and vehicle maintenance costs.
Selling, General and Administrative Expense
Selling, general and administrative costs were lower in 2007 than in first quarter 2006 principally due to increased maintenance activity.the prior company’s parent overhead charges that were included in 2006 results and lower insurance costs, partially offset by higher personnel and professional service costs.
Depreciation and Amortization
Depreciation and amortization increased due to the higher asset basis that resulted from our purchase of TGC and for equipment additions.
Interest Expense, Net
Interest expense increased due to our acquisition funding. Interest expense in 2006 also included the prior owner’s write-off of deferred financing costs for the retirement of their debt in connection with its sale of the business.
Other Income (Expense)
Other expense for 2006 included $2.3 million of costs incurred prior to our ownership.
EBITDA
Excluding unrealized lossgains and losses on derivatives, and reimbursed fuel adjustment costs and 2006 acquisition-related costs, EBITDA would have remained relatively flat despite elevated revenue in 2006 due2007 compared to significant accruals.2006.
DISTRICT ENERGY BUSINESS
Key Factors Affecting Operating Results
·
capacity revenue increased due to four interruptible customers converting to continuous service over June through September of 2006 and
due to generalannual inflation-related increases of contract capacity
rates in-line with inflation;·
rates;
cooling consumption revenue
increased as we passed through our estimatedand electricity cost
increaseincreased due to
our customershigher electricity costs from the deregulation of the Illinois electricity market in January 2007. Consumption revenue also increased due to warmer average temperatures in May and
as weather related peaks during March 2007 resultedJune resulting in higher ton-hour sales; and
·
higher electricity costs
both capacity and consumption revenue increased due to the January 2007 deregulation of Illinois’ electricity generation market.a net increase in contracted capacity.
35
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| | | | | | | | | | | | | | | | |
| Quarter and Six Months Ended June 30, 2007 Compared to Quarter and Six Months Ended June 30, 2006 |
| | | Quarter Ended June 30, | | | | Six Months Ended June 30, | | |
| | | 2007 | | 2006 | | Change | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
| Cooling capacity revenue | | | 4,738 | | | | 4,241 | | | | 497 | | | | 11.7 | | | | 9,289 | | | | 8,430 | | | | 859 | | | | 10.2 | |
| Cooling consumption revenue | | | 6,800 | | | | 5,258 | | | | 1,542 | | | | 29.3 | | | | 8,662 | | | | 6,733 | | | | 1,929 | | | | 28.6 | |
| Other revenue | | | 768 | | | | 791 | | | | (23 | ) | | | (2.9 | ) | | | 1,417 | | | | 1,636 | | | | (219 | ) | | | (13.4 | ) |
| Finance lease revenue | | | 1,235 | | | | 1,285 | | | | (50 | ) | | | (3.9 | ) | | | 2,483 | | | | 2,583 | | | | (100 | ) | | | (3.9 | ) |
| Total revenue | | | 13,541 | | | | 11,575 | | | | 1,966 | | | | 17.0 | | | | 21,851 | | | | 19,382 | | | | 2,469 | | | | 12.7 | |
| Direct expenses – electricity | | | 4,301 | | | | 3,341 | | | | 960 | | | | 28.7 | | | | 5,784 | | | | 4,285 | | | | 1,499 | | | | 35.0 | |
| Direct expenses – other(1) | | | 4,727 | | | | 4,208 | | | | 519 | | | | 12.3 | | | | 8,876 | | | | 8,529 | | | | 347 | | | | 4.1 | |
| Direct expenses – total | | | 9,028 | | | | 7,549 | | | | 1,479 | | | | 19.6 | | | | 14,660 | | | | 12,814 | | | | 1,846 | | | | 14.4 | |
| Gross profit | | | 4,513 | | | | 4,026 | | | | 487 | | | | 12.1 | | | | 7,191 | | | | 6,568 | | | | 623 | | | | 9.5 | |
| Selling, general and administrative expenses | | | 822 | | | | 978 | | | | (156 | ) | | | (16.0 | ) | | | 1,590 | | | | 1,775 | | | | (185 | ) | | | (10.4 | ) |
| Amortization of intangibles | | | 341 | | | | 341 | | | | — | | | | — | | | | 678 | | | | 678 | | | | — | | | | — | |
| Operating income | | | 3,350 | | | | 2,707 | | | | 643 | | | | 23.8 | | | | 4,923 | | | | 4,115 | | | | 808 | | | | 19.6 | |
| Interest expense, net | | | (2,172 | ) | | | (2,106 | ) | | | (66 | ) | | | 3.1 | | | | (4,259 | ) | | | (4,176 | ) | | | (83 | ) | | | 2.0 | |
| Other income (expense) | | | 120 | | | | 44 | | | | 76 | | | | 172.7 | | | | 194 | | | | (35 | ) | | | 229 | | | | NM | |
| Income tax (provision) benefit | | | (431 | ) | | | (94 | ) | | | (337 | ) | | | NM | | | | (218 | ) | | | 239 | | | | (457 | ) | | | (191.2 | ) |
| Minority interest | | | (140 | ) | | | (130 | ) | | | (10 | ) | | | 7.7 | | | | (272 | ) | | | (261 | ) | | | (11 | ) | | | 4.2 | |
| Net income (loss)(2) | | | 727 | | | | 421 | | | | 306 | | | | 72.7 | | | | 368 | | | | (118 | ) | | | 486 | | | | NM | |
| Reconciliation of net income (loss) to EBITDA: | |
| Net income (loss)(2) | | | 727 | | | | 421 | | | | 306 | | | | 72.7 | | | | 368 | | | | (118 | ) | | | 486 | | | | NM | |
| Interest expense, net | | | 2,172 | | | | 2,106 | | | | 66 | | | | 3.1 | | | | 4,259 | | | | 4,176 | | | | 83 | | | | 2.0 | |
| Income tax provision (benefit) | | | 431 | | | | 94 | | | | 337 | | | | NM | | | | 218 | | | | (239 | ) | | | 457 | | | | (191.2 | ) |
| Depreciation | | | 1,440 | | | | 1,427 | | | | 13 | | | | 0.9 | | | | 2,871 | | | | 2,850 | | | | 21 | | | | 0.7 | |
| Amortization of intangibles | | | 341 | | | | 341 | | | | — | | | | — | | | | 678 | | | | 678 | | | | — | | | | — | |
| EBITDA | | | 5,111 | | | | 4,389 | | | | 722 | | | | 16.5 | | | | 8,394 | | | | 7,347 | | | | 1,047 | | | | 14.3 | |
Quarter Ended March 31, 2007 Compared to Quarter Ended March 31, 2006NM – Not meaningful
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | |
| | | 2007 | | 2006 | | Change | |
| | $ | | $ | | $ | | % | |
| | | ($ in thousands) (unaudited) | |
| | | | | | | | | | | | | | |
Cooling capacity revenue | | | 4,551 | | | 4,189 | | | 362 | | | 8.6 | |
Cooling consumption revenue | | | 1,862 | | | 1,475 | | | 387 | | | 26.2 | |
Other revenue | | | 649 | | | 845 | | | (196 | ) | | (23.2 | ) |
Finance lease revenue | | | 1,248 | | | 1,298 | | | (50 | ) | | (3.9 | ) |
Total revenue | | | 8,310 | | | 7,807 | | | 503 | | | 6.4 | |
Direct expenses – electricity | | | 1,483 | | | 944 | | | 539 | | | 57.1 | |
Direct expenses – other(1) | | | 4,149 | | | 4,321 | | | (172 | ) | | (4.0 | ) |
Direct expenses – total | | | 5,632 | | | 5,265 | | | 367 | | | 7.0 | |
Gross profit | | | 2,678 | | | 2,542 | | | 136 | | | 5.4 | |
Selling, general and administrative expenses | | | 768 | | | 797 | | | (29 | ) | | (3.6 | ) |
Amortization of intangibles | | | 337 | | | 337 | | | — | | | — | |
Operating income | | | 1,573 | | | 1,408 | | | 165 | | | 11.7 | |
Interest expense, net | | | (2,087 | ) | | (2,070 | ) | | (17 | ) | | 0.8 | |
Other income (expense) | | | 74 | | | (79 | ) | | 153 | | | (193.7 | ) |
Benefit for income taxes | | | 213 | | | 333 | | | (120 | ) | | (36.0 | ) |
Minority interest | | | (132 | ) | | (131 | ) | | (1 | ) | | 0.8 | |
Net | | | (359 | ) | | (539 | ) | | 180 | | | (33.4 | ) |
| | | | | | | | | | | | | |
Reconciliation of net | | | | | | | | | | | | | |
Net | | | (359 | ) | | (539 | ) | | 180 | | | (33.4 | ) |
Interest expense, net | | | 2,087 | | | 2,070 | | | 17 | | | 0.8 | |
Benefit for income taxes | | | (213 | ) | | (333 | ) | | 120 | | | (36.0 | ) |
Depreciation | | | 1,431 | | | 1,423 | | | 8 | | | 0.6 | |
Amortization of intangibles | | | 337 | | | 337 | | | — | | | — | |
EBITDA | | | 3,283 | | | 2,958 | | | 325 | | | 11.0 | |
——————
(1)
Includes depreciation expense of $1.4 million for each of the quarters ended March 31, 2007 and 2006, respectively.
