UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 | | |
| (Mark One) | ||
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 20072008
OR
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
| | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from _______ to ________
______________
.Commission File
Number 001-32385
Number: 001-32384
MACQUARIE INFRASTRUCTURE COMPANY TRUSTLLC
(Exact Name of Registrant as Specified in itsIts Charter)
| | |
Delaware |
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(State or Other Jurisdiction of | (IRS Employer |
______________
Commission File Number 001-32384
MACQUARIE INFRASTRUCTURE COMPANY LLC
(Exact Name of Registrant as Specified in its Charter)
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| |
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______________
125 West 55th Street
New York, New York 10019
(Address of Principal Executive Offices)(Zip (Zip Code)
(212) 231-1000
(Registrant’s Telephone Number, Including Area Code)
______________
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report):
N/A
Indicate by check mark whether the registrantsregistrant (1) havehas filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants wereregistrant was required to file such reports), and (2) havehas been subject to such filing requirements for the past 90 days. Yesýx No¨o
Indicate by check mark whether the registrants are collectivelyregistrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Yes ¨ No ý
| | | ||
Large Accelerated Filer | Accelerated Filer | Non-accelerated Filer |
Indicate by check mark whether the registrants are collectively a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨o Noýx
There were 37,562,165 shares of trust stock44,938,380 limited liability company interests without par value outstanding at May 1, 2007.7, 2008.
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
TABLE OF CONTENTS
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| Page | ||||||
| PART I. FINANCIAL INFORMATION |
| |||||
Item 1. | Financial Statements |
| ||||
| Consolidated Condensed Balance Sheets as December 31, |
| |||||
| 2007 | 1 | |||||
| Consolidated Condensed 2008 and |
| |||||
| 2 | ||||||
| Consolidated Condensed Statements of Cash Flows for the Quarters Ended March 31, 2008 and 2007 |
| |||||
| 4 | ||||||
| Notes to Consolidated Condensed Financial Statements (Unaudited) |
| 5 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||
Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
| 41 | |||
Item 4. | Controls and Procedures |
| 41 | |||
| PART II. OTHER INFORMATION | ||||||
Legal Proceedings | 42 | |||||
Item Risk Factors |
| 42 |
| |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| 42 | |||
Item 3. | Defaults Upon Senior Securities |
| 42 | |||
Item 4. | Submission of Matters to a Vote of Security Holders |
| 42 | |||
Item 5. | Other Information |
| 42 | |||
Item 6. Exhibits |
| 42 |
| |||
Investments in Macquarie Infrastructure Company Trust areLLC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits with or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or any of Macquarie Group company and are subject to investment risk, including possible delaysotherwise provide assurance in repayment and loss of income and principal invested. Neither Macquarie Bank Limited nor any other member companyrespect of the Macquarie Group guarantees the performanceobligations of Macquarie Infrastructure Company Trust or the repayment of capital from Macquarie Infrastructure Company Trust.LLC.
i
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
As of March 31, 20072008 and December 31, 20062007
($ in thousands, except share amounts)In Thousands, Except Share Data)
| | |||||||||||||
| March 31, |
| December 31, | March 31, 2008 | December 31, 2007 | |||||||||
(unaudited) | (Unaudited) | |||||||||||||
ASSETS |
|
| ||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 146,404 | $ | 37,388 | $ | 61,304 | $ | 57,473 | ||||||
Restricted cash | 957 | 1,216 | 1,312 | 1,335 | ||||||||||
Accounts receivable, less allowance for doubtful accounts of $1,447 and $1,435, respectively | 62,771 | 56,785 | ||||||||||||
| Accounts receivable, less allowance for doubtful accounts of $2,103 and $2,380, respectively | 107,067 | 94,541 | ||||||||||||
Dividends receivable | 7,000 | 7,000 | 7,000 | 7,000 | ||||||||||
Other receivables | 900 | 87,973 | 75 | 445 | ||||||||||
Inventories | 13,634 | 12,793 | 19,470 | 18,219 | ||||||||||
Prepaid expenses | 7,813 | 6,887 | 10,180 | 10,418 | ||||||||||
Deferred income taxes | 2,411 | 2,411 | 9,330 | 9,330 | ||||||||||
Income tax receivable | — | 2,913 | ||||||||||||
Other |
| 12,034 |
| 15,600 | 12,364 | 11,706 | ||||||||
Total current assets | 253,924 | 230,966 | 228,102 | 210,467 | ||||||||||
Property, equipment, land and leasehold improvements, net | 526,262 | 522,759 | 690,221 | 674,952 | ||||||||||
Restricted cash | 22,915 | 23,666 | 19,786 | 19,363 | ||||||||||
Equipment lease receivables | 40,712 | 41,305 | 38,176 | 38,834 | ||||||||||
| 236,103 | 239,632 | 202,518 | 211,606 | ||||||||||
Goodwill | 486,476 | 485,986 | 775,565 | 770,108 | ||||||||||
Intangible assets, net | 519,844 | 526,759 | 873,716 | 857,345 | ||||||||||
Deposits and deferred costs on acquisitions | 1,785 | 579 | ||||||||||||
| Deferred costs on acquisitions | — | 278 | ||||||||||||
Deferred financing costs, net of accumulated amortization | 19,472 | 20,875 | 28,067 | 28,040 | ||||||||||
Fair value of derivative instruments | 2,093 | 2,252 | ||||||||||||
Other |
| 2,303 |
| 2,754 | 2,042 | 2,036 | ||||||||
Total assets | $ | 2,111,889 | $ | 2,097,533 | $ | 2,858,193 | $ | 2,813,029 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Due to manager | $ | 5,422 | $ | 4,284 | ||||||||||
| Due to manager – related party | $ | 4,704 | $ | 5,737 | ||||||||||
Accounts payable | 34,595 | 29,819 | 68,933 | 59,303 | ||||||||||
Accrued expenses | 20,831 | 19,780 | 25,934 | 31,184 | ||||||||||
Current portion of notes payable and capital leases | 7,107 | 4,683 | 6,461 | 5,094 | ||||||||||
Current portion of long-term debt | 3,754 | 3,754 | 4,394 | 162 | ||||||||||
Distributions payable | 21,410 | — | ||||||||||||
| Fair value of derivative instruments | 38,153 | 14,224 | ||||||||||||
| Customer deposits | 8,983 | 9,481 | ||||||||||||
| Other | 9,248 | 8,330 | ||||||||||||
| Total current liabilities | 166,810 | 133,515 | ||||||||||||
| Notes payable and capital leases, net of current portion | 3,013 | 2,964 | ||||||||||||
| Long-term debt, net of current portion | 1,490,821 | 1,426,494 | ||||||||||||
| Deferred income taxes | 182,476 | 202,683 | ||||||||||||
Fair value of derivative instruments | 1,434 | 3,286 | 71,121 | 42,832 | ||||||||||
Other |
| 8,390 |
| 6,533 | 32,521 | 30,817 | ||||||||
Total current liabilities | 102,943 | 72,139 | ||||||||||||
| Total liabilities | 1,946,762 | 1,839,305 | ||||||||||||
| Minority interests | 6,726 | 7,172 | ||||||||||||
| Commitments and contingencies | — | — | ||||||||||||
| Members’ equity: | ||||||||||||||
| LLC interests, no par value; 500,000,000 authorized; 44,938,380 LLC interests issued and outstanding at March 31, 2008 and December 31, 2007 | 1,023,480 | 1,052,062 | ||||||||||||
| Accumulated other comprehensive loss | (64,330 | ) | (33,055 | ) | ||||||||||
| Accumulated deficit | (54,445 | ) | (52,455 | ) | ||||||||||
| Total members’ equity | 904,705 | 966,552 | ||||||||||||
| Total liabilities and members’ equity | $ | 2,858,193 | $ | 2,813,029 | ||||||||||
See accompanying notes to the consolidated condensed financial statements.
1
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
CONSOLIDATED CONDENSED BALANCE SHEETS – (continued)STATEMENTS OF OPERATIONSAs ofFor the Quarters Ended March 31, 20072008 and December 31, 20062007
(Unaudited)
($ in thousands, except share amounts)In Thousands, Except Share and per Share Data)
| March 31, |
| December 31, | |||||||||
(unaudited) | ||||||||||||
Capital leases and notes payable, net of current portion |
| 2,727 |
| 3,135 | ||||||||
Long-term debt, net of current portion | 960,867 | 959,906 | ||||||||||
Deferred income taxes | 158,641 | 163,923 | ||||||||||
Fair value of derivative instruments | 3,757 | 453 | ||||||||||
Other |
| 26,202 |
| 25,371 | ||||||||
|
|
| ||||||||||
Total liabilities |
| 1,255,137 |
| 1,224,927 | ||||||||
Minority interests |
| 7,888 |
| 8,181 | ||||||||
Stockholders’ equity: | ||||||||||||
Trust stock, no par value; 500,000,000 authorized; 37,562,165 shares issued and outstanding at March 31, 2007 and December 31, 2006 | 850,338 | 864,233 | ||||||||||
Accumulated other comprehensive (loss) income | (1,474) | 192 | ||||||||||
Accumulated earnings |
| — |
| — | ||||||||
Total stockholders’ equity |
| 848,864 |
| 864,425 | ||||||||
Total liabilities and stockholders’ equity | $ | 2,111,889 | $ | 2,097,533 | ||||||||
| | | ||||||
| Quarter Ended March 31, 2008 | Quarter Ended March 31, 2007 | |||||||
| Revenue | ||||||||
| Revenue from product sales | $ | 159,325 | $ | 88,357 | ||||
| Revenue from product sales – utility | 29,399 | 22,291 | ||||||
| Service revenue | 88,785 | 57,086 | ||||||
| Financing and equipment lease income | 1,194 | 1,248 | ||||||
| Total revenue | 278,703 | 168,982 | ||||||
| Costs and expenses | ||||||||
| Cost of product sales | 108,517 | 53,706 | ||||||
| Cost of product sales – utility | 24,335 | 16,778 | ||||||
| Cost of services | 33,256 | 23,342 | ||||||
| Selling, general and administrative | 63,857 | 38,978 | ||||||
| Fees to manager – related party | 4,626 | 5,561 | ||||||
| Depreciation | 6,723 | 3,891 | ||||||
| Amortization of intangibles | 10,739 | 6,928 | ||||||
| Total operating expenses | 252,053 | 149,184 | ||||||
| Operating income | 26,650 | 19,798 | ||||||
| Other income (expense) | ||||||||
| Interest income | 473 | 1,459 | ||||||
| Interest expense | (25,826 | ) | (17,566 | ) | ||||
| Equity in (losses) earnings and amortization charges of investees | (2,089 | ) | 3,465 | |||||
| Loss on derivative instruments | (305 | ) | (477 | ) | ||||
| Other income (expense), net | 192 | (916 | ) | |||||
| Net (loss) income before income taxes and minority interests | (905 | ) | 5,763 | |||||
| (Provision) benefit for income taxes | (1,364 | ) | 2,045 | |||||
| Net (loss) income before minority interests | (2,269 | ) | 7,808 | |||||
| Minority interests | (279 | ) | (69 | ) | ||||
| Net (loss) income | $ | (1,990 | ) | $ | 7,877 | |||
| Basic (loss) earnings per share: | $ | (0.04 | ) | $ | 0.21 | |||
| Weighted average number of shares outstanding: basic | 44,938,380 | 37,562,165 | ||||||
| Diluted (loss) earnings per share: | $ | (0.04 | ) | $ | 0.21 | |||
| Weighted average number of shares outstanding: diluted | 44,938,380 | 37,579,034 | ||||||
| Cash distributions declared per share | $ | 0.635 | $ | 0.57 | ||||
See accompanying notes to the consolidated condensed financial statements.
2
MACQUARIE INFRASTRUCTURE COMPANY TRUST
CONSOLIDATED CONDENSED STATEMENTS OF INCOMELLCFor the Quarters Ended March 31, 2007 and 2006(Unaudited)(in thousands, except share and per share data)
Quarter Ended | |||||||
| March 31, |
| March 31, | ||||
Revenues | |||||||
Revenue from product sales | $ | 110,648 | $ | 41,992 | |||
Service revenue | 57,086 | 42,904 | |||||
Financing and equipment lease income |
| 1,248 |
| 1,298 | |||
Total revenue |
| 168,982 |
| 86,194 | |||
Costs and expenses |
|
| |||||
Cost of product sales | 70,484 | 25,269 | |||||
Cost of services | 23,342 | 21,032 | |||||
Selling, general and administrative | 38,978 | 23,950 | |||||
Fees to manager | 5,561 | 6,478 | |||||
Depreciation | 3,891 | 1,710 | |||||
Amortization of intangibles |
| 6,928 |
| 3,446 | |||
Total operating expenses |
| 149,184 |
| 81,885 | |||
Operating income | 19,798 | 4,309 | |||||
Other income (expense) | |||||||
Dividend income | — | 2,651 | |||||
Interest income | 1,459 | 1,702 | |||||
Interest expense | (17,566 | ) | (15,663 | ) | |||
Equity in earnings and amortization charges of investees | 3,465 | 2,453 | |||||
(Loss) gain on derivative instruments | (477 | ) | 13,686 | ||||
Other expense, net |
| (916 | ) |
| (178 | ) | |
Net income before income taxes and minority interests | 5,763 | 8,960 | |||||
Benefit (provision) for income taxes |
| 2,045 |
| (1,393 | ) | ||
Net income before minority interests | 7,808 | 7,567 | |||||
Minority interests |
| (69 | ) |
| 6 | ||
Net income | $ | 7,877 | $ | 7,561 | |||
Basic earnings per share: | $ | 0.21 | $ | 0.28 | |||
Weighted average number of shares of trust stock outstanding: basic | 37,562,165 | 27,050,745 | |||||
Diluted earnings per share: | $ | 0.21 | $ | 0.28 | |||
Weighted average number of shares of trust stock outstanding: diluted | 37,579,034 | 27,066,618 | |||||
Cash dividends declared per share | $ |
| $ | 0.50 | |||
See accompanying notes to the consolidated condensed financial statements.
3
MACQUARIE INFRASTRUCTURE COMPANY TRUST
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Quarters Ended March 31, 20072008 and 20062007
(Unaudited)
($ in thousands)In Thousands)
| | | ||||||
| Quarter Ended March 31, 2008 | Quarter Ended March 31, 2007 | |||||||
| Operating Activities | ||||||||
| Net (loss) income | $ | (1,990 | ) | $ | 7,877 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization of property and equipment | 9,469 | 6,357 | ||||||
| Amortization of intangible assets | 10,739 | 6,928 | ||||||
| Equity in losses (earnings) and amortization charges of investees | 2,089 | (3,465 | ) | |||||
| Equity distributions from investees | — | 3,465 | ||||||
| Amortization of debt financing costs | 1,760 | 1,451 | ||||||
| Non-cash derivative loss (gain), net of non-cash interest expense | 382 | (1,093 | ) | |||||
| Performance fees settled in LLC interests | — | 957 | ||||||
| Equipment lease receivable, net | 508 | 708 | ||||||
| Deferred rent | 572 | 640 | ||||||
| Deferred taxes | (2,590 | ) | (3,020 | ) | ||||
| Other non-cash expenses, net | 73 | 424 | ||||||
| Non-operating losses relating to foreign investments | — | 2,465 | ||||||
| Changes in other assets and liabilities, net of acquisitions: | ||||||||
| Restricted cash | 23 | 259 | ||||||
| Accounts receivable | (12,191 | ) | (4,015 | ) | ||||
| Inventories | (800 | ) | (841 | ) | ||||
| Prepaid expenses and other current assets | 1,272 | 1,371 | ||||||
| Due to manager – related party | (1,033 | ) | 181 | |||||
| Accounts payable and accrued expenses | 2,444 | 3,355 | ||||||
| Income taxes payable | 3,577 | 2,838 | ||||||
| Other, net | (207 | ) | 729 | |||||
| Net cash provided by operating activities | 14,097 | 27,571 | ||||||
| Investing Activities | ||||||||
| Acquisitions of businesses and investments, net of cash acquired | (41,864 | ) | (143 | ) | ||||
| Costs of dispositions | — | (322 | ) | |||||
| Proceeds from sale of equity investment | — | 84,977 | ||||||
| Settlements of non-hedging derivative instruments | — | (1,631 | ) | |||||
| Purchases of property and equipment | (13,708 | ) | (7,558 | ) | ||||
| Return of investment in unconsolidated business | 7,000 | 3,535 | ||||||
| Other | 137 | — | ||||||
| Net cash (used in) provided by investing activities | (48,435 | ) | 78,858 | |||||
| Financing activities | ||||||||
| Proceeds from long-term debt | 2,000 | 1,000 | ||||||
| Proceeds from line of credit facilities | 67,850 | 1,750 | ||||||
| Offering and equity raise costs paid | (65 | ) | — | |||||
| Distributions paid to holders of LLC interests | (28,536 | ) | — | |||||
| Distributions paid to minority shareholders | (167 | ) | (224 | ) | ||||
| Payment of long-term debt | (40 | ) | (39 | ) | ||||
| Debt financing costs paid | (1,788 | ) | (54 | ) | ||||
| Change in restricted cash | (617 | ) | 751 | |||||
| Payment of notes and capital lease obligations | (468 | ) | (596 | ) | ||||
| Net cash provided by financing activities | 38,169 | 2,588 | ||||||
| Effect of exchange rate changes on cash | — | (1 | ) | |||||
| Net change in cash and cash equivalents | 3,831 | 109,016 | ||||||
| Cash and cash equivalents, beginning of period | 57,473 | 37,388 | ||||||
| Cash and cash equivalents, end of period | $ | 61,304 | $ | 146,404 | ||||
See accompanying notes to the consolidated condensed financial statements.
4
3
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS – (continued)
For the Quarters Ended March 31, 20072008 and 20062007
(Unaudited)
($ in thousands)In Thousands)
Quarter Ended | ||||||||||||||||
| March 31, |
| March 31, | |||||||||||||
Financing activities |
|
|
|
| ||||||||||||
Proceeds from long-term debt | 1,000 | — | ||||||||||||||
Proceeds from line-credit facility | 1,750 | 1,275 | ||||||||||||||
Debt financing costs | (54 | ) | (58 | ) | ||||||||||||
Distributions paid to minority shareholders | (224 | ) | (63 | ) | ||||||||||||
Payment of long-term debt | (39 | ) | (37 | ) | ||||||||||||
Restricted cash | 751 | (79 | ) | |||||||||||||
Payment of notes and capital lease obligations |
| (596 | ) |
| (486 | ) | ||||||||||
Net cash provided by financing activities | 2,588 | 552 | ||||||||||||||
Effect of exchange rate changes on cash |
| (1 | ) |
| (30 | ) | ||||||||||
Net change in cash and cash equivalents | 109,016 | 11,320 | ||||||||||||||
Cash and cash equivalents, beginning of period |
| 37,388 |
| 115,163 | ||||||||||||
Cash and cash equivalents, end of period | $ | 146,404 | $ | 126,483 | ||||||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Noncash investing and financing activities: | ||||||||||||||||
Accrued deposits and deferred costs on acquisition, and equity offering costs | $ | 1,078 | $ | 3,695 | ||||||||||||
Accrued purchases of property and equipment | $ | 2,393 | $ | 241 | ||||||||||||
Acquisition of property through capital leases | $ | 30 | $ | 1,669 | ||||||||||||
Taxes paid | $ | 960 | $ | 290 | ||||||||||||
Interest paid | $ | 16,131 | $ | 10,263 | ||||||||||||
| | | ||||||
| Quarter Ended March 31, 2008 | Quarter Ended March 31, 2007 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Accrued acquisition and equity offering costs | $ | 343 | $ | 1,078 | ||||
| Accrued purchases of property and equipment | $ | 742 | $ | 2,393 | ||||
| Acquisition of equipment through capital leases | $ | — | $ | 30 | ||||
| Taxes paid | $ | 489 | $ | 960 | ||||
| Interest paid | $ | 23,859 | $ | 16,131 | ||||
See accompanying notes to the consolidated condensed financial statements.
4
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Description of Business
Macquarie Infrastructure Company LLC, a Delaware limited liability company, was formed on April 13, 2004. Macquarie Infrastructure Company LLC, both on an individual entity basis and together with its wholly-owned subsidiaries, is referred to in these financial statements as the Company. The Company owns, operates and invests in a diversified group of infrastructure businesses in the United States. Macquarie Infrastructure Management (USA) Inc. is the Company’s manager and is referred to in these financial statements as the Manager. The Manager is a subsidiary of the Macquarie Group of companies, which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange.
Macquarie Infrastructure Company Trust, or the Trust, a Delaware statutory trust, was formed on April 13, 2004. Macquarie Infrastructure Company LLC, or the Company, a Delaware limited liability company, was also formed on April 13, 2004. Prior to December 21, 2004, the Trust was a wholly-owned subsidiary of Macquarie Infrastructure Management (USA) Inc., or MIMUSA. MIMUSA, the Company’s Manager, is a subsidiaryManager. On June 25, 2007, all of the Macquarie Groupoutstanding shares of companies, which is comprisedtrust stock issued by the Trust were exchanged for an equal number of Macquarie Bank Limitedlimited liability company, or LLC, interests in the Company, and its subsidiariesthe Trust was dissolved. Prior to this exchange of trust stock for LLC interests and affiliates worldwide. Macquarie Bank Limited is headquarteredthe dissolution of the Trust, all interests in Australia and is listed on the Australian Stock Exchange.
The Trust and the Company were formed to own, operate and invest in a diversified group of infrastructure businesses inheld by the United States and other developed countries.Trust. The Company is thecontinues to be an operating entity with a Board of Directors and other corporate governance responsibilities generally consistent with that of a Delaware corporation.
The Company owns airport services, gas production and distribution, district energy and airport parkingits businesses and an interest in a bulk liquid storage terminal business, through the Company’sits wholly-owned subsidiary Macquarie Infrastructure Company Inc., or MIC Inc. The Company’s businesses operate predominantly in the United States, and comprise the following:
| (i) | an airport services business — operates the largest network of fixed base operations, or FBOs, in the U.S. FBOs provide products and services like fuel and aircraft parking for owners and operators of private jets; |
| (ii) | a 50% interest in a bulk liquid storage terminal business — provides bulk liquid storage and handling services in North America and is one of the largest participants in this industry in the U.S., based on capacity; |
| (iii) | a gas production and distribution business — a full-service gas energy company, making gas products and services available in Hawaii; |
| (iv) | a district energy business — operates the largest district cooling system in the U.S. and serves various customers in Chicago, Illinois and Las Vegas, Nevada; and |
| (v) | an airport parking business — the largest provider of off-airport parking services in the U.S., with 30 facilities in 20 major airport markets. |
During the year ended December 31, 2006, the Company’s major acquisitions were as follows:
(i)
On May 1, 2006,2007, the Company completed its acquisition of 50% of the shares in IMTT Holdings Inc., the holding company for a bulk liquid storage terminal business operating as International-Matex Tank Terminals, or IMTT.following acquisitions:
(ii)
(iii)
On July 11, 2006,May 30, 2007, the Company completed the acquisition of 100% of the shares of Trajen Holdings, Inc., or Trajen. Trajen is the holding company for a group of companies, limited liability companies and limited partnershipsinterests in entities that own and operate 23 fixed based operations ortwo FBOs at airportsStewart International Airport in 11 states.
During the year ended December 31, 2006, the Company, through its wholly-owned Delaware limited liability companies, sold its interestsNew York and Santa Monica Municipal Airport in non U.S. businesses. California, together referred to as “Supermarine”.
5
There were no acquisitions or dispositionsTABLE OF CONTENTS
MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Description of businesses duringBusiness – (continued)
During the quarter ended March 31, 2007.2008, the Company completed the following acquisition:
2. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of consolidated financial statements in conformity with GAAP requires estimates and assumptions. Management evaluates these estimates and judgments on an ongoing basis. Actual results may differ from the estimates and assumptions used in the financial statements and notes. Operating results for the quarter ended March 31, 20072008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.2008.
The consolidated balance sheet at December 31, 20062007 has been derived from audited financial statements but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.
MACQUARIE INFRASTRUCTURE COMPANY TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
2. Basis of Presentation – (continued) Certain reclassifications were made to the financial statements for the prior period to conform to current year presentation.
The interim financial information contained herein should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 20062007 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 1, 2007.February 28, 2008.
3. Adoption of New Accounting Pronouncement
Uncertain Tax Positions
In JuneSeptember 2006, the FASB issued FIN 48,Statement of Financial Accounting Standards No. 157,“Fair Value Measurements”, or FASB No. 157, which defines fair value, establishes a framework for Uncertaintymeasuring fair value and expands disclosures about fair value measurements. FASB No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, FASB No. 157 does not require any new fair value measurements. FASB No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in Income Taxes—an interpretationactive markets for identical assets or liabilities (level 1 inputs), second priority to other observable information such as quoted prices in markets that are not active or other directly or indirectly observable inputs (level 2 inputs) and the lowest priority to unobservable data (level 3 inputs). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The provisions of FASB No. 157 were effective as of the beginning of the Company’s 2008 fiscal year. The Company adopted FASB No. 157 on January 1, 2008 and the required disclosures are included in these financial statements, except as noted below. The impact of the adoption did not have a material impact on the Company’s financial results of operations and financial condition. In accordance with FASB Staff Position No. FAS 157-2,“Effective Date of FASB Statement No. 109, Accounting for Income Taxes157”. This interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded, which was issued in the financial statements. Under FIN 48,February 2008, the Company may recognizehas deferred the tax benefit from an uncertain tax position only if itadoption of FASB No. 157 for all non-financial assets and liabilities. Major categories of non-financial assets and liabilities to which this deferral applies include, but is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increas ed disclosures. The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recorded a $510,000 increase in the liability for unrecognized tax benefits, which is offset by a reduction of the deferred tax liability of $109,000, resulting in a decreaselimited to, the January 1, 2007 retained earnings balance of $401,000. Refer to Note 14, Income Taxes, for additional details.Company’s property, equipment, land and leasehold improvements; intangible assets; and goodwill.
6
MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
4. (Loss) Earnings Per Share
The following is a reconciliation of the basic and diluted number of shares used in computing (loss) earnings per share:
Quarter Ended March 31, | ||||
|
|
|
| |
Weighted average number of shares of trust stock outstanding: basic | 37,562,165 | 27,050,745 | ||
Dilutive effect of restricted stock unit grants | 16,869 | 15,873 | ||
Weighted average number of shares of trust stock outstanding: diluted | 37,579,034 | 27,066,618 | ||
| | | ||||||
| Quarter Ended March 31, 2008 | Quarter Ended March 31, 2007 | |||||||
| Weighted average number of shares outstanding: basic | 44,938,380 | 37,562,165 | ||||||
| Dilutive effect of restricted stock unit grants | — | 16,869 | ||||||
| Weighted average number of shares outstanding: diluted | 44,938,380 | 37,579,034 | ||||||
The effect of potentially dilutive shares for the quarter ended March 31, 2007 is calculated by assuming that the 16,869 restricted stock unit grants issued to the independent directors on May 25, 2006 had been fully converted to shares on that date. The 10,314 restricted stock unit grants provided to the date of grant.independent directors on May 24, 2007 were anti-dilutive for the quarter ended March 31, 2008 due to the Company’s net loss for that period.
5. Pending Acquisitions
Seven Bar FBOs
On December 21, 2006,March 4, 2008, the Company entered into aCompany’s airport services business purchase agreement and a membership interest purchase agreement to acquirecompleted the acquisition of 100% of the interests in entities that ownSun Valley Aviation, Inc., SB Aviation Group, Inc. and operate two fixed base operations, or FBOs. Seven Bar Aviation Inc. (collectively referred to as “Seven Bar”). Seven Bar owns and operates three FBOs located in Farmington and Albuquerque, New Mexico and Sun Valley, Idaho.
The total purchase price is a cash considerationcost of $85.0the acquisition, including transaction costs, was $41.8 million (subject to working capital adjustments). In addition toand the Company has pre-funded integration costs of $300,000. The Company financed the acquisition with part of the $56.0 million of borrowings under the MIC Inc. revolving acquisition credit facility.
For description of related party transactions associated with the Company’s acquisition, see Note 13, Related Party Transactions.
The acquisition has been accounted for under the purchase price, it is anticipated thatmethod of accounting. Accordingly, the results of operations of Seven Bar are included in the consolidated statements of operations and as 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.component of the Company’s airport services business segment since March 4, 2008.
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 $32.5 million of additional term loan borrowings under an expansion of the credit facility at its airport services business. The Company expects to pay the remainderpreliminary allocation of the purchase price, and associatedincluding transaction costs, with cash on hand. was as follows ($ in thousands):
| | |||
| Current assets | $ | 1,147 | ||
| Property, equipment and leasehold improvements | 10,244 | |||
| Intangible assets: | ||||
| Customer relationships | 690 | |||
| Contract rights | 26,370 | |||
| Non-compete agreements | 50 | |||
| Goodwill | 4,930 | |||
| Total assets acquired | 43,431 | |||
| Current liabilities | 1,296 | |||
| Other liabilities | 370 | |||
| Net assets acquired | $ | 41,765 | ||
The credit facility will continueCompany paid more than the fair value of the underlying net assets as a result of the expectation of its ability to earn a higher rate of return from the acquired business than would be expected if those net assets had to be secured by allacquired or developed separately. The value of the acquired intangible assets and stock of companies within the airport services business.was determined by
Refer to Note 17, Subsequent Events, for details about agreements in relation to pending acquisitions entered subsequent to our balance sheet date.
7
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisitions – (continued)
taking into account risks related to the characteristics and applications of the assets, existing and future markets and analysis of expected future cash flows to be generated by the business.
The Company allocated $690,000 of the purchase price to customer relationships in accordance with EITF 02-17,“Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination.” The Company will amortize the amount allocated to customer relationships over a nine-year period.
Pro Forma Information
The following unaudited pro forma information summarizes the results of operations for the quarters ended March 31, 2008 and 2007 as if the acquisition of Seven Bar had been completed at the beginning of the prior comparative period, January 1, 2007. The pro forma data combines the Company’s consolidated results with those of the acquired entities (prior to acquisition) for the periods shown. The results are adjusted for amortization, depreciation and income taxes relating to the acquisitions. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been achieved if the acquisitions had occurred as of the beginning of the periods presented or that may be achieved in the future. The pro forma amounts are as follows ($ in thousands, except per share data):
| | | ||||||
| Quarter Ended March 31, | ||||||||
| 2008 | 2007 | |||||||
| Pro forma consolidated revenue | $ | 281,810 | $ | 173,102 | ||||
| Pro forma consolidated net (loss) income | $ | (2,166 | ) | $ | 7,702 | |||
| Basic (loss) earnings per share | $ | (0.05 | ) | $ | 0.21 | |||
| Diluted (loss) earnings per share | $ | (0.05 | ) | $ | 0.20 | |||
6. Property, Equipment, Land and Leasehold Improvements
Property, equipment, land and leasehold improvements consist of the following (in($ in thousands):
| March 31, |
| December 31, | ||||
Land | $ | 63,275 | $ | 63,275 | |||
Easements | 5,624 | 5,624 | |||||
Buildings | 36,240 | 35,836 | |||||
Leasehold and land improvements | 167,650 | 166,490 | |||||
Machinery and equipment | 263,209 | 259,897 | |||||
Furniture and fixtures | 5,707 | 5,473 | |||||
Construction in progress | 24,476 | 20,196 | |||||
Property held for future use | 1,316 | 1,316 | |||||
Other |
| 7,854 |
| 7,566 | |||
575,351 | 565,673 | ||||||
Less: Accumulated depreciation | (49,089 | ) | (42,914 | ) | |||
Property, equipment, land and leasehold improvements, net | $ | 526,262 | $ | 522,759 | |||
| | | ||||||
| March 31, 2008 | December 31, 2007 | |||||||
| Land | $ | 63,051 | $ | 63,275 | ||||
| Easements | 5,624 | 5,624 | ||||||
| Buildings | 36,202 | 36,202 | ||||||
| Leasehold and land improvements | 282,020 | 270,662 | ||||||
| Machinery and equipment | 306,732 | 302,408 | ||||||
| Furniture and fixtures | 9,447 | 9,006 | ||||||
| Construction in progress | 67,789 | 59,292 | ||||||
| Property held for future use | 1,528 | 1,503 | ||||||
| 772,393 | 747,972 | |||||||
| Less: accumulated depreciation | (82,172 | ) | (73,020 | ) | ||||
| Property, equipment, land and leasehold improvements, net(1) | $ | 690,221 | $ | 674,952 | ||||
| (1) | Includes $267,000 of capitalized interest for the quarter ended March 31, 2008 and $1.5 million for the year ended December 31, 2007. |
8
MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
7. Intangible Assets
Intangible assets consist of the following (in($ in thousands):
|
| Weighted Average |
| March 31, |
| December 31, | |||
|
| ||||||||
Contractual arrangements | 30.5 | $ | 459,373 | $ | 459,373 | ||||
Non-compete agreements | 2.8 | 5,035 | 5,035 | ||||||
Customer relationships | 10.1 | 66,840 | 66,840 | ||||||
Leasehold rights | 12.2 | 8,359 | 8,359 | ||||||
Trade names | Indefinite(1) |
| 17,499 | ||||||
Domain names | Indefinite(2) |
| 2,092 | ||||||
Technology | 5 |
| 460 |
| 460 | ||||
| 559,658 | ||||||||
Less: Accumulated amortization |
| ) |
| (32,899 | ) | ||||
Intangible assets, net | $ | 519,844 | $ | 526,759 | |||||
——————
| | | | |||||||||
| Weighted Average Life (Years) | March 31, 2008 | December 31, 2007 | ||||||||||
| Contractual arrangements | 30.4 | $ | 828,642 | $ | 802,272 | |||||||
| Non-compete agreements | 2.5 | 9,515 | 9,465 | |||||||||
| Customer relationships | 10.1 | 85,990 | 85,300 | |||||||||
| Leasehold rights | 14.5 | 8,359 | 8,359 | |||||||||
| Trade names | Indefinite | (1) | 17,497 | 17,497 | ||||||||
| Domain names | Indefinite | (2) | 2,108 | 2,108 | ||||||||
| Technology | 5.0 | 460 | 460 | |||||||||
| 952,571 | 925,461 | |||||||||||
| Less: Accumulated amortization | (78,855 | ) | (68,116 | ) | ||||||||
| Intangible assets, net | $ | 873,716 | $ | 857,345 | ||||||||
(1)
Trade names of $2.2 million are being amortized within 1.5 years.
(2)
Domain names of $760,000 are being amortized within 4 years.
| (1) | Trade names of $2.1 million are being amortized over a period within 1.5 years. |
| (2) | Domain names of $334,000 and $440,000 are being amortized over a period within 4 years and 1.5 years, respectively. |
8. Long-Term Debt
Long-term debt consists of the following (in($ in thousands):
| March 31, |
| December 31, | |||
|
|
| ||||
Airport services | $ | 480,000 | $ | 480,000 | ||
Gas production and distribution | 163,000 | 162,000 | ||||
District energy | 120,000 | 120,000 | ||||
Airport parking | 201,621 | 201,660 | ||||
964,621 | 963,660 | |||||
Less current portion | 3,754 | 3,754 | ||||
Long-term portion | $ | 960,867 | $ | 959,906 | ||
| | | ||||||
| March 31, 2008 | December 31, 2007 | |||||||
| MIC Inc. acquisition facility | $ | 56,000 | $ | — | ||||
| Airport services | 921,750 | 911,150 | ||||||
| Gas production and distribution | 166,000 | 164,000 | ||||||
| District energy | 150,000 | 150,000 | ||||||
| Airport parking | 201,465 | 201,506 | ||||||
| 1,495,215 | 1,426,656 | |||||||
| Less current portion | (4,394 | ) | (162 | ) | ||||
| Long-term portion | $ | 1,490,821 | $ | 1,426,494 | ||||
MACQUARIE INFRASTRUCTURE COMPANY TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
8. Long-Term Debt – (continued)
9. Derivative Instruments
The Company capitalizesand its operating businesses separately using non-recourse, project finance stylehave in place variable-rate debt. Management believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, management enters into interest rate swap and cap agreements to manage fluctuations in cash flows resulting from interest rate risk on a majority of its variable-rate debt.
In addition, it has a credit facility at its subsidiary, MIC Inc.accordance with Statement of Financial Accounting Standards No. 133,“Accounting for Derivative Instruments”, primarily to finance acquisitions and capital expenditures. At March 31, 2007,or FASB No. 133, the Company had no indebtedness outstanding at the MIC LLC, Trust or MIC Inc. level.
The airport services business amendedhas concluded that all of its credit facility in February 2007 to provide for $32.5 million of additional term loan borrowings to partially finance the acquisition of the FBOs located at Stewart International Airport in New Yorkinterest rate swaps and Santa Monica Airport in California. The terms of the facility remain the same except that the required minimum adjusted EBITDA increased to $78.2 million for 2007caps qualify as cash flow hedges, 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 rate:
|
|
| ||||
|
|
|
The swap will be transferred to the airport services business at the completion of the acquisition.
9. Derivative Instruments
During 2006, the Company determined that its derivatives did not qualify as hedges for accounting purposes. We revised our summarized quarterly financial information to eliminateapplies hedge accounting treatment resulting in all changes in the fair value of our derivative instruments being taken through earnings.
Effective January 2, 2007, changesfor these instruments. Changes in the fair value of interest rate derivatives designated 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.income or loss. Any ineffective portion on the change in the valuation of our derivatives will beis taken through earnings, and reported in the (loss) gain or loss on derivative instruments line inline.
9
MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
9. Derivative Instruments – (continued)
At March 31, 2008, the accompanying consolidated condensed statementsCompany had $1.5 billion of income.
10. Comprehensive Income (Loss)
Total comprehensive income for long-term debt, $1.3 billion of which was hedged with interest rate swaps, $58.7 million of which was hedged with interest rate caps, $83.8 million of which was unhedged and $6.5 million of which incurred interest at fixed rates. For the quarter ended March 31, 2008, the Company recorded a $52.3 million decrease ($32.5 million, net of taxes) in the value of its interest rate derivative instruments on its balance sheet. Of this amount, $52.1 million was recorded into other comprehensive loss, $73,000 (representing the ineffective portion of changes in the valuation of interest rate derivatives) was recorded in loss on derivative instruments and $77,000 was recorded in interest expense. Also included within loss on derivative instruments and interest expense are a $232,000 loss and $1.7 million loss, respectively, representing a reclassification of realized losses from other comprehensive loss into earnings.
In accordance with FASB No. 133, the Company��s derivative instruments are recorded on the balance sheet at fair value. The Company measures derivative instruments at fair value using the income approach, which converts future amounts (being the future net cash settlements expected under the derivative contracts) to a discounted present value. These valuations primarily utilize observable (“level 2”) inputs including contractual terms, interest rates and yield curves observable at commonly quoted intervals. The Company’s fair value measurements of its derivative instruments are as follows ($ in thousands):
| | | | | ||||||||||||
| Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
| Description | Total at March 31, 2008 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Derivative Instruments: | ||||||||||||||||
| Current liabilities | $ | 38,153 | $ | — | $ | 38,153 | $ | — | ||||||||
| Non-current liabilities | 71,121 | — | 71,121 | — | ||||||||||||
| Total, net | $ | 109,274 | $ | — | $ | 109,274 | $ | — | ||||||||
10. Comprehensive Loss
Total comprehensive (loss) income for the quarters ended March 31, 2008 and March 31, 2007 wascomprised a $33.3 million loss and $6.2 million which isof income, respectively. These amounts are included in the accumulated other comprehensive loss on the Company’s consolidated condensed balance sheet assheet. The difference between net loss of $2.0 million for the quarter ended March 31, 2007.2008 and comprehensive loss is primarily attributable to an unrealized loss on derivative instruments of $32.5 million (net of taxes), offset by a $1.2 million (net of taxes) reclassification of realized losses into earnings. The difference between net income of $7.9 million for the quarter ended March 31, 2007 and comprehensive income is primarily attributable to an unrealized loss on derivative instruments of $1.7 million.million (net of taxes).
11. Stockholders’Members’ Equity
The TrustCompany is authorized to issue 500,000,000 shares of trust stock, and the Company is authorized to issue a corresponding number of LLC interests. Unless the Trust is dissolved, it must remain the sole holder of 100%Each outstanding LLC interest of the Company’s LLC interests and, at all times, the Company will have the identical number of LLC interests outstanding as shares of trust stock. Each share of trust stock represents an undivided beneficial interest in the Trust, and each share of trust stock corresponds to one underlying LLC interest in the Company.
Each outstanding share of the trust stock is entitled to one vote for each share on any matter with respect to which membersholders of the CompanyLLC interests are entitled to vote.
12. Reportable Segments
The Company’s operationsconsolidated businesses are classified into fourthe following reportable business segments: airport services business, gas production and distribution business, district energy business and airport parking business. The gas production and distribution business is a new segment starting in the second quarter of 2006. All of the business segments are managed separately.