(2)
Corporate allocation expense, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level.
| (1) | Includes depreciation expense of $1.4 million for each of the quarters ended June 30, 2007 and 2006, respectively, and $2.9 million and $2.8 million for the six month periods ended June 30, 2007 and 2006, respectively. |
| (2) | Corporate allocation expense, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
Gross Profit
Gross profit, in both the quarter and six-month period, increased primarily due to higher capacity revenue related to four interruptible customers converting to continuous service during the previous year, a net increase in contracted capacity and annual inflation-related increases of contract capacity rates in accordance with the terms of existing customer contracts. Cooling consumption revenue also increased due to higher ton-hour sales from weather related peakswarmer than average temperatures, a net increase in contracted capacity and the pass-through to our
36
TABLE OF CONTENTS
customers of the higher electricity costs related to the January 2007 deregulation of Illinois’ electricity generation market, which aremarket. This pass-through is subject to annual reconciliations and true-ups to actual costs. Other revenue decreased due to our pass-through to customers of the lower cost of natural gas consumables and reduction in management headcount, which are included in other direct expenses.
Selling, General and Administrative Expense
Selling, general and administrative expense slightly decreased due to a reduction in management headcount offsetting higherheadcount. Also, the second quarter of 2006 included legal fees and marketing commissionsconsulting fees related to signing new customer contracts and renewing existing customer contracts set to expire during 2007.strategy work in preparation for the 2007 deregulation of Illinois’ electricity generation market.
Interest Expense, Net
The increase in net interest expense was due to additional credit line draws necessary to fund growth capital expenditures for plant expansion, new customer connections and scheduled maintenance capital expenditures during the previous twelve12 months. Our interest rate on our senior debt is a fixed rate.
Other Income (Expense)
The first quartersix months of 2006 included pension benefits expense for union trainees employed from 1999 through 2005. The majority of the expense was incurred in the first quarter of 2006.
EBITDA
EBITDA increased primarily due to the higher capacity revenue associated with four interruptible customers converting to continuous service during the previous year.year, the net increase in contracted capacity and the higher ton-hour sales from warmer weather.
37
TABLE OF CONTENTS
AIRPORT PARKING BUSINESS
Key Factors Affecting Operating Results
·
operating loss at
decline in the number of cars using our facilities;
targeted pricing strategies contributed to an increase in the average revenue per car out;
costs associated with the consolidation of our locations under one brand; and
our new location which commenced operations in November 2006;2006.
| | | | | | | | | | | | | | | | |
| Quarter and Six Months Ended June 30, 2007 Compared to Quarter and Six Months Ended June 30, 2006 |
| | | Quarter Ended June 30, | | | | Six Months Ended June 30, | | |
| | | 2007 | | 2006 | | Change | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | $ | | $ | | $ | | % |
| | | ($ in Thousands) (Unaudited) |
| Revenue | | | 20,068 | | | | 19,782 | | | | 286 | | | | 1.4 | | | | 38,879 | | | | 37,998 | | | | 881 | | | | 2.3 | |
| Direct expenses(1) | | | 14,623 | | | | 13,524 | | | | 1,099 | | | | 8.1 | | | | 28,912 | | | | 26,959 | | | | 1,953 | | | | 7.2 | |
| Gross profit | | | 5,445 | | | | 6,258 | | | | (813 | ) | | | (13.0 | ) | | | 9,967 | | | | 11,039 | | | | (1,072 | ) | | | (9.7 | ) |
| Selling, general and administrative expenses | | | 2,781 | | | | 1,573 | | | | 1,208 | | | | 76.8 | | | | 4,393 | | | | 3,273 | | | | 1,120 | | | | 34.2 | |
| Amortization of intangibles | | | 705 | | | | 472 | | | | 233 | | | | 49.4 | | | | 1,493 | | | | 878 | | | | 615 | | | | 70.0 | |
| Operating income | | | 1,959 | | | | 4,213 | | | | (2,254 | ) | | | (53.5 | ) | | | 4,081 | | | | 6,888 | | | | (2,807 | ) | | | (40.8 | ) |
| Interest expense, net | | | (4,020 | ) | | | (4,333 | ) | | | 313 | | | | (7.2 | ) | | | (7,987 | ) | | | (8,226 | ) | | | 239 | | | | (2.9 | ) |
| Other income | | | 159 | | | | 409 | | | | (250 | ) | | | (61.1 | ) | | | 148 | | | | 317 | | | | (169 | ) | | | (53.3 | ) |
| Unrealized gains on derivative instruments | | | 179 | | | | 336 | | | | (157 | ) | | | (46.7 | ) | | | 109 | | | | 1,004 | | | | (895 | ) | | | (89.1 | ) |
| Income tax benefit (provision) | | | 688 | | | | (183 | ) | | | 871 | | | | NM | | | | 1,452 | | | | 43 | | | | 1,409 | | | | NM | |
| Minority interest | | | 168 | | | | (15 | ) | | | 183 | | | | NM | | | | 369 | | | | 109 | | | | 260 | | | | NM | |
| Net (loss) income(2) | | | (867 | ) | | | 427 | | | | (1,294 | ) | | | NM | | | | (1,828 | ) | | | 135 | | | | (1,963 | ) | | | NM | |
Reconciliation of net (loss) income to EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net (loss) income(2) | | | (867 | ) | | | 427 | | | | (1,294 | ) | | | NM | | | | (1,828 | ) | | | 135 | | | | (1,963 | ) | | | NM | |
| Interest expense, net | | | 4,020 | | | | 4,333 | | | | (313 | ) | | | (7.2 | ) | | | 7,987 | | | | 8,226 | | | | (239 | ) | | | (2.9 | ) |
| Income tax (benefit) provision | | | (688 | ) | | | 183 | | | | (871 | ) | | | NM | | | | (1,452 | ) | | | (43 | ) | | | (1,409 | ) | | | NM | |
| Depreciation | | | 1,070 | | | | 744 | | | | 326 | | | | 43.8 | | | | 2,105 | | | | 1,609 | | | | 496 | | | | 30.8 | |
| Amortization of intangibles | | | 705 | | | | 472 | | | | 233 | | | | 49.4 | | | | 1,493 | | | | 878 | | | | 615 | | | | 70.0 | |
| EBITDA | | | 4,240 | | | | 6,159 | | | | (1,919 | ) | | | (31.2 | ) | | | 8,305 | | | | 10,805 | | | | (2,500 | ) | | | (23.1 | ) |
·
reduced operating margins due primarily to higher personnel costs and property lease costs;
·
decline in the number of cars using our facilities;
·
targeted pricing strategies contributed to an increase in average revenue per car out;
·
accelerated amortization of intangible asset; and
·
appointment of a new CEO in March 2007.
Quarter Ended March 31, 2007 Compared to Quarter Ended March 31, 2006
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | |
| | | 2007 | | 2006 | | Change | |
| | $ | | $ | | $ | | % | |
| | | ($ in thousands) (unaudited) | |
| | | | | | | | | | | | | | |
Revenue | | | 18,811 | | | 18,216 | | | 595 | | | 3.3 | |
Direct expenses(1) | | | 14,289 | | | 13,435 | | | 854 | | | 6.4 | |
Gross profit | | | 4,522 | | | 4,781 | | | (259 | ) | | (5.4 | ) |
Selling, general and administrative expenses | | | 1,613 | | | 1,700 | | | (87 | ) | | (5.1 | ) |
Amortization of intangibles | | | 788 | | | 406 | | | 382 | | | 94.1 | |
Operating income | | | 2,121 | | | 2,675 | | | (554 | ) | | (20.7 | ) |
Interest expense, net | | | (3,966 | ) | | (3,893 | ) | | (73 | ) | | 1.9 | |
Other (expense) income | | | (10 | ) | | (92 | ) | | 82 | | | (89.1 | ) |
Unrealized (loss) gain on derivative instruments | | | (70 | ) | | 668 | | | (738 | ) | | (110.5 | ) |
Benefit for income taxes | | | 763 | | | 226 | | | 537 | | | NM | |
Minority interest | | | 201 | | | 124 | | | 77 | | | 62.1 | |
Net loss(2) | | | (961 | ) | | (292 | ) | | (669 | ) | | NM | |
| | | | | | | | | | | | | |
Reconciliation of net loss to EBITDA: | | | | | | | | | | | | | |
Net loss(2) | | | (961 | ) | | (292 | ) | | (669 | ) | | NM | |
Interest expense, net | | | 3,966 | | | 3,893 | | | 73 | | | 1.9 | |
Benefit for income taxes | | | (763 | ) | | (226 | ) | | (537 | ) | | NM | |
Depreciation | | | 1,035 | | | 865 | | | 170 | | | 19.7 | |
Amortization of intangibles | | | 788 | | | 406 | | | 382 | | | 94.1 | |
EBITDA | | | 4,065 | | | 4,646 | | | (581 | ) | | (12.5 | ) |
——————
NM – Not meaningful
| (1) | Includes depreciation expense of $1.1 million and $744,000 for the quarters ended June 30, 2007 and 2006, respectively, and $2.1 million and $1.6 million for the six month periods ended June 30, 2007 and 2006, respectively. |
| (2) | Corporate allocation expense and other intercompany fees, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
(1)38
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Includes depreciation expense of $1.0 million and $865,000 for the quarters ended March 31,
| | | | | | | | | | | | | | | | |
| | Quarter Ended June 30, | | | | | | Six Months Ended June 30, | | | | |
| | | 2007 | | 2006 | | Change | | 2007 | | 2006 | | Change |
| | | | | | | | | % | | | | | | | | % |
Operating Data:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cars Out(1): | | | 531,231 | | | | 543,601 | | | | (12,370 | ) | | | (2.3 | ) | | | 1,026,371 | | | | 1,061,436 | | | | (35,065 | ) | | | (3.3 | ) |
| Average Revenue per Car Out: | | $ | 36.86 | | | $ | 35.30 | | | $ | 1.56 | | | | 4.4 | | | $ | 36.76 | | | $ | 34.70 | | | $ | 2.06 | | | | 5.9 | |
| Average Overnight Occupancy(2): | | | 22,478 | | | | 22,335 | | | | 143 | | | | 0.6 | | | | 21,613 | | | | 21,624 | | | | (11 | ) | | | (0.1 | ) |
| (1) | Cars Out refers to the total number of customers exiting during the period. |
| (2) | Average Overnight Occupancy refers to aggregate average daily occupancy measured for all locations at the lowest point of the day and does not reflect turnover and intra-day activity. |
Revenue
Revenue in 2007 and 2006, respectively.