10
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments – (continued)
The Company completed its acquisition ofalso has a 50% interestinvestment in IMTT on May 1, 2006. Fora bulk liquid storage terminal business, which is accounted for under the quarter ended March 31, 2007, IMTT’s revenue, gross profit, depreciation and amortization, and capital expenditures were $73.8 million, $30.9 million, $8.5 million and $33.9 million, respectively. At March 31, 2007, IMTT’s total property, plant and equipment and total assets were $569.2 million and $657.3 million, respectively. In accordance with SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, IMTT does not meet the definition of a reportable segment because itequity method. Financial information for this business is an equity-method investee of the Company.presented below ($ in thousands):
| | | ||||||
| Quarter Ended, and as of, March 31, | ||||||||
| 2008 | 2007 | |||||||
| Revenue | $ | 78,394 | $ | 70,416 | ||||
| EBITDA | 12,285 | 27,875 | ||||||
| Interest expense, net | 4,719 | 3,407 | ||||||
| Depreciation and amortization expense | 10,334 | 8,522 | ||||||
| Capital expenditures paid | 58,506 | 33,923 | ||||||
| Property, plant and equipment balance | 776,886 | 569,187 | ||||||
| Total assets balance | 890,707 | 657,284 | ||||||
The airport services business reportable segment principally derives income from fuel sales and from other airport services. Airport services revenue includes fuel relatedfuel-related services, de-icing, aircraft parking,hangarage, airport management and other aviation services. All of the revenue of the airport services business is derivedgenerated in the United States. The airport services business operates 40 operated 72 FBOs and one heliport and managesmanaged six airports under management contracts as of March 31, 2007.2008. In January 2008, the Company entered an agreement to sell its airport management business, and expects to complete the sale in the second quarter of 2008.
The revenue from the gas production and distribution business reportable segment is included in revenue from product sales and includes distribution and sales of synthetic natural gas, or SNG, and liquefied petroleum gas, or LPG. Revenue is primarily a function of the volume of SNG and LPG consumed by customers and the price per thermal unit or gallon charged to customers. Because both SNG and LPG are derived from petroleum, revenue levels, without organic operating growth, will generally track global oil prices. TGC’sThe utility revenue of the gas production and distribution business includes fuel adjustment charges, or FACs, through which changes in fuel costs are passed through to customers.
The revenue from the district energy business reportable segment is included in service revenue and financing and equipment lease income. Included in service revenue is capacity charge revenue, which relates to monthly fixed contract charges, and consumption revenue, which relates to contractual rates applied to actual usage. Financing and equipment lease income relates to direct financing lease transactions and equipment leases to the Company’s various customers. The Company provides such services to buildings throughout the downtown Chicago area and to the Aladdin Resort and Casinoa casino and shopping mall located in Las Vegas, Nevada.
The revenue from the airport parking business reportable segment is included in service revenue and primarily consists of fees from off-airport parking and ground transportation to and from the parking facilities and the airport terminals. At March 31, 2007, theThe airport parking business operatedoperates 30 off-airport parking facilities located atin 20 major airportsairport markets across the United States.
Selected information by reportable segment is presented in the following tables. The tables do not include financial data for our equity and cost investments.
11
MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments – (continued)
Revenue from external customers for the Company’s reportable segments for the quarter ended March 31, 2007 was as follows (in($ in thousands):
| Airport |
| Gas Production |
| District |
| Airport |
| Total | ||||||
Revenue from Product Sales | |||||||||||||||
Fuel sales | $ | 69,847 | $ | 40,801 |
| $ | — |
|
| — | $ | 110,648 | |||
69,847 | 40,801 | — | — | 110,648 | |||||||||||
Service Revenue | |||||||||||||||
Other services | 31,213 | — | 649 | — | 31,862 | ||||||||||
Cooling capacity revenue | — | — | 4,551 | — | 4,551 | ||||||||||
Cooling consumption revenue | — | — | 1,862 | — | 1,862 | ||||||||||
Parking services |
| — |
| — |
|
| — |
|
| 18,811 |
| 18,811 | |||
31,213 | — | 7,062 | 18,811 | 57,086 | |||||||||||
Financing and Lease Income | |||||||||||||||
Financing and equipment lease |
| — |
| — |
|
| 1,248 |
|
| — |
| 1,248 | |||
— | — | 1,248 | — | 1,248 | |||||||||||
Total Revenue | $ | 101,060 | $ | 40,801 |
| $ | 8,310 |
|
| 18,811 | $ | 168,982 | |||
| | | | | | |||||||||||||||
| Quarter Ended March 31, 2008 | ||||||||||||||||||||
| Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total | ||||||||||||||||
| Revenue from Product Sales | ||||||||||||||||||||
| Product sales | $ | 136,366 | $ | 22,959 | $ | — | $ | — | $ | 159,325 | ||||||||||
| Product sales — utility | — | 29,399 | — | — | 29,399 | |||||||||||||||
| 136,366 | 52,358 | — | — | 188,724 | ||||||||||||||||
| Service Revenue | ||||||||||||||||||||
| Other services | 62,584 | — | 732 | — | 63,316 | |||||||||||||||
| Cooling capacity revenue | — | — | 4,806 | — | 4,806 | |||||||||||||||
| Cooling consumption revenue | — | — | 1,768 | — | 1,768 | |||||||||||||||
| Parking services | — | — | — | 18,895 | 18,895 | |||||||||||||||
| 62,584 | — | 7,306 | 18,895 | 88,785 | ||||||||||||||||
| Financing and Lease Income | ||||||||||||||||||||
| Financing and equipment lease | — | — | 1,194 | — | 1,194 | |||||||||||||||
| — | — | 1,194 | — | 1,194 | ||||||||||||||||
| Total Revenue | $ | 198,950 | $ | 52,358 | $ | 8,500 | $ | 18,895 | $ | 278,703 | ||||||||||
| | | | | | |||||||||||||||
| Quarter Ended March 31, 2007 | ||||||||||||||||||||
| Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total | ||||||||||||||||
| Revenue from Product Sales | ||||||||||||||||||||
| Product sales | $ | 69,847 | $ | 18,510 | $ | — | $ | — | $ | 88,357 | ||||||||||
| Product sales — utility | — | 22,291 | — | — | 22,291 | |||||||||||||||
| 69,847 | 40,801 | — | — | 110,648 | ||||||||||||||||
| Service Revenue | ||||||||||||||||||||
| Other services | 31,213 | — | 649 | — | 31,862 | |||||||||||||||
| Cooling capacity revenue | — | — | 4,551 | — | 4,551 | |||||||||||||||
| Cooling consumption revenue | — | — | 1,862 | — | 1,862 | |||||||||||||||
| Parking services | — | — | — | 18,811 | 18,811 | |||||||||||||||
| 31,213 | — | 7,062 | 18,811 | 57,086 | ||||||||||||||||
| Financing and Lease Income | ||||||||||||||||||||
| Financing and equipment lease | — | — | 1,248 | — | 1,248 | |||||||||||||||
| — | — | 1,248 | — | 1,248 | ||||||||||||||||
| Total Revenue | $ | 101,060 | $ | 40,801 | $ | 8,310 | $ | 18,811 | $ | 168,982 | ||||||||||
12
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments – (continued)
Financial data by reportable business segments are as follows (in thousands):
Quarter Ended March 31, 2007 | At March 31, 2007 | |||||||||||||||||
Segment | Interest | Depreciation/ | Capital | Property, | Total | |||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||
|
|
|
| |||||||||||||||
Airport services | $ | 57,061 | $ | 8,574 | $ | 7,963 | $ | 1,702 | $ | 149,455 | $ | 935,597 | ||||||
Gas production and distribution | 10,895 | 2,282 | 1,731 | 1,956 | 133,096 | 309,321 | ||||||||||||
District energy | 2,678 | 2,180 | 1,768 | 2,315 | 145,461 | 236,921 | ||||||||||||
Airport parking |
| 4,522 |
| 4,045 |
| 1,823 |
| 1,585 |
| 98,250 |
| 283,200 | ||||||
Total | $ | 75,156 | $ | 17,081 | $ | 13,285 | $ | 7,558 | $ | 526,262 |
| 1,765,039 | ||||||
——————
(1)
Segment profit includes revenue less cost of product salesEarnings before interest, taxes, depreciation and cost of services. For the district energy and airport parking businesses, depreciation expense of $1.4 million and $1.0 million, respectively, are included in cost of servicesamortization, or EBITDA, for the quarter ended March 31, 2007.Company’s reportable segments is shown in the below tables ($ in thousands). Allocation of corporate expenses, and the federal tax effect, have been excluded from the tables as they are eliminated on consolidation:
(2)
| | | | | | |||||||||||||||
| Quarter Ended March 31, 2008 | ||||||||||||||||||||
| Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total Reportable Segments | ||||||||||||||||
| Net income (loss) | $ | 5,942 | $ | 1,854 | $ | (1,013 | ) | $ | (2,005 | ) | $ | 4,778 | ||||||||
| Interest income | (178 | ) | (16 | ) | (20 | ) | (36 | ) | (250 | ) | ||||||||||
| Interest expense | 16,016 | 2,327 | 2,564 | 3,923 | 24,830 | |||||||||||||||
| Provision (benefit) for income taxes | 4,011 | 1,192 | (354 | ) | (1,501 | ) | 3,348 | |||||||||||||
| Depreciation | 5,269 | 1,454 | 1,476 | 1,270 | 9,469 | |||||||||||||||
| Amortization of intangibles | 9,368 | 214 | 341 | 816 | 10,739 | |||||||||||||||
| EBITDA | $ | 40,428 | $ | 7,025 | $ | 2,994 | $ | 2,467 | $ | 52,914 | ||||||||||
Includes depreciation expense of property, equipment and leasehold improvements and amortization of intangible assets. Includes depreciation expense for the airport parking and district energy businesses which has also been included in segment profit.
| | | | | | |||||||||||||||
| Quarter Ended March 31, 2007 | ||||||||||||||||||||
| Airport Services | Gas Production and Distribution | District Energy | Airport Parking | Total Reportable Segments | ||||||||||||||||
| Net income (loss) | $ | 5,631 | $ | 1,533 | $ | (359 | ) | $ | (961 | ) | $ | 5,844 | ||||||||
| Interest income | (313 | ) | (37 | ) | (93 | ) | (79 | ) | (522 | ) | ||||||||||
| Interest expense | 8,574 | 2,282 | 2,180 | 4,045 | 17,081 | |||||||||||||||
| Provision (benefit) for income taxes | 3,699 | 986 | (213 | ) | (763 | ) | 3,709 | |||||||||||||
| Depreciation | 2,374 | 1,517 | 1,431 | 1,035 | 6,357 | |||||||||||||||
| Amortization of intangibles | 5,589 | 214 | 337 | 788 | 6,928 | |||||||||||||||
| EBITDA | $ | 25,554 | $ | 6,495 | $ | 3,283 | $ | 4,065 | $ | 39,397 | ||||||||||
Reconciliation of total reportable segment assetssegments EBITDA to total consolidated assets at March 31, 2007 and 2006 (in thousands):
| |||||||
2007 | 2006 | ||||||
|
|
|
|
| |||
Total reportable segments | $ | 1,765,039 | $ | 1,084,317 | |||
Equity and cost investments: | |||||||
Investment in IMTT | 236,103 | — | |||||
Investment in Yorkshire | — | 70,409 | |||||
Investment in SEW | — | 35,716 | |||||
Investment in MCG | — | 69,233 | |||||
Corporate and other | 336,101 | 381,256 | |||||
Less: Consolidation elimination entries | (225,354 | ) | (255,071 | ) | |||
Total consolidated assets | $ | 2,111,889 | $ | 1,385,860 | |||
Reconciliation of total reportable segment profit to total consolidatednet (loss) income before income taxes and minority interests for the quarters ended March 31, 2007 and 2006 (in($ in thousands):
Quarter Ended March 31, | |||||||
2007 | 2006 | ||||||
|
|
|
| ||||
Total reportable segments | $ | 75,156 | $ | 39,893 | |||
Selling, general and administrative | (38,978 | ) | (23,950 | ) | |||
Fees to manager | (5,561 | ) | (6,478 | ) | |||
Depreciation and amortization(1) |
| (10,819 | ) |
| (5,156 | ) | |
19,798 | 4,309 | ||||||
Other (expense) income, net | (14,035 | ) | 4,651 | ||||
Total consolidated income before income taxes and minority interests | $ | 5,763 | $ | 8,960 | |||
——————
(1)
Does not include depreciation expense for the airport parking and district energy businesses which are included in total reportable segment profit.
| | | ||||||
| Quarter Ended March 31, | ||||||||
| 2008 | 2007 | |||||||
| Total reportable segments EBITDA | $ | 52,914 | $ | 39,397 | ||||
| Interest income | 473 | 1,459 | ||||||
| Interest expense | (25,826 | ) | (17,566 | ) | ||||
| Depreciation | (9,469 | ) | (6,357 | ) | ||||
| Amortization of intangibles | (10,739 | ) | (6,928 | ) | ||||
| Selling, general and administrative – corporate | (1,133 | ) | (1,981 | ) | ||||
| Fees to manager | (4,626 | ) | (5,561 | ) | ||||
| Equity in (losses) earnings and amortization charges of investees | (2,089 | ) | 3,465 | |||||
| Other expense, net | (410 | ) | (165 | ) | ||||
| Total consolidated net (loss) income before taxes and minority interests | $ | (905 | ) | $ | 5,763 | |||
13
MACQUARIE INFRASTRUCTURE COMPANY TRUST
LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
12. Reportable Segments – (continued)
Revenue from external customers for the Company’s segments for the quarter ended March 31, 2006 was as follows:
| Airport |
| District |
| Airport |
| Total | |||||
Revenue from Product Sales | ||||||||||||
Fuel sales | $ | 41,992 | $ | — | $ | — | $ | 41,992 | ||||
41,992 | — | — | 41,992 | |||||||||
Service Revenue | ||||||||||||
Other services | 18,179 | 845 | — | 19,024 | ||||||||
Capacity revenue | — | 4,189 | — | 4,189 | ||||||||
Consumption revenue | — | 1,475 | — | 1,475 | ||||||||
Parking services |
| — |
| — |
| 18,216 |
| 18,216 | ||||
18,179 | 6,509 | 18,216 | 42,904 | |||||||||
Financing and Lease Income | ||||||||||||
Financing and equipment lease |
| — |
| 1,298 |
| — |
| 1,298 | ||||
— | 1,298 | — | 1,298 | |||||||||
Total Revenue | $ | 60,171 | $ | 7,807 | $ | 18,216 | $ | 86,194 | ||||
Financial data by reportable business segments are as follows (in thousands):
| At March 31, 2006 | |||||||||||||||||
Segment | Interest | Depreciation/ | Capital | Property, | Total | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||
Airport services | $ | 32,570 | $ | 9,020 | $ | 4,413 | $ | 550 | $ | 91,739 | $ | 553,019 | ||||||
District energy | 2,542 | 2,145 | 1,760 | 493 | 146,281 | 240,879 | ||||||||||||
Airport parking |
| 4,781 |
| 3,901 |
| 1,271 |
| 447 |
| 96,074 |
| 290,419 | ||||||
Total | $ | 39,893 | $ | 15,066 | $ | 7,444 | $ | 1,490 | $ | 334,094 |
| 1,084,317 | ||||||
——————
(1)
Segment profit includes revenue less cost of product sales and cost of services. For the district energy and airport parking businesses, depreciation expense of $1.4 million and $865,000, respectively, are included in cost of services for the quarter ended March 31, 2006.
(2)
Includes depreciation expense of property,Property, equipment, land and leasehold improvements and amortization of intangible assets. Includes depreciation expensetotal assets for the airport parking and district energy businesses which has also been includedCompany’s reportable segments as of March 31 were as follows ($ in segment profit.thousands):
| | | | | ||||||||||||
| Property, Equipment, Land and Leasehold Improvements | Total Assets | |||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Airport services | $ | 310,245 | $ | 149,455 | $ | 1,810,925 | $ | 935,597 | ||||||||
| Gas production and distribution | 137,724 | 133,096 | 319,581 | 309,321 | ||||||||||||
| District energy | 145,766 | 145,461 | 229,823 | 236,921 | ||||||||||||
| Airport parking | 96,486 | 98,250 | 279,223 | 283,200 | ||||||||||||
| Total | $ | 690,221 | $ | 526,262 | $ | 2,639,552 | $ | 1,765,039 | ||||||||
Capital expenditures for the Company’s reportable segments were as follows ($ in thousands):
| | | ||||||
| Quarter Ended March 31, | ||||||||
| 2008 | 2007 | |||||||
| Airport services | $ | 10,201 | $ | 1,702 | ||||
| Gas production and distribution | 1,754 | 1,956 | ||||||
| District energy | 1,516 | 2,315 | ||||||
| Airport parking | 237 | 1,585 | ||||||
| Total | $ | 13,708 | $ | 7,558 | ||||
Reconciliation of reportable segments total assets to consolidated total assets ($ in thousands):
| | | ||||||
| As of March 31, | ||||||||
| 2008 | 2007 | |||||||
| Total assets of reportable segments | $ | 2,639,552 | $ | 1,765,039 | ||||
| Investment in IMTT | 202,518 | 236,103 | ||||||
| Corporate and other | 16,123 | 110,747 | ||||||
| Total consolidated assets | $ | 2,858,193 | $ | 2,111,889 | ||||
13. Related Party Transactions
Management Services Agreement with Macquarie Infrastructure Management (USA) Inc.
, or MIMUSA
MIMUSA acquired 2,000,000 sharesAs of company stockMarch 31, 2008, the Manager held 3,173,123 LLC interests of the Company, which were acquired concurrently with the closing of the initial public offering in December 2004 withand also by reinvesting performance fees in the Company. The Macquarie Group held an aggregate purchase price of $50.0 million, at a purchase price per share equal to the initial public offering price of $25. Pursuant to the terms of the Management Agreement (discussed below), MIMUSA may sell up to 65% of theseadditional 19,124 shares at any time and may sell the balance at any time from and after December 21, 2007 (being the third anniversary of the IPO closing).
MACQUARIE INFRASTRUCTURE COMPANY TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
13. Related Party Transactions – (continued)acquired in open market purchases.
The Company entered into a management services agreement, or Management Agreement, with MIMUSAthe Manager pursuant to which MIMUSAthe Manager manages the Company'sCompany’s day-to-day operations and oversees the management teams of the Company'sCompany’s operating businesses. In addition, MIMUSAthe Manager has the right to appoint the Chairman of the Board of the Company, and an alternate, subject to minimum equity ownership, and to assign, or second, to the Company, on a permanent and wholly-dedicated basis, employees to assume the role of Chief Executive Officer and Chief Financial Officer and second or make other personnel available as required.
In accordance with the Management Agreement, MIMUSAthe Manager is entitled to a quarterly base management fee based primarily on the Trust'sCompany’s market capitalization and a performance fee, as defined, based on the performance of the trustCompany’s stock relative to a weighted average of two benchmark indices, athe U.S. utilities index and a European utilities index, weighted in proportion toindex. For each of the Company’s equity investments. Currently, the Company has no non-U.S. equity investments. For the quarterquarters ended March 31, 2008 and March 31, 2007, the Company accrued base management fees of $4.6 million and also a performance fee of $957,000 in 2007. The unpaid portion of the fees at the end of $957,000 were payable to MIMUSA. These fees the reporting period are included asin due to manager in the accompanying consolidated condensed balance sheet at March 31, 2007. MIMUSA hassheets. The base management fees were paid
14
MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13. Related Party Transactions – (continued)
after the period end. The Manager elected to reinvest thesethe $957,000 performance feesfee in 21,972 shares of trust stock,LLC interests which are expected to bewere issued in June at a market-based price.on July 13, 2007.
MIMUSAThe Manager is not entitled to any other compensation and all costs incurred by MIMUSAthe Manager including compensation of seconded staff, are paid out of its management fee. However, the Company is responsible for other direct costs including, but not limited to, expenses incurred in the administration or management of the Company and its subsidiaries and investments, income taxes, audit and legal fees, and acquisitions and dispositions and its compliance with applicable laws and regulations. During the quarterquarters ended March 31, 2008 and March 31, 2007, MIMUSA paid out of pocket expenses of $57,000 on the Company’s behalf whichManager charged the Company has accrued$78,000 and $57,000, respectively, for reimbursement of out-of-pocket expenses. The unpaid portion of the out-of-pocket expenses at the end of the reporting period are included in due to manager in the accompanying consolidated condensed balance sheet at March 31, 2007.sheets.
Advisory and Other Services from the Macquarie Group
The Macquarie Group, throughand wholly-owned subsidiaries within the holding company, Macquarie Bank Limited,Group, including Macquarie Capital (USA) Inc., or MBL, and its wholly owned subsidiary,MCUSA (formerly Macquarie Securities (USA) Inc.), or MSUSA, has providedprovide various advisory and other services and have incurredincur expenses in connection with the Company’s equity raising activities, acquisitions dispositions and underlying debt associated withstructuring for the Company and its businesses.
During Underwriting fees are recorded in members’ equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are capitalized as a cost of the related acquisitions. Debt arranging fees are deferred and amortized over the term of the debt facility. Amounts relating to these transactions for the first quarter endedof 2008 comprise the following ($ in thousands):
Quarter Ended March 31, 2007,2008
| | |||
| Acquisition of Seven Bar FBOs | ||||
| – advisory services from MCUSA | $ | 819 | ||
| – reimbursement of out-of-pocket expenses to MCUSA | 3 | |||
The Company also reimbursed affiliates of the Company accrued an additional $119,000Macquarie Group for advisory services provided by MSUSA in 2006nominal amounts in relation to the acquisition of TGC, due to finalization of the working capital adjustment on the purchase price. This amount was paid in April 2007.
The Company has entered into advisory agreements with MSUSA relating to the pending FBO acquisitions discussed in Note 5, Pending Acquisitions,professional services and Note 17, Subsequent Events. No fees have been paid as of March 31, 2007. The Company expects to pay approximately $6.8 million and $3.2 million for advisory and debt arranging services, respectively, when these acquisitions close.
The Company reimbursed nominal amounts to affiliates of MBL for rent expense for premises used in Luxembourg by a wholly owned subsidiaryone of Macquarie Yorkshire LLC, a wholly owned subsidiary of the Company.its wholly-owned subsidiaries.
Long-term Debt
MBL, along with other parties, has provided a loan to our airport services business. Amounts relating to the portion of the loan from MBL comprise the following (in thousands):
| Quarter ended March 31, 2007 |
|
|
|
|
Portion of loan facility commitment provided by MBL | $ | 50,000 | |||
Portion of loan outstanding from MBL, as at March 31, 2007 |
| 50,000 | |||
Interest expense on MBL portion of loan |
|
| 899 |
MACQUARIE INFRASTRUCTURE COMPANY TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
13. Related Party Transactions – (continued)
MIC Inc. has a $300.0 million revolving credit facility with various financial institutions, including MBL. Macquarie Finance Americas Inc., or MFA, a member of the Macquarie Group. Amounts relating to this loanfacility comprise the following (in($ in thousands):
| Quarter ended March 31, 2007 |
|
|
|
|
Portion of revolving credit facility commitment provided by MBL, as at March 31, 2007 | $ | 100,000 | |||
Portion of loan outstanding from MBL, as at March 31, 2007 |
| — |
Quarter Ended March 31, 2008
In April 2007, MBL assigned to a third party all of its rights and obligations under the agreement related to $50.0 million of its aggregate commitment.
| | |||
| Portion of loan outstanding from MFA, as at March 31, 2008 | $ | 12,444 | ||
| Portion of revolving credit facility commitment provided by MFA, as at March 31, 2008 | 66,667 | |||
| Interest expense on MFA portion of loan, quarter ended March 31, 2008 | 80 | |||
| Commitment fee to MFA, quarter ended March 31, 2008 | 37 | |||
| Commitment fee to MBL, quarter ended March 31, 2008(1) | 15 | |||
| Upfront fee to MFA, quarter ended March 31, 2008 | 333 | |||
| (1) | The $15,000 commitment fee to Macquarie Bank Limited, or MBL, a member of the Macquarie Group, relates to the period January 1, 2008 through February 13, 2008, before the facility was renewed with MFA and various other parties. |
15
MACQUARIE INFRASTRUCTURE COMPANY LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13. Related Party Transactions – (continued)
Derivative Instruments and Hedging Activities
The Company has derivative instruments in place to fix the interest rate on outstanding term loan facilities. MBL is providing over one-half of thehas provided interest rate swaps for the airport services business’ long-term debtbusiness and made payments tothe gas production and distribution business. At March 31, 2008, the airport services business had $900.0 million of $189,000its term loans hedged, of which MBL was providing the interest rate swaps for a notional amount of $343.3 million. The remainder of the swaps are from external parties. During the quarter ended March 31, 2007. In January 2007,2008, the airport services business also paidmade payments to MBL $40,000 on an interest rate swap relatingof $324,000 in relation to 2006.these swaps.
At March 31, 2008, the gas production and distribution business had $160.0 million of its term loans hedged, of which MBL is alsowas providing just under one-third of the interest rate swaps for a notional amount of $48.0 million. The remainder of the gas production and distribution business’ long-term debt andswaps are from external parties. During the quarter ended March 31, 2008, MBL made payments to the gas production and distribution business of $63,000$25,000 in relation to these swaps.
14. Income Taxes
For the year ended December 31, 2008, the Company expects to have consolidated taxable income for both federal and state income tax purposes, allowing it to utilize a portion of its federal net operating loss carryforward.
In calculating its consolidated projected state income tax expense for 2008, the Company expects to provide a valuation allowance for losses, the utilization of which is not assured beyond any reasonable doubt. In addition, the Company and its subsidiaries expect to incur certain expenses that will not be deductible in determining state taxable income, and has excluded those expenses in estimating its state income tax expense for 2008.
Uncertain Tax Positions
At December 31, 2007, the Company and its subsidiaries had a reserve of approximately $1.0 million for benefits taken during 2007 and prior tax periods attributable to tax positions for which the probability of recognition is considered less than more likely than not. There was no material change in that reserve during the quarter ended March 31, 2007.2008.
14. Income Taxes
Macquarie Infrastructure Company Trust is classified as a grantor trust for U.S. federal income tax purposes, and therefore is not subject to income taxes. The Company is treated as a partnership for U.S. federal income tax purposes and is also not subject to income taxes. MIC Inc. and its wholly-owned subsidiaries are subject to income taxes.
Consolidated pre-tax income for the quarter ended March 31, 2007 was $5.8 million. Macquarie Infrastructure Company LLC accounted for a $1.9 million pre-tax loss. As a partnership for U.S. federal income tax purposes, this loss is not subject to income taxes.
The remaining $7.7 million of pre-tax income was generated by MIC Inc. and its subsidiaries and is subject to income taxes. The Company records its income taxes in accordance with SFAS 109,Accounting for Income Taxes.
The Company expects to incur a net operating loss for federal consolidated return purposes, as well as certain states that provide for consolidated returns, for the year ended December 31, 2007. The Company believes that it will be able to utilize the projected federal and state consolidated 2007 and prior year losses. Accordingly, the Company has not provided a valuation allowance against any deferred tax assets generated in 2007.
Uncertain Tax Positions
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recorded a $510,000 increase in the liability for unrecognized tax benefits, which is offset by a reduction of the deferred tax liability of $109,000, resulting in a decrease to the January 1, 2007 retained earnings balance of $401,000. At the adoption date of January 1, 2007, the Company had $1.8 million of unrecognized tax benefits, all of which would affect the effective tax rate if recognized. The amount of unrecognized tax benefits did not materially change as of March 31, 2007.
It is expected that the amount of unrecognized tax benefits will change in the next twelve months, however, the Company does not expect the change to have a significant impact on the results of operations or the financial position of the Company.
MACQUARIE INFRASTRUCTURE COMPANY TRUST
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
14. Income Taxes – (continued)
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated condensed statements of income, which is consistent with the recognition of 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, 2007.
The Internal Revenue Service, or IRS, is concluding an audit of the 2003 federal income tax return for a subsidiary of the Company’s airport services business. 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 either 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.
The Company does not expect a material change in its reserve for uncertain tax positions in the next twelve 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, 2006,2007, filed with the SEC on March 1, 2007.February 28, 2008.
16. Distributions
On February 27, 2007,25, 2008, the board of directors declared a distribution of $0.57$0.635 per share for the quarter ended December 31, 2006,2007, which was paid on April 9, 2007March 10, 2008 to holders of record on April 4, 2007. TheMarch 5, 2008.
This distribution declared has beenwas recorded partially as a reduction to trust stock and partially as a reduction to accumulated earningsLLC interests in the stockholders’members’ equity section of the accompanying consolidated condensed balance sheet at March 31, 2007.sheet.
17. Subsequent Events
Distributions
On May 3, 2007,5, 2008, the board of directors declared a distribution of $0.59 $0.645 per share for the quarter ended March 31, 2007,2008, payable on June 8, 200710, 2008 to holders of record on June 5, 2007.
Pending Acquisitions
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:
·
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 the Company his 11% of the equity of Mercury, exercisable from April 1, 2008 to April 30,4, 2008.
16
MACQUARIE INFRASTRUCTURE COMPANY TRUSTTABLE OF CONTENTS
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:
|
| ||
| |||
| |||
|
| ||
|
| ||
|
| ||
|
| ||
| |||
|
| ||
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 discussed 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.
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 which are businesses that provide basic, everydayevery day services, such as utilities, parking and water, through long-life physical assets. The businesses we own and operate are an 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-life physical assets.business. These infrastructure businesses generally operate in sectors with limited competition and high barriers to entry.entry, resulting from a variety of factors including high initial development and construction costs, the existence of long-term contracts or the requirement to obtain government approvals and lack of immediate cost-efficient alternatives to the services that we provide. As a result, they havetend to generate sustainable and growing long-term cash flows. We operate and finance our businesses in a manner that maximizes these cash flows.
We are dependent upon cash distributions from our businesses and investments to meet our corporate overhead, andto pay 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 trust stock.our shareholders. 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.
During 2007, we paid distributions of $0.57 per share in April 2007, $0.59 per share in June 2007, $0.605 per share in September 2007 and $0.62 per share in December 2007. During 2008, we paid a distribution of $0.635 per share in March 2008. On February 27, 2007,May 5, 2008, 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. On May 3, 2007, the board of directors declared a distribution of $0.59$0.645 per share for the quarter ended March 31, 2007,2008, payable on June 8, 200710, 2008 to holders of record on June 5, 2007.4, 2008.
During 2007, we acquired 29 fixed base operations, or FBOs, and in the first quarter of 2008 we acquired an additional three FBOs. With these acquisitions, our airport services business owns and operates a network of 72 FBOs in the United States, the largest such network in the industry. Results of operations for acquisitions are included in our consolidated results from the respective dates of each acquisition.
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 designed as hedging instruments that effectively offset the variability of cash flows associated with variable-rate, long-term debt obligations will be reported in other comprehensive income. Any ineffective portion on the change in the valuation of our derivatives will be taken through earnings, and reported in the (loss) gain on derivative instruments line in our consolidated condensed statements of income.
Tax Treatment of Distributions
Each holder of the Trust’s stockFor tax year 2008, shareholders will be requiredneed 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 equal the cashportion of our distributions to shareholders.
Some of the distributions received by the Trust on its investment in Macquarie Infrastructure Company LLC may be a return of capital for U.S. federal income tax purposes. Therefore, the amount we distribute 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 bethat are 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 less than the allocable items of income and deductions, there will be an increase in the shareholders basis and reduction in the potential capital gain.
a dividend. 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. It is likely that a substantial portion of our distributions will be characterized as return of capital for tax purposes and will result in an adjustment to the shareholders’ basis rather than taxable income.
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 questionsInternal Revenue Service.
Adoption of New Accounting Pronouncement — FASB 157,“Fair Value Measurements”
On January 1, 2008, we partially adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, or FASB No. 157. See Note 3, Adoption of New Accounting Pronouncement, to our consolidated condensed financial statements in Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference, for more details about FASB No. 157.
We measure our derivative instruments at fair value on a recurring (quarterly) basis, utilizing mostly level 2 inputs such as contractual terms, market prices, interest rates (for example, LIBOR) and yield curves observable at commonly quoted intervals. Recent market conditions, including interest rate decreases, have increased the characterizationfair value of entities with structures like ours as grantor trustsour derivative-related liabilities. We do not believe the increase in these liabilities will have an adverse impact on our ability to meet our ongoing cash flow requirements, including the funding
17
of our distribution policy. We base our assessment on our business’ demonstrated ability to generate, and could change how we comply withcontinue to generate, significant operating cash flow and the availability of our tax information reporting obligations. Depending onvarious debt and revolving credit facilities.
Results of Operations
Key Factors Affecting Operating Results
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 interests 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.
Acquisitions and Dispositions
Results of the operations of the Trajen acquisition in the airport services business and the acquisition of TGC are included inacquisitions;
Refer to our Annual Report on Form 10-K, filed with the SEC on March 1, 2007, for further details on these acquisitions, and also the dispositions of non-U.S. investments as discussed below.
Airport Services Business
On July 11, 2006,existing businesses, particularly 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,partially offset by underperformance at airports in 11 states. With this acquisition, our airport services business owns and operates a network of 40 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 a 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 $14.0 million to be paid by IMTT Holdings, or $7.0 million to us, through the quarter ending December 31, 2008.
Dispositions
On August 17, 2006, we sold our 16,517,413 stapled securities of Macquarie Communications Infrastructure Group (ASX: MCG) for $76.4 million. On October 2, 2006, we sold our 17.5% minority interest in the holding company for South East Water 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:
·
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.
Mercury owns and operates 24 fixed base operations in the U.S. The aggregate purchase price, giving effect to our 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.
Results of Operations
Key Factors Affecting Operating Results
·
positive contributions from our acquisitions including:
·
acquisition of the Trajen network of 23 FBOs;
·
the acquisition of 50% of IMTT, which has declared a quarterly $7.0 million distribution since the second quarter of 2006. This distribution reduces our investments in unconsolidated businesses on our balance sheet and is not included in our statement of income;
·
the acquisition of TGC;
·
increased gross profit from our airport services business;
·
higher base management fees due to our increased asset base, offset by lower performance fees; and
·
an increase in interest expense due to higher levels of debt from refinancings in the overall increasesecond half of 2007; and
50% interest in IMTT, mainly as a result of non-cash losses on derivative instruments of $17.7 million in that business.
Our consolidated results of operations are summarized below: below ($ in thousands):
|
| 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 March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | $ | % | |||||||||||||
| Revenues | ||||||||||||||||
| Revenue from product sales | $ | 159,325 | $ | 88,357 | 70,968 | 80.3 | ||||||||||
| Revenue from product sales — utility | 29,399 | 22,291 | 7,108 | 31.9 | ||||||||||||
| Service revenue | 88,785 | 57,086 | 31,699 | 55.5 | ||||||||||||
| Financing and equipment lease income | 1,194 | 1,248 | (54 | ) | (4.3 | ) | ||||||||||
| Total revenue | 278,703 | 168,982 | 109,721 | 64.9 | ||||||||||||
| Costs and expenses | ||||||||||||||||
| Cost of product sales | 108,517 | 53,706 | (54,811 | ) | (102.1 | ) | ||||||||||
| Cost of product sales — utility | 24,335 | 16,778 | (7,557 | ) | (45.0 | ) | ||||||||||
| Cost of services | 33,256 | 23,342 | (9,914 | ) | (42.5 | ) | ||||||||||
| Gross profit | 112,595 | 75,156 | 37,439 | 49.8 | ||||||||||||
| Selling, general and administrative | 63,857 | 38,978 | (24,879 | ) | (63.8 | ) | ||||||||||
| Fees to manager — related party | 4,626 | 5,561 | 935 | 16.8 | ||||||||||||
| Depreciation | 6,723 | 3,891 | (2,832 | ) | (72.8 | ) | ||||||||||
| Amortization of intangibles | 10,739 | 6,928 | (3,811 | ) | (55.0 | ) | ||||||||||
| Total operating expenses | 85,945 | 55,358 | (30,587 | ) | (55.3 | ) | ||||||||||
| Operating income | 26,650 | 19,798 | 6,852 | 34.6 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest income | 473 | 1,459 | (986 | ) | (67.6 | ) | ||||||||||
| Interest expense | (25,826 | ) | (17,566 | ) | (8,260 | ) | (47.0 | ) | ||||||||
| Equity in (losses) earnings and amortization charges of investees | (2,089 | ) | 3,465 | (5,554 | ) | (160.3 | ) | |||||||||
| Loss on derivative instruments | (305 | ) | (477 | ) | 172 | 36.1 | ||||||||||
| Other income (expense), net | 192 | (916 | ) | 1,108 | 121.0 | |||||||||||
| Net (loss) income before income taxes and minority interests | (905 | ) | 5,763 | (6,668 | ) | (115.7 | ) | |||||||||
| (Provision) benefit for income taxes | (1,364 | ) | 2,045 | (3,409 | ) | (166.7 | ) | |||||||||
| Net (loss) income before minority interests | (2,269 | ) | 7,808 | (10,077 | ) | (129.1 | ) | |||||||||
| Minority interests | (279 | ) | (69 | ) | (210 | ) | NM | |||||||||
| Net (loss) income | $ | (1,990 | ) | $ | 7,877 | (9,867 | ) | (125.3 | ) | |||||||
NM –— Not meaningful
18
Gross Profit
The increase in our consolidated gross profit was due primarily to the acquisitions within our airport services business in 2007 and the first quarter of Trajen on July 11, 2006 and TGC on June 7, 2006.2008. Growth in the gross profit of existing businesses, particularly our airport services business, was partially offset by underperformance in our airport parking business. Further details are contained in each of the business segment discussions below.
Selling, General and Administrative Expenses
The most significant factor in the increase in selling, general and administrative expenses was $14.9 millionmainly due to additional costs from the additionacquisitions in our airport services business since the date of TGC and Trajen not reflected in 2006 results.each acquisition.
Other Income (Expense)
Our dividend income in 2006 consisted of distributions declared by and received from SEW in the first quarter. We sold our investment in SEW in the third quarter of 2006.
Interest expense increased due mostly
Fees to a higher level of debt in 2006, primarily from the acquisitions made in the second and third quarters of 2006.Manager
Our equity in earnings and amortization charges of investees comprises our equity in the earnings on our Yorkshire Link investmentThe fees to manager for the first quarter of 20062007 were higher than 2008 due to a $957,000 performance fee in 2007. Macquarie Infrastructure Management (USA) Inc., our Manager, elected to reinvest these performance fees in shares of LLC interests.
Depreciation and Amortization of Intangibles
The increase in depreciation expense and amortization of intangibles is due to the acquisitions in our airport services business. Depreciation expense also increased due to capital expenditures in existing businesses.
Interest Expense
Interest expense increased due to a higher average level of debt from re-financings in the second half of 2007, including the additional debt drawn to fund our FBO acquisitions.
Equity in (Losses) Earnings and Amortization Charges of Investees
Our equity in the earnings of IMTT decreased despite improved operating results from that business due to non-cash derivative-related losses of $17.7 million for the quarter. IMTT has elected not to apply hedge accounting, so changes in the fair value of the derivative instruments are recorded in IMTT’s earnings. This large derivative loss was a result of the substantial decline in interest rates over the quarter. Since we equity account our investment in IMTT, our 50% share of the $17.7 million derivative loss was approximately $6.0 million, net of taxes.
We have received $7.0 million in cash dividends from IMTT each quarter since completing our investment in May 2006. These dividends are not recorded in earnings, but are recorded against our investment in the business on our balance sheet and are shown as cash provided by operating activities in our statements of cash flows for the portion up to our 50% share of IMTT’s positive earnings. Distributions when IMTT records a net loss, or the amount of the distribution in excess of our share of its earnings, are reflected in our consolidated cash flow from investing activities. In the first quarter of 2007.
The increase2008, the $7.0 million dividend was included in other expense was due primarily to foreign currency forward contracts settled duringcash from investing activities. In the first quarter of 2007, $3.5 million was included in addition to other foreign currencycash from operating activities and $3.5 million was included in cash from investing activities.
Income Taxes
For the 2007 year, we reported a consolidated net loss before income taxes, for which we recorded a deferred tax benefit, net of certain state net operating losses from settlement proceeds on the sale of our foreign investments.
Income Taxesairport parking business.
For the 2006 year the Company reported a net loss before taxes at the MIC Inc. level,ending December 31, 2008, we expect to have consolidated taxable income for which it recorded anboth federal and state income tax benefit. The Company also reportedpurposes, allowing us to utilize a portion of our federal net operating loss carryforward.
In calculating our consolidated projected state income before taxes outside MIC Inc.tax expense for 2008, we expect to provide a valuation allowance for current year losses at our airport parking business, the utilization of which is not assured beyond any reasonable doubt. In addition, we expect to incur certain expenses that will not be subject todeductible in determining state taxable 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, resultingand have excluded those expenses in pre-tax income on a consolidated basis.
For the 2007 year, the Company projects a net loss before taxes at the MIC Inc. level, for which it expects to record anestimating our state income tax benefit. The Company also projects a net loss outside MIC Inc. that will not be subject to income taxes payable by the Company.expense for 2008.
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 of our consolidated businesses as we consider it to be an important measure of our overall performance. We
19
believe EBITDA provides additional insight into the performance of our operating companies and our ability to service our obligations and support our ongoing distribution policy.