(2)
Corporate allocation expense and other intercompany fees, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level.
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | Change | |
| | 2007 | | 2006 | | | | % | |
Operating Data: | | | | | | | | | |
Cars Out(1): | | | 495,140 | | | 517,835 | | | (22,695 | ) | | (4.4 | ) |
Average Revenue per Car Out: | | $ |
| | $ | 34.07 | | $ | 2.57 | | | 7.5 | |
Average Overnight Occupancy(2): | | | 20,726 | | | 20,981 | | | (255 | ) | | (1.2 | ) |
——————
(1)
Cars Out refers to the total number of customers exiting during the period.
(2)
Average Overnight Occupancy refers to aggregate average daily occupancy measured for all locations at the lowest point of the day and does not reflect turnover and intra-day activity.
Revenue
Revenue increased due to the addition of one new location duringlocation. Comparable locations revenue for the quarteran increase in average revenue per car out. The increase in averagethe six month periods were generally flat.
Average revenue per car out results mainly fromincreased for the continuationquarter and six month period at our comparable locations primarily due to implementation of our yield management strategy, including price increases reduced discounting in selected markets, and the elimination of low margin daily parking programs in selected markets. A focus on improving the level of customer service in certain locations has supported these price increases.
The decrease in cars out at comparable locations in both the quarter and average overnight occupancythe six month period was attributed to competitive pressure and underperforming management in selected markets and a continued strategic shift away from daily parkers. Management has taken actionparkers and competitive pressure in underperforming markets through more aggressive pricing and replacement of certain managers. selected markets.
Daily parkers, typically airport employees, contribute to a higher number of cars out, but pay discounted rates. Management have sought to replace daily customers with higher yielding leisure and corporate customers, however the volume is not yet sufficient to fully offset the loss of daily parkers. Management is concentrating sales efforts in these markets to attract additional corporate accounts.
In the first quarter of 2007, management identified a number of underperforming markets, introducing aggressive pricing campaigns and new managers to recapture market share. Management also identified a number of service level issues in these markets and efforts to upgrade standards are continuing. As a result, the decline in cars out over the prior year improved slightly in the second quarter compared to the first quarter of 2007. We anticipate that these service improvements together with our rebranding and internet marketing will build our customer base over time. As a result, we expect to see improved revenues over the medium term.
Our airport parking business as a whole has sufficient capacity to accommodate further growth. At locations where we are operating at peak capacity intra-day, we continue to seek opportunities to expand capacity of these locations.capacity.
In the quarter ending March 31, 2007 we re-branded eight locations as FastTrack Airport Parking. The re-branding includes replacement of signage, uniforms and the graphics on our shuttle buses. The brand has also been incorporated into a new website. We believe the new website and brand will drive volume increases and, once the balance of facilities have been re-branded, will stream-line marketing efforts.
Direct Expenses
Direct expenses for the quarter ended March 31, 2007 increased due in part to additional costs associated with operating one new location.
Direct expenses increased at comparable locations for the quarter and six months ended June 30, 2007 due to higher personnel costs and real and increased lease payments.
In certain markets,support service improvement initiatives including additional personnel and security. Increases were concentrated in our North East valet markets where customer experience is driven by the interactions with our staff. We anticipate that these costs were incurredwill stabilize at current levels over the remainder of the year and will support anticipated increases in response to volume increases, weather conditionsrevenue and security concerns. In underperforming markets, personnel costs decreased.accordingly margin growth as the customer base builds in response.
DirectDepreciation increased in the quarter and six months ended June 30, 2007 by $326,000 and $496,000, respectively, primarily as a result of the replacement of buses.
We note that direct expenses include rent in excess of lease, a non-cash item, in the amount of $567,000 $575,000 and $501,000 $561,000 for the quarters ended March 31,June 30, 2007 and 2006, respectively, and $1.2 million and $1.1 million for the six months ended June 30, 2007 and 2006, respectively.
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On June 27 the airport parking business sub-leased a parcel of land that had been used intermittently as an overflow facility. The sub-lease revenue will offset all of the lease expense, effectively reducing operating costs of the business by $250,000 per quarter through the first quarter of 2009.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased due primarily to re-branding expenses of $545,000 for the quarter decreased due primarily to the reversal of a 2006 excess bonus reserve in the first quarter of This was partially offset by higher accounting and professional fees.
Amortization of Intangibles
Amortization in 2007 increased due to the accelerated amortization of certain intangible assets (trade and domain names) associated with the re-branding project.
Interest Expense, Net
Interest expense increaseddeclined due to the additionalfavorable interest rates and lower finance cost amortization associated with the debt refinanced on September 1, 2006, that consolidated our primary borrowings, and additionalprovided capital for current and future capital expenditures at a more favorable interest rate, offset by a small reduction to interest expense from receipts on our derivative instruments,rate.
EBITDA
EBITDA decreased due to favorable LIBOR rates which exceeded our interest rate caplower operating income, primarily as a result of increased service related costs and swap rates.re-branding expenses.
EBITDA
Excluding unrealized (loss) gain on derivative instruments, EBITDA increased by 3.9%.
Liquidity and Capital Resources
We do not intend to retain significant cash balances in excess of what are prudent reserves. We believe that we will have sufficient liquidity and capital resources to meet our future liquidity requirements, including in relation to our acquisition strategy, our debt obligations and our distribution policy. We base our assessment on the following assumptions that:
·
all of
our businesses and investments generate, and will continue to generate, significant operating cash flow;
·
the ongoing maintenance capital expenditures associated with our businesses are modest and readily funded from their respective operating cash flow;
·
all significant short-term growth capital expenditure will be funded with cash on hand or from committed undrawn debt facilities;
·
payments on Thermal Chicago/Northwind Aladdin’s debt that will begin to amortize in 2007 can be paid from operating cash flow;
·
IMTT
our district energy business will be able to refinance
and increase the size of its existing
debt facilities on amended terms during 2007; and
·
we have at least $300.0 million of revolving acquisition financing available and will be able to raise equity to refinance any amounts borrowed in the future under our acquisition facility prior to its maturity.
The section below discusses the sources and uses of cash on a consolidated basis, and our businesses and investments for the quarterssix months ended March 31,June 30, 2007 and March 31, 2006. Cash provided by (used in) operating activities for our businesses excludes the impact of the corporate allocation and other operating inter-company activities, which are eliminated at the MIC Inc. level.
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OUR CONSOLIDATED CASH FLOW
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | |
| | 2007 | | 2006 | | Change | |
| | | $ | | $ | | $ | | % | |
| | | ($ in thousands) | |
| | | | | | | | | |
Cash provided by operating activities | | |
| | | 11,821 | | |
| | |
| |
Cash provided by (used in) investing activities | | |
| | | (1,023 | ) | |
| | | NM | |
Cash provided by financing activities | | | 2,588 | | | 552 | | | 2,036 | | | NM | |
——————
NM – Not meaningful
| | | | | | | | |
| | Six Months Ended June 30, | | |
| | | 2007 | | 2006 | | Change |
| ($ in thousands) | | $ | | $ | | $ | | % |
| Cash provided by operating activities | | | 52,538 | | | | 23,401 | | | | 29,137 | | | | 124.5 | |
| Cash used in investing activities | | | (10,776 | ) | | | (506,545 | ) | | | 495,769 | | | | (97.9 | ) |
| Cash (used in) provided by financing activities | | | (6,149 | ) | | | 405,457 | | | | (411,606 | ) | | | (101.5 | ) |
Key factors influencing our consolidated cash flow were as follows:
·
the increase in our consolidated cash flow provided by operating activities was primarily the result of the positive contribution from the
acquisitionacquisitions made by our airport services business,
(Trajen), the acquisition of TGC and continued organic growth in our consolidated businesses. Offsetting these increases were higher interest expenses resulting from increased debt levels;
·
the increase in our consolidated
cash flow
provided byused in investing activities
was primarily due to thein 2007 included $88.7 million paid for our investment in Supermarine, offset by $85.0 million receipt of sale proceeds in January 2007 from the disposition in our interest in Macquarie Yorkshire Limited in December
2006;2006. Cash flow used in investing activities in the first half of 2006 primarily comprised our $257.0 million investment in IMTT and
·
the small increase our $263.3 million investment in our consolidatedgas production and distribution business, less $7.8 million cash acquired. There was also an additional cash inflow in 2007 of $11.7 million, comprising the dividend received from IMTT in excess of the equity accounted income recognized, net of $18.2 million in capital expenditures. Capital expenditures were $13.3 million higher than in the first half of 2006 due to businesses acquired since the middle of 2006; and
cash flow used in financing activities in 2007 mainly comprised $43.6 million in distributions paid to holders of trust stock (prior to the dissolution of the Trust), net of $41.6 million in debt drawdowns by our businesses ($32.5 million of which was to fund the airport services acquisition of Supermarine). Cash flow provided by financing activities
was due to draw downsin 2006 mainly comprised $437.9 million in debt
bydrawdowns to fund our
gas productioninvestments in IMTT and
distribution and district energy businessesTGC, net of $27.1 million in
the first quarterdistributions paid to holders of
2007.
trust stock.