A reconciliation of net (loss) income to EBITDA, on a consolidated basis, is provided below:
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 | ||||||
—————— below ($ in thousands):
NM – Not meaningful
| | | | | ||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | $ | % | |||||||||||||
| Net (loss) income | $ | (1,990 | ) | $ | 7,877 | |||||||||||
| Interest expense, net | 25,353 | 16,107 | ||||||||||||||
| Provision (benefit) for income taxes | 1,364 | (2,045 | ) | |||||||||||||
| Depreciation(1) | 6,723 | 3,891 | ||||||||||||||
| Depreciation – cost of services(1) | 2,746 | 2,466 | ||||||||||||||
| Amortization(2) | 10,739 | 6,928 | ||||||||||||||
| EBITDA | $ | 44,935 | $ | 35,224 | 9,711 | 27.6 | ||||||||||
(1)
| (1) | Depreciation – cost of services includes depreciation expense for our district energy business and airport parking business, which are reported in cost of services in our consolidated statements of operations. Depreciation and Depreciation – cost of services does not include step-up depreciation expense of $1.7 million for each quarter in connection with our investment in IMTT, which is reported in equity in (losses) earnings and amortization charges of investees in our statements of operations. |
| (2) | Amortization does not include step-up amortization expense of $283,000 for each quarter related to intangible assets in connection with our investment in IMTT, which is reported in equity in (losses) earnings and amortization charges of investees in our statements of operations. |
Includes depreciationNet (loss) income includes the following items totaling $9.2 million net expense in 2008 and $75,000 net income in 2007, which have not been reversed in calculating EBITDA above:
Excluding 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 $933,000above non-cash items, EBITDA 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.2008 would have increased by approximately 53.9%.
Business Segment Operations
AIRPORT SERVICES BUSINESS
Airport Services Business
The following section summarizes the historical consolidated financial performance of our airport services business for the quarter ended March 31, 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 three locations acquired from Trajen Holdings Inc., or Trajen.business. The acquisitionacquisitions column and the total 20072008 quarter results in the table below include the operating results of Trajenfor Supermarine, Mercury, San Jose and Rifle for the quarter ended period January 1, 2008 to March 31, 2007.
The performance of2008 and Seven Bar for 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 continuesperiod March 4, 2008 (our acquisition date) 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.March 31, 2008.
Key Factors Affecting Operating Results
·
the additional debt to fund some of these acquisitions; 23 FBOs acquisitions completed in 2007 and 2008, partially offset by interest expense from Trajen acquired in July 2006;·dollar per gallon fuel marginsvolumes at existing locations with relatively flat weighted average fuel margin;into-plane volumes;·lower fuel prices resulting in lower fuel sales revenuehangar and costs of good sold;·higher other services gross profit due to increased de-icing;·increased expenses related to the acquisition of Trajen, including labor costs incurred for the re-brandingoffice rent revenue; and integration of the Trajen locations; and·from higher debt levels resulting from therelated to increased borrowings related toassociated with the acquisition of Trajennew debt facility established in July 2006.October 2007.
20
Quarter Ended March 31, 20072008 Compared to Quarter Ended March 31, 20062007
| | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Existing Locations | Trajen | Total | Existing Locations | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2007 | 2006 | Change | Acquisition | 2007 | 2006 | Change | 2008 | 2007 | Change Favorable/(Unfavorable) | Acquisitions(3) | 2008 | 2007 | Change Favorable/(Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| $ |
| $ |
| $ |
| % |
| $ |
| $ |
| $ |
| $ |
| % | $ | $ | $ | % | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||
($ in thousands) (unaudited) | ($ In Thousands) (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Fuel revenue |
|
| 41,601 |
|
| 41,992 |
|
| (391 | ) |
| (0.9 | ) |
| 28,246 |
|
| 69,847 |
|
| 41,992 |
|
| 27,855 |
|
| 66.3 |
| 84,986 | 69,847 | 15,139 | 21.7 | 51,380 | 136,366 | 69,847 | 66,519 | 95.2 | |||||||||||||||||||||||||||
Non-fuel revenue |
|
| 22,922 |
|
| 18,179 |
|
| 4,743 |
|
| 26.1 |
|
| 8,291 |
|
| 31,213 |
|
| 18,179 |
|
| 13,034 |
|
| 71.7 |
| 35,565 | 31,213 | 4,352 | 13.9 | 27,019 | 62,584 | 31,213 | 31,371 | 100.5 | |||||||||||||||||||||||||||
Total revenue |
|
| 64,523 |
|
| 60,171 |
|
| 4,352 |
|
| 7.2 |
|
| 36,537 |
|
| 101,060 |
|
| 60,171 |
|
| 40,889 |
|
| 68.0 |
| 120,551 | 101,060 | 19,491 | 19.3 | 78,399 | 198,950 | 101,060 | 97,890 | 96.9 | |||||||||||||||||||||||||||
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 |
| 56,781 | 40,578 | (16,203 | ) | (39.9 | ) | 35,101 | 91,882 | 40,578 | (51,304 | ) | (126.4 | ) | |||||||||||||||||||||||
Cost of revenue – non-fuel |
|
| 2,466 |
|
| 2,331 |
|
| 135 |
|
| 5.8 |
|
| 955 |
|
| 3,421 |
|
| 2,331 |
|
| 1,090 |
|
| 46.8 |
| ||||||||||||||||||||||||||||||||||||
| Cost of revenue-non-fuel | 4,603 | 3,421 | (1,182 | ) | (34.6 | ) | 7,197 | 11,800 | 3,421 | (8,379 | ) | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total cost of revenue |
|
| 25,955 |
|
| 27,601 |
|
| (1,646 | ) |
| (6.0 | ) |
| 18,044 |
|
| 43,999 |
|
| 27,601 |
|
| 16,398 |
|
| 59.4 |
| 61,384 | 43,999 | (17,385 | ) | (39.5 | ) | 42,298 | 103,682 | 43,999 | (59,683 | ) | (135.6 | ) | |||||||||||||||||||||||
Fuel gross profit |
|
| 18,112 |
|
| 16,722 |
|
| 1,390 |
|
| 8.3 |
|
| 11,157 |
|
| 29,269 |
|
| 16,722 |
|
| 12,547 |
|
| 75.0 |
| 28,205 | 29,269 | (1,064 | ) | (3.6 | ) | 16,279 | 44,484 | 29,269 | 15,215 | 52.0 | |||||||||||||||||||||||||
Non-fuel gross profit |
|
| 20,456 |
|
| 15,848 |
|
| 4,608 |
|
| 29.1 |
|
| 7,336 |
|
| 27,792 |
|
| 15,848 |
|
| 11,944 |
|
| 75.4 |
| 30,962 | 27,792 | 3,170 | 11.4 | 19,822 | 50,784 | 27,792 | 22,992 | 82.7 | |||||||||||||||||||||||||||
Gross profit |
|
| 38,568 |
|
| 32,570 |
|
| 5,998 |
|
| 18.4 |
|
| 18,493 |
|
| 57,061 |
|
| 32,570 |
|
| 24,491 |
|
| 75.2 |
| 59,167 | 57,061 | 2,106 | 3.7 | 36,101 | 95,268 | 57,061 | 38,207 | 67.0 | |||||||||||||||||||||||||||
Selling, general and administrative expenses |
|
| 19,735 |
|
| 18,698 |
|
| 1,037 |
|
| 5.5 |
|
| 10,800 |
|
| 30,535 |
|
| 18,698 |
|
| 11,837 |
|
| 63.3 |
| 31,337 | 30,535 | (802 | ) | (2.6 | ) | 23,288 | 54,625 | 30,535 | (24,090 | ) | (78.9 | ) | |||||||||||||||||||||||
Depreciation and amortization |
|
| 4,414 |
|
| 4,413 |
|
| 1 |
|
| — |
|
| 3,549 |
|
| 7,963 |
|
| 4,413 |
|
| 3,550 |
|
| 80.4 |
| 7,988 | 7,963 | (25 | ) | (0.3 | ) | 6,649 | 14,637 | 7,963 | (6,674 | ) | (83.8 | ) | |||||||||||||||||||||||
Operating income |
|
| 14,419 |
|
| 9,459 |
|
| 4,960 |
|
| 52.4 |
|
| 4,144 |
|
| 18,563 |
|
| 9,459 |
|
| 9,104 |
|
| 96.2 |
| 19,842 | 18,563 | 1,279 | 6.9 | 6,164 | 26,006 | 18,563 | 7,443 | 40.1 | |||||||||||||||||||||||||||
Interest expense, net |
|
| (5,193 | ) |
| (8,913 | ) |
| 3,720 |
|
| (41.7 | ) |
| (3,068 | ) |
| (8,261 | ) |
| (8,913 | ) |
| 652 |
|
| (7.3 | ) | (8,595 | ) | (8,261 | ) | (334 | ) | (4.0 | ) | (7,243 | ) | (15,838 | ) | (8,261 | ) | (7,577 | ) | (91.7 | ) | ||||||||||||||||||
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 |
| ||||||||||||||||||||||||||||||||||||
| Other (expense) income, net | (29 | ) | (23 | ) | (6 | ) | (26.1 | ) | 13 | (16 | ) | (23 | ) | 7 | 30.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized (losses) gains on derivative instruments | (232 | ) | (949 | ) | 717 | 75.6 | 33 | (199 | ) | (949 | ) | 750 | 79.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Provision) benefit for income taxes | (4,427 | ) | (3,699 | ) | (728 | ) | (19.7 | ) | 416 | (4,011 | ) | (3,699 | ) | (312 | ) | (8.4 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss)(2) | 6,559 | 5,631 | 928 | 16.5 | (617 | ) | 5,942 | 5,631 | 311 | 5.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of net income (loss) to EBITDA: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss)(2) | 6,559 | 5,631 | (617 | ) | 5,942 | 5,631 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net |
|
| 5,193 |
|
| 8,913 |
|
| (3,720 | ) |
| (41.7 | ) |
| 3,068 |
|
| 8,261 |
|
| 8,913 |
|
| (652 | ) |
| (7.3 | ) | 8,595 | 8,261 | 7,243 | 15,838 | 8,261 | |||||||||||||||||||||||||||||||
Provision for income taxes |
|
| 3,270 |
|
| 3,273 |
|
| (3 | ) |
| (0.1 | ) |
| 429 |
|
| 3,699 |
|
| 3,273 |
|
| 426 |
|
| 13.0 |
| ||||||||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | 4,427 | 3,699 | (416 | ) | 4,011 | 3,699 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
|
| 4,414 |
|
| 4,413 |
|
| 1 |
|
| — |
|
| 3,549 |
|
| 7,963 |
|
| 4,413 |
|
| 3,550 |
|
| 80.4 |
| 7,988 | 7,963 | 6,649 | 14,637 | 7,963 | |||||||||||||||||||||||||||||||
EBITDA |
|
| 17,855 |
|
| 21,151 |
|
| (3,296 | ) |
| (15.6 | ) |
| 7,699 |
|
| 25,554 |
|
| 21,151 |
|
| 4,403 |
|
| 20.8 |
| 27,569 | 25,554 | 2,015 | 7.9 | 12,859 | 40,428 | 25,554 | 14,874 | 58.2 | |||||||||||||||||||||||||||
——————
(1)NM — Not meaningful
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) | Non-fuel gross profit includes fuel-related services like into-plane services. See discussion under Gross Profit. |
| (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. |
| (3) | Acquisitions include the results of Supermarine FBOs (acquired May 30, 2007), Mercury FBOs (acquired August 9, 2007), San Jose FBOs (acquired August 17, 2007) and Rifle FBO (acquired November 30, 2007) for the quarter ended March 31, 2008 and Seven Bar FBOs (acquired March 4, 2008) for the period March 4 to March 31, 2008. |
21
Revenue and TABLE OF CONTENTS
Gross Profit
Most of the revenue and gross profit in our airport services business is generated through fueling general aviation aircraft at our fixed base operations72 FBOs around the United States. This revenueRevenue 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, dollar margins, thereby passing on any increase in fuel prices to the customer. We also have into-plane arrangements 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 other airport services. Cost of revenue–non-fuelrevenue-non-fuel includes our cost, if any, to provide these se rvices.services.
The key factors forimpacting our revenue and gross profit 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:
·
·
an increase inother services, including de-icing activity, hangar rent and office rent;
·
an increase inthe general aviation industry; and
While we generally seek to maintain or increase weighted average fuel margins, recent increases in fuel prices has led to increased focus on cost amongst our customers, who generally pay higher margins;which may result in tightening margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of gross profit at our existing locations improved from 53.5% to 53.0% primarily driven by cost efficiencies achieved on acquisitions completed prior to 2007.
·
higher deicing activity inTypically, the first quarter of 2007 compared to 2006 due to colder weather in the northeast U.S.
Operating Expenses
The increase in selling, general and administrative expenses forexpenses-to-gross profit ratio of our acquisitions is initially higher than the ratio at the existing locations is due to:
·
additional office costs resulting from higher rentas we temporarily maintain the pre-acquisition cost structure during a transition period. As the acquired businesses become fully integrated, we expect the selling, general and utility costs;
·
additional credit card fees relatedadministrative expenses-to-gross profit ratio to proportion of total sales paid by credit card and types of cards used for payment;improve.
·
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-cash interest expense item in 2006, prior 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 Trajen 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. The debt facility provides an aggregate term loan borrowing of $480.0 million and a $5.0 million working capital facility.
EBITDA
The increase in EBITDA fromtotal interest expense is due to the increased debt level for borrowings to finance some of our acquisitions, as well as our new debt facility established in October 2007 which refinanced all existing locations, excludingborrowings outstanding at the non cash (loss) gaintime.
EBITDA
Excluding the non-cash gains and losses from derivative instruments, is due to:
·
EBITDA at existing locations and total EBITDA would have increased fuel volumes;by approximately 4.9% and 53.3%, respectively.
Bulk Liquid Storage Terminal Business
·
increased average dollar per gallon fuel margins; and
·
higher de-icing gross profitWe account for our 50% investment in 2007.
BULK LIQUID STORAGE TERMINAL BUSINESS
With respect to ourthe bulk liquid storage terminal business we included $4.6(also referred to as IMTT) under the equity method. We recognized a $2.1 million of net incomeloss in our consolidated results for the quarter ended March 31, 2007, consisting2008. This includes $906,000, our 50% share of $4.8IMTT’s net loss for the quarter that includes IMTT’s $17.7 million equitynon-cash loss on derivatives, which offset a strong increase in the earningsoperating income. The $2.1 million loss also reflects our share of IMTT (plus $1.1 million tax benefit) less $2.0 millionadditional depreciation and amortization expense (plus $819,000 tax benefit). (net of taxes) of $1.2 million. For the quarter ended March 31, 2007, we recognized income of $3.5 million in our consolidated results. In addition to our 50% share of IMTT’s income for the quarter of $4.7 million, which
22
included minor losses on derivative instruments, we recorded additional depreciation and amortization expense (net of taxes) of $1.2 million for the same period.
We have received $7.0 million in cash dividends from IMTT each quarter since completing our investment in January 2007 relating toMay 2006. These dividends qualify for the fourth quarterfederal dividends received deduction, therefore, 80% of 2006. IMTT
declared a dividend of $14.0 millionthis amount is excluded in March 2007 with $7.0 million payable to MIC Inc. that we have recorded as a receivable at March 31, 2007.calculating our consolidated federal taxable income.
To enable meaningful analysis of IMTT’s performance across periods, IMTT’s overall performance for the full quarter ended March 31, 2007, compared to the prior corresponding period which is priordiscussed below, rather than IMTT’s contribution to our investment, is discussed below.consolidated results.
Key Factors Affecting Operating Results
·
·
·
customers, primarily due to the acquisition of the Joliet, IL site;
·
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.
Quarter Ended March 31, 20072008 Compared to Quarter Ended March 31, 20062007
| | | | ||||||||||||||||||||||||||
| Quarter Ended March 31 |
|
|
|
|
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||||||||
|
| 2007 |
| 2006 |
| Change |
| 2008 | 2007 | ||||||||||||||||||||
|
| $ |
| $ |
| $ |
| % |
| $ | $ | $ | % | ||||||||||||||||
($ in thousands) (unaudited) | ($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Terminal revenue |
|
| 54,777 |
|
| 46,376 |
|
| 8,401 |
|
| 18.1 |
| 74,224 | 61,876 | 12,348 | 20.0 | ||||||||||||
Terminal revenue – heating |
|
| 7,099 |
|
| 7,510 |
|
| (411 | ) |
| (5.5 | ) | ||||||||||||||||
Environmental response revenue |
|
| 8,540 |
|
| 4,763 |
|
| 3,777 |
|
| 79.3 |
| 4,170 | 8,540 | (4,370 | ) | (51.2 | ) | ||||||||||
Nursery revenue |
|
| 3,432 |
|
| 2,950 |
|
| 482 |
|
| 16.3 |
| ||||||||||||||||
Total revenue |
|
| 73,848 |
|
| 61,599 |
|
| 12,249 |
|
| 19.9 |
| 78,394 | 70,416 | 7,978 | 11.3 | ||||||||||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Terminal operating costs |
|
| 27,877 |
|
| 24,810 |
|
| 3,067 |
|
| 12.4 |
| 38,542 | 32,990 | (5,552 | ) | (16.8 | ) | ||||||||||
Terminal operating costs – fuel |
|
| 5,113 |
|
| 6,143 |
|
| (1,030 | ) |
| (16.8 | ) | ||||||||||||||||
Environmental response operating costs |
|
| 6,886 |
|
| 3,096 |
|
| 3,790 |
|
| 122.4 |
| 3,729 | 6,886 | 3,157 | 45.8 | ||||||||||||
Nursery operating costs |
|
| 3,071 |
|
| 2,826 |
|
| 245 |
|
| 8.7 |
| ||||||||||||||||
Total operating costs |
|
| 42,947 |
|
| 36,875 |
|
| 6,072 |
|
| 16.5 |
| 42,271 | 39,876 | (2,395 | ) | (6.0 | ) | ||||||||||
Terminal gross profit |
|
| 28,886 |
|
| 22,933 |
|
| 5,953 |
|
|
|
| 35,682 | 28,886 | 6,796 | 23.5 | ||||||||||||
Environmental response gross profit |
|
| 1,654 |
|
| 1,667 |
|
| (13 | ) |
| (0.8 | ) | 441 | 1,654 | (1,213 | ) | (73.3 | ) | ||||||||||
Nursery gross profit |
|
| 361 |
|
| 124 |
|
| 237 |
|
| 191.1 | |||||||||||||||||
Gross profit |
|
| 30,901 |
|
| 24,724 |
|
| 6,177 |
|
|
|
| 36,123 | 30,540 | 5,583 | 18.3 | ||||||||||||
General and administrative expenses |
|
| 5,569 |
|
| 5,559 |
|
| 10 |
|
| 0.2 |
| 6,830 | 5,569 | (1,261 | ) | (22.6 | ) | ||||||||||
Depreciation and amortization |
|
| 8,522 |
|
| 7,681 |
|
| 841 |
|
| 10.9 |
| 10,334 | 8,522 | (1,812 | ) | (21.3 | ) | ||||||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
| 18,959 | 16,449 | 2,510 | 15.3 | ||||||||||||
| Interest expense, net | (4,719 | ) | (3,407 | ) | (1,312 | ) | (38.5 | ) | |||||||||||||||||||||
| Other income | 557 | 3,173 | (2,616 | ) | (82.4 | ) | |||||||||||||||||||||||
| Unrealized losses on derivative instruments | (17,720 | ) | (242 | ) | (17,478 | ) | NM | ||||||||||||||||||||||
| Benefit (provision) for income taxes | 956 | (6,423 | ) | 7,379 | 114.9 | ||||||||||||||||||||||||
| Minority interest | 155 | (27 | ) | 182 | NM | ||||||||||||||||||||||||
| Net (loss) income | (1,812 | ) | 9,523 | (11,335 | ) | (119.0 | ) | ||||||||||||||||||||||
| Reconciliation of net (loss) income to EBITDA: | |||||||||||||||||||||||||||||
| Net (loss) income | (1,812 | ) | 9,523 | ||||||||||||||||||||||||||
| Interest expense, net | 4,719 | 3,407 | |||||||||||||||||||||||||||
| (Benefit) provision for income taxes | (956 | ) | 6,423 | ||||||||||||||||||||||||||
| Depreciation and amortization | 10,334 | 8,522 | |||||||||||||||||||||||||||
| EBITDA | 12,285 | 27,875 | (15,590 | ) | (55.9 | ) | |||||||||||||||||||||||
NM — Not meaningful
23
Revenue and Gross Profit
Terminal revenue increased primarily due to a $5.1 million increase in storage revenue, $1.6 million of which represents the consolidation of IMTT-Quebec. Excluding IMTT-Quebec, storage revenue increased due to a 3.8% increase in storage capacity rented to customers and a 5.8% increase in average storage rates for the quarter ended March 31, 2007. Overall storage capacity rented to customers increased slightly from 96% to 97% of available storage capacity for the quarter ended March 31, 2007. Terminal revenue also increased due to a $935,000 increase in throughput revenue and a $2.0 million increase in revenue from 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 revenue reflects growth in almost all major service segments, including storage revenue, throughput revenue and other services and fees. Storage revenue increased $8.3 million during the quarter as the average rental rates charged to customers increased substantially. This increase in storage revenue also reflected an increase of 2.8% in rented capacity, reflecting the acquisition of the Joliet facility and the completion of certain expansion projects. Storage capacity utilization was 94% for the quarter, compared to 97% during the first quarter of 2007, due to an increase in the number of tanks temporarily out of service for regulatory inspections as well as unanticipated repairs. For the balance of 2008, increased activity related to the mandated Spill Prevention, Control, and Countermeasure, or SPCC, program at the Louisiana sites could continue to reduce capacity utilization by 1–2% from its historically high levels. Based on the condition of tanks being inspected, the SPCC program could have a similar impact on capacity utilization through 2012.
The increase in gross profit from terminal services reflects the dollar increase in terminal revenues partially offset by an increase in terminalincreased operating costs. OfDirect labor expenses increased as a result of higher customer demand for throughput and other ancillary services. Higher repair and maintenance costs compared to the $3.1 million increase in terminalfirst quarter of last year primarily reflect increased tank and infrastructure repairs at Bayonne. Higher operating costs $1.4 million resulted from the consolidation of IMTT-Quebecreflect greater activity and an unfavorable movement in 2007. exchange rates at Quebec.
The balance of the increasedecrease in terminal operating costs correlated to the increase in revenues.
Of the increase in terminal gross profit of $6.0 million, $785,000 resulted from environmental response services reflects a substantial decrease in spill response activities compared to a normal level of that activity in the consolidationfirst quarter of IMTT-Quebec. Excluding the impact2007, plus a significant emergency response project in first quarter 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 the quarter ended March 31, 2007.
General and Administrative Expenses
The nursery gross profitGeneral and administrative expenses increased due to an insurance settlement of $200,000 resulting from hurricane Katrina.higher wage and benefit costs as well as increased information technology expenses and legal fees related to a short-term project.
Depreciation and Amortization
Depreciation and amortization expense increased due to continuing high levels of growth capital expenditure.additions.
Interest Expense, Net
GAS PRODUCTION AND DISTRIBUTION BUSINESS
We completed our acquisitionInterest expense increased due to higher debt balances which resulted from funding requirements for capital expenditures. The increase in interest expense was partially offset by lower interest rates on debt outstanding and greater amounts of TGCcapitalized interest related to expansion projects.
Other Income
Other income for the first quarter of 2007 included gains on June 7, 2006. Therefore, TGCinsurance settlements received for claims related to Hurricane Katrina and other matters as well as a gain on the sale of assets.
Unrealized Losses on Derivative Instruments
As part of the refinancing in the second quarter of 2007, we entered into additional interest rate swap arrangements to fix the effective interest rate on the new debt facilities. IMTT has only contributedelected not to our consolidated operating resultsapply hedge accounting. As a result, movements in the fair value of IMTT’s interest rate derivatives are taken through earnings and reported in the unrealized losses on derivative instruments line in IMTT’s financial statements. The $17.7 million unrealized loss on derivative instruments for the first quarter of 2008 is a result of the substantial decline in interest rates during the quarter.
EBITDA
Excluding unrealized losses from that date.
Because TGC’s results of operations are not included in our consolidated financial results until June 7, 2006,interest rate swap agreements, EBITDA for the following analysis compares the historical results of operations for TGC under both its currentquarter would have increased by 6.7%.
Gas Production and prior owners. We believe that this is the most appropriate approach to analyzing the historical financial performance and trends of TGC.
Distribution BusinessKey Factors Affecting Operating Results
·
decreased utility contribution margin due principally to:
·
$1.1 million of 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.
·
·
to price increases subsequentsince March 2007, partially offset by higher cost of fuel and increased costs to March 2006; and
·
higher therms sold due to the negative impact of a statewidedeliver liquefied petroleum gas, or LPG, shortage from a local supplier that occurred during March 2006.to Oahu’s neighboring islands;
24
Contribution marginTABLE OF CONTENTS
Management analyzes contribution margin for TGCthe gas production and distribution business (also referred to as 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 includestructure. Both structures provide the business with an ability to change rates when the underlying fuelfeedstock 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. We calculate contribution margin as revenue less direct costs of revenue other than production and transmission and distribution costs. Other companies may calculate contribution margin differently or may use different metrics and, therefore, the contribution margin presented for TGC is not necessarily comparable with metrics of other companies.
Quarter Ended March 31, 20072008 Compared to Quarter Ended March 31, 20062007
| | | | | |||||||||||||||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | ||||||||||||||||||||||||||||
Quarter Ended | Change | 2008 | 2007 | ||||||||||||||||||||||||||
| 2007 |
| 2006 |
| $ |
| % |
| $ | $ | $ | % | |||||||||||||||||
($ in thousands) (unaudited) | ($ 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 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Revenue — utility | 29,399 | 22,291 | 7,108 | 31.9 | |||||||||||||||||||||||||
| Cost of revenue — utility | 21,724 | 14,591 | (7,133 | ) | (48.9 | ) | |||||||||||||||||||||||
| Contribution margin — utility | 7,675 | 7,700 | (25 | ) | (0.3 | ) | |||||||||||||||||||||||
| Revenue — non-utility | 22,959 | 18,510 | 4,449 | 24.0 | |||||||||||||||||||||||||
| Cost of revenue — non-utility | 14,424 | 10,811 | (3,613 | ) | (33.4 | ) | |||||||||||||||||||||||
| Contribution margin — non-utility | 8,535 | 7,699 | 836 | 10.9 | |||||||||||||||||||||||||
Total contribution margin |
|
| 15,399 |
|
| 16,002 |
|
| (603 | ) |
| (3.8 | ) | 16,210 | 15,399 | 811 | 5.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Production |
|
| 1,121 |
|
| 1,225 |
|
| (104 | ) |
| (8.5 | ) | 1,217 | 1,121 | (96 | ) | (8.6 | ) | ||||||||||
Transmission and distribution |
|
| 3,383 |
|
| 3,318 |
|
| 65 |
|
| 2.0 |
| 3,605 | 3,383 | (222 | ) | (6.6 | ) | ||||||||||
Selling, general and administrative expenses |
|
| 4,080 |
|
| 4,025 |
|
| 55 |
|
| 1.4 |
| 4,413 | 4,080 | (333 | ) | (8.2 | ) | ||||||||||
Depreciation and amortization |
|
| 1,731 |
|
| 1,368 |
|
| 363 |
|
| 26.5 |
| 1,668 | 1,731 | 63 | 3.6 | ||||||||||||
Operating income |
|
| 5,084 |
|
| 6,066 |
|
| (982 | ) |
| (16.2 | ) | 5,307 | 5,084 | 223 | 4.4 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest expense, net |
|
| (2,245 | ) |
| (1,211 | ) |
| (1,034 | ) |
| 85.4 |
| (2,311 | ) | (2,245 | ) | (66 | ) | (2.9 | ) | ||||||||
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 | ) | ||||||||||||||||
| Other income (expense), net | 71 | (53 | ) | 124 | NM | ||||||||||||||||||||||||
| Unrealized losses on derivative instruments | (21 | ) | (267 | ) | 246 | 92.1 | |||||||||||||||||||||||
| Provision for income taxes | (1,192 | ) | (986 | ) | (206 | ) | (20.9 | ) | |||||||||||||||||||||
| Net income(1) | 1,854 | 1,533 | 321 | 20.9 | |||||||||||||||||||||||||
| Reconciliation of net income to EBITDA: | |||||||||||||||||||||||||||||
| Net income(1) | 1,854 | 1,533 | |||||||||||||||||||||||||||
Interest expense, net |
|
| 2,245 |
|
| 1,211 |
|
| 1,034 |
|
| 85.4 |
| 2,311 | 2,245 | ||||||||||||||
| Provision for income taxes | 1,192 | 986 | |||||||||||||||||||||||||||
Depreciation and amortization |
|
| 1,731 |
|
| 1,368 |
|
| 363 |
|
| 26.5 |
| 1,668 | 1,731 | ||||||||||||||
EBITDA |
|
| 6,495 |
|
| 7,623 |
|
| (1,128 | ) |
| (14.8 | ) | 7,025 | 6,495 | 530 | 8.2 | ||||||||||||
——————
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, and the federal tax effect, have been excluded from the above table as they are eliminated on consolidation at the MIC Inc. level. |
25
Contribution Margin and Operating Income
Utility contribution margin decreased primarily as the result of $1.1 million of 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. 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,utility contribution margin was lower byrelatively unchanged with higher costs of fuel and related revenue taxes passed through to its customers. Sales volume in the first quarter of 2008 was approximately $766,000 forthe same as the first quarter of 2007. Additionally, the cash effect of lower fuel cost adjustments required by Hawaii state regulators as a condition of our purchase of TGC. The cash effect of this $766,000 decrease isincluded in customer billings was offset by withdrawals of $1.0 million and $766,000 for the first quarter of 2008 and 2007, respectively, from our $4.5 millionan escrow account that was established and funded at acquisition by the seller. TGC believes that thesethe remaining escrowed funds will be fully utilized by mid-2008 and thereafter escrowed funds would not be available. The cash reimbursements of the customer rebate and any fuel cost adjustment amounts are not reflected in revenue, but rather are reflected as releases of restricted cash. Contributioncash and other assets.
The non-utility contribution margin was also adversely affected by 2.4% fewer therms soldincreased due to increased energy conservation measures, business slowdowns, customer renovationsprice increases, partially offset by higher costs of LPG and military deployments.
Non-utility contribution margin benefited from pricing increases subsequent to March 2006, as well as higher therm sales. Therms sold in the non-utility sector increased by 4.3%cost to transport LPG between islands. Sales volume for the quarter principally due to a statewide LPG shortage from a local supplier that caused therm volumes to decline in March 2006.was approximately the same as the first quarter of 2007.
Production costs were lower than in the first quarter 2006higher due primarily to lower repairhigher electricity and electric utility costs at our synthetic natural gas plant in first quarter 2007.personnel costs. Transmission and distribution costs were higher thandue principally to higher personnel costs and to a greater amount of government required pipeline inspection and remediation work conducted in the first quarter 2006 principallyof 2008 than was conducted in the first quarter of 2007. Selling, general and administrative costs were higher due to increased maintenance activity.
an increase in bad debt reserves for an airline customer that declared bankruptcy in 2008 and higher personnel, employee benefit and consultant costs. Depreciation and amortization increaseddecreased as there were several assets that were fully depreciated in 2007.
We have signed a supply agreement for feedstock used in our synthetic natural gas, or SNG, plant. Although generally indexed to gas prices, we believe our feedstock costs will only slightly increase and that we will be able to pass through this increase to utility customers. The contract’s term is one year, with automatic renewals unless terminated. If terminated, we believe that we will have access to available supply alternatives, although likely at a higher cost. TGC’s supply agreements for LPG also expire in 2008. We believe that, due to higher petroleum prices, the cost of LPG will likely be higher under new agreements. To the extent that TGC is unable to recover all of these higher prices through customer price increases or that the higher asset basis that resulted from our purchase of TGCprices reduce TGC’s competitive position vis-à-vis other energy sources, TGC’s sales volumes and for equipment additions.margins could be adversely affected.
Interest Expense, NetTGC’s collective bargaining agreement expired on April 30, 2008. We have agreed on a new five year contract with the union on comparable terms to the prior contract.
EBITDA
Interest expense increasedEBITDA was higher in 2008 compared with 2007 primarily due to our acquisition funding.
EBITDA
Excluding unrealized loss on derivatives and reimbursed fuel adjustment costs, EBITDA remained relatively flat despite elevated revenueimprovements in 2006 due to significant accruals.non-utility operations.
DISTRICT ENERGY BUSINESS
District Energy Business
Key Factors Affecting Operating Results
·
·
rates;
·
higheroverall electricity costs due to lower ton-hour sales from cooler average temperatures;
new debt facility established in September 2007.
26
Quarter Ended March 31, 20072008 Compared to Quarter Ended March 31, 20062007
|
| Quarter Ended March 31, |
|
|
|
|
| | | | | ||||||||||||||||||
| 2007 | 2006 |
| Change |
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | ||||||||||||||||||||||
|
| $ |
| $ |
| $ |
| % |
| 2008 | 2007 | ||||||||||||||||||
($ in thousands) (unaudited) | $ | $ | $ | % | |||||||||||||||||||||||||
| ($ In Thousands) (Unaudited) | |||||||||||||||||||||||||||||
Cooling capacity revenue |
|
| 4,551 |
|
| 4,189 |
|
| 362 |
|
| 8.6 |
| 4,806 | 4,551 | 255 | 5.6 | ||||||||||||
Cooling consumption revenue |
|
| 1,862 |
|
| 1,475 |
|
| 387 |
|
| 26.2 |
| 1,768 | 1,862 | (94 | ) | (5.0 | ) | ||||||||||
Other revenue |
|
| 649 |
|
| 845 |
|
| (196 | ) |
| (23.2 | ) | 732 | 649 | 83 | 12.8 | ||||||||||||
Finance lease revenue |
|
| 1,248 |
|
| 1,298 |
|
| (50 | ) |
| (3.9 | ) | 1,194 | 1,248 | (54 | ) | (4.3 | ) | ||||||||||
Total revenue |
|
| 8,310 |
|
| 7,807 |
|
| 503 |
|
| 6.4 |
| 8,500 | 8,310 | 190 | 2.3 | ||||||||||||
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 |
| ||||||||||||||||
| Direct expenses — electricity | 1,176 | 1,483 | 307 | 20.7 | |||||||||||||||||||||||||
| Direct expenses — other(1) | 4,703 | 4,149 | (554 | ) | (13.4 | ) | |||||||||||||||||||||||
| Direct expenses — total | 5,879 | 5,632 | (247 | ) | (4.4 | ) | |||||||||||||||||||||||
Gross profit |
|
| 2,678 |
|
| 2,542 |
|
| 136 |
|
| 5.4 |
| 2,621 | 2,678 | (57 | ) | (2.1 | ) | ||||||||||
Selling, general and administrative expenses |
|
| 768 |
|
| 797 |
|
| (29 | ) |
| (3.6 | ) | 992 | 768 | (224 | ) | (29.2 | ) | ||||||||||
Amortization of intangibles |
|
| 337 |
|
| 337 |
|
| — |
|
| — |
| 341 | 337 | (4 | ) | (1.2 | ) | ||||||||||
Operating income |
|
| 1,573 |
|
| 1,408 |
|
| 165 |
|
| 11.7 |
| 1,288 | 1,573 | (285 | ) | (18.1 | ) | ||||||||||
Interest expense, net |
|
| (2,087 | ) |
| (2,070 | ) |
| (17 | ) |
| 0.8 |
| (2,544 | ) | (2,087 | ) | (457 | ) | (21.9 | ) | ||||||||
Other income (expense) |
|
| 74 |
|
| (79 | ) |
| 153 |
|
| (193.7 | ) | ||||||||||||||||
| Other income | 64 | 74 | (10 | ) | (13.5 | ) | |||||||||||||||||||||||
| Unrealized losses on derivative instruments | (30 | ) | — | (30 | ) | NM | |||||||||||||||||||||||
Benefit for income taxes |
|
| 213 |
|
| 333 |
|
| (120 | ) |
| (36.0 | ) | 354 | 213 | 141 | 66.2 | ||||||||||||
Minority interest |
|
| (132 | ) |
| (131 | ) |
| (1 | ) |
| 0.8 |
| (145 | ) | (132 | ) | (13 | ) | (9.8 | ) | ||||||||
Net |
|
| (359 | ) |
| (539 | ) |
| 180 |
|
| (33.4 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Reconciliation of net |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net |
|
| (359 | ) |
| (539 | ) |
| 180 |
|
| (33.4 | ) | ||||||||||||||||
| Net loss(2) | (1,013 | ) | (359 | ) | (654 | ) | (182.2 | ) | |||||||||||||||||||||
| Reconciliation of net loss to EBITDA: | |||||||||||||||||||||||||||||
| Net loss(2) | (1,013 | ) | (359 | ) | |||||||||||||||||||||||||
Interest expense, net |
|
| 2,087 |
|
| 2,070 |
|
| 17 |
|
| 0.8 |
| 2,544 | 2,087 | ||||||||||||||
Benefit for income taxes |
|
| (213 | ) |
| (333 | ) |
| 120 |
|
| (36.0 | ) | (354 | ) | (213 | ) | ||||||||||||
Depreciation |
|
| 1,431 |
|
| 1,423 |
|
| 8 |
|
| 0.6 |
| 1,476 | 1,431 | ||||||||||||||
Amortization of intangibles |
|
| 337 |
|
| 337 |
|
| — |
|
| — |
| 341 | 337 | ||||||||||||||
EBITDA |
|
| 3,283 |
|
| 2,958 |
|
| 325 |
|
| 11.0 |
| 2,994 | 3,283 | (289 | ) | (8.8 | ) | ||||||||||
——————
(1)NM — Not meaningful
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 $1.5 million and $1.4 million for the quarters ended March 31, 2008 and 2007, 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 increaseddecreased primarily due to the timing of earlier pre-season maintenance expense for system reliability. A higher percentage of our pre-season maintenance was conducted in the first quarter of 2008 than was conducted in the first quarter of 2007. As a result, we expect to incur lower maintenance expenditures in the second quarter of 2008. Cooling capacity revenue relatedincreased due to four interruptible customers converting to continuous service during the previous yeara net increase in contracted capacity and annual inflation-related increases of contract capacity rates in accordance with the terms of existing customer contracts.contract terms. Cooling consumption revenue also increasedand overall electricity costs decreased due to higherlower ton-hour sales resulting from weather related peaks andcooler than average temperatures during the pass-through to our customersperiod. Lower cooling consumption revenue was partially offset by recovery of the higher electricity costs relatedpassed through to the January 2007 deregulation of Illinois’ electricity generation market, which are subject to annual reconciliations and true-ups to actual costs.customers. Other revenue decreasedincreased due to our pass-through to customers of the lowerhigher cost of natural gas consumables, and reduction in management headcount, which are includedis offset in other direct expenses.
Selling, General and Administrative
Expense
Selling, general and administrative expense slightly decreased due to a reduction in management headcount offsetting higher legal fees and marketing commissions related to signing new customer contracts and renewing existing customer contracts set to expire during 2007.
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 twelve months. Our interest rate on our senior debt is a fixed rate.
Other Income (Expense)
The first quarter of 2006 included pension benefits expense for union trainees employed from 1999 through 2005.
EBITDA
EBITDAexpenses increased primarily due to the earlier timing of audit expenses and the accrual of additional performance-linked management incentives granted in 2007. Also, the quarter ended March 31, 2007 included a partial reversal of accrued management incentives that did not re-occur in 2008.
27
Interest Expense, Net
Interest expense increased as a result of higher debt levels associated with the 2007 refinancing and higher non-cash amortization of deferred financing costs.
EBITDA
EBITDA decreased due to the earlier timing of pre-season maintenance expense for system reliability and the increase in selling, general and administrative expenses, offset by the net increase in capacity revenue associated with four interruptible customers converting to continuous service during the previous year.and savings from lower electricity costs.
AIRPORT PARKING BUSINESS
Airport Parking Business
Key Factors Affecting Operating Results
·
operating loss at our new location which commenced operations in November 2006;
·
reduced operating margins due primarily to higher personnel costs and property lease costs;
·
decline in the number
·
targeted pricing strategies contributed to an increase inout and average revenue per car out;
·
accelerated amortizationdue to certain underperforming markets which are offsetting overall growth;
·
appointment higher fuel costs;
customer service improves.