As of March 31,June 30, 2007, our consolidated cash and cash equivalent balances totaled $146.4$73.0 million.
The Company capitalizes its operating businesses separately using non-recourse, project finance style debt. In addition, it has a credit facility at its subsidiary, MIC Inc., primarily to finance acquisitions and capital expenditures. At March 31,June 30, 2007, the Company had no indebtedness outstanding at the MIC LLC Trust or MIC Inc. level. On August 6, 2007, we drew $60.0 million on the MIC Inc. credit facility in anticipation of closing our acquisition of Mercury and SJJC in August 2007. For a description of the MIC Inc. revolving acquisition facility, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.2006, filed with the SEC on March 1, 2007.
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AIRPORT SERVICES BUSINESS CASH FLOW
| | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | | | Six Months Ended June 30, |
| | 2007 | | 2006 | | Change | | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | |
| | | ($ in thousands) | | |
| | | | | | | | | | |
| ($ in thousands) | | | $ | | $ | | $ | | % |
Cash provided by operating activities | | |
| | |
| | |
| | |
| | | | 40,385 | | | | 21,864 | | | | 18,521 | | | | 84.7 | |
Cash used in investing activities | | | (1,702 | ) | | (567 | ) | | (1,135 | ) | | 200.2 | | | | (92,638 | ) | | | (1,138 | ) | | | (91,500 | ) | | | NM | |
Cash used in financing activities | | | (11,879 | ) | | (9,153 | ) | | (2,726 | ) | | 29.8 | | |
| Cash provided by (used in) financing activities | | | | 63,974 | | | | (17,868 | ) | | | 81,842 | | | | NM | |
NM – Not meaningful
Key factors influencing cash flow from our airport services business were as follows:
·
the increase in cash provided by operating activities was the result of the acquisition of Trajen
and Supermarine in July 2006
and May 2007, respectively, and improved performance at existing locations, partially offset by an increase in interest expense
reflectingon higher debt levels;
·
in addition to the acquisition of Supermarine, cash used in investing activities
includedincludes capital expenditures of
$1.7$5.0 million
($2.4 million for maintenance and $2.6 million for expansion) in
the first quarter of 2007 compared to
$550,000$1.1 million in
the first quarter of 2006
and included $975,000($1.0 million for maintenance and
$727,000$81,000 for
expansion;expansion); and
·
cash used inprovided by financing activities includedincludes proceeds received from the issuance of long term debt and a capital contribution from us for the acquisition of Supermarine, offset by distributions to us of $13.2$28.9 million in the first quarter of 2007 compared to $8.9$17.4 million in the first quarter of 2006.
The airport services business amended its credit facility in February 2007 to provide for $32.5 million of additional term loan borrowings to partially finance the acquisition of Supermarine and drew down on this facility on May 30, 2007 when the FBOs located at Stewart International Airport in New York and Santa Monica Airport in California.acquisition closed. The terms of the facility remain the same except that the required minimum adjusted EBITDA increased to $78.2 million for 2007 and $84.1 million for 2008. To hedge the interest commitments under the term loan expansion, MIC, Inc. entered into a swap with Macquarie Bank Limited, fixing 100% of the term loan expansion at the following base rate:
| | | | | | |
| Start Date
| | End Date
| | Rate
| |
| | | | | |
| Start Date | |
| End Date | | Rate |
| March 30, 2007 | | | December 12, 2010 | | 5.2185%
| | 5.2185 | % |
The swap will bewas transferred to the airport services business at the completion of the acquisition.acquisition on May 30, 2007.
We have also received commitment letters from various banks to provide credit facilities to fund the upcoming acquisitions of Mercury and SJJC. Further details are provided in Note 5, Acquisitions, to our consolidated condensed financial statements in Part I, Item I of this Form 10-Q, which is incorporated herein by reference.
For a further description of the airport services business’ debt facilities see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
BULK LIQUID STORAGE TERMINAL BUSINESS CASH FLOW
The acquisition of our 50% interest in IMTT was completed on May 1, 2006. The following analysis compares the historical cash flows for IMTT under its current and prior owners. We believe that this is the most appropriate approach to explaining the historical cash flow trends of IMTT rather than discussing the composition of cash flows that is included in our consolidated cash flows.
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | |
| | 2007 | | 2006 | | Change | |
| | | $ | | $ | | $ | | % | |
| | | ($ in thousands) | |
| | | | | | | | | |
Cash provided by operating activities | | | 31,023 | | | 20,531 | | | 10,492 | | | 51.1 | |
Cash used in investing activities | | | (33,809 | ) | | (14,726 | ) | | (19,083 | ) | | 129.6 | |
Cash (used in) provided by financing activities | | | (6,177 | ) | | 24,572 | | | (30,749 | ) | | (125.1 | ) |
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| | | | | | | | |
| | Six Months Ended June 30, |
| | | 2007 | | 2006 | | Change |
| ($ in thousands) | | $ | | $ | | $ | | % |
| Cash provided by operating activities | | | 31,497 | | | | 38,799 | | | | (7,302 | ) | | | (18.8 | ) |
| Cash used in investing activities | | | (77,984 | ) | | | (33,512 | ) | | | (44,472 | ) | | | 132.7 | |
| Cash provided by financing activities | | | 12,972 | | | | 87,646 | | | | (74,674 | ) | | | (85.2 | ) |
Key factors influencing cash flow at our bulk liquid storage terminal business,
·
cash provided by operating activities
increased by 51.1%,decreased primarily due to
a $12.3 million make-whole payment associated with the early repayment of two tranches of senior notes partially offset by an increase in EBITDA,
as described within “Management’s Discussion and
a decrease in interest paid in 2007, as discussed aboveAnalysis of Financial Condition and Results of Operations” and a reduction in working
capital;·
capital in 2006 which did not recur in 2007;
cash used in investing activities increased principally due to high levels of specific capital expenditure relating to the construction of the new facility at Geismar, LA and the construction of new storage tanks at IMTT’s existing facilities at St. Rose, LA,
Gretna, LA, Bayonne, NJ and Quebec, Canada; and
·
cash (used in) provided by financing activities changeddeclined due to higher dividend payments and less borrowing to fund capital expenditurethe investment in 2007 thanIMTT by MIC during 2006 which did not recur in the same period in 2006.2007.
Pursuant to the terms of the shareholders’ agreement between ourselves and the other shareholders in IMTT, all shareholders in IMTT other than MIC Inc. are required to loan all quarterly dividends received by them, (excluding the $100.0 million dividend paid to prior existing shareholders at the closing of our investment in IMTT), net of tax payable in relation to such dividends, through the quarter ending December 31, 2007 back to IMTT Holdings Inc. The shareholder loan has a fixed interest rate of 5.5% and will be repaid over 15 years by IMTT Holdings Inc. with equal quarterly amortization commencing March 31, 2008. Shareholder loans of $16.8$22.3 million were outstanding as at March 31,June 30, 2007.
For a description of the bulk liquid storage terminal business’ debt facilities see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. In addition, the following describes material changes to the business’ debt facilities in 2007.
On June 7, 2007, IMTT entered into a Revolving Credit Agreement (the “Agreement”) with Suntrust Bank, Citibank N.A., Regions Bank, Rabobank Nederland, Branch Banking & Trust Co., DNB NOR Bank ASA, Bank of America N.A., BNP Paribas, Bank of Montreal, The Royal Bank of Scotland PLC, Mizuho Corporate Bank Ltd and eight other banks establishing a $600.0 million U.S. dollar denominated revolving credit facility and a $25.0 million equivalent Canadian dollar revolving credit facility. The Agreement also allows for an increase in the U.S. dollar denominated revolving credit facility of up to $300.0 million on the same terms at the election of IMTT. No commitments have been sought from lenders to provide this increase at this time.
At signing, IMTT used $168.5 million under the new U.S. dollar denominated revolving credit facility to fully repay and extinguish the existing two tranches of fixed rate notes issued by IMTT and to replace letters of credit outstanding under the existing U.S. dollar denominated revolving credit facility which has also been terminated. IMTT also borrowed $10.1 million equivalent under the Canadian dollar denominated revolving credit facility to fully repay the existing Canadian dollar denominated revolving credit facility which has been terminated. The material terms of the new revolving credit facilities are summarized in the table below. The new facilities will be used to fund IMTT's expansion program and are expected to be more than adequate to fully fund IMTT’s existing and reasonably foreseeable growth capital expenditure plans.