Quarter Ended March 31, 20072008 Compared to Quarter Ended March 31, 20062007
|
| Quarter Ended March 31, |
|
|
|
|
| | | | | ||||||||||||||||||
| 2007 |
| 2006 |
| Change |
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||||||||
|
| $ |
| $ |
| $ |
| % |
| 2008 | 2007 | ||||||||||||||||||
($ in thousands) (unaudited) | $ | $ | $ | % | |||||||||||||||||||||||||
| ($ In Thousands) (Unaudited) | |||||||||||||||||||||||||||||
Revenue |
|
| 18,811 |
|
| 18,216 |
|
| 595 |
|
| 3.3 |
| 18,895 | 18,811 | 84 | 0.4 | ||||||||||||
Direct expenses(1) |
|
| 14,289 |
|
| 13,435 |
|
| 854 |
|
| 6.4 |
| ||||||||||||||||
| Direct expenses(1) | 15,577 | 14,289 | (1,288 | ) | (9.0 | ) | |||||||||||||||||||||||
Gross profit |
|
| 4,522 |
|
| 4,781 |
|
| (259 | ) |
| (5.4 | ) | 3,318 | 4,522 | (1,204 | ) | (26.6 | ) | ||||||||||
Selling, general and administrative expenses |
|
| 1,613 |
|
| 1,700 |
|
| (87 | ) |
| (5.1 | ) | 2,694 | 1,613 | (1,081 | ) | (67.0 | ) | ||||||||||
Amortization of intangibles |
|
| 788 |
|
| 406 |
|
| 382 |
|
| 94.1 |
| 816 | 788 | (28 | ) | (3.6 | ) | ||||||||||
Operating income |
|
| 2,121 |
|
| 2,675 |
|
| (554 | ) |
| (20.7 | ) | ||||||||||||||||
| Operating (loss) income | (192 | ) | 2,121 | (2,313 | ) | (109.1 | ) | ||||||||||||||||||||||
Interest expense, net |
|
| (3,966 | ) |
| (3,893 | ) |
| (73 | ) |
| 1.9 |
| (3,887 | ) | (3,966 | ) | 79 | 2.0 | ||||||||||
Other (expense) income |
|
| (10 | ) |
| (92 | ) |
| 82 |
|
| (89.1 | ) | ||||||||||||||||
Unrealized (loss) gain on derivative instruments |
|
| (70 | ) |
| 668 |
|
| (738 | ) |
| (110.5 | ) | ||||||||||||||||
| Other income (expense) | 72 | (10 | ) | 82 | NM | ||||||||||||||||||||||||
| Unrealized gains (losses) on derivative instruments | 77 | (70 | ) | 147 | NM | ||||||||||||||||||||||||
Benefit for income taxes |
|
| 763 |
|
| 226 |
|
| 537 |
|
| NM |
| 1,501 | 763 | 738 | 96.7 | ||||||||||||
Minority interest |
|
| 201 |
|
| 124 |
|
| 77 |
|
| 62.1 |
| 424 | 201 | 223 | 110.9 | ||||||||||||
Net loss(2) |
|
| (961 | ) |
| (292 | ) |
| (669 | ) |
| NM |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| Net loss(2) | (2,005 | ) | (961 | ) | (1,044 | ) | (108.6 | ) | |||||||||||||||||||||
Reconciliation of net loss to EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net loss(2) |
|
| (961 | ) |
| (292 | ) |
| (669 | ) |
| NM |
| ||||||||||||||||
| Net loss(2) | (2,005 | ) | (961 | ) | |||||||||||||||||||||||||
Interest expense, net |
|
| 3,966 |
|
| 3,893 |
|
| 73 |
|
| 1.9 |
| 3,887 | 3,966 | ||||||||||||||
Benefit for income taxes |
|
| (763 | ) |
| (226 | ) |
| (537 | ) |
| NM |
| (1,501 | ) | (763 | ) | ||||||||||||
Depreciation |
|
| 1,035 |
|
| 865 |
|
| 170 |
|
| 19.7 |
| 1,270 | 1,035 | ||||||||||||||
Amortization of intangibles |
|
| 788 |
|
| 406 |
|
| 382 |
|
| 94.1 |
| 816 | 788 | ||||||||||||||
EBITDA |
|
| 4,065 |
|
| 4,646 |
|
| (581 | ) |
| (12.5 | ) | 2,467 | 4,065 | (1,598 | ) | (39.3 | ) | ||||||||||
——————
NM –— Not meaningful
| (1) | Includes depreciation expense of $1.3 million and $1.0 million for the quarters ended March 31, 2008 and 2007, respectively, and non-cash rent in excess of lease of $525,000 and $591,000 for the same periods. |
| (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)28
Includes depreciation expense of $1.0 million and $865,000 for the quarters ended March 31, 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 | |||||||||||||||
| 2008 | 2007 | % | ||||||||||||||
| Operating Data: | ||||||||||||||||
| Cars Out(1) | 497,988 | 495,140 | 2,848 | 0.6 | ||||||||||||
| Average Revenue Per Car Out | $ | 36.24 | $ | 36.65 | $ | (0.41 | ) | (1.1 | ) | |||||||
| Average Overnight Occupancy(2) | 21,835 | 20,726 | 1,109 | 5.4 | ||||||||||||
|
| 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.
(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 increasedwas substantially unchanged due to the addition of one new location during the quarterrelatively flat cars out and an increase in average revenue per car out. The increase in averagewhen compared with the prior year.
Our goal is to maximize revenue per car out results mainly from the continuation of ourthrough a focused yield management strategy including price increases, reduced discountingand enhancing the product offering. Beginning in selectedthe second quarter of 2007, we invested heavily in customer service with management upgrades, operational improvements, systems upgrades and fleet enhancements. Additionally, an increased sales force, targeted marketing initiatives, and a new loyalty program have focused on strengthening our customer base of business and leisure travelers. In the markets and elimination of low margin daily parking programs in selected markets. Awhere management has focused its attention we have recently seen improved performance. We will focus on improvingimplementing these initiatives throughout the levelnetwork over the remainder of customer service in certain locations has supported these price increases.the year and believe our performance will continue to improve.
The decrease in cars out and average overnight occupancy was attributed to competitive pressure and underperforming management in selected markets and a continued strategic shift away from daily parkers. Management has taken action in underperforming markets through more aggressive pricing and replacementWe believe revenues of certain managers. Daily parkers, typically airport employees, contribute to a higher number of cars out, but pay discounted rates.
Ourthe airport parking business as a whole has sufficient capacityare correlated to accommodate further growth. At locations whereairline enplanements at the airports that we are operating at peak capacity intra-day, we continue to seek opportunities to expand capacityserve. In the first quarter of 2008, the airline industry experienced some bankruptcies and various airlines have altered their flight patterns. Individually each of these locations.
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 onchanges would not necessarily be material to 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.airport parking business but in combination they may cause declines in revenue.
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 due to improved customer service — higher personnelemployee expenditures due to a strengthened management team and additional staffing for valet service; increased marketing expenditures; higher expenses relating to additional buses as well as higher repair and maintenance costs to improve bus fleet quality. Increased direct expenses also reflects greater fuel costs from both rising fuel prices and reala larger fleet size.
On April 29, 2008, we completed the acquisition of property in Oakland for $13.3 million. The purchase was funded through borrowing under the MIC Inc. acquisition credit facility, which we had drawn down in February 2008. The property was previously leased and increased lease payments.
In certain markets, additional personnel costs were incurred in response to volume increases, weather conditions and security concerns. In underperforming markets, personnel costs decreased.
Direct expenses includethe purchase will eliminate approximately $1.2 million of annual cash rent in excess of lease, a non-cash item, in the amount of $567,000 and $501,000 for the quarters ended March 31, 2007 and 2006, respectively.expense.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter decreasedincreased primarily due primarily to the reversalaccrual of a 2006 excess bonus reservecontingent liability related to state sales tax, which is not an ongoing expense.
Our new regional operations and sales structure and senior management changes that commenced in the second quarter of 2007 have increased wage, benefit and travel costs. Legal expenses were also higher in the first quarter of 2007. This was partially offset by higher accounting and professional fees.
Amortization 2008, but we expect that we will be able to recover some of Intangiblesthese expenses from insurance.
EBITDA
Amortization increasedEBITDA decreased due to the accelerated amortization of certain intangible assets (trade and domain names)lower operating income primarily attributable to a higher cost structure associated with the re-branding project.investments in management, sales, marketing and customer service and a contingent liability related to a state sales tax accrual.
29
Interest Expense, NetTABLE OF CONTENTS
Interest expense increased due to the additional interest and finance cost amortization associated with the debt refinanced on September 1, 2006, that consolidated our primary borrowings, and additional 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, due to favorable LIBOR rates which exceeded our interest rate cap and swap rates.
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:assumptions:
·
all of
·
·
flow or available financing, including release of debt service reserves;
·
payments on Thermal Chicago/Northwind Aladdin’s debt that will begin to amortize in 2007 can be paid from operating cash flow;
·
IMTT will be able to refinance and increase the size of its existing debt facilities on amended terms during 2007; and
·
In light of current market conditions, assumptions regarding our ability to fund acquisitions may be subject to significant risk. See “Risk Factors” in Part I, Item 1A of our Form 10-K, filed with the SEC on February 28, 2008.
While we believe we are taking the necessary steps to improve the performance of our airport parking business, if it does not perform as we expect and within the timeframe we expect, this business may require limited short-term funding from us. We do not anticipate that this will have a significant impact on our ability to pay distributions.
The section below discusses the sources and uses of cash on a consolidated basis, and for each of our businesses and investmentsinvestments. All inter-company activities such as corporate allocation, capital contributions to our businesses and distributions from our businesses, have been excluded from the below tables as these transactions are eliminated on consolidation. Prior period comparatives have also been updated to remove these inter-company activities.
Commitments and Contingencies
For a discussion of our future obligations, due by period, under the various contractual obligations, off-balance sheet arrangements and 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 quartersfiscal year ended MarchDecember 31, 2007, andfiled with the SEC on February 28, 2008. We have not had any material changes to those commitments since 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 at1, 2007, except as follows:
30
OUR CONSOLIDATED CASH FLOWTABLE OF CONTENTS
|
| 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 |
|
Consolidated Analysis of Historical Cash Flows
——————
| | | | | ||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | |||||||||||||||
| $ | $ | $ | % | |||||||||||||
| ($ In Thousands) | ||||||||||||||||
| Cash provided by operating activities | 14,097 | 27,571 | (13,474 | ) | (48.9 | ) | ||||||||||
| Cash (used in) provided by investing activities | (48,435 | ) | 78,858 | (127,293 | ) | (161.4 | ) | |||||||||
| Cash provided by financing activities | 38,169 | 2,588 | 35,581 | NM | ||||||||||||
NM –— Not meaningful
Operating Activities
Key factors influencingConsolidated cash provided by operating activities mainly comprises the cash from operations of the businesses we own, as described in each respective business discussion below. The cash flow from our consolidated cash flow werebusiness’ operations is partially offset by expenses paid at the corporate level, such as follows:base management fees, professional fees and interest on any amounts drawn on our revolving credit facility.
·
the increaseThe decrease in our consolidated cash flow provided by operating activities was due primarily to:
We believe our operating activities provide a source of TGCsustainable and continued organic growthgrowing, long-term cash flows due to:
·
operations (for example, airports, waterfront near ports);
31
Investing Activities
The change in the cash flow(used in) provided by investing activities was primarily due toto:
·
Distributions from IMTT are reflected in our consolidated cash flowprovided by operating activities only up to our 50% share of IMTT’s positive earnings. Distributions when IMTT records a net loss, as they did in the first quarter of 2008, are reflected in our consolidated cash from investing activities.
Financing Activities
The increase in cash provided by financing activities was primarily due to:
As of March 31, 2007, our consolidated cash and cash equivalent balances totaled $146.4 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, 2007, the Company had no indebtedness outstanding at the MIC LLC, Trust or MIC Inc. level. For a description of the material terms of the MIC Inc. revolving acquisition facility, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report onof Form 10-K for the fiscal year ended December 31, 2006.2007. We have not had any material changes to our revolving acquisition facility since February 28, 2008, our 10-K filing date.
AIRPORT SERVICES BUSINESS CASH FLOWThe financial covenants requirements under our revolving acquisition facility, and the calculation of these measures at quarter end, are as follows:
|
| Quarter Ended March 31, |
|
|
|
|
| ||||||
|
| 2007 |
| 2006 |
| Change |
| ||||||
| $ |
| $ |
| $ |
| % |
| |||||
($ in thousands) | |||||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
| (1,702 | ) |
| (567 | ) |
| (1,135 | ) |
| 200.2 |
|
Cash used in financing activities |
|
| (11,879 | ) |
| (9,153 | ) |
| (2,726 | ) |
| 29.8 |
|
| • | Ratio of Consolidated Adjusted Cash from Operations to Interest Expense >2.0x (at March 31, 2008: 121.59x) |
Airport Services Business
Key factors influencing cash flow from
| | | | | ||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | |||||||||||||||
| $ | $ | $ | % | |||||||||||||
| ($ In Thousands) | ||||||||||||||||
| Cash provided by operating activities | 19,846 | 19,369 | 477 | 2.5 | ||||||||||||
| Cash used in investing activities | (51,660 | ) | (1,702 | ) | (49,958 | ) | NM | |||||||||
| Cash provided by (used in) financing activities(1) | 9,891 | (279 | ) | 10,170 | NM | |||||||||||
NM — Not meaningful
| (1) | We provided our airport services business with $41.9 million of funding in the first quarter of 2008, which was used to pay for the acquisition of Seven Bar FBOs (reflected above in cash used in investing activities) and to pre-fund integration costs. We also provided $1.6 million in 2007 to fund growth capital expenditures. These contributions are not reflected in cash provided by (used in) financing activities as they are eliminated on consolidation. |
32
Operating Activities
Cash provided by operating activities at our airport services business wereis generated from sales transactions primarily paid by credit cards. Some customers are on extended payment terms and billed accordingly. Offsetting these cash receipts are payments mainly to vendors of fuel, aircraft services and professional services, as follows:
·
the increase in cashwell as payroll costs and payments to tax jurisdictions. Cash provided by operations increased in 2008 due to positive operating activities was the resultresults of the acquisition of Trajen in July 2006our acquisitions and improved performance at existing locations, partially offset by an increase in interest expense reflecting higher debt levels;levels and higher receivables mainly stemming from higher fuel sale prices. Higher jet fuel sale prices have resulted in an increase in receivables balances as receivables include both the fuel margins charged by our airport services business and the cost of fuel, which is primarily based on spot jet fuel prices.
·We expect our airport services business’ marketing programs to help increase fuel sales at the acquired sites. We also expect our selling, general and administrative expense to gross profit ratio to improve upon full integration of the acquired sites into the existing platform. As a result, we expect the cash from operating activities generated by the acquisitions completed in 2007 and 2008 to increase in the future.
Investing Activities
cashCash used in investing activities includedrelates primarily to our acquisitions and capital expenditures. Cash paid for our acquisition of Seven Bar FBOs in the first quarter of 2008, net of cash acquired, was $41.3 million.
Maintenance expenditures are generally funded by cash from operating activities and growth capital expenditures are generally funded with drawdown on capital expenditure facilities or equity contributions from MIC Inc.
Maintenance Capital Expenditure
Maintenance capital expenditures encompass repainting, replacing equipment as necessary and any ongoing environmental or required regulatory expenditure, such as installing safety equipment. These expenditures are funded from cash flow from operating activities.
Growth Capital Expenditure
Growth capital projects expected to be completed through 2009 total approximately $50.0 million primarily for hangars, terminal buildings, fuel farms and ramp upgrades. We intend to fund these projects through our $50.0 million capital expenditure facility.
The following table sets forth information about capital expenditures in our airport services business:
| | | ||||||
| Maintenance | Growth | |||||||
| Quarter ended March 31, 2007 | $ | 975,000 | $ | 727,000 | ||||
| Quarter ended March 31, 2008 | $ | 3.6 million | $ | 6.6 million | ||||
| 2008 full year estimated | $ | 11.0 million | $ | 28.9 million | ||||
| Commitments at March 31, 2008 | None | None | ||||||
The increases in maintenance capital expenditures are primarily due to an increased number of $1.7 millionlocations due to our acquisitions and the delay of maintenance capital expenditure projects in the first quarter of 2007 compareddue to $550,000weather conditions. We expect maintenance capital expenditures to average between $150,000 and $200,000 per location in 2008 to provide necessary upgrades and refurbishment of our facilities as well as additions to and replacement of our ground support equipment fleet. This is consistent with prior years.
Major growth capital expenditures during the first quarter of 2008 and 2007 include:
2008:
33
2007:
We currently have plans either in development or underway to provide major remodels or new construction of hangars and facilities at 13 of our FBOs. Such investments are required under the terms of our respective leases with the airports for which we have received renewals or extensions of the existing lease terms.
Financing Activities
The changes in cash provided by (used in) financing activities are primarily due to additional debt drawdowns on our debt facility to fund growth capital expenditures in the first quarter of 2006, and included $975,000 for maintenance and $727,000 for expansion; and
·
cash used in financing activities included distributions to us of $13.2 million in the first quarter of 2007 compared to $8.9 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 the FBOs located at Stewart International Airport in New York and Santa Monica Airport in California. 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 rate:
|
|
| ||||
|
|
|
The swap will be transferred to the airport services business at the completion of the acquisition.
For a further description of the material terms of the airport services business’ debt and credit facilities, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report onof Form 10-K for the fiscal year ended December 31, 2006.
BULK LIQUID STORAGE TERMINAL BUSINESS CASH FLOW2007. We have not had any material changes to these debt and credit facilities since February 28, 2008, our 10-K filing date.
The acquisitionfinancial covenants requirements under the airport services business’ debt and credit facilities, and the calculation of our 50% interest was completed on May 1, 2006. these measures at quarter end, are as follows:
| • | Debt service coverage ratio >1.2x or 1.6x for cash lock-up (at March 31, 2008: 2.2x) |
| • | Minimum EBITDA (as defined in the debt facility) >$119.7 million (at March 31, 2008: $154.7 million) |
Bulk Liquid Storage Terminal Business
The following analysis compares 100% of the historical cash flows forof IMTT, under its current and prior owners. Wewhich we believe that this is the most appropriate and meaningful approach to explainingdiscussing the historical cash flow trends of IMTT, rather than discussingjust 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 | ) |
Key factors influencing We equity account for our 50% ownership of this business, so distributions are reflected in our consolidated cash flow from operating activities only up to our 50% share of IMTT’s positive earnings. Distributions when IMTT records a net loss or in excess of our share of its earnings are reflected in the consolidated cash flow from investing activities. We have received a quarterly dividend of $7.0 million since completing our investment in May 2006. In the first quarter of 2008, the $7.0 million was included in our consolidated cash from investing activities. In the first quarter of 2007, $3.5 million was included in consolidated operating cash and $3.5 million was included in consolidated cash from investing activities.
| | | | | ||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | |||||||||||||||
| $ | $ | $ | % | |||||||||||||
| ($ In Thousands) | ||||||||||||||||
| Cash provided by operating activities | 24,806 | 31,023 | (6,217 | ) | (20.0 | ) | ||||||||||
| Cash used in investing activities | (36,311 | ) | (33,809 | ) | (2,502 | ) | (7.4 | ) | ||||||||
| Cash provided by (used in) financing activities | 12,899 | (6,177 | ) | 19,076 | NM | |||||||||||
NM — Not meaningful
Operating Activities
Cash provided by operating activities at our bulk liquid storage terminal business including the consolidation is generated primarily from rentals and ancillary services that are billed monthly and paid on various terms. Offsetting these cash receipts are payments mainly for payroll costs, maintenance and repair of IMTT-Quebec in 2007, were as follows:
·
cashfixed assets, utilities and professional services and payments to tax jurisdictions. Cash provided by operating activities increased by 51.1%, primarilydecreased despite the increase in operating income due to an increase in EBITDA and a decrease in interest paid in 2007, as discussed above and a reductionincreases in working capital;capital requirements and interest paid.
·34
Investing Activities
Cash used in investing activities relates primarily to capital expenditures on an ongoing basis, as discussed below.
Maintenance Capital Expenditure
During the quarter ended March 31, 2008, IMTT spent $12.1 million on maintenance capital expenditures, including $9.0 million principally in relation to tank refurbishments and dock repairs and $3.1 million on environmental capital expenditures, principally in relation to improvements in containment measures and remediation.
Growth Capital Expenditure
Since our May 2006 investment in IMTT, the business has undertaken $355.9 million in expansion projects and acquired the Joliet facility for $18.5 million. As shown in the following table, these growth initiatives are expected to add or refurbish approximately 5.9 million barrels of capacity which will contribute $48.7 million to EBITDA on an annualized basis. It is anticipated that the capital expenditures 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 loans from the IMTT shareholders other than us.
The largest expansion project is the construction of a bulk liquid chemical storage and logistics facility on the Mississippi River at Geismar, LA. IMTT expects to spend approximately $188.2 million on this 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 minimum terminal gross profit and EBITDA of approximately $18.8 million per year. The logistics facility began limited operations in April 2008 and will be completed within the next few months. Along with the construction of this phase of the storage and logistics operations, IMTT spent an incremental $15.5 million to install an additional 432,000 barrels of storage capacity, which began operation during February 2008 and should generate incremental annual gross profit and EBITDA of $2.8 million.
| | | | | ||||||||||||
| Incremental Capacity (Barrels Thousands) | Refurbished Capacity (Barrels Thousands) | Capital Expenditure Cost ($ Millions) | EBITDA ($ Millions) | |||||||||||||
| Geismar | 860 | — | 203.7 | 21.6 | ||||||||||||
| St. Rose/Gretna/Avondale | 1,869 | 210 | 72.5 | 10.2 | ||||||||||||
| Bayonne | 242 | 1,214 | 55.4 | 9.8 | ||||||||||||
| Quebec | 704 | — | 30.7 | 4.9 | ||||||||||||
| All Other Projects | — | — | 1.6 | 0.2 | ||||||||||||
| Adjustment for Capital | ||||||||||||||||
| Expenditure Prior to MIC | ||||||||||||||||
| Investment | — | — | (8.0 | ) | — | |||||||||||
| Joliet Acquisition | 752 | — | 18.5 | 2.0 | ||||||||||||
| Total | 4,427 | 1,424 | 374.4 | 48.7 | ||||||||||||
During the quarter ended March 31, 2008, IMTT spent $50.0 million on specific expansion projects, including $30.1 million in relation to the construction of the new bulk liquid chemical storage facility at Geismar, LA, $9.8 million principally for the construction of new storage tanks at its other three sites in Louisiana, and $6.0 million for tank construction and refurbishment at its Bayonne, NJ facility. The balance of the expenditure on specific expansion projects related to a number of smaller projects to improve the capabilities of IMTT’s facilities.