| | | | |
| Facility Term | | USD Revolving Credit Facility | | CAD Revolving Credit Facility |
| Amount Utilized at Closing of Facility | | $168.5 million | | $10.1 million |
| Undrawn Amount | | $431.5 million | | $14.9 million |
| Uncommitted Expansion Amounts | | $300.0 million |
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| | | | |
| Facility Term | | USD Revolving Credit Facility | | CAD Revolving Credit Facility |
| Maturity | | June, 2012 | | June, 2012 |
| Amortization | | Revolving. Payable at maturity. | | Revolving. Payable at maturity |
| Interest Rate | | Floating at LIBOR plus a margin based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows:
< 2.00 – 0.55%
2.00 > 2.50 – 0.70%
2.50 > 3.00 – 0.85%
3.00 > 3.75 – 1.00%
3.75 > 4.00 – 1.25%
4.00 > – 1.50% | | Floating at Canadian LIBOR plus a margin based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows:
< 2.00 – 0.55%
2.00 > 2.50 – 0.70%
2.50 > 3.00 – 0.85%
3.00 > 3.75 – 1.00%
3.75 > 4.00 – 1.25%
4.00 > – 1.50% |
| Commitment Fees | | A percentage of undrawn committed amounts based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows:
< 2.00 – 0.125%
2.00 > 2.50 – 0.15%
2.50 > 3.00 – 0.175%
3.00 > 3.75 – 0.20%
3.75 > 4.00 – 0.25%
4.00 > – 0.25% | | A percentage of undrawn committed amounts based on the ratio of Debt to EBITDA of IMTT’s operating subsidiaries as follows:
< 2.00 – 0.125%
2.00 > 2.50 – 0.15%
2.50 > 3.00 – 0.175%
3.00 > 3.75 – 0.20%
3.75 > 4.00 – 0.25%
4.00 > – 0.25% |
| Security | | Unsecured except for pledge of 65% of shares in IMTT’s two Canadian subsidiaries. | | Unsecured except for pledge of 65% of shares in IMTT’s two Canadian subsidiaries. |
| Financial Covenants (applicable to IMTT’s operating subsidiaries on a combined basis) | | Debt to EBITDA Ratio: Max 4.75 ×
EBITDA to Interest Ratio: Min 3.00 × | | Debt to EBITDA Ratio: Max 4.75 ×
EBITDA to Interest Ratio: Min 3.00 × |
| Financial Covenants as at June 30, 2007 (applicable to IMTT’s operating subsidiaries on a combined basis) | | Debt to EBITDA
Ratio: 2.70 ×
EBITDA to Interest
Ratio: 4.25 × | | Debt to EBITDA
Ratio: 2.70 ×
EBITDA to Interest
Ratio: 4.25 × |
| Restrictions on Payments of Dividends | | None provided no default as a result of payment | | None provided no default as a result of payment |
As of June 30, 2007, IMTT was utilizing $186.6 million of this revolving credit commitment.
On July 10, 2007, IMTT issued $215.0 million of Gulf Opportunity Zone Bonds (GO Zone Bonds) in two tranches. The proceeds from the issuance of the GO Zone Bonds will be used to fund qualified project costs at its St. Rose and Geismar storage facilities incurred subsequent to August 12, 2005 (in the case of
St. Rose) and April 28, 2005 (in the case of Geismar) and before January 1, 2011. Of the proceeds from the issuance of the GO Zone Bonds, $112.9 million (an amount approximately equivalent to IMTT’s aggregate capital expenditures at St. Rose and Geismar from the aforementioned dates through the date of issuance) were made immediately available to IMTT and used to repay part of the then outstanding balance under IMTT’s revolving credit facility. The balance of the proceeds from the GO Zone Bond issuance
($100.7 million net of transaction costs) are currently held in trust and will be released to IMTT as further
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capital expenditure at the specified terminals is undertaken. While held in trust, the proceeds will be invested by the trustee in short term debt instruments with high credit rating. It is anticipated that all proceeds from the issuance held by the trustee will be released to IMTT by the end of 2008.
The GO Zone Bonds are fully credit supported by letters of credit drawn under IMTT’s revolving credit agreement.
For federal income tax purposes, interest on the GO Zone Bonds is excluded from gross income, and is not an item of tax preference for purposes of federal alternative minimum tax imposed on individuals and corporations that are investors in the Go Zone Bonds; however, for purposes of computing the federal alternative minimum tax imposed on certain corporations, such interest is taken into account in determining adjusted current earnings. As a consequence of this and the credit support provided by the letters of credit, the floating interest rate applicable to similar bonds has historically averaged approximately 67% percent of LIBOR. Interest on the GO Zone Bonds is deductible to IMTT for federal income tax purposes as incurred except to the extent capitalized and amortized as part of project costs as required.
The key terms of the GO Zone Bonds issued are summarized in the table below.
| | |
| Facility Term |
| Amount Outstanding | | $215.0 million |
| Amount Released to IMTT | | $112.9 million |
| Amount Held by Bond Trustee | | $100.7 million |
| Term | | 30 years from date of issuance |
| Amortization | | Nil. Repayable in full at maturity |
| Interest Rate | | Floating at tax exempt bond tender rates |
| Security | | Unsecured. Required to be supported at all times by bank letter of credit |
| Financial Covenants | | Nil |
| Restrictions on Payments of Dividends | | Nil |
To hedge the interest rate risk associated with IMTT's current and a substantial portion of its projected floating rate borrowings under the revolving credit agreement and GO Zone Bonds, IMTT has entered into the following interest rate swaps during the quarter:
10 year fixed to quarterly LIBOR swap with an initial notional amount of $50.0 million, increasing to $200.0 million by December 31, 2012, at a fixed rate of 5.5070%.
10 year fixed to monthly 67% of LIBOR swap with an initial notional amount of $75.0 million, increasing to $215.0 million by December 31, 2008, at a fixed rate of 3.662%.
GAS PRODUCTION AND DISTRIBUTION BUSINESS CASH FLOW
Because TGC’s cash flows are only included in our financial results from June 7, 2006, the following analysis compares the historical cash flows for TGC under both its current and prior owners for the six months ended June 30, 2007 and 2006. We believe that this is the most appropriate approach to explaining the historical cash flow trends of TGC rather than discussing the composition of cash flows that is included in our consolidated cash flows.
| | | | | | | | |
| | Six Months Ended June 30, |
| | | 2007 | | 2006 | | Change |
| ($ in thousands) | | $ | | $ | | $ | | % |
| Cash provided by operating activities | | | 9,845 | | | | 10,949 | | | | (1,104 | ) | | | (10.1 | ) |
| Cash used in investing activities | | | (4,223 | ) | | | (260,207 | ) | | | 255,984 | | | | (98.4 | ) |
| Cash (used in) provided by financing activities | | | (2,726 | ) | | | 255,450 | | | | (258,176 | ) | | | (101.1 | ) |
Key factors influencing cash flow from TGC were as follows:
the decrease in cash provided by operating activities was the result of normal working capital fluctuations and lower income;
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cash used in investing activities for 2007 of $4.2 million was for capital additions, compared with $4.7 million for the first half of 2006. The remaining 2006 use of cash in investing activities was for our acquisition of TGC; and
cash used in financing activities for the first half of 2007 comprised distributions from TGC to us of $4.7 million, offset by $2.0 million of new long-term borrowing that was used to finance the purchase of utility assets. Cash provided by financing activities during the first half of 2006 were for $160.0 million of borrowings for the acquisition of TGC, $106.7 million of capital contributed by us upon our acquisition of the business less $3.3 million of financing costs, $2.0 million of borrowing for working capital needs, and $9.9 million in distributions to the previous owner. Note that in addition to the $4.7 million in distributions paid to us in 2007, TGC also paid $796,000 to us for corporate allocation expenses, which has been excluded from the above table.
At June 30, 2007, TGC had $16.0 million available to borrow under its $20.0 million revolving credit facility. During the second quarter, TGC established a $5.0 million uncommitted unsecured short-term borrowing facility. This credit line is being used for working capital needs, but no amount had been borrowed as of June 30, 2007.
For a description of the gas production and distribution business’ debt facilities see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. We have not had any material changes to our debt and credit facilities since March 1, 2007, our 10-K filing date.
GAS PRODUCTION AND DISTRIBUTION BUSINESS CASH FLOW
Because TGC’s cash flows are only included in our financial results from June 7, 2006 through March 31, 2007, the following analysis compares the historical cash flows for TGC under both its current and prior owners for the quarter ended March 31, 2007 and 2006. We believe that this is the most appropriate approach to explaining the historical cash flow trends of TGC rather than discussing the composition of cash flows that is included in our consolidated cash flows.
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | |
| | 2007 | | 2006 | | Change | |
| | | $ | | $ | | $ | | % | |
| | | ($ in thousands) | |
| | | | | | | | | |
Cash provided by operating activities | | | 4,456 | | | 9,336 | | | (4,880 | ) | | (52.3 | ) |
Cash used in investing activities | | | (1,956 | ) | | (2,102 | ) | | 146 | | | (6.9 | ) |
Cash used in financing activities | | | (121 | ) | | (891 | ) | | 770 | | | (86.4 | ) |
Key factors influencing cash flow from our gas production and distribution business were as follows:
·
the decrease in cash provided by operating activities was the result of normal working capital fluctuations and lower income. Working capital fluctuations were primarily due to $2.0 million higher accounts payable balances in the prior period;
·
cash used in investing activities for both periods was principally for capital additions; and
·
cash used in financing activities for the first quarter of 2007 comprised distributions to us of $1.1 million, offset by $1.0 million of new long-term borrowing that was used to finance the purchase of utility assets. Cash used in financing activities during the first quarter of 2006 was for distributions to the previous owner.
At March 31, 2007, TGC had $17.0 million available to borrow under its $20.0 million revolving credit facility.
Pursuant to our purchase agreement and regulatory requirements related to our purchase, an escrow account of $4.5 million was established on June 7, 2006 to be used to recover utility fuel cost adjustments. Of this amount, $1.7 million was withdrawn as reimbursement for the previously described fuel cost adjustments since the acquisition. The remaining $2.8 million may be released to TGC to reimburse it for future fuel cost adjustments.
For a description of the gas production and distribution business’ debt facilities see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. We
have not had any material changes to our debt facilities since March 1, 2007, our 10-K filing date, except for the additional drawdown of $1.0the revolving credit facility of $2.0 million during the quartersix months ended March 31,June 30, 2007.
DISTRICT ENERGY BUSINESS CASH FLOW
| | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | | | Six Months Ended June 30, |
| | 2007 | | 2006 | | Change | | | 2007 | | 2006 | | Change |
| | | $ | | $ | | $ | | % | | |
| | | ($ in thousands) | | |
| | | | | | | | | | |
| ($ in thousands) | | | $ | | $ | | $ | | % |
Cash provided by operating activities | | |
| | |
| | |
| | | NM | | | | 5,998 | | | | 4,474 | | | | 1,524 | | | | 34.1 | |
Cash used in investing activities | | | (2,315 | ) | |
| ) | |
| ) | | NM | | | | (6,161 | ) | | | (1,109 | ) | | | (5,052 | ) | | | NM | |
Cash used in financing activities | | | (728 | ) | | (2,839 | ) | | 2,111 | | | (74.4 | ) | |
| Cash provided by (used in) financing activities | | | | 4,364 | | | | (3,879 | ) | | | 8,243 | | | | NM | |
——————
NM – Not meaningful
Key factors influencing cash flow from our district energy business were as follows:
·
the increase in cash provided by operating activities was a result of various working capital items, primarily increases in accounts payable and accrued expenses relating to increased
growth capital expenditures;·
electricity charges accrued in 2007;
the increase in cash used in investing activities was due to growth capital expenditures for plant expansion and new customer connections and the timing of on-going maintenance capital expenditures for system reliability; and
·
the decrease in cash used in financing activities was due to lower distributions to us in the first quartersix months of 2007, being $2.4 million, compared with $4.1$5.5 million in the first quartersix months of 2006 and also additional borrowings in 2007 of $1.8 $7.1 million to finance capital expenditures. Payments madeNote that in addition to the $2.4 million in distributions paid to us, our district energy business also paid $2.0 million to settle inter-company balances inus for corporate allocation expenses, which has been excluded from the first quarter of 2007 are included within cash provided by operating activities.above table.
For a description of the district energy business’ debt and credit facilities, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report of Form 10-K for the fiscal year ended December 31, 2006. We have not had any material changes to our debt and credit facilities since March 1, 2007, our 10-K filing date, except for the additional drawdown of the revolving credit facility of $1.8$7.1 million during the quartersix months ended March 31,June 30, 2007.
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AIRPORT PARKING BUSINESS CASH FLOW
| | | | | | | | | | | | | |
| | Quarter Ended March 31, | | | | | |
| | 2007 | | 2006 | | Change | |
| | | $ | | $ | | $ | | % | |
| | | ($ in thousands) | |
| | | | | | | | | |
Cash (used in) provided by operating activities | | |
| ) | |
| | |
| ) | |
| ) |
Cash used in investing activities | | | (1,585 | ) | | (480 | ) | | (1,105 | ) | |
| |
Cash used in financing activities | | | (634 | ) | | (3,606 | ) | | 2,972 | | | (82.4 | ) |
| | | | | | | | |
| | Six Months Ended June 30, |
| | | 2007 | | 2006 | | Change |
| ($ in thousands) | | $ | | $ | | $ | | % |
| Cash provided by operating activities | | | 1,501 | | | | 3,376 | | | | (1,875 | ) | | | (55.5 | ) |
| Cash used in investing activities | | | (2,838 | ) | | | (2,168 | ) | | | (670 | ) | | | 30.9 | |
| Cash provided by (used in) financing activities | | | 4,645 | | | | (3,197 | ) | | | 7,842 | | | | NM | |
——————
NM – Not meaningful
Key factors influencing cash flow from our airport parking business were as follows:
·
the decrease in cash provided by operating activities was
a result of lower net income due to
movements inhigher direct expenses and re-branding costs, and also normal working capital
items, including trade payables, prepaid expenses and trade receivables;·
the increase in fluctations;
cash used in investing activities
was a result of higherincludes capital expenditures in
the fist quarter2007 of
2007, being $1.6$2.8 million
compare to $477,000and $2.2 million in
the first quarter of 2006; and
·
cash provided by financing activities in
the first quarter of 2007 included a
$1.0contribution of $7.8 million
distributionfrom us, which was offset by distributions to shareholders
includingin the amount of $1.1 million ($950,000 of which was paid to us
inand the remainder to our minority shareholders). In addition,
to $504,000 payments on capital leases, which were offset by an increase in restricted cash of
$936,000. During$891,000 was released in 2006 while in 2007 an additional $1.1 million increased the
first quarter ofrestricted cash balance. Also, in 2006, a partial repayment of the
inter-companyintercompany loan of $3.2 million was paid to us.
Fortheour airport parking business’ debt and credit facilities, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report of Form 10-K for the fiscal year ended December 31, 2006. We have not had any material changes to our debt and credit facilities since March 1, 2007, our 10-K filing date.
Capital Expenditures
We have detailed our capital expenditures on a segment-by-segment basis, which we believe is a more appropriate approach to explaining our capital expenditure requirements on a consolidated basis.
AIRPORT SERVICES BUSINESS
Maintenance Capital Expenditure
We expect to spend approximately $3.8 million, or $200,000 per FBO, per year on maintenance capital expenditure at Atlantic’s existing FBO’s. At our newly acquired Trajen FBO’s we expect to spend approximately $3.3 million or $140,000$170,000 per FBO, per year on maintenance capital expenditure. The amounts will be spent on items such asMaintenance capital expenditures encompass repainting, replacing equipment as necessary and any ongoing environmental or required regulatory expenditure, such as installing safety equipment. This expenditure isThese expenditures are funded from cash flow from operations.
Specific Capital Expenditure
Several specific capitalCapital projects that were started in 2006 areand expected to be completed in 2007. Expenditures related to these specific projects are expected to2007 and 2008 total approximately $12.4 million at Atlantic’s existing FBO’s and $2.7 million at the Trajen FBO’s.$15.1 million. We intend to fund these expenditures from cash on hand.
BULK LIQUID STORAGE TERMINAL BUSINESS
Maintenance Capital Expenditure
During the threesix months ended March 31,June 30, 2007, IMTT spent $7.0$14.2 million on maintenance capital expenditure, including $5.2$9.5 million principally in relation to the refurbishment of storage tank refurbishmentstanks, piping, and $1.7dock facilities, and $3.6 million on environmental capital expenditure, principally in relation to improvements in containment measures and remediation. Looking forward it is anticipated that total maintenance capital expenditure (maintenance and environmental) is unlikely to exceed a range of between $30.0 million and $40.0
$40.0 million per year. The expected level of future maintenance capital expenditure over the longer term primarily reflects the need for increased environmental expenditure going forward both to remediate existing sites and to upgrade waste water treatment and spill containment infrastructure to comply with environmental regulations.
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Specific Capital Expenditure
IMTT is currently constructing a bulk liquid chemical storage and handling facility on the Mississippi River at Geismar, LA. To date, IMTT has committed approximately $162.0$164.6 million of growth capital expenditure to the project. Based on the current project scope and subject to certain minimum volumes of chemical products being handled by the facility, existing customer contracts are anticipated to generate terminal gross profit and EBITDA of at least approximately $18.8 million per year. Completion of construction of the initial $162.0$164.6 million phase of the Geismar project is targeted for the firstsecond quarter of 2008. In the aftermath of Hurricane Katrina, construction costs in the region affected by the hurricane have increased and labor shortages have been experienced. Although a significant amount of the impact of Hurricane Katrina on construction costs has already been incorporated into the capital commitment plan, there could be further negat ivenegative impacts on the cost of constructing the Geismar LA project (which may not be offset by an increase in gross profit and EBITDA contribution) and/or the project construction schedule.
In addition to the Geismar project, IMTT has recently completed the construction of 10approximately one million barrels of new storage tanksat its Louisiana facilities for a total cost of $26.9 million and is currently in the process of constructing a further 111.3 million barrels of new storage tanks with a total capacity of approximately 2.0 million barrels at its Louisiana facilities at a total estimated cost of $63.0$41.8 million. It is anticipated that construction at the Louisiana sites will be completed during 2007 and early 2008. Rental contracts with initial terms of at least three years have already been executed in relation to the substantial majority of these tanks with the balance to be used to
service customers while their existing tanks are undergoing scheduled maintenance over the next five years. Overall, it is anticipated that the operation of the newrecently completed tanks and those under construction will contribute approximately $10.7$11.1 million to IMTT’s terminal gross profit and EBITDA annually.
IMTT has also initiated capital projects to add or convert approximately one million barrels of storage capacity at its Bayonne, NJ site. IMTT anticipates spending $28.7 million on these projects, which will be completed during 2008 and 2009, and which are anticipated to generate approximately $7.1 million in gross profit and EBITDA annually.
At the Quebec facility, IMTT is currently in the process of constructing four new storage tanks with total capacity of 269,000655,000 barrels. All of these tanks are already under customer contract with a minimum term of three years. Total construction costs are projected at approximately $7.2$18.3 million. Construction of these tanks is anticipated to be completed during 2007 and 2008 and their operation is anticipated to contribute approximately $1.6$4.5 million to the Quebec terminal’s gross profit and EBITDA annually.
During the threesix months ended March 31,June 30, 2007, IMTT spent $30.7$68.7 million on specific expansion projects including $21.6$43.5 million in relation to the construction of the new bulk liquid chemical storage and handling facility and other tankage at Geismar, LA, and $3.4 million and $1.5$10.9 million at Stits existing Louisiana sites (St. Rose, LAGretna, and Quebec, Canada principallyAvondale), $8.9 million in relation to the construction of new storage tanks.Bayonne, and $4.3 million in Quebec. The balance of the specific capital expenditure related to a number of smaller projects to improve the capabilities of IMTT’s facilities.
It is anticipated that the proposed specific capital expenditure will be fully funded using a combination of IMTT’s cash flow from operations, IMTT’s debt facilities the proceeds from our investment in IMTT and future loans from the IMTT shareholders other than us. IMTT’s current debt facilities will need to be refinanced on amended terms and increased in size during 2007 to provide the funding necessary for IMTT to fully pursue its expansion plans.