35
The following table sets forth information about IMTT’s capital expenditures:
| | | ||||||
| Maintenance | Growth | |||||||
| Quarter ended March 31, 2007 | $ | 7.0 million | $ | 30.7 million | ||||
| Quarter ended March 31, 2008 | $ | 12.1 million | $ | 50.0 million | ||||
| 2008 full year estimated | $ | 35.0 – 50.0 million | $ | 125.0 – 140.0 million | ||||
| Commitments at March 31, 2008 | $ | 20.0 – 30.0 million | $ | 90.0 – 110.0 million | ||||
We have increased principallyour estimated capital expenditures for 2008 due to high levels of specificthe following factors:
After December 31, 2008, when our distributions from IMTT will convert from a fixed amount to a variable amount generally based on IMTT’s existing facilities at St. Rose, LA, Bayonne, NJcash flow from operating activities and Quebec, Canada; and
·
cash (used in)flow from investing activities less maintenance capital expenditures, these increases in capital expenditures related to the SPCC program will reduce amounts that would otherwise be distributed to us from IMTT.
Financing Activities
The increase in cash provided by financing activities changedwas primarily due to higher dividend paymentsan increase in borrowing under the revolving credit facility and less borrowing to fund capital expenditure in 2007 than in the same period in 2006.issuance of GO Zone bonds.
Pursuant to the terms of the shareholders’ agreement between ourselves and the other shareholders in IMTT, all shareholders in IMTT other than MIC Inc. areus were required to loan all 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 endingended 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$38.5 million were outstanding as at March 31, 2007.2008.
For a description of the material terms of the bulk liquid storage terminal business’ debt and credit facilities, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report onof Form 10-K for the fiscal year ended December 31, 2006.2007. We have not had any material changes to ourthese debt and credit facilities since March 1, 2007,February 28, 2008, our 10-K filing date.
GAS PRODUCTION AND DISTRIBUTION BUSINESS CASH FLOW
Because TGC’s cash flowsThe financial covenants requirements under the bulk liquid storage terminal business’ debt and credit facilities, and the calculation of these measures at quarter end, 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:
·
| | |
| USD Revolving Credit Facility | CAD Revolving Credit Facility | |
| Debt to EBITDA Ratio: Max 4.75x (at March 31, 2008: 3.22x) | Debt to EBITDA Ratio: Max 4.75x (at March 31, 2008: 3.22x) | |
| EBITDA to Interest Ratio: Min 3.00x (at March 31, 2008: 5.19x) | EBITDA to Interest Ratio: Min 3.00x (at March 31, 2008: 5.19x) |
36
Gas Production and Distribution Business
| | | | | ||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | |||||||||||||||
| $ | $ | $ | % | |||||||||||||
| ($ In Thousands) | ||||||||||||||||
| Cash provided by operating activities | 811 | 4,456 | (3,645 | ) | (81.8 | ) | ||||||||||
| Cash used in investing activities | (1,617 | ) | (1,956 | ) | 339 | 17.3 | ||||||||||
| Cash provided by financing activities | 3,250 | 1,000 | 2,250 | NM | ||||||||||||
the decrease in
NM — Not meaningful
Operating Activities
The main drivers for cash provided by operating activities wasare customer receipts and amounts withdrawn from the resultrestricted cash escrow account; timing of normal working capital fluctuationspayments for fuel, materials, pipeline repairs, vendor services and lower income. Working capital fluctuations weresupplies; payment of payroll, employee benefits and payroll taxes; payment of revenue-based taxes and payment of administrative costs. Our customers are generally billed monthly and make payments on account. Our vendors and suppliers generally bill us when services are rendered or when products are shipped. The decrease from 2007 to 2008 was primarily due to $2.0 millionincreased inventory purchases in 2008 and accounts receivable balances resulting from higher sales prices, partially offset by higher accounts payable balances inthat resulted from the prior period;timing of inventory purchases.
Investing Activities
·
The main drivers for cash used in investing activities are capital expenditures. Capital expenditures for the non-utility business are funded by cash from operating activities and capital expenditures for the utility business are funded both periods wasby drawing on credit facilities as well as cash from operating activities.
Maintenance Capital Expenditure
Maintenance capital expenditures include costs associated with ongoing operations. This includes replacement of pipeline sections, improvements to our transmission system and SNG plant, improvements to buildings and other property and the purchases of vehicles and equipment.
Growth Capital Expenditure
Growth capital expenditures include the purchases of meters, regulators and propane tanks for new customers, the cost of installing pipelines for new residential and commercial construction and the costs of new commercial energy projects.
We expect to fund approximately half of our total 2008 capital expenditures with debt facilities that are maintained principally for the benefit of our utility operations.
The following table sets forth information about TGC’s capital additions; andexpenditures:
·
| | | ||||||
| Maintenance | Growth | |||||||
| Quarter ended March 31, 2007 | $ | 1.2 million | $ | 886,000 | ||||
| Quarter ended March 31, 2008 | $ | 1.2 million | $ | 975,000 | ||||
| 2008 full year estimated | $ | 7.1 million | $ | 3.3 million | ||||
| Commitments at March 31, 2008 | $ | 219,000 | $ | 928,000 | ||||
Financing Activities
The main drivers for cash used inprovided by financing activities are debt financings for the first quarter of 2007 comprised distributions to us of $1.1 million,our working capital needs and capital expenditures offset by $1.0 millionthe repayment of new long-term borrowing that was used to finance the purchase of utility assets. Cash used in financing activitiesoutstanding debt facilities. The amounts borrowed during the first quarter were from our working capital credit facility and were used for inventory acquisitions.
As a condition of our purchase of TGC in June 2006, was for distributionsHawaii regulators required that TGC maintain a debt to total capital ratio of no more than 65% as calculated at the previous owner.
end of each quarter. At March 31, 2007, TGC had $17.0 million available2008 this ratio was 64.8% due to borrow under its $20.0 million revolving credit facility.
Pursuantnon-cash changes in fair value of derivatives that reduced TGC’s equity. We believe that we will be able to our purchase agreement and regulatory requirements relatedreach an arrangement to our purchase, an escrow account of $4.5 million was established on June 7, 2006exclude or otherwise address these fluctuations in derivatives to be usedmaintain a debt 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.total capital ratio below 65%.
37
For a description of the material terms of the gas production and distribution business’ debt and credit facilities, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report onof Form 10-K for the fiscal year ended December 31, 2006.2007. We
have not had any material changes to ourthese debt and credit facilities since March 1, 2007,February 28, 2008, our 10-K filing date, except fordate.
The financial covenants triggering distribution lock-up under the additional drawdowngas production and distribution business’ debt and credit facilities, and the calculation of $1.0 million during thethese measures at quarter ended March 31, 2007.
DISTRICT ENERGY BUSINESS CASH FLOW
|
| Quarter Ended March 31, |
|
|
|
|
| ||||||
|
| 2007 |
| 2006 |
| Change |
| ||||||
| $ |
| $ |
| $ |
| % |
| |||||
($ in thousands) | |||||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
| NM |
|
Cash used in investing activities |
|
| (2,315 | ) |
|
| ) |
|
| ) |
| NM |
|
Cash used in financing activities |
|
| (728 | ) |
| (2,839 | ) |
| 2,111 |
|
| (74.4 | ) |
——————
NM – Not meaningful
Key factors influencing cash flow from our district energy business wereend, are as follows:
| • | 12 mo. look-forward and 12 mo. look-backward adjusted EBITDA/interest >3.5x (at March 31, 2008: 4.83x) |
District Energy Business
·
| | | | | ||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | |||||||||||||||
| $ | $ | $ | % | |||||||||||||
| ($ In Thousands) | ||||||||||||||||
| Cash provided by operating activities | 2,841 | 3,089 | (248 | ) | (8.0 | ) | ||||||||||
| Cash used in investing activities | (1,516 | ) | (2,315 | ) | 799 | 34.5 | ||||||||||
| Cash (used in) provided by financing activities | (186 | ) | 1,650 | (1,836 | ) | (111.3 | ) | |||||||||
Operating Activities
the increase in cashCash provided by operating activities is primarily driven by customer receipts for services provided and for leased equipment, the timing of payments for electricity and vendor services or supplies and the payment of payroll and benefit costs.
The change from 2007 to 2008 was primarily due to lower consumption revenue and higher operating expenses in 2008 offset partially by a result of variousdecrease in working capital items,requirements, primarily increases in accounts payable and accrued expenses relating to increased growth capital expenditures;construction projects and pre-season maintenance.
Investing Activities
·
the increase inThe main drivers for cash used in investing activities are capital expenditures which are generally funded by drawing on available credit facilities. The decrease from 2007 to 2008 was primarily due to a higher level of growth capital expenditures for plant expansion in 2007.
Maintenance Capital Expenditure
Our district energy business expects to spend up to $1.0 million per year on capital expenditures relating to the replacement of parts, system reliability, customer service improvements and minor system modifications of which $187,000 has been spent during the first three months of 2008. Maintenance capital expenditures through 2012 will be funded from available debt facilities.
Growth Capital Expenditure
We completed the expansion of one of our plants in 2007, and we expect to complete the associated expansion of our distribution system in 2008. For the entire project, we anticipate spending approximately $8.1 million in 2007 and 2008. As of March 31, 2008, $7.2 million has been spent or committed. Management has also identified projects to further expand the current system capability to accommodate the increased demand for district cooling in Chicago. We estimate making additional capital expenditures of approximately $7.8 million connecting new customers to the system and implementing minor system modifications and improvements through 2010. As of March 31, 2008, $2.6 million has been spent or committed for new customer connectionsconnections. Typically, new customers will reimburse our district energy business for a substantial portion of these connection expenditures, effectively reducing the impact of this capital expenditure.
Based upon discussions with current and potential customers and subject to finalization of service dates, we expect annual gross profit and EBITDA to increase by approximately $5.3 million by 2011. New customers generally have up to two years after their initial service date to increase capacity up to their final
38
contracted tons which may defer a small portion of the expected EBITDA. 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 April 15, 2008, we have signed contracts with ten new customers representing approximately 88% of this additional gross profit and EBITDA increase. One customer began service in late 2006, two customers began service in 2007, and the timingremaining seven will begin service in 2009. We have identified the likely purchasers of on-going maintenancethe remaining saleable capacity and expect to have contracts signed by the end of 2008.
In addition, a building that houses one of our plants is being renovated and expanded. As per our lease agreement, we are obligated to pay for necessary modifications of this facility to accommodate the building’s expansion. We are taking advantage of this opportunity to expand our system capabilities in conjunction with the building expansion. Management anticipates spending up to approximately $11.0 million over 2008 through 2009. As of March 31, 2008, $130,000 has been spent or committed for the building modifications. We expect annual gross profit and EBITDA to increase by approximately $1.3 million by 2010, although a small portion of the additional increase may be deferred until 2011.
We expect to fund the capital expenditure for system expansion and interconnection by drawing on available debt facilities.
The following table sets forth information about capital expenditures for system reliability; andin our district energy business:
·
| | | ||||||
| Maintenance | Growth | |||||||
| Quarter ended March 31, 2007 | $ | 281,000 | $ | 3.8 million | ||||
| Quarter ended March 31, 2008 | $ | 187,000 | $ | 569,000 | ||||
| 2008 full year estimated | $ | 1.0 million | $ | 6.1 million | ||||
| Commitments at March 31, 2008 | $ | 149,000 | $ | 1.8 million | ||||
Financing Activities
the decrease in cash used inCash (used in) provided by financing activities is primarily driven by draws on revolving credit facilities and refinancings.
The change from 2007 to 2008 was primarily due to lower distributions to us in the first quarter$1.8 million of 2007, being $2.4 million, compared with $4.1 million in the first quarter of 2006 and also additional borrowingsdraws from our revolver facility in 2007 of $1.8 millionwhich were used to finance growth capital expenditures. Payments made to us to settle inter-company balances in the first quarter of 2007 are included within cash provided by operating activities.
For a description of the material terms 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, 2006.2007. We have not had any material changes to ourthese debt and credit facilities since March 1, 2007,February 28, 2008, our 10-K filing date, exceptdate.
The financial covenants requirements under the district energy business’ debt and credit facilities, and the calculation of these measures at quarter end, are as follows:
Distributions permitted if the following conditions are met:
| • | Backward interest coverage ratio >1.5x (March 31, 2008: 2.4x) |
Airport Parking Business
| | | | | ||||||||||||
| Quarter Ended March 31, | Change Favorable/(Unfavorable) | |||||||||||||||
| 2008 | 2007 | |||||||||||||||
| $ | $ | $ | % | |||||||||||||
| ($ In Thousands) | ||||||||||||||||
| Cash used in operating activities | (359 | ) | (160 | ) | (199 | ) | (124.4 | ) | ||||||||
| Cash used in investing activities | (238 | ) | (1,585 | ) | 1,347 | 85.0 | ||||||||||
| Cash (used in) provided by financing activities | (417 | ) | 256 | (673 | ) | NM | ||||||||||
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 | ) |
——————
NM –— Not meaningful
Key factors influencing cash flow from39
General
We have generally financed the liquidity needs of our airport parking business with cash from operating activities as well as existing cash balances. Since the second quarter of 2007, the business has been investing significant resources to improve management and service levels, funding these efforts primarily with available cash. These initiatives have begun to produce results in 2008 at locations that were the initial focus. We expect to see similar results as follows:
·
these initiatives are implemented throughout the decreasenetwork. We believe there is sufficient cash in the business to fund our immediate cash requirements, and we expect management strategies recently implemented to turn the business cash flow positive in the future. While we believe we are taking the necessary steps to improve the performance of our airport parking business, if it does not perform as we expect and within the timeframe we expect this business may require limited short-term funding from us as it continues to improve.
Operating Activities
Cash used in operating activities is primarily driven by customer receipts, timing of payments for rent, repairs and maintenance, fuel for shuttle buses, and payroll and benefits. The increase in cash provided byused in operating activities in 2008 was primarily due to movementselevated expenses to improve management and service levels that have not yet generated corresponding improvements in revenue, offset by a positive working capital items, including trade payables, prepaid expensesfluctuation.
On April 29, 2008 we completed the acquisition of property in Oakland for $13.3 million. The purchase was funded through borrowing under the MIC Inc. acquisition credit facility, which we had drawn down in February 2008. The property was previously leased and trade receivables;
·
the increasepurchase will eliminate approximately $1.2 million of annual cash rent expense.
Investing Activities
Cash used in investing activities is primarily driven by capital expenditures and payments for acquisitions. The decrease in cash used in investing activities in 2008 was primarily due to high levels of bus purchases and upgrades to facilities in 2007 and by a result$438,000 offset in 2008 due to proceeds from a partial property sale at one of higherour facilities.
Maintenance Capital Expenditure
Maintenance capital expenditures in the fist quarter of 2007, being $1.6 million, compare to $477,000 inprojects include site improvements and IT equipment. In the first quarter of 2006;2008, our airport parking business spent $676,000 on maintenance capital projects.
Management has focused on improving the customer experience with upgrades to shuttle services and facilities. For the full year 2008, our airport parking business expects to spend $3.4 million on new maintenance-related capital projects.
·
| | | ||||||
| Maintenance | Growth | |||||||
| Quarter ended March 31, 2007 | $ | 1.5 million | $ | 126,000 | ||||
| Quarter ended March 31, 2008 | $ | 676,000 | — | |||||
| 2008 full year estimated | $ | 3.4 million | — | |||||
| Commitments at March 31, 2008 | $ | 78,000 | — | |||||
Financing Activities
Cash (used in) provided by financing activities decreased primarily because of the repayment of outstanding debt facilities and capital lease obligations. Cash used in financing activities in the first quarter2008 comprised primarily of $372,000 of capital lease payments. Cash provided in 2007 included a $1.0 million distribution to shareholders, including us, in addition to $504,000 payments on capital leases, which wererestricted cash decrease of $936,000, partially offset by an increase in restricted cash$504,000 of $936,000. During the first quarter of 2006,capital lease payments.
For a partial repaymentdescription of the inter-company loan of $3.2 million was paid to us.
For a descriptionmaterial terms of the 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, 2006.2007. We have not had any material changes to ourthese debt and credit facilities since March 1, 2007,February 28, 2008, our 10-K filing date.
Capital Expenditures40
We have detailed our capital expenditures on a segment-by-segment basis, which we believe is a more appropriate approachThe financial covenants requirements under the airport parking business’ debt and credit facilities, and the calculation of these measures at quarter end, are as follows:
AIRPORT SERVICES BUSINESS
Maintenance Capital Expenditure
We expect1.00 with respect 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 per FBO, per year on maintenance capital expenditure. The amounts will be spent on items such as repainting, replacing equipment as necessary and any ongoing environmental or required regulatory expenditure, such as installing safety equipment. This expenditure is funded from cash flow from operations.
Specific Capital Expenditure
Several specific capital projects that were started in 2006 are expected to be completed in 2007. Expenditures related to these specific projects are expected to total approximately $12.4 million at Atlantic’s existing FBO’s and $2.7 million at the Trajen FBO’s. We intend to fund these expenditures from cash on hand.
BULK LIQUID STORAGE TERMINAL BUSINESS
Maintenance Capital Expenditure
During the three months endedimmediately preceding 12 month period (at March 31, 2007, IMTT spent $7.02008: 1.20x)
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 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 million phase of the Geismar project is targeted for the first 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 ive 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 10 new storage tanks and is currently in the process of constructing a further 11 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 million. It is anticipated that construction 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 new tanks will contribute approximately $10.7 million to IMTT’s terminal 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 269,000 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 million. Construction of these tanks is anticipated to be completed during 2007 and their operation is anticipated to contribute approximately $1.6 million to the Quebec terminal’s gross profit and EBITDA annually.
During the three months ended(at March 31, 2007, IMTT spent $30.7 million on specific expansion projects including $21.6 million in relation to the construction the new bulk liquid chemical storage facility at Geismar, LA and $3.4 million and $1.5 million at St Rose, LA and Quebec, Canada principally in relation to the construction of new storage tanks. 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, routine replacements of property, and to support new customer growth in 2007. Approximately $2.0 million of the expected total year capital expenditures are for new customer hook-ups. The remaining $7.5 million comprises approximately $400,000 for vehicles and $7.1 million for other renewals and upgrades. A portion of the utility-related expenditures will be funded from available debt facilities. As of March 31, 2007, approximately $2.1 million has been spent for renewals and upgrades, as well as new customers.
DISTRICT ENERGY BUSINESS
Maintenance Capital Expenditure
Our district energy business expects to spend approximately $1.0 million per year on capital expenditures relating to the replacement of parts, system reliability, customer service improvements and minor system modifications of which $281,000 has been spent in the first quarter 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, 2007, $3.1 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 capacity2008, this requirement 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 existing customers.
As of April 15, 2007, we have signed contracts with five customers representing approximately 90% of the remaining additional saleable capacity. One customer began service in late 2006 and the other four 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 additional operational strategies and methods to expand the system to accommodate increased demand for district cooling in Chicago.
met)
We estimate that we will incur additional capital expenditure of $5.5 million connecting new customers to the system between 2007 and 2008. 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, each new ton of capacity sold will add approximately $425 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.
AIRPORT PARKING BUSINESS
Maintenance Capital Expenditure
Maintenance capital projects include regular replacement of shuttle buses and IT equipment, some of which are capital expenditures paid in cash and some of which are financed, including with capital leases.
During 2007, our airport parking business expects to commit to 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.
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
Critical Accounting Estimates
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 commitments, pleasecritical accounting estimates, see “Liquidity and Capital Resources — Commitments and Contingencies”“Critical Accounting Estimates” 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 17, Subsequent Events, to our consolidated condensed financial statements in Part I, Item I of this Form 10-Q.
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 policiesestimates 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, 2006.2007. Unless required by law, we can undertake no obligation to update forward-looking statements. Readers should also carefully review the risk factors set forth in other reports and documents filed from time to time with the SEC.
Except as otherwise specified, “Macquarie Infrastructure Company,” “we,” “us,” and “our” refer to both the Trust and the Company and its subsidiaries together.together from June 25, 2007 and, prior to that date, to the Trust, the Company and its subsidiaries. Macquarie Infrastructure Management (USA) Inc., which we refer to as our Manager, or MIMUSA, is part of the Macquarie groupGroup, comprised 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, 2006.2007. Our exposure to market risk has not changed materially since March 1, 2007,February 28, 2008, our 10-K filing date.
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 the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 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, there2008. 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, 20072008 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
41
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, 2006,2007, filed with the SEC on March 1, 2007.February 28, 2008.
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, 2007, filed with the SEC on February 28, 2008.
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
None.
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.
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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.