GAS PRODUCTION AND DISTRIBUTION BUSINESS
Capital Expenditure
During 2007, TGC expects to spend approximately $9.5 million for capitalized maintenance capital expenditure, routine replacements of property, and to support new customer growth in 2007. Approximately $2.0 $1.2 million of the expected total year capital expenditures are for new customer hook-ups. The remaining $7.5 $8.3 million comprises approximately $400,000 $0.4 million for vehicles and $7.1 $7.9 million for other renewals and upgrades. A portion of the utility-related expenditures will be funded from available debt facilities. As of March 31,June 30, 2007, approximately $2.1$4.5 million has been spent for renewals, upgrades and upgrades, as well as new customers.business growth.
DISTRICT ENERGY BUSINESS
Maintenance Capital Expenditure
Our district energy business expects to spend approximately $1.0 million per year on capital expenditures
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relating to the replacement of parts, system reliability, customer service improvements and minor system modifications of which $281,000$638,000 has been spent in the first quartersix months of 2007. Since 2004, minor system modifications have been made that increased system capacity by approximately 3,000 tons. Maintenance capital expenditures for 2007 will be funded from available debt facilities.
Specific Capital Expenditure
We anticipate spending up to approximately $8.1 million for system expansion in 2007 and 2008. As of March 31,June 30, 2007, $3.1 $6.0 million has been spent or committed. This expansion, in conjunction with operational efficiencies we have achieved at our plants and throughout our system, will increase saleable capacity in the downtown cooling system by a total of 16,000 tons. Approximately 6,700 tons of saleable capacity was used in 2006 to accommodate four customers that converted from interruptible to continuous service. The balance of saleable capacity (approximately 9,300 tons) has been sold or is in the process of being sold to new or existing customers. We anticipate that the expanded capacity sold to new or existing customers will be under contract or subject to letters of intent prior to district energy committing to the capital expenditure.
As of AprilJuly 15, 2007, we have signed contracts with five customers representing approximately 90% of thethis remaining 9,300 tons of additional saleable capacity. One customer began service in late 2006, another began service in May 2007 and the other fourthree customers will begin service between 2007 and 2009. We have identified the likely purchasers of the remaining saleable capacity and expect to have contracts signed by the end of 2007. Management is currently assessing
In addition to this previously identified capacity, management has assessed additional operational strategies and methods to expand the system to accommodate increased demand for district cooling in Chicago.
approximately 2,000 tons of additional capacity.
We estimate that we will incur additional capital expenditure of $5.5$6.4 million connecting new customers to the system betweenfrom 2007 and 2008.thru 2009. As of June 30, 2007, $1.7 million has been spent or committed. Typically, new customers will reimburse our district energy business for some, if not all, of these connection expenditures effectively reducing the impact of this capital expenditure. We anticipate that the expanded capacity sold to new or existing customers will be under contract or subject to letters of intent prior to Thermal committing to the capital expenditure. Approval from the City of Chicago has been obtained where required to accommodate expansion of the underground distribution piping necessary to connect the above referenced anticipated new customers.
Based on recent contract experience and current year electricity costs, each new ton of capacity sold will add approximately $425$450 to annual revenue in the first year of service.
We expect to fund the capital expenditure for system expansion and interconnection by drawing on available debt facilities.
Management continues to explore additional expansion opportunities to accommodate the increased demand for district cooling in Chicago.
AIRPORT PARKING BUSINESS
Maintenance Capital Expenditure
Maintenance capital projects include regular replacement of shuttle buses and IT
DuringIn 2007, our airport parking business expects to commit $2.9 million to new maintenance related capital projects totaling $2.9 million of which $1.8 million will be funded through debt and other financing activities. The balance of $1.1 million will be paid in cash.
Debt will also be used to fund an additional $1.3 million of projects committed to in 2006 but payable in 2007.
Specific Capital Expenditure
In 2007, our airport parking business expects to commit to $77,000 of specific capital projects which will be paid in cash.
Commitments and Contingencies
For a discussion of the future obligations of MIC Inc., the U.S. holding company for our consolidated businesses, due by period, under their various contractual obligations, off-balance sheet arrangements and
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commitments, please see “Liquidity and Capital Resources — Commitments and Contingencies” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the SEC on March 1, 2007. We have not had any material changes to those commitments since March 1, 2007, except as discussed in Note 8, Long-Term Debt and in Note 17, Subsequent Events, to our consolidated condensed financial statements in Part I, Item I of this Form 10-Q.10-Q, which are incorporated herein by reference.
Critical Accounting Policies
For critical accounting policies, see “Critical Accounting Policies” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Our critical accounting policies have not changed materially from the description contained in that Annual Report.
New Accounting Pronouncements
See Note 3, Adoption of New Accounting Pronouncement, to our consolidated condensed financial statements in Part I, Item I of this Form 10-Q for details on new accounting pronouncements which is incorporated herein by reference.
Other Matters
The discussion of the financial condition and results of operations of the company should be read in conjunction with the consolidated condensed financial statements and the notes to those statements included elsewhere herein. This discussion contains forward looking statements that involve risks and uncertainties and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify such forward-looking statements. Our actual results and timing of certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Except as otherwise specified, “Macquarie Infrastructure Company,” “we,” “us,” and “our” refer to both the former Trust and the Company and its subsidiaries together. Macquarie Infrastructure Management (USA) Inc., which we refer to as our Manager or MIMUSA, is part of the Macquarie group of companies, which we refer to as the Macquarie Group, which comprises Macquarie Bank Limited and its subsidiaries and affiliates worldwide. Macquarie Bank Limited is headquartered in Australia and is listed on the Australian Stock Exchange.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
For quantitative and qualitative disclosures about market risk, see Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Our exposure to market risk has not changed materially since March 1, 2007, our 10-K filing date.date, except as discussed below.
Interest Rate Risk
Airport Services Business
The senior debt for our airport services business comprises a non-amortizing $512.5 million floating rate facility maturing in 2010. A 1% increase in the interest rate on the $512.5 million airport services business debt would result in a $5.1 million increase in the interest cost per year. A corresponding 1% decrease would result in a $5.1 million decrease in interest cost per year.
Our airport services business’ exposure to interest rate changes through the senior debt has been hedged through the use of interest rate swaps. The $512.5 million facility is fully hedged until maturity. These hedging arrangements will offset any additional interest rate expense incurred as a result of increases in interest rates. However, if interest rates decrease, the value of our hedge instruments will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the hedge instruments of $9.9 million. A corresponding 10% relative increase would result in a $9.7 million increase in the fair market value.
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IMTT
IMTT, at June 30, 2007, had two issues of New Jersey Economic Development Authority tax exempt revenue bonds outstanding with a total balance of $36.3 million where the interest rate is reset daily by tender. A 1% increase in interest rates on this tax exempt debt would result in a $363,000 increase in interest cost per year and a corresponding 1% decrease would result in a $363,000 decrease in interest cost per year. IMTT’s exposure to interest rate changes through this tax exempt debt has been largely hedged through October 2007 through the use of a $50.0 million notional value interest rate swap. As the interest rate swap is fixed against 90-day LIBOR and not the daily tax exempt tender rate, it does not result in a perfect hedge for short term rates on tax exempt debt although it will largely offset any additional interest rate expense incurred as a result of increases in interest rates. If interest rates decrease, the value of the interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $69,000 and a corresponding 10% relative increase would result in a $69,000 increase in the fair market value. IMTT’s exposure to interest rate changes through this tax exempt debt has been hedged from October 2007 through November 2012 through the use of a $36.3 million face value 67% of LIBOR swap. As this interest rate swap is fixed against 67% of 30-day LIBOR and not the daily tax exempt tender rate, it does not result in a perfect hedge for short term rates on tax exempt debt although it will largely offset any additional interest rate expense incurred as a result of increases in interest rates. If interest rates decrease, the fair market value of this interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $573,000 and a corresponding 10% relative increase would result in a $557,000 increase in the fair market value.
IMTT, at June 30, 2007, had a $104.0 million floating rate term loan outstanding. A 1% increase in interest rates on the term loan would result in a $1.0 million increase in interest cost per year. A corresponding 1% decrease would result in a $1.0 million decrease in interest cost per year. IMTT’s exposure to interest rate changes through the term loan has been fully hedged through the use of an amortizing interest rate swap. These hedging arrangements will fully offset any additional interest rate expense incurred as a result of increases in interest rates. However, if interest rates decrease, the fair market value of the interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $1.9 million. A corresponding 10% relative increase in interest rates would result in a $1.8 million increase in the fair market value of the interest rate swap.
During July 2007, IMTT issued Gulf Opportunity Zone Bonds (GO Zone Bonds) to fund qualified project costs at its St. Rose and Geismar storage facilities. Under this program, IMTT received $112.9 million in July 2007 and used the proceeds to repay part of the outstanding balance under its revolving credit facility. The interest rate on the GO Zone Bonds is reset daily or weekly at IMTT’s option by tender. A 1% increase in interest rates on the outstanding GO Zone Bonds would result in a $1.1 million increase in interest cost per year and a corresponding 1% decrease would result in a $1.1 million decrease in interest cost per year. IMTT’s exposure to interest rate changes through the GO Zone Bonds has been largely hedged until June 2017 through the use of an interest rate swap which has a notional value that increases to $215.0 million through December 31, 2008. As the interest rate swap is fixed against 67% of the 30-day LIBOR rate and not the tax exempt tender rate, it does not result in a perfect hedge for short term rates on tax exempt debt although it will largely offset any additional interest rate expense incurred as a result of increases in interest rates. If interest rates decrease, the fair market value of the interest rate swap will also decrease. A 10% relative decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $958,000 and a corresponding 10% relative increase would result in a $936,000 increase in the fair market value.
Subsequent to the issuance of GO Zone bonds in July 2007, IMTT had a total outstanding balance of $25.5 million under its U.S. revolving credit facility. A 1% increase in interest rates on this debt would result in a $255,000 increase in interest cost per year and a corresponding 1% decrease would result in a $255,000 decrease in interest cost per year. IMTT’s exposure to interest rate changes on its U.S. revolving credit facility has been largely hedged against 90-day LIBOR from October 2007 through March 2017 through the use of an interest rate swap which has a notional value that increases to $200.0 million through December 31, 2012. If interest rates decrease, the fair market value of the interest rate swap will also decrease. A 10% relative
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decrease in interest rates would result in a decrease in the fair market value of the interest rate swap of $5.6 million and a corresponding 10% relative increase would result in a $5.2 million increase in the fair market value.
As of July 2007, IMTT had a total outstanding balance of $12.2 million under its Canadian revolving credit facility. A 1% increase in interest rates on this debt would result in a $122,000 increase in interest cost per year and a corresponding 1% decrease would result in a $122,000 decrease in interest cost per year.
Item 4. Controls and Procedures
Under the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) of theMarch 31,June 30, 2007.
In January 2007, we began applying hedge accounting for derivative instruments. This resulted in the installation and testing of the following procedures and training:
·
We continue to provide appropriate training to our accounting staff regarding hedge accounting for derivative instruments.
·
We have updated our policies and procedures to ensure that, with regard to hedge accounting for derivative instruments:
·
Our procedures require the completion and senior review of a detailed report listing the specific criteria supporting the determination that hedge accounting is appropriate at the inception or acquisition of a derivative instrument and an analysis of any required tests of hedge effectiveness.
·
Our procedures require the completion and senior review of a detailed report stating how we test for effectiveness and measure ineffectiveness on a quarterly basis for each derivative instrument.
·
Our procedures require the completion and senior review of a detailed quarterly report reassessing the initial determination for each derivative instrument and, where applicable, retesting for effectiveness and measuring ineffectiveness.
·
We require that our policies and procedures for accounting for derivative instruments be reviewed periodically by an external consultant to address any changes in law, interpretations, or guidance relating to hedge accounting.
·
An external consultant with hedge accounting expertise may review specific transactions from time to time to provide guidance on our accounting for derivatives instruments with regard to market practice.
·
We installed and utilize hedge accounting software to assist management in maintaining sufficient documentation, perform required effectiveness testing and calculating amounts to record.
Except as described above, there There has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended March 31,June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings other than as disclosed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the SEC on March 1, 2007.
Item 1A. Risk Factors
Please see Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the SEC on March 1, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the trust was held on May 24, 2007.
None.The stockholders voted on proposals to elect three directors to the board of directors of the company and to ratify the appointment of KPMG LLP as independent auditors. The stockholders’ vote ratified the appointment of the independent auditors. All nominees for election to the board of directors were elected to the terms of office set forth in the Proxy Statement dated April 20, 2007. In addition, John Roberts continues to serve as chairman of the board of directors and Shemara Wikramanayake continues to serve as alternate chairman, both having been appointed by MIMUSA under the terms of the management services agreement between the company and the company’s direct subsidiaries. The number of votes cast for, against or withheld, and the number of abstentions with respect to each proposal, is set forth below. The company’s independent inspectors of election reported the vote of the stockholders as follows:
| | | | | | | | |
| | For | | Against/ Withheld | | Abstain | | Broker
Non-vote* |
Election of Directors:
| | | | | | | | | | | | | | | | |
Nominee:
| | | | | | | | | | | | | | | | |
Norman H. Brown, Jr.
| | | 31,536,513 | | | | 561,539 | | | | * | | | | * | |
George W. Carmany, III
| | | 31,958,342 | | | | 139,710 | | | | * | | | | * | |
William H. Webb
| | | 31,957,895 | | | | 140,157 | | | | * | | | | * | |
Ratification of Independent Auditors:
| | | 31,974,207 | | | | 77,587 | | | | 46,258 | | | | * | |
Item 5. Other Information
None.
Item 6. Exhibits
An exhibit index has been filed as part of this Report on page E-l.E-1.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| | |
| MACQUARIE INFRASTRUCTURE COMPANY TRUST LLC |
| Dated: August 9, 2007 | | |
Dated: May 8, 2007
| By: | /s/ Peter Stokes |
| | Name: Peter Stokes
Title: Regular Trustee
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| MACQUARIE INFRASTRUCTURE COMPANY LLC
|
| | |
Dated: May 8, 2007
| By:
| /s/ Peter Stokes
|
| | Name: Peter Stokes
Title: Chief Executive Officer |
| | |
| |
| MACQUARIE INFRASTRUCTURE COMPANY LLC |
| Dated: August 9, 2007 | | |
Dated: May 8, 2007
| By: | /s/ Francis T. Joyce |
| |
Name: Francis T. Joyce
Title: Chief Financial Officer
|
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EXHIBIT INDEX
| | |
Exhibit
Number
| | Description
|
| | |
2.1
Exhibit
Number | | Description |
| 2.1 | | Amendment to Stock Purchase Agreement, dated June 12, 2007, between Macquarie FBO Holdings LLC, Mercury Air Centers, Inc. and Allied Capital Corporation as the Seller Representative (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 18, 2007 (the “June 18, 2007 8-K”)) |
| 2.2 | | Purchase Agreement, dated as of June 12, 2007, among MAC Acquisitions LLC, San Jose Jet Center, Inc., ACM Aviation Inc., certain beneficial owners of Jet Center Inc. and ACM Inc. named therein, SJJC Aviation Services, LLC, SJJC FBO Services, LLC, SJJC Airline Services, LLC, Jet Center Property Services, LLC, ACM Property Services, LLC and ACM Aviation, LLC (incorporated by reference to Exhibit 2.2 of the June 18, 2007 8-K) |
| 2.3 | | Assignment and Assumption of San Jose Purchase Agreement, dated as of June 12, 2007, between MAC Acquisitions LLC and Macquarie FBO Holdings LLC (incorporated by reference to Exhibit 2.3 of the June 18, 2007 8-K) |
| 2.4* | | Second Amendment to Stock Purchase Agreement, dated as of April 16,July 21, 2007, by and among Macquarie FBO Holdings LLC, Mercury Air Centers, Inc., the Stockholders named therein and Allied Capital Corporation as the Seller Representative |
2.2
3.1 | | Third Amended and Restated Operating Agreement of Macquarie Infrastructure Company LLC (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 22, 2007 (the “June 22, 2007 8-K”)) |
| 4.1 | | Specimen certificate evidencing LLC interests of Stock OptionMacquarie Infrastructure Company LLC (incorporated by reference to Exhibit 4.1 of the June 22, 2007 8-K) |
| 10.1 | | Amended and Restated Management Services Agreement, by and between Kenneth C. Riccidated as of June 22, 2007, among Macquarie Infrastructure Company LLC, Macquarie Infrastructure Company Inc., Macquarie Yorkshire LLC, South East Water LLC, Communications Infrastructure LLC and Macquarie Infrastructure Company LLCManagement (USA) Inc. (incorporated by reference to Exhibit 10.1 of the June 22, 2007 8-K) |
10.1
10.2 | | Amended Commitment Letter Agreement[Mercury], dated April 13,June 12, 2007, amongbetween Macquarie Infrastructure Company Inc. and Bayerische Landesbank, New York Branch (incorporated by reference to Exhibit 10.1 of the June 18, 2007 8-K) |
| 10.3 | | Commitment Letter [San Jose], dated June 12, 2007, between Macquarie Infrastructure Company Inc. and The Governor and Company of the Bank of Ireland Bayerische Landesbank and(incorporated by reference to Exhibit 10.2 of the June 18, 2007 8-K) |
| 10.4* | | Amendment No. 1, dated as of June 25, 2007, among Macquarie Infrastructure Company Inc. |
10.2
| | Waiver, (the “Borrower”), Macquarie Infrastructure Company LLC (“Holdings”) and Second AmendmentCiticorp North America, Inc. (“Citicorp”), as Administrative Agent to the Amended and Restated LoanCredit Agreement, dated as of February 13, 2007 byMay 9, 2006, among the Borrower, Holdings, the Lenders and among Atlantic Aviation FBO Inc.the Issuers (each as defined therein), and Citicorp, as agent for the several banksLenders and other financial institutions named therein and Mizuho Corporate Bank, Ltd., as Administrative Agent
the Issuers |
10.3
10.5* | | Twenty-Fourth Amendment to District Cooling System UseLetter Agreement entered into as of June 20, 2007 among IMTT Holdings Inc. (IMTT Holdings), Macquarie Terminal Holdings LLC and the Current Beneficial Shareholders of IMTT Holdings, amending the Shareholders Agreement dated April 14, 2006 (as amended) between IMTT Holdings and the Shareholders thereof.
|
| 10.6* | | Letter Agreement dated as of November 1,July 30, 2007 among IMTT Holdings Inc. (IMTT), Macquarie Terminal Holdings LLC and the other current beneficial shareholders of IMTT amending the Shareholders Agreement dated April 14, 2006 by and(as amended) between the City of Chicago, Illinois and MDE Thermal Technologies, Inc.same parties. |
31.1
31.1* | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer |
31.2
31.2* | | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer |
31.3
31.3* | | Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer |
32.1
32.1* | | Section 1350 Certification of the Chief Executive Officer |
32.2
32.2* | | Section 1350 Certification of the Chief Financial Officer |
E-1